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BoE’s Bailey dismisses rate cut speculations again

    BoE Governor Andrew Bailey, in an interview, emphasized, “Two percent is our (inflation) target and we will do what it takes to get there.”

    Bailey also addressed the speculation around interest rate cuts, categorically stating, “We are not in a place now where we can discuss cutting interest rates – that is not happening.”

    He noted, “We need to see how the final part of the journey down to 2% inflation plays out; we have not seen enough of that journey yet to be confident.”

    He acknowledged the ongoing economic challenges, including some weakening in economic activity. However, he described this observation as a “realist view” rather than an “ultra-pessimist” outlook, as some critics have suggested.

    BoJ’s Adachi: Not at a stage to discuss exit from ultra-loose policy

      BoJ board member Seiji Adachi acknowledged that while there are early indications of a positive wage-inflation cycle emerging, these are not yet sufficient to consider exiting ultra-loose monetary policy.

      He emphasized the importance of continuing with monetary easing approach, stating today, “For now, it’s appropriate to patiently continue with our monetary easing.”

      Adachi specifically pointed out the challenges posed by China’s slowing growth and the potential impacts of aggressive US interest rate hikes, noting that these factors make it difficult to predict whether Japanese firms will substantially increase wages next year.

      He also addressed the disparity in wage increase capabilities between large and small companies. While some big companies seem prepared to continue raising wages, many smaller firms, particularly in regional areas, are struggling to do so due to challenging business conditions.

      He emphasized, “We’re not at a stage yet where we can discuss an exit” from ultra-loose policy.



      Fed’s Goolsbee on monetary policy: Pull out the turkey early for residual heat

        Chicago Fed President Austan Goolsbee, in an interview with Marketplace overnight, expressed concerns about the risks of maintaining high interest rates for an extended period. Goolsbee emphasized the importance of adjusting the level of restrictiveness in monetary policy as the economy moves closer to inflation target.

        He likened this to cooking a turkey, suggesting that just as a turkey should be removed from the oven before it’s fully done to account for “residual heat”, similarly, monetary policy should be eased before inflation hits the target to prevent overshooting.

        Goolsbee noted that “once you believe that you are on the path to get inflation to target, then the amount of restrictiveness that you need to apply needs to be less.”

        Additionally, Goolsbee highlighted the progress made in controlling inflation, particularly outside the food sector. He pointed out that inflation has been coming down, and although it hasn’t reached the target level yet, 2023 is on track to see the largest drop in the inflation rate in 71 years.

        Fed’s Bowman still prepared for another rate hike

          Fed Governor Michelle Bowman, in a speech overnight, noted that her baseline economic outlook anticipates the “need to increase the federal funds rate further”, to bring inflation down to 2% target in a “timely way”.

          Bowman also mentioned her willingness to support a rate hike at a future meeting if data suggests that progress on inflation has stalled or is not sufficient.

          Yet she added that “monetary policy is not on a preset course,” and she will continue to closely watch the incoming data.

          Importantly, Bowman cautioned against “prematurely declaring victory in the fight against inflation”. She stressed the historical lessons and risks associated with such premature actions.

          Full speech of Fed’s Bowman here.

          Fed’s Waller increasingly confident that policy is well positioned

            Fed Governor Christopher Waller, in his speech at the American Enterprise Institute think tank overnight, stated that inflation rates “moving along pretty much like” he expected and expressed increasing confidence in Fed’s policy’s effectiveness in slowing the economy and steering inflation back towards 2% target.

            Waller’s confidence also extends to managing this economic slowdown without significantly impacting the unemployment rate, which currently stands at 3.9%.

            Furthermore, Waller discussed the possibility of lowering the policy rate in the future, conditional on the continued decline of inflation.

            He suggested that if the downward trend in inflation persists for several months – “three months, four months, five months” – Fed could consider “lowering the policy rate just because inflation is lower.”

            This approach, he clarified, is not aimed at “trying to save the economy” but is consistent with established “policy rules”. Waller emphasized that there is no rationale for maintaining excessively high rates if inflation consistently decreases.

            Australia’s monthly CPI slowed to 4.9% in Oct, below exp 5.2%

              Australia monthly CPI slowed from 5.6% you to 4.9% yoy in October, below expectation of 5.20%. Excluding volatile items and holiday travel, CPI slowed from 5.5% yoy to 5.1% yoy. Annual trimmed mean CPI also slowed from 5.4% yoy to 5.3% yoy.

              The most significant contributors to the October annual increase were Housing (+6.1%), Food and non-alcoholic beverages (+5.3 per cent) and Transport (+5.9%).


              Full Australia monthly CPI release here.

              NZD/USD soars, AUD/NZD dives after RBNZ hawkish hold

                New Zealand Dollar surges sharply after hawkish RBNZ holds, which hints at another rate hike in Q2 next year.

                From a technical standpoint, NZD/USD’s rally from 0.5771 accelerates to as high as 0.6206 so far today. The development strengthen the case that whole corrective fall from 0.6537 (Feb high), has completed with three waves down to 0.5771 (Oct low).

                Near term outlook will stay bullish as long as 0.6078 support holds. Next target is trend line resistance at around 0.6300. Sustained break there would pave the way through 0.6537 to resume the rise from 0.5511 (2022 low).

                In gauging Kiwi’s strength, AUD/NZD is always a reference. Today’s sharp decline suggests that fall from 1.0942 is in progress. Near term outlook remains bearish as long as 1.0859 resistance holds, next target is 1.0620 support.

                More importantly, it’s possible that the triangle consolidation pattern from 1.0469 (2022 low) has completed at 1.0942. Firm break of 1.0620 will argue that whole fall from 1.1489 (2022 high) is ready to resume through 1.0469 in the medium term.

                RBNZ raises rate track, signaling additional rate hike

                  RBNZ decided to keep the Official Cash Rate steady at 5.50%, aligning with market expectations. However, a significant aspect of their announcement is the upward revision of their “rate track.”

                  According to the bank’s forecasts in the Monetary Policy Statement, OCR is expected to peak at 5.70% in Q2 of 2024 and maintain this level throughout the year. Looking ahead, RBNZ anticipates a rate cut in Q2 of 2025, bringing it down to 5.4%.

                  In the accompanying statement, RBNZ noted, “ongoing excess demand and inflationary pressures are of concern, given the elevated level of core inflation.”

                  RBNZ also emphasized its readiness to hike again. “If inflationary pressures were to be stronger than anticipated, the OCR would likely need to increase further.”

                  Moreover, RBNZ underlined the necessity of maintaining interest rates at a restrictive level for a sustained period, aiming at ensuring consumer price inflation returns to target level and to support maximum sustainable employment.

                  Full RBNZ statement and MPS here.

                  US consumer confidence rose to 102, but expectations index still point to recession

                    US Conference Board Consumer Confidence rose from 99.1 to 102.0 in November, above expectation of 101.0. Present Situation Index ticked down slightly from 138.6 to 138.2. Expectations Index rose from 72.7 to 77.8. Expectations Index remains below 80 for a third consecutive month—a level that historically signals a recession within the next year.

                    “Consumer confidence increased in November, following three consecutive months of decline,” said Dana Peterson, Chief Economist at The Conference Board. “This improvement reflected a recovery in the Expectations Index, while the Present Situation Index was largely unchanged. November’s increase in consumer confidence was concentrated primarily among householders aged 55 and up; by contrast, confidence among householders aged 35-54 declined slightly. General improvements were seen across the spectrum of income groups surveyed in November. Nonetheless, write-in responses revealed consumers remain preoccupied with rising prices in general, followed by war/conflicts and higher interest rates.”

                    Full US consumer confidence release here.

                    BoE Haskel: Rates have to be held higher and longer than many expecting

                      BoE MPC member Jonathan Haskel, in a speech, delivered a clear message about the UK’s interest rate policy. Addressing the possibility of cutting interest rates in the near future, Haskel’s response was a definitive “no.”

                      He substantiated this viewpoint by referring to the ongoing tightness in the labor market, a crucial factor in determining monetary policy.

                      Haskel noted that the labor market remains “historically tight”, and based on current trends, it would take “at least a year” to return to the average tightness levels seen before the pandemic.

                      Further emphasizing his stance, Haskel stated “rates will have to be held higher and longer than many seem to be expecting.”

                      Full speech of BoE Haskel here.

                      BoE’s Ramsden: Inflation to stay stubbornly high through next year

                        In an interview with Bloomberg TV today, BoE Deputy Governor Dave Ramsden highlighted that services inflation, accounting for 45% of the consumer basket for CPI inflation, has been unexpectedly resilient at 6.6%. This figure, he noted, is an indication that UK inflation is increasingly becoming “home-grown.”

                        Ramsden expressed concern over the stubborn nature of inflation, attributing it to factors such as high wage growth, which remains above 7%. Given the labor-intensive nature of UK’s service sector, these wage pressures are a significant contributor to persistent inflation. This situation leads BoE to anticipate that inflation “is going to stay stubbornly high through next year.”

                        Regarding monetary policy, Ramsden stated that it would need to remain “restrictive for an extended period of time” to effectively bring inflation down from its current level of 4.6% to the Bank’s target of 2%.

                        Bundesbank’s Nagel: Encouraging inflation outlook doesn’t mean hike cycle is over

                          In a speech in Cyprus today, Joachim Nagel, ECB Governing Council member and Bundesbank President, described the inflation outlook as “encouraging”. But he was quick to caution that this “that does not necessarily mean that the current hike cycle is now over.”

                          Nagel emphasized the potential need to raise rates again if the “inflation outlook worsened”

                          He mentioned that a downside surprise, where price growth returns to ECB’s 2% target quicker than anticipated, is “much less probable.” As a result, Nagel believes it is too soon to even consider the possibility of rate cuts.

                          On the economic growth front, Nagel projected a rebound next year. He noted that wage growth remains robust and pointed out that the disinflationary effect of falling energy prices has faded.

                          Nagel also specifically advocated for a “significantly” smaller balance sheet. He stressed his preference to “err on the side of caution” to ensure a timely return to price stability.

                          Germany’s Gfk consumer sentiment ticks up to -27.8, mood still characterized by uncertainty and concern

                            Germany’s Gfk consumer sentiment index for December showed a marginal improvement, rising from -28.3 to -27.8, slightly better than expected -28.5. This slight uptick indicates a subtle shift in consumer sentiment as the year ends.

                            In November, economic expectations had a minor increase from -2.4 to -2.3. However, income expectations dropped from -15.3 to -16.7. There was a slight rise in willingness to buy, from -16.3 to -15.0, while willingness to save decreased from 8.5 to 5.3.

                            Rolf Bürkl, consumer expert at NIM,noted that “after three consecutive months of decline, consumer sentiment is stabilizing as the year draws to a close.”

                            Despite this stabilization, Bürkl pointed out that consumer confidence remains at a very low level, with no indications of a sustainable recovery in the upcoming months. He emphasized that the overall mood is still “characterized by uncertainty and concern.”

                            Full Germany Gfk consumer sentiment release here.

                            RBA’s Bullock: we have to be a little bit careful in this period

                              In a central bank conference held in Hong Kong, RBA Governor Michele Bullock said that monetary policy is currently restrictive, a necessary stance to moderate demand and anchor inflation expectations.

                              Bullock highlighted the need to be “a little bit careful,” in this period, aiming to control inflation and bring it back within target range of 2-3%, while also being mindful of not overly burdening the economy or causing a significant rise in unemployment rates.

                              Bullock also pointed out the emergence of “second-round effects” in areas like wages, observing that businesses are currently able to pass on increased costs to maintain profit margins, a trend reflecting sufficient demand.

                              At the same panel, BoE Deputy Governor Dave Ramsden stated that monetary policy in UK would likely need to remain “restrictive for an extended period” to effectively bring inflation back to 2% target.

                              Additionally, Pablo Hernández de Cos, Governor of Bank of Spain, noted that tight monetary policy is necessary in the short term. However, he also mentioned the possibility of easing should inflation slow as forecasted.

                              Australia retail sales down -0.2% mom in Oct, strategic delay for Black Friday

                                Australia’s retail sales turnover in October displayed an unexpected downturn, falling by -0.2% mom, contrary to the anticipated rise of 0.1% mom. This decline follows a period of growth, with 0.9% mom increase in September and 0.2% mom rise in August.

                                Ben Dorber, head of retail statistics at ABS, noted “Retail turnover fell in October after a short-lived boost in spending in September.” This downturn was seen across all retail categories except food retailing.

                                Dorber attributed this pause in consumer spending to a strategic delay by consumers, who are likely waiting to capitalize on Black Friday sales events in November. He observed that this has become a recurring pattern in recent years, with Black Friday sales gaining increasing popularity among consumers.

                                Full Australia retail sales release here.

                                ECB’s Lagarde on Inflation: Domestic Drivers Overtake External Sources

                                  In her address to European Parliament’s Committee on Economic and Monetary Affairs, ECB President Christine Lagarde noted that the fall in October’s inflation to 2.9% was due to both “general decline” and “base effects,” with non-energy and non-food inflation continuing to moderate. However, domestic inflation, less affected by imports, remains stubbornly high, indicating inflation is now “driven more by domestic sources than by external sources”.

                                  Lagarde highlighted that strong wage pressures are mainly a “catch-up” effect from past inflation, rather than a new, s”self-fulfilling dynamic”. She anticipates continuation of the weakening in inflationary pressures, though a slight increase in headline inflation might occur in the near term due to base effects. Yet, she expressed that medium-term inflation outlook is clouded with “considerable uncertainty.”

                                  Regarding the broader economy, Lagarde pointed out that Eurozone activity has “stagnated” recently and is expected to “remain weak for the rest of the year,” as reflected in Q3 GDP contraction. This weakness stems from higher interest rates, reduced foreign demand, and diminishing effects from economic reopening. While manufacturing output has been declining, services sector is also weakening, and there are signs that job growth may slow down by year-end.

                                  Despite subdued short-term outlook, Lagarde believes Eurozone economy will “strengthen again over the coming years,” driven by decreasing inflation, improved household incomes, and stronger demand for Euro area exports.

                                  Finally, she reiterated the ECB’s commitment to maintaining policy rates at “sufficiently restrictive levels for as long as necessary,” basing future decisions on data, inflation dynamics, and the effectiveness of monetary policy transmission.

                                  Full remarks of ECB Lagarde here.

                                  BoE’s Bailey: Too soon to have discussion on rate cuts

                                    In an interview with ChronicleLive, BoE Governor Andrew Bailey pointed out that the recent decline in inflation is largely attributed to the unwinding of last year’s surge in energy prices.

                                    He highlighted two important phases in the inflation reduction process. He anticipates that by the end of the first quarter next year, inflation may fall to just “under 4%”, leaving an additional 2% reduction to reach the BoE’s target.

                                    This remaining gap, Bailey noted, is the challenging part, emphasizing that “the second half, from there to two, is hard work.”

                                    Moreover, Bailey explicitly pushes back against assumptions of imminent interest rate cuts, stating it’s “too soon to have that discussion.”

                                    BoJ’s Ueda repeats uncertainty on stably achieving inflation target

                                      In today’s address to the parliament, BoJ Governor Kazuo Ueda provided note that the economy is “recovering moderately,” which is further evidenced by the narrowing of the output gap to “near zero”.

                                      Ueda also highlighted “We’re seeing some positive signs in wages and inflation”. However, he tempered this optimism by acknowledging the “high uncertainty on whether this cycle will strengthen”

                                      A key point in Ueda’s commentary was BoJ’s stance on inflation. Despite the positive signs, he stated that the central bank cannot yet assert with confidence that inflation will sustainably and stably achieve its 2% target.

                                      WTI oil staying near-term bearish, anticipating delayed OPEC+ decisions

                                        In the current oil market, stability reigns as prices stay in the near-term range, with all eyes on the impending delayed OPEC+ meeting scheduled for Thursday. There’s growing consensus, as per news reports in the past two days, that a compromise on 2024 output levels is within reach. However, it seems the most probable outcome will just be continuation of existing production cuts, rather than any new, drastic changes.

                                        This outlook, predominantly unaltered barring any unexpected deepening of cuts, steers towards bearish sentiment for oil prices in the near term. A key factor influencing this view is rising inventory levels in US. Concurrently, economic growth in China, a major player in global oil demand, remains tepid. While there have been some positive signs in China, they are not robust enough to shift the demand dynamics significantly.

                                        Another critical element in this equation is Saudi Arabia’s decision regarding its additional voluntary cut of 1 million barrels per day, which is nearing its expiry at the end of December.

                                        From a technical standpoint, near term outlook in WTI crude oil stays bearish with 79.98 resistance holds. Current fall from 95.50 if expected to extend through 72.56 to 63.37/66.94 support zone. But strong support would likely be seen to to bring rebound. Overall, range trading should continue for the medium term above 63.67, barring another significant developments.

                                        US PMI composite unchanged at 50.7, another marginal rise in business activity

                                          US PMI Manufacturing fell from 50.0 to 49.4 in November. PMI Services rose from 50.6 to 50.8. PMI Composite was unchanged at 50.7.

                                          Siân Jones, Principal Economist at S&P Global Market Intelligence said:

                                          “The US private sector remained in expansionary territory in November, as firms signalled another marginal rise in business activity. Moreover, demand conditions – largely driven by the service sector – improved as new orders returned to growth for the first time in four months. The upturn was historically subdued, however, amid challenges securing orders as customers remained concerned about global economic uncertainty, muted demand and high interest rates. Business uncertainty was also heightened among US firms, as expectations regarding the year-ahead outlook slipped to the weakest since July.

                                          “Businesses cut employment for the first time in almost three-and-a-half years in response to concerns about the outlook. Job shedding has spread beyond the manufacturing sector, as services firms signalled a renewed drop in staff in November as cost savings were sought.

                                          “On a more positive note, input price inflation softened again, with cost burdens rising at the slowest rate in over three years. The impact of hikes in oil prices appear to be dissipating in the manufacturing sector, where the rate of cost inflation slowed notably. Although ticking up slightly, selling price inflation remained subdued relative to the average over the last three years and was consistent with a rate of increase close to the Fed’s 2% target.”

                                          Full US PMI release here.