Mon, Jan 17, 2022 @ 07:44 GMT

US Q2 GDP contraction revised up to -31.7% annualized

    US Q2 GDP contraction was revised to -31.7% annualized, comparing to advance estimate of -32.9%. With the second estimate, private inventory investment and personal consumption expenditures (PCE) decreased less than previously estimated.

    Full release here.

    ECB Villeroy: We remain committed to low interest rates

      ECB Governing Council member Villeroy de Galhau said today that “We remain committed to maintaining interest rates very low, which is good for the economy:” And, “Progressively we are withdrawing monetary stimulus… but it is very progressive and depends on improvement in the economy. We’ll take the time it takes.”

      Villeroy also noted that uncertainties are the main reason for the slow down in the economy. That also echoed ECB President Mario Draghi’s comment. The economic projections to be released during March ECB meeting will be watched closely. And, Villeroy hinted that there may be downgrade in GDP forecasts.

      Chicago PMI dropped to 47.1, lowest since 2009

        US Chicago Business Barometer dropped to 47.1 in September, down from 50.4 and missed expectation of 50.5. That’ also the lowest level since Q3 2009. Looking at some details, Production dropped -7.6 to 40.4, hitting the lowest since May 2009. New Orders dropped back into contraction, by -7.6 to 48.5. Supplier Deliveries and Employment are the only higher on the month, at 54/8 and 45.6 respectively.

        Full release here.

        China Caixin PMI services recovered to 43, situation requires policymakers to cut GDP growth target

          China Caixin PMI Services recovered to 43.0 in March, up from 26.5. PMI Composite rose from 27.5 to 46.7, second lowest reading in 11 years. Caixin said that business activity and new work both declined at slower rates, but employment fell at quickest pace on record. Output charges also cut at fastest rate since April 2009.

          Zhengsheng Zhong, Chairman and Chief Economist at CEBM Group said: “The recovery of economic activity remained limited in March, although the domestic epidemic was contained. In the first two months this year, China’s value-added industrial output and services output dropped 13.5% and 13% year-on-year, respectively.

          “Estimates suggest their declines haven’t been as steep in March and the country’s first-quarter GDP is likely to have dropped significantly. Such a situation requires policymakers to cut this year’s GDP growth target and step up countercyclical efforts to support areas like consumption and infrastructure, particularly given the accelerated contraction in the service sector job market.”

          Full release here.

          ECB Mersch: Global risks are gaining prominence

            ECB Executive Board member Yves Mersch said in Singapore that the Eurozone economy is experience broad based expansion. And risks to growth remain “broadly balanced”. Overall, Mersch expect the expansion to continue as a “pace slightly above potential in the period ahead.” Inflation is expected to continue its rise thanks to “quite some” degree of monetary stimulus.

            However, Mersch also warned that risks related to global factors, including “the threat of increased protectionism, the finalization of the Brexit negotiations and vulnerabilities in emerging markets are gaining prominence.”

            Fed Powell noted new tariffs, global slowdown, no-deal Brexit, HK tension and Italy

              In the highly anticipated Jackson Hole speech, Fed Chair Jerome Powell noted that the three weeks since July FOMC meeting “have been eventful”. There were new tariffs on Chinese imports, further evidence in global slowdown notably in Germany and China. Also, there were geopolitical events including “growing possibility of a hard Brexit, rising tensions in Hong Kong, and the dissolution of the Italian government.”

              Though, US economy has “continued to perform well overall, driven by consumer spending”. Job creation slowed but is “still above overall labor force growth”. Inflation seems to be “moving up closer to 2%. Powell pledged, “based on our assessment of the implications of these developments, we will act as appropriate.

              Dollar dips mildly after the release but overall, downside is limited for the moment.

              Powell’s full speech here.

              Asian update: Sterling strong ahead of Brexit vote, Yen soft as China lifts stocks

                Risk sentiments are having an about turn after China pledges to work on a strong start in 2019. The rebound in is so far more than enough to reverse yesterday’s selloff after ugly Chinese trade data. In the background, there is optimism of a deal between US and China to resolve the trade conflicts. Trump also reiterated yesterday again that “we’re going very well with China” and “we are going to able to do a deal”.

                In the currency markets, Yen is the weakest one for today so far, followed by Swiss Franc and then Dollar. New Zealand Dollar leads commodity currencies higher. But for the week, Sterling is the strongest one after yesterday’s surge. All eyes will be on the Brexit meaningful vote today, and the subsequent actions after the deal is defeated in the Commons.

                At the time of writing:

                • Nikkei is up 0.9%
                • Hong Kong HSI is up 1.63%
                • Shanghai SSE is up 0.90%
                • Singapore Strait Times is up 1.31%
                • 10 year JGB yield is down -0.0128 at 0.013, staying positive

                Overnight:

                • DOW dropped -0.36%
                • S&P 500 dropped -0.53%
                • NASDAQ dropped -0.94%
                • 10-year yield rose 0.009 to 2.710
                • 30-year yield rose 0.023 to 3.060

                US yield curve remains inverted between 1-year and 5-year. But it’s flattened much in the region. Also, strength is seen at the long end, with 30-year yield keeping 3% handle. Developments are so far positive.

                US GDP grew 2.1% annualized in Q4

                  US GDP grew at annualized rate of 2.1% in Q4, unchanged from prior quarter, matched expectations. There were positive contributions from personal consumption expenditures (PCE), federal government spending, state and local government spending, residential fixed investment, and exports. Part were offset by negative contribution from private inventory investment and nonresidential fixed investment. Imports decreased.

                  Full release here.

                  MOFCOM: Both US and China took proactive measures on to resolve trade frictions, more talks in Jan

                    Commerce Ministry spokesman Gao Feng confirmed in a regular press briefing there were talks between China and US on trade yesterday. Both sides exchanged opinions on topics including balancing trade and intellectual property protection. Further than that, there are plans for more US-China trade talks in January. He said that both sides had maintained very close communications after Xi-Trump meeting earlier this month.

                    Also Gao hails that both sides took “proactive” measures on resolving trade conflicts and released “positive signals”. And he emphasized this is ” an important condition for the smooth progress of the consultations” on trade and economic frictions. Gao pointed to US formally suspended additional tariffs on Chinese imports till March 2. Also, China suspended additional tariffs on US autos still March 31.

                    Full Q&A in simplified Chinese.

                    Eurozone retail sales dropped -5.9% mom in Jan, EU down -5.1% mom

                      Eurozone retail sales dropped sharply by -5.9% mom in January, worse than expectation of -1.1% mom. Volume of retail trade decreased by -12.0% mom for non-food products and by -1.1% mom for automotive fuels, while it increased by 1.1% mom for food, drinks and tobacco.

                      EU retail sales dropped -5.1% mom. Among Member States for which data are available, the largest decreases in total retail trade were registered in Austria (-16.6% mom), Ireland (-15.7% mom) and Slovakia (-11.1% mom). The highest increases were observed in Sweden (+3.5% mom), Bulgaria (+1.8% mom) and Estonia (+1.7% mom).

                      Full release here.

                      UK claimant count dropped -20k Jan, unemployment edged up to 5.1 in Dec

                        UK claimant count dropped -20k in January, versus expectation of 35k rise. Total claimant count was relatively unchanged at 2.6m, which was still 109.4% above March 2020’s level.

                        Unemployment rate edged up to 5.1% in the three months to December, up from 5.0%, matched expectations. Total actually weekly hours worked rose 53.7 million hours, or 5.8%, to 978.7 million. Average earnings excluding bonus rose 4.1% 3moy, above expectation of 4.0%. Average earnings including bonus rose 4.7% 3moy, above expectation of 4.2% 3moy.

                        Full release here.

                        GBP/CHF resumes rally as BoE didn’t want to signal setting negative rate

                          Sterling jumps as in the BoE minutes noted, ” the Committee was clear that it did not wish to send any signal that it intended to set a negative Bank Rate at some point in the future”.

                          Though, on balance, “it would be appropriate to start the preparations to provide the capability to do so if necessary in the future,””

                          “The MPC therefore agreed to request that the PRA should engage with PRA-regulated firms to ensure they commence preparations in order to be ready to implement a negative Bank Rate at any point after six months,” the minutes added.

                          GBP/CHF resumes recent rise after BoE and hits as high as 1.2318 so far. Further rally is expected as long as 1.2232 minor support holds. Current rise is seen as resuming whole medium term rebound from 1.1102, as consolidation from 1.2259 has completed at 1.1583. Next target is 61.8% projection of 1.1102 to 1.2259 from 1.1683 at 1.2398. Firm break there would bring upside acceleration to 100% projection at 1.2840.

                          US-China trade talks to resume today, high level meeting starts Thursday

                            The White House confirmed in a statement that US-China trade negotiations will resume on Tuesday, today, in Washington. High-level talks will start on Thursday as led by US Trade Representative Robert Lighthizer. Treasury Secretary Steven Mnuchin, Commerce Secretary Wilbur Ross, economic adviser Larry Kudlow and trade adviser Peter Navarro would also take part in the talks. Chinese Vice Premier Liu He is expected to join the meeting on Thursday and Friday too.

                            White House said the talks are “aimed at “achieving needed structural changes in China that affect trade between the United States and China”. And, “the two sides will also discuss China’s pledge to purchase a substantial amount of goods and services from the United States.”

                            A memorandum of understanding of some sort is expected at the conclusion of the meeting, acting as the framework for the trade agreements to be detailed. If the teams are able to deliver the MOU, it should then be known what kind of structural reforms China has agreed to take. For now, no detail is leaked on the core issues regarding IP theft, forced technology transfer, subsidies on State-Owned Enterprises, and enforcement of the agreement.

                            SNB Q1 USD holding unchanged at 35%, EUR holding dropped 1%

                              SNB reported CHF 6.8B loss in Q1 of 2018.That includes CHF 7.0B loss on currency positions and CHF 0.2B loss on gold holdings. The losses were partly offset by CHF 0.5B gain in Swiss Franc positions, mainly from negative interest rates.

                              Current allocations in the foreign exchange reserves were largely unchanged.

                              • USD holdings unchanged at 35%
                              • EUR holdings dropped to 39% vs 40% prior
                              • GBP holdings unchanged at 7%
                              • JPY holdings unchanged at 8%
                              • CAD holdings unchanged at 3%

                              New Zealand Treasury: Consumption and business confidence pose downside risks to growth

                                New Zealand Treasury’s Monthly Economic Data report noted that the 0.5% real GDP growth in Q1 was below the forecast set in the Budget Economic and Fiscal Update (BEFU). Terms of trade fell by -6.7% due to  a slight fall in export prices and an increase in import prices, contributing to -0.4% decline in nominal GDP.

                                Consumption indicators were soft. Business confidence deteriorated further in June, hitting post-election lows. Combined they suggest “there is a little less momentum in the economy and poses some downside risk to our BEFU GDP forecast in the near-term.”

                                The report also warned that “risks around trade continue to escalate with tariffs affecting a range of trade between the US and China, and a growing number of other countries.”

                                Full report here.

                                Fed Beige Book: Economic growth downshifted slightly

                                  In the Beige Book economic report, Fed said that “economic growth downshifted slightly to a moderate pace in early July through August”. The deceleration in activity was “largely attributable to a pullback in dining out, travel, and tourism in most Districts, reflecting safety concerns due to the rise of the Delta variant, and, in a few cases, international travel restrictions.” Other sectors were “constrained by supply disruptions and labor shortages, as opposed to softening demand”

                                  All Districts continued to report “rising employment overall”. All Districts noted “extensive labor shortages that were constraining employment”. A number of Districts reported an “acceleration in wages”, with several noted “particularly brisk wage gains among lower-wage workers”. Inflation was “steady at a elevated pace”. Several Districts indicated that businesses anticipate “significant hikes in their selling prices in the months ahead”.

                                  Full Beige Book here.

                                  Germany PMI manufacturing ticked down to 57.6, services rose to 53.4

                                    Germany PMI Manufacturing ticked down to 57.6 in November, from 57.8, but beat expectation of 56.7. That’s nonetheless the lowest level in 10 months. PMI services rose slightly to 53.4, up from 52.4, above expectation of 51.5. PMI Composite rose to 52.8, up from 52.0.

                                    Lewis Cooper, Economist at IHS Markit said:

                                    “The flash PMI data for November point to a general levelling off the economic growth slowdown seen across the German private sector over the previous three months. Business activity continued to rise, with the rate of increase gaining some well needed momentum as manufacturers and services firms alike saw faster uplifts in output.

                                    “Supply delays continued to weigh heavily on the performance of the German economy, however, with inflows of new work rising at a slower pace as clients held off on ordering due to delays. Export orders showed a more resilient trend, but nonetheless, overall new work increased at the weakest rate since February.

                                    “Material shortages, combined with greater energy and wage bills, price hikes at suppliers and logistical issues led to an unprecedented rate of cost inflation in November, with German companies subsequently raising their own charges to a record degree. This subsequently knocked on to business confidence in November, with sentiment the lowest for over a year as many firms cited concerns around the pandemic, supply problems and price pressures.

                                    “Overall, the flash PMI data point to a slightly improved trend for business activity, but supply delays and inflationary pressures remain a key cause for concern and are likely to weigh further on growth in the coming months, especially if these constraints further stifle demand.”

                                    Full release here.

                                    RBA Lowe: Very significant monetary support to be maintained for some time to come

                                      In a speech, RBA Governor Philip Lowe said “very significant monetary support will need to be maintained for some time to come”. And, “it is going to be some years before the goals for inflation and unemployment are achieved.” It is “premature” to be considering withdrawal of monetary stimulus.

                                      As other central banks have recently announced extensions of their bond purchases, if RBA were to cease bond purchases in April, ” it is likely that there would be unwelcome upward pressure on the exchange rate.” The decision to purchase an additional AUD 100B of bonds beyond April, as announced yesterday, would also “ensure a continuation of the RBA’s monetary support for the Australian economy.”

                                      Lowe also reiterated that RBA doesn’t expect to raise interest rate before 2024, an “it is possible that it will be later than this.” “So the message is: interest rates are going to be low for quite a while yet. The Reserve Bank is committed to provide the support the economy needs as its recovers from the pandemic.”

                                      Full speech here.

                                      Germany Q1 GDP contraction finalized at -1.8% qoq, still down -5% from pre-pandemic level

                                        Germany Q1 GDP contraction was finalized at -1.8% qoq. It’s down -3.4% yoy on price-adjusted bases, down -3.1% yoy on price- and calendar-adjusted bases. Comparing prepandemic level in Q4 2019, GDP was still down -5.0%.

                                        Looking at some details, household final consumption expenditure was down -9.1% yoy. Gross fixed capital formation did not contribute to year-on-year growth. Fixed capital formation in machinery and equipment dropped -0.7% yoy, and in construction by -1.6% yoy. Government final consumption rose 2.5% yoy. Exports of goods and services dropped -0.6% yoy. Total imports dropped -3.0% yoy.

                                        All sectors were down on a year earlier. In particular, services dropped -13.9% yoy. Gross value of manufacturing was still down -1.2% yoy despite improvement in the second half. Information and communications was the only sector that saw noticeable growth of 0.7% yoy.

                                        Full release here.