SNB hikes 50bps to 100%, cannot rule out more

    SNB raises the policy rate by 50bps to 1.00% as widely expected, to “countering increased inflation pressure and a further spread of inflation”. The central added that additional rate hikes “cannot be ruled out”. It also maintained the willingness to be “active in the foreign exchange markets as necessary”.

    In the new conditional inflation forecast based on 1.0% policy rate, inflation forecasts was lowered from 3.0% to 2.9% in 2022, left unchanged at 2.4% in 2023, and raised from 1.7% to 1.8% in 2024. Inflation forecast was indeed raised from Q3 2023 through Q4 2024.

    The higher inflation forecasts was “attributable to stronger inflationary pressure from abroad and the fact that price increases are spreading across the various categories of goods and services in the consumer price index.”

    Regarding GDP growth, SNB expects its to be at around 2.0% this year. But weaker overseas demand and higher energy prices are likely to “curb economic activity marked in the coming year”. SNB expects GDP growth to slow to 0.5% in 2023.

     

    Full statement here.

    Previews on SNB, BoE and ECB

      SNB, BoE and ECB rate decisions are the focuses of the day and all are expected to deliver 50bps rate hikes.

      There are some talks that given SNB only meets every quarter, it may surprise the market by maintaining the pace of 75bps. But the balance is more towards a 50bps hike to 1.00%. Tightening bias should be maintained while some focuses will be on the rhetoric on Swiss Franc exchange rate.

      BoE is expected to raise policy rate by 50bps to 3.50%. Some attention will be on the voting. Last month, only seven MPC members voted for the 75bps hike. Swati Dhingra voted for 50bps, while Silvana Tenreyro voted for 25bps.

      ECB should raise the main refinancing rate by 50bps to 2.50%. Additionally, it would announce some key principles regarding quantitative tightening, but the details main only come later, probably at February’s meeting. The new economic projections would also be watched closely on the central banks view on the path of slowing inflation and recession.

      Here are some previews for SNB, BoE and ECB:

      China retail sales down -5.9% yoy in Nov, industrial production up 2.2% yoy

        China retail sales contracted -5.9% yoy in November, much worse than expectation of -3.9% mom. Industrial production grew 2.2% yoy, below expectation of 3.4% yoy. Fixed asset investment rose 5.3% ytd yoy, below expectation of 5.6%.

        “The consumption market was under pressure in November due to the impact of Covid and other factors, and the decline in market sales widened,” said NBS statistician Fu Jiaqi.

        “However, online consumption grew faster, retail sales of basic living goods increased relatively well, some upgraded consumption was higher than overall, and retail businesses such as supermarkets and convenience shops increased steadily.”

        Japan continues trade deficit streak for the 16th month

          Japan export rose 20.0% yoy to JPY 8838B in November, a record high, led by cars autos and mining machinery shipment to the US. Imports rose 30.3% yoy to JPY 10865B, also a record high, as led by imports of crude oil, coal and LNG.

          Trade deficit came in at JPY -2.03T. That the 16th straight month of trade deficit, and the fourth month in a row at the JPY 2T level.

          In seasonally adjusted term, exports dropped -1.4% mom to JPY 8787B. Imports dropped -5.3%mom to JPY 10520B. Trade deficit narrowed to JPY -1.73T, versus expectation of JPY -1.24T.

          Australia employment grew 64k in Nov, participation rate back at record high

            Australia employment grew 64.0k in November, much better than expectation of 19.4k. Unemployment rate was unchanged at 3.4%, matched expectations. Participation rate rose 0.2% to 66.8%. Monthly hours worked dropped -0.4% mom.

            Bjorn Jarvis, head of labour statistics at the ABS, said: “The participation rate increased by 0.2 percentage points to 66.8 per cent in November, returning to the record high we saw in June 2022. It was 1.0 percentage point higher than before the pandemic.”

            “The record high participation rate continues to show that it is a tight labour market, especially when coupled with very low unemployment.”

            Full release here.

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              Fed hikes 50bps, rate to hit 5.1% in 2023

                Fed raises interest rate by 50bps to 4.25-4.50% as widely expected. The decision was unanimous.

                Tightening bias is maintained as “the Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time”.

                In the new median economic projections:

                • Federal funds rate is projected to hit 5.1% in 2023, then falls back to 4.1% in 2024, and then 3.1% in 2015.
                • Real GDP growth was revised down from 1.2% to 0.5% in 2023, from 1.7% to 1.6% in 2024, and unchanged at 1.8% in 2025.
                • Unemployment rate was revised up from 4.4% to 4.6% in 2023, from 4.4^ to 4.6% in 2024, and from 4.3% to 4.5% in 2025.
                • PCE inflation was revised up from 2.8% to 3.1% in 2023, 2.3% to 2.5% in 2024, a and from 2.0% to 2.1% in 2025.
                • Core PCE inflation was revised up from 3.1% to 3.5% in 2023, 2.3% to 2.5% in 2024 and unchanged at 2.1% in 2025.

                In the “dot plot”

                • 17 policy makers expect interest rate to climb to 5.125% and above in 2023, with 7 expects 5.375% and above.
                • 12 policy makers expect interest to fall back to 4.125% in 2024 and below.


                Full statement here.

                Full economic projections here.

                Canada manufacturing sales rose 2.8% mom in Oct, driven by higher prices

                  Canada manufacturing sales rose 2.8% mom to CAD 72.6B in October, above expectation of 1.9% mom.

                  Sales increased in 12 of 21 industries, led by the petroleum and coal (+12.7%), food (+2.9%), chemical (+4.9%) and miscellaneous manufacturing (+13.3%) industries. Meanwhile, motor vehicles (-3.2%) and machinery (-1.7%) posted the largest monthly declines.

                  But Statistics Canada also noted: “Sales in constant dollars were unchanged in October, indicating that the entire increase in current dollar sales was driven by higher prices as the Industrial Product Price Index rose 2.4% in October.”

                  Full release here.

                  Eurozone industrial production down -2.0% mom in Oct, EU down -1.9% mom

                    Eurozone industrial production dropped -2.0% mom in October, worse than expectation of -1.4% mom. Production of energy fell by -3.9%, durable consumer goods by -1.9%, intermediate goods by -1.3% and capital goods by -0.6%, while production of non-durable consumer goods rose by 0.3%.

                    EU industrial production dropped -1.9% mom. Among Member States for which data are available, the largest monthly decreases were registered in Ireland (-10.7%), Luxembourg (-4.4%) and Czechia (-3.7%). Increases were observed in Slovakia (+1.3%), Lithuania (+1.1%), Greece (+0.5%) and Austria (+0.2%).

                    Full release here.

                    Ifo: Germany economy to contract in Q4 and Q1

                      Ifo said the German economy is “suffering from huge supply shocks”. Price press is “not expected to ease until 2024, and then only slowly”. Overall inflation is expected to fall from 7.8% in 2022 to 6.4% in 2023. However, core inflation is expected to rise from 4.8% to 5.8% next year.

                      Ifo also said Germany GDP is forecast to grow 1.8% in 2022, contract slightly by -0.1% in 2023, and back at 1.6% in 2024. Economy output to expected to fall by -0.3% qoq and -0.4% qoq in the two quarters of the 2022-23 winter half-year (i.e. Q4 and Q1). Thus, Germany will be technically in a recession. But starting in spring 2023, the economy is expected recovery and growth at stronger rates in the second half .

                      Full release here.

                      UK CPI slowed to 10.7% yoy in Nov, core CPI down to 6.3% yoy

                        UK CPI rose 0.4% mom in November, below expectation of 0.6% mom. In the 12 months to November, CPI slowed from 11.1% yoy to 10.7% yoy, below expectation of 10.9% yoy. Core CPI also slowed from 6.5% yoy to 6.3% yoy, below expectation of 6.5% yoy.

                        ONS said: “The easing in the annual inflation rate in November 2022 reflected, principally, price changes in the transport division, particularly for motor fuels and second-hand cars. There were also downward effects from tobacco, accommodation services, clothing and footwear, and games, toys and hobbies. The largest, partially offsetting, upward effect came from price rises for alcohol in restaurants, cafes and pubs.”

                        Full release here.

                        FOMC preview: All about dot plots and 5%

                          Fed is widely expected to slow down the pace of rate hike today, and raise federal funds rate by 50bps to 4.25-4.50%. The main focus is on the new economic projections in particular the dot plots. Questions are where the terminal rate of the current cycle would be, and how long would rate stay there.

                          Yesterday’s CPI report showed further evidence that inflation is cooling, rather than plateauing, and in a quicker manner than expected. Currently markets are expecting Fed to make two more 25bps rate hikes in Q1. That would eventually bring interest rate to 4.75-5.00% range, keep it below the 5% psychological level.

                          Here are some previews:

                          Yesterday’s post-CPI reactions in the markets were clearly indecisive. S&P 500 spiked higher to 4100.96 but that pared back much of the gains to close just 0.73% higher at 4019.65. Today’s reactions could be bearish if Fed’s dot plots indicate that interest way will peak above 5%. Break of 3906.54 support will trigger near term bearish reversal in SPX. Nevertheless, another rally through yesterday’s high should push SPX further towards 4325.58 resistance and end the year on a high note.

                          Japan Tankan manufacturing mood deteriorated, but non-manufacturing upbeat

                            Japan Tankan Large Manufacturing Index dropped from 8 to 7 in Q4, above expectation of 6. Sentiment has been deteriorating for the fourth straight quarter, and hit the lowest level since Q1 2021. Large Manufacturing Outlook dropped from 9 to 6, matched expectations.

                            On the other hand, Large Non-Manufacturing Index rose from 14 to 19, above expectation of 17. That’s the highest level since Q4 2019. Large Non-Manufacturing Outlook was unchanged at 11, below expectation of 16.

                            Large all industry capex dropped from 21.5% to 19.2%, above expectation of 18.4%.

                            Regarding inflation, 1-year ahead general prices expectations for all industries rose from 2.6% to 2.7%. 3-year ahead expectations rose from 2.1% to 2.2%. 5-year ahead expectations was unchanged at 2.0%.

                            Full release here.

                            RBNZ Hawkesby: We’ve seen very little impact of higher interest rates so far

                              RBNZ Deputy Governor Christian Hawkesby said in a speech that “we still think we have more work to do” to bring down inflation.

                              “We’ve seen very little impact of higher interest rates so far, outside of falling house prices and a cooling of the construction pipeline,” he added.

                              “As inflation expectations have been rising, we also think that neutral interest rates have drifted higher, meaning that the OCR needs to be higher than otherwise before monetary policy is really restricting the demand side of the economy,” he said.

                              Hawkesby pointed to November projections that the OCR would peak around 5.50%. But he noted, “25 years as an economist has taught me that the only certainty is that our forecasts won’t be exactly right. There are always shocks and unexpected developments that will evolve the story.”

                              Full speech here.

                              US CPI slowed to 7.1% yoy in Nov, core CPI down to 6.0% yoy

                                US CPI rose 0.1% mom in November, lower than expectation of 0.3% mom. Food index rose 0.5% mom while energy index decreased -1.6% mom. CPI core (all items less food and energy) rose 0.2% mom, below expectation of 0.3% mom.

                                Over the last 12 months, CPI slowed from 7.7% yoy to 7.1% yoy, below expectation of 7.3% yoy. CPI core slowed from 6.3% yoy to 6.0% yoy, below expectation of 6.1% yoy. Energy index rose 13.1% while food index rose 10.6% yoy.

                                Full release here.

                                Germany ZEW rose to -23.3, significant improvement in economic outlook

                                  Germany ZEW Economic Sentiment rose from -36.7 to -23.3 in December, above expectation of -26.3. Current Situation Index rose from -64.5 to -61.4, below expectation of -57.0.

                                  Eurozone ZEW Economic Sentiment rose from-38.7 to -23.6, above expectation of -25.3. Current Situation Index rose 7.7 pts to -57.4. Inflation expectation s for Eurozone fell very sharply by -27.1 pts to -79.3.

                                  “The ZEW Indicator of Economic Sentiment rises again significantly in December. The vast majority of financial market experts expect the inflation rate to decline in the coming months. Together with the temporary stabilisation on the energy markets, this leads to a significant improvement in the economic outlook,” comments ZEW President Professor Achim Wambach on current expectations.

                                  Full release here.

                                  Swiss SECO downgrades 2022 and 2023 inflation forecasts

                                    Swiss State Secretariat for Economic Affairs SECO revised down inflation forecasts for 2022 and 2023. For 2022, CPI is projected to be at 2.9% (comparing with September forecast of 3.0%). 2023 CPI is estimated to be 2.2%, (down from 2.3%.

                                    2022 GDP growth forecast was left unchanged at 2.0%. 2023 GDP growth forecast was downgraded slightly from 1.1% to 1.0%. SECO said, “this would point to sluggish growth for the Swiss economy, but not a severe recession”.

                                    SECO added, “Europe’s energy situation is projected to gradually normalize after a tense 2023/24 winter. At the same time, inflation rates will likely ease worldwide and the global economy should gradually gain momentum”. That would trigger a recovery in Switzerland, with 1.6% GDP growth in 2024, and inflation back below average at 1.5%.

                                    Full release here.

                                    UK payrolled employees rose 107k in Nov, unemployment rate rose to 3.7% in Oct

                                      In November, UK payrolled employees rose 107k or 0.4% mom to 29.9m. That also means a rise of 777k or 2.7% yoy over the 12-month period. Early estimates indicate that median monthly pay rose 8.0% yoy. Claimant count rose 30.5k comparing to expectation of 3.5k.

                                      In the three months to October, unemployment rate rose 0.1% to 3.7%, matched expectations. Employment rate rose 0.2% to 75.6%. Economic inactivity rate dropped -0.2% to 21.5%. Average earnings excluding bonus rose 6.1% 3moy, versus expectation of 5.9%. Average earnings including bonus rose 6.1% 3moy, below expectation of 6.2%.

                                      Full release here.

                                      Australia NAB business conditions hold up, but confidence turned negative

                                        Australia NAB Business Confidence dropped from 0 to -4 in November, below zero for the first time since December 2021. Business Conditions dropped from 22 to 20, but remained elevated. Looking at some details, trading conditions dropped from 30 to 28. Profitability conditions dropped from 21 to 20. Employment conditions dropped from 14 to 13.

                                        NAB Chief Economist Alan Oster. “There was a slight softening across a number of industries but the level of business conditions really still remains elevated across the board including in key consumer-facing sectors such as retail and recreation & personal services, and across the states.”

                                        “Confidence is now negative, for the first time this year, despite the strength in conditions,” said Oster. “The gap between current business conditions and business confidence is now at a record level in the history of the survey – with the exception of March 2020 – pointing to heightened concerns about the resilience of the economy in the period ahead as inflation and higher rates begin to weigh on consumers.”

                                        Full releases here.

                                        Australia Westpac consumer sentiment bounced from near record low

                                          Australia Westpac Consumer Sentiment Index bounced from near record low and rose 3% from 78.0 to 80.3 in December. But the level remains comparable to the lows see during the pandemic and the Global Financial Crisis.

                                          Concerns over inflation remained dominant among respondents, followed by budget and taxation, economic conditions and interest rates.

                                          Westpac expects RBA to continue to deliver on its “strong tightening bias” in February and hike by 25bps, and signal that there is still more work to be done.

                                          Full release here.