UK unemployment stayed unchanged at 4.2% in March, at the lowest level since 1975.
Average weekly earnings rose 2.9% 3moy excluding bonuses
Average weekly earnings rose 2.6% 3moy including bonus, met expectations.
Claimant count rose 31.2k in April versus expectation of 13.3k.
Sterling is a touch higher after the release.
RBNZ Assistant Governor Karen Silk said in a Bloomberg interview “there’s still more work to do here” on interest rate and fighting inflation. While “all levels are on the table” for April meeting, the central bank is not contemplating a pause.
“This is still an economy that has excess demand, a tight labor market, and as a consequence both headline inflation and core inflation at levels that are well outside the (target) band,” she said.
Regarding April meeting, “all levels are on the table for discussion at every meeting,” she said. “I’m not going to turn round and comment on whether we would be looking at 25, 50 or 75, they will all be on the table for discussion and they will depend on the information at hand.”
Nevertheless, a pause in tightening is “certainty not something that we’re contemplating at this point in time,” she said.
Silk also noted that some upside risk was built into the forecast interest peak of 5.5%. However, “without building that in, any variation to that peak would have been still at the margin,” she said. “There’s potentially still some upside risk on the fiscal side of it. Let’s just see how it plays out over the next six weeks.”
According to a Bloomberg survey, majority of the 31 economists surveyed expected BoE Bank Rate to reach 1.25% by the end of 2019. That is, they expected two 25bps rate hikes next year. The first move is expected to come in Q2. It’s cited that Brexit is a concern that slows BoE’s tightening path. But by the time of Q2 next year, such concerned should be cleared. Meanwhile, falling inflation could only give BoE a reason to keep rates on hold until May. With Brexit cleared, and unfolded smoothly, path will be clear for another hike in November. Some analysts also saw BoE’s unanimous votes as sign that policymakers are confident enough to act twice next year. The Bank Rate currently stands at 0.75%.
But it should noted that BoE has revised down the rate path in August Inflation Report released less than three weeks ago. The central bank forecast Bank Rate to hit 0.9% in Q3 2019, revised down from 1.0%. Bank Rate is forecast to be at 1.0% in Q3 2020, revised down from 1.2%.
Looking into the details, the conditioning path that BoE used didn’t price in a 25bps hike fully until 2020. And basically there would be no more hike within the forecast horizon. And based on such conditioning path, CPI is forecast to slow to 2.2% in Q3 2019, 2.1% in 2020. July’s pick up in CPI to 2.5% was in line with BoE’s expectations.
So, to us, a hike in H2 of 2019 is possible based on the current projections and developments. But a hike in Q2 2019 looks a bit stretched. And two hikes in 2019 is rather far-fetched.
Moreover, the unanimous vote was seen to us as a compromise between hawks and doves. That is, BoE was going to hike once this year anyway as Q1 slowdown was proven to be temporary. Let’s do it and settle, but to stay graudual and cautious going forward.
China’s PBoC Governor Yi Gang said that the authority will ensure gradual, steady efforts to financial sector reforms.
He acknowledged that “our financial sector still has a lot room to open up relative to the requirements of economic and financial development.” And, “the three reforms — opening up the financial sector to internal and external firms, exchange rate mechanism, and capital account convertibility — have to be coordinated and pushed ahead together.”
Regarding Yuan internationalization, he said that requires “steady progress on capital account convertibility. And, “if many capital account items are restricted, then the financial sector opening is only in name instead of in reality. He added that “only when our capital account is basically convertible and that our financial sector opens up in both ways, will our currency mechanism and the entire financial sector achieve a coordinated development.”
The Ifo Institute upgraded its growth forecasts for German economy, indicating that it is “slowly working its way out of the crisis.” GDP is now expected to grow by 0.4% in 2024, up from March forecast of 0.2%. Growth is projected to further accelerate to 1.5% in 2025, maintaining the previous forecast. Inflation is expected to decrease significantly, from 5.9% in 2023 to 2.2% in 2024, and further down to 1.7% in 2025.
The institute anticipates that the overall economic recovery will gain momentum throughout the rest of the year as consumer spending normalizes. Purchasing power of private households is expected to strengthen, leading to a gradual recovery in the demand for goods and services.
Moreover, the Ifo Institute expects ECB’s interest rate cut in June is likely to be followed by two more cuts this year. These lower interest rates, coupled with a stable labor market and robust income growth, are expected to boost the consumer economy and aid in the gradual recovery of the construction sector.
Sterling jumps sharply on news that Brexit transition deal is agreed. And, it’s only awaiting sign-off by UK Brexit Secretary David Davis and EU Chief Negotiator Michel Barnier. David and Barnier are meeting in Brussels to hammer out the details today. The legal text of the agreement is expected to be delivered to the EU summit on Thursday and Friday for final approval. Davis and Barnier will hold a joint press conference later today.
It’s reported elsewhere that the cut off date for the transition period will be December 2020. And, UK will be allowed to make 3rd party trade deals during the transition.
GBP/USD takes out 1.3995 to resume the rally from 1.3711. It’s on course for a test on 1.4144. And, it’s getting more convincing that the correction from 1.4345 is completed. And the pair is ready for resuming larger up trend from 2016 low at 1.1946.
EUR/GBP’s break of 0.8871 support also confirm that the corrective rise from 0.8686 has completed at 0.8967. Deeper fall should be seen to retest 0.8686 in near term. It’s a bit early to tell if fall from 0.9305 is resuming. But momentum looks promising.
Germany’s Bundesbank said in the monthly report that that strong recovery in Q3 will not continue in Q4. “The main reasons for this are the recent resurgence of the pandemic in this country and in neighboring European countries, as well as the additional containment measures that have now been decided on for November.”
Nevertheless, as the restrictions are “far less than in March and April”, a “similarly severe slump as in Spring is not very likely”. Also, “the international production conditions have so far hardly been affected despite the very high number of new infections throughout Europe”.
Japan PMI manufacturing dropped to 51.6 in July, hitting a 20-month low. That’s also below expectation of 52.7.
Commenting on the Japanese Manufacturing PMI survey data, Joe Hayes, Economist at IHS Markit, which compiles the survey, said:
“Flash survey data pointed to a slowing of growth momentum for Japan’s manufacturing sector at the beginning of the third quarter, following a robust performance so far this year.
“New business grew at a much weaker rate and was broadly flat, while export demand, despite further yen depreciation, deteriorated for a second month running.
“Slowing demand presents a worrying development given input delivery times lengthened to the sharpest extent in over seven years. Supply chain difficulties reportedly contributed to the fastest rate of input price inflation in since March 2011. Although output prices were raised at a relatively notable pace, the rate of increase was far weaker than that of costs, implying profit margin erosion.”
In a speech today, ECB Chief Economist Philip Lane noted that the central bank’s baseline projections reflect the market yield curve and anticipate “a set of rate cuts” in 2024 and 2025. He noted that with a clearly restrictive deposit facility rate of 3.75%, ECB could address potential “upside shocks to inflation” by adopting a “slower pace of rate reductions.” Conversely, maintaining a policy rate of 3.75% offers “more protection against downside shocks” compared to staying at 4.0%.
Lane emphasized the high level of uncertainty and the persistent price pressures reflected in domestic inflation, services inflation, and wage growth indicators. These factors necessitate a continued restrictive monetary stance, with decisions being made on a data-dependent, meeting-by-meeting basis.
He reaffirmed ECB’s commitment to ensuring that inflation returns to the 2% medium-term target “in a timely manner” and stressed that policy rates will remain “sufficiently restrictive” for as long as necessary to achieve this goal.
Lane emphasized that ECB is “not pre-committing to a particular rate path” and will continue to assess the appropriate level and duration of restriction at each meeting.
US GDP grew 3.3% annualized in Q4, well above expectation of 2.0%. Looking at some details, consumer spending slowed from 3.1% to 2.8%. Goods spending slowed from 4.9% to 3.8%, but services spending growth rose from 2.2% to 2.4%. Gross private domestic investment growth slowed notably from 10.0% to 2.1%.
Headline PCE prices slowed notably from 2.6% to 1.7%. Meanwhile, PCE core prices was unchanged at 2.0%.
Also released, initial jobless claims rose from 189k to 214k in the week ending January 19, above expectation of 199k. Goods trade deficit narrowed from USD -90.3B to USD -88.5B, versus expectation of USD -88.7B. Durable goods orders rose 0.0% mom in December, below expectation of 1.0% mom. But ex-transport orders rose 0.6% mom, above expectation of 0.2% mom.
Gold’s rebound from 1160.36 extends higher to 1197.81 today. But it’s clearly losing upside momentum as seen in the bearish divergence condition in hourly MACD. While further rise could still be seen, upside will likely be limited by 1200 handle to complete the rebound. Meanwhile, break of 1187.40 will turn bias back to the downside an bring retest of 1160.06 low.
Also, for now, as long as 1204.58 minor resistance holds, rebound from 1160.36 is seen as a brief consolidation. And fall from 1365.24 is expected to resume sooner rather than later. Though, break of 1204.58 will indicate that rise from 1160.36 is correcting the whole decline from 1365.24. And stronger rise would be seen to 38.2% retracement of 1365.24 to 1160.36 at 1238.62 before completing the rebound.
Canada added a massive 337k jobs in February, well above expectation of 123k. Full time jobs grew 122k while parti time jobs rose 215k. Goods-producing jobs rose 44k and producing jobs rose 293k.
Unemployment rate dropped sharply from 6.5% to 5.5%, better than expectation of 6.2%. The level was now below pre-pandemic rate at 5.7% in February 2020, and similar to record lower of 5.4% back in May 2019.
Total hours worked also rose 3.6%, exceeding pre-pandemic level for the first time. Employment rate rose 1% to 61.8%. Labor force participation rate rose 0.4% to 65.4%.
UK PMI Manufacturing was finalized at 48.4 in September, up from August’s 47.3. S&P Global said output and new orders fell further. New export business declined. Input costs and output price inflation accelerated.
Rob Dobson, Director at S&P Global Market Intelligence, said: “The downturn in UK manufacturing continued at the end of the third quarter, meaning the goods producing sector looks set to have acted as a drag on GDP. Manufacturers have once again cut back production as new order intakes declined for the fourth successive month.
“Factories are reporting tough market conditions both at home and abroad. Disappointingly, exports continue to fall despite the more competitive exchange rate.
“There was also less positive news on the price front, with rates of inflation in input costs and selling prices both picking up in September, linked in part to import costs rising due to the weaker pound.
In the quarterly Regional Economic Report, BoJ kept assessment of all nine regions unchanged. All nine regions reported that their economy had been “either expanding or recovering”. Domestic demand had “continued on an uptrend”, with a virtuous cycle from income to spending operating in both the corporate and household sectors. But, exports and production had been affected by the “slowdown in overseas economies”.
Also, while the assessments were overall unchanged, “a somewhat increasing number of firms were pointing to heightening uncertainties over the outlook for overseas economies and their impacts, reflecting, for example, the U.S.-China trade friction.”
Fed Vice Chair Richard Clarida said in a speech yesterday that before the current downturn, long-term inflation expectations were already “at the low end” of the range that’s consistent with Fed’s objective. Give the “likely depth of this downturn”, inflation expectations are “at risk of falling below” that range.
Hence, “I will place a high priority on advocating policies that will be directed at achieving not only maximum employment, but also well-anchored inflation expectations consistent with our 2 percent objective,” he added. “Depending on the course of the virus and the course of the economy, more support from both fiscal and monetary policy may be called for,” he added.
Eurozone PMI Manufacturing rose to 47.0 in August, up from 46.5 and beat expectation of 46.2. PMI |Services rose to 53.4, up from 53.2 and beat expectation of 53.0. PMI Composite rose to 51.8, up fro 51.5.
Commenting on the flash PMI data, Andrew Harker, Associate Director at IHS Markit said:
“The dynamics of the eurozone economy were little changed in August, with solid growth in services continuing to hold the wider economy’s head above water despite ongoing manufacturing decline. While the rate of overall expansion ticked up, we’re still looking at GDP only rising by between 0.1% and 0.2%, based on the PMI data for the third quarter so far.
“The lack of a quick rebound from the recent economic slowdown has impacted firms’ confidence, with sentiment the lowest in over six years. It appears that companies are braced for a sustained period of weakness, and as a result are showing greater reluctance to take on additional staff.
“France was a relative bright spot in August, seeing manufacturing return to growth alongside a further solid expansion of services activity. The same can’t be said for Germany, however, where new orders fell to the greatest extent in over six years and firms were pessimistic around the future path for activity. The risk remains, therefore, that the euro area’s largest economy will have fallen into technical recession in the third quarter.”
The Ministry of Commerce issued a quick response to Trump’s intention to add tariffs to additional USD 100b of Chinese imports, while they’re on holiday.
In a statement, China pledged to fight US unilateralism and protectionism “to the end, and at any cost”. And China will “firmly attack, using new comprehensive countermeasures, to firmly defend the interest of the nation and its people.”
The MOFCOM blamed that the the US “single-handedly started the trade conflicts”. And it added that it’s “provocation of unilateralism of the US to global free trade”.
This is sort of the expected response from China.
Eurozone PMI Manufacturing was finalized at 46.3 in December, down from November reading of 46.9. Markit noted there were accelerated falls in both output and new orders. Also, there was prevalence of spare capacity that led to further job losses.
Looking at the member states, Germany PMI Manufacturing was finalized at 43.7, a two month low. Italy and and the Netherlands dropped to 80-month lows at 46.2 and 48.3 respectively. France reading dropped to 3 month-low of 50.4.
Commenting on the final Manufacturing PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:
“Eurozone manufacturers reported a dire end to 2019, with output falling at a rate not exceeded since 2012. The survey is indicative of production falling by 1.5% in the fourth quarter, acting as a severe drag on the wider economy.
“Although firms grew somewhat more optimistic about the year ahead, a return to growth remains a long way off given that new order inflows continued to fall at one of the fastest rates seen over the past seven years. Firms sought to reduce inventory levels and cut headcounts as a result, focusing on slashing capacity and lowering costs. Such cost cutting was again also evident in further steep falls in demand for machinery, equipment and production-line inputs.
“Only households provided any source of improved demand in December, underscoring how the consumer sector has helped keep the economy out of recession in recent months. The ability of the wider economy to avoid sliding into a downturn in the face of such a steep manufacturing contraction remains a key challenge for the eurozone as we head into 2020.”
BoE voted unanimously to keep Bank Rate unchanged at 0.10% as widely expected. The government bond purchases problem is expanded the target stock of purchased UK government bonds by additional GBP 150B, taking to the total to GBP 875B. The central bank will “continue to monitor the situation closely” and “stands ready to take whatever additional action is necessary”.
Also, BoE “does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.”
It’s noted in the statement that there has been a “rapid rise in rates of Covid infection and increased severity of restrictions as response. Covid development will lead to a “decline in GDP in 2020 Q4”. Economic outlook remains “unusually uncertain”, depending on the pandemic and measures, as well as post Brexit new trading arrangements.
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Swiss KOF Economic Barometer rose to 105.3, “tiny” but “broadly visible” improvements
Swiss KOF Economic Barometer rose to 105.3 in April, up from 105.1 but missed expectation of 106.0.
KOF noted in the release that “although the Barometer currently does not reach the positive values seen at the turn of the year 2017/2018, the current value is clearly above long-term average.” And, “the Swiss economic outlook remains favourable.”
Also KOF said that even though the 0.2 pts rise was “tiny”, “it is broadly visible in the economic sectors included.” It noted that “the indicator bundles for manufacturing, accommodation and food service activities, banking, construction and consumption all showed slight increases in April.”
However, “an exception is the indicator set for export prospects; it deteriorated in April.”