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ECB’s Nagel: June cut increasingly likely, but no automatism afterwards

    By
    ActionForex
    -

    In a webcast today, ECB Governing Council member Joachim Nagel indicated that the chance is increasing for a first rate cut “before the summer break” in August. However, he cautioned that afterwards, ECB will maintain a data-dependent approach and policy loosening wouldn’t be on autopilot.

    “I do not see that there is a kind of automatism,” he remarked. “It is data dependent and it is not a done deal that everything is going smoothly for the rest of the year or maybe for next year. So we have to be vigilant, we have to be cautious.”

    The ECB official flagged several “open issues” that warrant cautions, including the volatility in energy prices and the ongoing uncertainties surrounding wage growth and profit margins. “This meeting-to-meeting approach is the best way to address the current situation,” he added.

    German Ifo business climate rises to 87.8, glimpses light on the horizon

      By
      ActionForex
      -

      Germany’s Ifo Business Climate Index rose to 87.8 in March, from the previous 85.7, surpassing anticipated 86.2. This uplift is mirrored in both Current Assessment Index, which advanced from 86.9 to 88.1 against expectations of 86.8. Expectations Index, which climbed from 84.1 to 87.5, outstripping the forecasted 84.7.

      A closer look at sector-specific changes reveals significant variances: Manufacturing sector saw a substantial leap from -17.1 to -10.0. Services sector marked a positive turn, moving from -4.0 to 0.3. Meanwhile, the trade sector saw an improvement as its index rose from -30.8 to -22.9. However, the construction sector observed a slight decrease from -35.4 to -33.5,.

      Ifo President Clemens Fuest encapsulated the sentiment by stating, “The German economy glimpses light on the horizon,” highlighting a renewed sense of optimism among businesses.

      Full German Ifo release here.

      UK retail sales volumes flat in Feb, sales value down -0.1% mom

        By
        ActionForex
        -

        In February 2024, UK’s retail sales volumes remained unchanged month-over-month, a performance that’s better than expectation of -0.3% mom decline. Meanwhile, sales value slightly dipped by a -0.1% mom.

        A broader examination reveals -0.4% decline in sales volumes over the three months leading up to February, compared to the preceding three-month period. Additionally, a year-over-year comparison with the three months to February 2023 shows -1.0% decrease.

        Full UK retail sales release here.

        Japan CPI core rises to 2.8% in Feb, above BoJ’s target for 23rd month

          By
          ActionForex
          -

          Japan’s CPI core (ex-fresh food) rises from 2.0% yoy to 2.8% yoy in February, matched expectations. This increase marks the first acceleration in four months and maintains the index above BoJ’s 2% target for the 23rd consecutive month.

          The uptick in the core CPI was primarily due to a less pronounced decline in energy prices, reflecting diminishing impact of government subsidies introduced to mitigate energy costs. Specifically, energy prices saw a decrease of -1.7% yoy, a significant moderation from -12.1% yoy drop recorded in January.

          The overall headline CPI also showed an uptick, accelerating from 2.2% yoy to 2.8%yoy. However, when examining CPI core-core, which excludes both food and energy, there was a slight slowdown from 3.5% yoy to 3.2% yoy.

          New Zealand’s goods exports rises 16% yoy in Feb, imports up 3.3% yoy

            By
            ActionForex
            -

            In February, New Zealand’s goods exports leaped by 16% yoy to NZD 5.9B. This surge contrasts with a more modest 3.3% yoy increase in goods imports, totaling NZD 6.1B. Consequently, monthly trade deficit narrowed significantly to NZD -218m, far exceeding market expectations of a shortfall of NZD -825m.

            Exports to China, New Zealand’s largest trading partner, increased by 10% yoy, contributing an additional NZD 154m. US saw a remarkable 52% yoy jump in exports, adding NZD 305m, while EU and Australia also recorded increases in New Zealand exports by 7.9% yoy and 5.9% yoy, respectively. However, trade with Japan contracted, with exports declining by -10% yoy.

            On the import front, China and South Korea marked significant increases of 7.1% yoy and 42% yoy, respectively, indicating robust demand for goods from these economies. Conversely, imports from US and EU saw downturns, declining by 20% yoy and 7% yoy.

            Full New Zealand trade balance release here.

            US PMI composite falls to 52.2, unwelcome consumer price pressure in the coming months

              By
              ActionForex
              -

              US PMI Manufacturing rose from 52.2 to 52.5 in March, a 21-month high. PMI Services fell from 52.3 to 51.7. PMI Composite also fell from 52.5 to 52.2.

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

              “Further expansions of both manufacturing and service sector output in March helped close off the US economy’s strongest quarter since the second quarter of last year. The survey data point to another quarter of robust GDP growth accompanied by sustained hiring as companies continue to report new order growth.

              “The brightest news came from the manufacturing sector, where production is now growing at the fastest rate since May 2022. Production gains are linked to improving demand for goods both at home and abroad, driving a further upturn in business confidence in the outlook.

              “Service providers meanwhile reported a slower pace of expansion than factories, with the rate of increase also moderating slightly compared to February, linked in part to ongoing cost of living pressures. However, service providers have also become increasingly optimistic about the outlook, with confidence striking a 22-month high in March to suggest the broad-based economic expansion seen in March will persist into the summer.

              “A steepening rise in costs, combined with strengthened pricing power amid the recent upturn in demand, meant inflationary pressures gathered pace again in March. Costs have increased on the back of further wage growth and rising fuel prices, pushing overall selling price inflation for goods and services up to its highest for nearly a year. The steep jump in prices from the recent low seen in January hints at unwelcome upward pressure on consumer prices in the coming months.”

              Full US PMI release here.

              BoE maintains status quo as hawks relinquish rate hike demands

                By
                ActionForex
                -

                BoE maintained the Bank Rate at 5.25% as widely expected. The decision was made by an 8-1 vote, with Swati Dhingra singularly advocating for a reduction again. Notably, previous hawks Jonathan Haskel and Catherine Mann adjusted their positions, refraining from advocating for hikes this round.

                BoE noted that February’s CPI inflation rate of 3.4% was marginally lower than forecasted in the the latest Monetary Policy Report. Despite a decline in services consumer price inflation, it remains significantly high. Nevertheless, most measures of short-term inflation expectations are on a downtrend.

                With the government’s decision to freeze fuel duty, CPI is projected to dip slightly below 2% mark in the second quarter. However, a slight uptick is anticipated in the latter half of the year.

                Full BoE statement here.

                UK PMI manufacturing hits 20-month high, services ease slightly

                  By
                  ActionForex
                  -

                  UK PMI Manufacturing rose from 47.5 to 49.9 in March, above expectation of 47.9, a 20-month high. PMI Services fell slightly from 53.8 to 53.4, below expectation of 53.8. PMI Composite ticked down from 53.0 to 52.9.

                  Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, interprets the data as evidence of UK’s recovery from the recession in the latter half of 2023. The aggregate business activity for Q1 suggests 0.25% GDP growth, marking the best quarter since mid-last year

                  Despite the optimistic growth indicators, inflation remains a pressing issue, particularly in the services sector, where “stubbornly sticky” inflation pressures continue. Moreover, the manufacturing sector saw “renewed inflation”.

                  While the overall inflation rate is expected to decline in the coming months, March’s PMI data point to “elevated underlying price pressures,” possibly influencing BoE to exercise caution. Williamson, suggests that a decisive shift towards lower interest rates should only occur once there is clear evidence of moderating wage growth.

                  Full UK PMI release here.

                  Eurozone PMI composite ticks up to 49.9, price development not enough to alter ECB’s course

                    By
                    ActionForex
                    -

                    Eurozone PMI Manufacturing from 46.5 to 45.7 in March, below expectation of 47.0. PMI services, on the other hand rose from 50.2 to 51.5, above expectation of 50.5 a 9-month high. PMI Composite ticked up from 49.2 to 49.9, also a 9-month high.

                    Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, highlighted the “clear weakness” in manufacturing, attributing it largely to Germany’s industrial performance. On a brighter note, the further expansion in the services PMI is considered a “positive development.”

                    From a monetary policy perspective, ECB may find some solace in the report’s implications on inflationary pressures. Notably, the services sector, which is typically sensitive to wage dynamics, has not seen a further escalation in price pressures.

                    However, these developments, as de la Rubia notes, are “not enough” to alter the ECB’s tentative plan to commence rate cuts in June, rather than an earlier move in April.

                    Also released, France PMI Manufacturing fell from 47.1 to 45.8. PMI Services fell from 48.4 to 47.8. PMI Composite fell from 48.1 to 47.7.

                    Germany PMI Manufacturing fell from 42.5 to 41.6. PMI Services rose from 48.3 to 49.8. PMI Composite rose from 46.3 to 47.4.

                    Full Eurozone PMI release here.

                    SNB cuts interest rate, sharply slashes inflation forecasts

                      By
                      ActionForex
                      -

                      In a surprising move, SNB announced a -25bps cut in its policy rate, bringing it down to 1.50%. This decision also introduced a tiered system for the remuneration of banks’ sight deposits held at SNB. Deposits up to a specified threshold will earn interest at the policy rate, while those exceeding this limit will attract only 1.0% higher rate. Furthermore, SNB affirmed its readiness to intervene in the foreign exchange market if deemed necessary.

                      The rationale behind the rate cut, as outlined by the SNB, is the “effective” management of inflation over the past two and a half years, which has allowed inflation rates to settle below the 2% mark for several months. This achievement aligns with the SNB’s definition of price stability and sets the stage for a conducive economic environment in the foreseeable future.

                      The new conditional inflation forecasts are revised sharply lower even with a lower policy rate. SNB project a modest increase in inflation from 1.2% in Q1 to 1.5% in Q2 of this year, followed by a decline to 1.2% in Q1 2025, and a further decrease to 1.1% in the second half of 2026.

                      Full SNB statement here.

                      BoJ’s Ueda assures continued accommodative monetary stance following rate hike

                        By
                        ActionForex
                        -

                        Addressing the parliament today, BoJ Governor Kazuo Ueda articulated the rationale behind this week’s exit from the long-standing negative interest rate policy and the subsequent rate hike. This move marks a significant shift for Japan’s monetary policy, which had been entrenched in a negative interest rate environment for eight years.

                        Ueda pointed out, “We could have waited until inflation is completely at 2% for a long period of time. But if we did so, it’s unclear whether inflation would have stayed at 2%. We might have seen a sharp increase in upside price risks,” highlighting the preemptive nature of the BoJ’s action.

                        The decision was influenced by recent trends in service prices and substantial wage increases resulting from annual wage negotiations, indicating a strengthening cycle of wage growth and inflation in Japan.

                        Despite this historical step, Ueda underscored that Japan’s inflation expectations for the medium and long term are “still in the process of accelerating towards 2%”. He assured that BoJ remains committed to supporting the economy and prices “by maintaining accommodative monetary conditions for the time being”.

                        He also hinted at future adjustments, stating, “As we exit our massive stimulus program, we will gradually shrink the size of our balance sheet and at some point reduce the size of our government bond buying.”

                         

                        Japan’s PMI composite rises to 52.3, strengthening activity and intensifying price pressures

                          By
                          ActionForex
                          -

                          Japan’s PMI Manufacturing saw a modest increase from 47.2 to 48.2 in March, while PMI Services surged to from 52.9 to 54.9, its highest level since last May. Composite PMI, which combines both sectors, also climbed from 50.6 to 52.3, reaching its peak since last August.

                          Usamah Bhatti, Economist at S&P Global Market Intelligence, underscored the private sector’s regained momentum at the end of Q1. The expansion was predominantly driven by service providers, while manufacturers experienced a continued, though less severe, contraction.

                          Alongside this economic revival, Japan is facing a “renewed intensification of price pressures,” with the rate of input price inflation hitting a five-month high. This uptick was particularly pronounced among service providers, although manufacturers also reported “stubbornly high input prices”. Many firms opted to pass these increased costs onto customers, leading to the highest output charge inflation since last August.

                          Full Japan PMI release here.

                          Australia employment surges 116.5k, unemployment rate dives to 3.7%

                            By
                            ActionForex
                            -

                            Australia employment grew strongly by 116.5k in February, well above expectation of 40.2k. Full-time jobs rose 78.2k while part-time jobs rose 38.3k.

                            Unemployment rate fell sharply from 4.1% to 3.7%, below expectation of 4.0%. Participation rate rose 0.1% to 66.7%. Monthly hours worked also rose 2.8% mom.

                            Full Australia employment release here.

                            Australia PMI composite rises to 11-month, another blow to RBA rate cut expectations

                              By
                              ActionForex
                              -

                              Australia PMI Manufacturing PMI dropped to a 46-month low of 46.8. Conversely, PMI Services climbed to an 11-month peak of 53.5, with the Composite PMI also reaching an 11-month high at 52.4.

                              Warren Hogan, Chief Economic Advisor at Judo Bank, highlighted that Composite Output Index’s increase for the fourth consecutive month signifies the economy’s rebound from the cyclical slowdown experienced in 2023. Meanwhile However, inflation remains a concern, with service sector readings indicating persistently high producer and consumer prices.

                              Hogan noted that the results are “another blow to rate-cut expectations” for RBA. The rebound in economic activity, coupled with inflation exceeding targets, not only diminishes the likelihood of rate reductions, but also raises the possibility of further monetary tightening in 2024. This aligns with recent warnings from RBA.

                              Full Australia PMI release here.

                              New Zealand in technical recession as Q4 GDP contracts -0.1% qoq

                                By
                                ActionForex
                                -

                                New Zealand’s economy has officially entered technical recession, with GDP contracting by -0.1% qoq in Q4, below expectation of 0.0% qoq. This decline follows -0.3% contraction in Q4, marking two consecutive quarters of negative growth.

                                GDP per capita declined decline of -0.7% qoq, while real gross national disposable income saw a -1.4% qoq drop.

                                The contraction was not uniformly felt across all sectors. Of the sixteen industries analyzed, eight experienced growth, notably the rental, hiring, and real estate services sector, alongside public administration, safety, and defense.

                                Full NZ GDP release here.

                                DOW hits new record as Fed holds course on three cuts, despite hawkish undertones

                                  By
                                  ActionForex
                                  -

                                  US stocks surged sharply higher overnight, with DOW and S&P 500 closing at new record highs. Market participants expressed relief and optimism as Fed’s maintained forecast of three rate cuts for the year. Fed Chair Jerome Powell’s remarks during the press conference further buoyed investor sentiment, emphasizing that the recent inflation data “haven’t really changed the overall story”. He affirmed that inflation is “moving down gradually”, albeit via a “somewhat bumpy road.”

                                  Despite positive reactions from the stock markets, it’s crucial to acknowledge that Fed’s has shifted to a slightly more hawkish tone, in particular compared to December meeting. The updated dot plot revealed a narrower margin, with nine out of nineteen members now anticipating just two rate cuts for the year. Moreover, future easing path is envisioned to be more gradual than previously projected. Interest rate is expected to settle at 3.75-4.00% by the end of 2025—a slight increase from December’s forecast of 3.50-3.75%. For the end of 2026, the projection was raised to 3.00-3.25%, up from the previous 2.75-3.00%.

                                  Technically, DOW’s up trend is now extending to 40k psychological level, and then 138.2% projection of 28660.94 to 34712.28 from 32327.20 at 40690.15. Outlook will stay bullish as long as 38483.25 support holds, in case of pullback.

                                  Fed still sees three cuts this year, but slower easing thereafter

                                    By
                                    ActionForex
                                    -

                                    Fed left interest rate unchanged at 5.25-5.50% as widely expected. The new economic projections and dot plots are clearly more hawkish than December’s. Yet, Dollar dips initially after the announcement, perhaps because they’re not as hawkish as feared.

                                    In the new median economic projections interest rate is still seen at 4.625% by the end of 2024. But federal funds are are now projection to decline slower to 3.875% by the end of 2025 (vs prior 3.625%), and then 3.125% by the end of 2026 (vs prior 2.875%). The long run federal funds rate is seen slightly higher from 2.5% to 2.6%.

                                    Looking at the details of the dot plot for end of 2024, nine members see interest rate above 4.75%, and 10 below that level. That is one member has shifted the stance (the split was 8-11 in December). Also, only one member expects interest rate to be below 4.50%. That is, Fed isn’t likely to cut more than three times this year, with higher risk of cutting less.

                                    Other forecasts see:-

                                    GDP growth:

                                    • 2024 GDP growth at 2.1% (upgraded from 1.4%).
                                    • 2025 GDP growth at 2.0% (upgraded from 1.8%).
                                    • 2026 GDP growth at 2.0% (upgraded from 1.9%).

                                    Headline PCE:

                                    • 2024 PCE inflation at 2.4% (unchanged).
                                    • 2025 PCE inflation at 2.2% (raised from 2.1%).
                                    • 2026 PCE inflation at 2.0% (unchanged).

                                    Core PCE:

                                    • 2024 core PCE inflation at 2.6% (raised from 2.4).
                                    • 2025 core PCE inflation at 2.2% (unchanged).
                                    • 2026 core PCE inflation at 2.0% (unchanged).

                                    Full FOMC statement here.

                                    Full Summary of Economic Projections here.

                                    ECB’s Lagarde sets conditions for June rate cut

                                      By
                                      ActionForex
                                      -

                                      ECB President Christine Lagarde provided clarity in a speech on the conditions that would lead to a rate cut in June, highlighting reliance on “two important pieces of evidence” as pivotal to the central bank’s confidence on dialing back monetary restrictions. .

                                      Firstly, ECB anticipates receiving data on negotiated wage growth for Q1 by the end of May. Secondly, by June, ECB will have access to a new set of economic projections, enabling it to verify the validity of the inflation path forecasted in its March projection.

                                      After the first move, Lagarde emphasized to “confirm on an ongoing basis” that incoming data aligns with its inflation outlook. This approach underscores a commitment to data-driven policy decisions, maintaining a “meeting-by-meeting” stance that eschews any pre-commitment to a fixed rate path.

                                      Furthermore, Lagarde noted the enduring significance of ECB’s policy framework in processing incoming data and determining the appropriate policy stance. However, she also mentioned that the relative importance of the three criteria guiding these decisions would require regular reassessment.

                                      Full speech of ECB’s Lagarde here.

                                      UK CPI slows to 3.4% in Feb, core down to 4.5%

                                        By
                                        ActionForex
                                        -

                                        UK CPI slowed from 4.0% yoy to 3.4% yoy in February, below expectation of 3.5% yoy. CPI core (excluding energy, food, alcohol and tobacco) slowed from 5.1% yoy to 4.5% yoy, below expectation of 4.6% yoy.

                                        CPI goods annual rate slowed from 1.8% yoy to 1.1% yoy, while CPI services annual rate eased from 6.5% yoy to 6.1% yoy.

                                        On a monthly basis, CPI rose 0.6% mom, below expectation of 0.7% mom.

                                        Full UK CPI release here.

                                        Fed’s dot plot: Three or just two rate cuts this year?

                                          By
                                          ActionForex
                                          -

                                          Fed is widely expected to hold interest rates steady at the current range of 5.25-5.50% today. The focal point of today’s announcement, however, lies beyond the immediate rate decision; all eyes are on Fed’s updated economic projections and dot plot for insights into the path of monetary easing this year.

                                          The crux of the matter hinges on whether Fed’s new projections will continue to forecast three rate cuts within the year, and thus making June the likely month to commence.

                                          Alternatively, amidst recent data revealing the stubborn persistence of inflation, Fed might adjust its outlook to envision just two cuts for the year, which would likely postpone the initial reduction to the third quarter.

                                          The December dot plot presented a 8-11 split among Fed members, with 8 anticipating the federal funds rate to exceed 4.75% by year-end, while 11 predicted it would fall below this mark. A subtle but pivotal shift of just two dots would sway the balance to 10-9, leaning towards the scenario of only two rate cuts.

                                          Market expectations, as reflected in Fed fund futures, currently assign slightly over 60% probability to a June rate cut. By December’s end, there’s a 64% likelihood of the federal funds rate adjusting down to 4.50-4.75%.

                                          10-year yield retreated mildly overnight to close at 4.297, but there is no clear sign of topping yet. A hawkish FOMC result today, signalling fewer rate cut this year, could give TNX another push through 4.354 resistance, and thus pulling Dollar higher along. Yet, strong resistance is expected between 4.391 and 4.534 (50% and 61.8% retracement of 4.997 to 3.785) to limit upside, to complete the corrective rebound from 3.785.

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