US CPI rose sharply by 0.9% mom in October, well above expectation of 0.5% mom. CPI core rose 0.6% mom, also well above expectation of 0.3% mom.
Over the 12-month period, headline CPI accelerated to 6.2% yoy, up from 5.4% yoy, well above expectation of 5.3% yoy. That’s also the highest level since November 1990.
Annual core CPI surged to 4.6% yoy, up from 4.0% yoy, above expectation of 4.0% yoy. That’s the highest level since August 1991.
ECB Governing Council member Mario Centeno “I am convinced that the traction of growth that the economy was following will prevail.” But, “a scenario close to stagflation is not out of the possibilities that we can face. So we need to adjust our policies to that.”
He added that policymakers had already considered the threat of stagflation before. “After the invasion these risks have only increased,” he said. Russian’s invasion of Ukraine has the possibility of “a positive impact on inflation, a few decimal points, and a negative impact on growth.”
Fed Chair Jerome Powell said in an IMF event, ” there will be upward pressure on prices which may be passed along to consumers in the form of price increases”. But he added, “we think that that will be temporary.” He also noted that inflation has been low for more than two decades, and that fed into a psychology of low inflation expectations.
“If inflation were unexpectedly, counter to our expectations, to move meaningfully above levels where we are comfortable – and in particular inflation expectations… if we see them moving persistently and materially above levels we are comfortable with, then we would react to that,” he said.
UK PMI Construction dropped to 8.2 in April, down from March’s 39.2. The latest reading was the lowest since data were first collected in April 1997. Prior record low was 27.8 in February 2009.
Tim Moore, Economics Director at IHS Markit: “A drop in construction activity of historic proportions in April looks set to be followed by a gradual reopening of sites in the coming weeks, subject to strict reviews of safety measures. However, the prospect of severe disruption across the supply chain will continue over the longer-term and widespread use of the government job retention scheme has been needed to cushion the impact on employment. Looking ahead, construction companies widely commented on worries about cash flow, rising operating costs and severely reduced productivity, as well as a slump in demand for new construction projects.”
UK unemployment rate was unchanged at 4.0% in August, matched expectations. Wage growth, on the other hand, is an upside surprise. Average weekly earnings including bonus rose 3.7% 3moy in August, above expectation of 2.4% 3moy. Average weekly earnings excluding bonus rose 3.1% 3moy, above expectation of 2.8% 3moy. In September, claimant counts rose 18.5k, above expectation of 4.5k. Full release here.
GBP/USD edged higher after the release. But upside is limited so far..
Iranian Foreign Minister Javad Zarif said that the strike against US force were “proportionate” and in “self-defense”. He added Iran does not seek escalation of war, but will defend against aggression. Hesameddin Ashena, advisor to President Hassan Rouhani, also warned that any retaliation by the US could lead to regional war.
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In the latest Monthly Economic Report, Japan’s Cabinet Office upgraded economic assessment for the first time in 17 months. It said, “the Japanese economy shows movements of picking up recently as the severe situation due to the Novel Coronavirus is gradually easing.” Back in November, it said the economy “continues to show weakness in picking up”.
Private consumption is “picking up”, dropping “while some weakness remains”. However, business investments “appears to be pausing for picking up”. Exports are “almost flat”. Industrial production continues to appear to be “pausing for picking up”. Corporate profits are “picking up”. Employment situations shows “picking up in some components”, comparing to November’s “shows steady movement”. Consumer prices continues to “show steady movements.
Germany Ifo Business Climate dropped to 90.7 in November, down from 92.7, missed expectation of 90.8. Current Assessment index dropped slightly to 90.0, down from 90.3, above expectation of 97.4. Expectations index plunged sharply to 91.5, down from 95.0, missed expectation of 93.8.
Ifo said: “The drop was due above all to companies’ considerably more pessimistic expectations. Their assessments of the current situation were also a little worse. Business uncertainty has risen. The second wave of coronavirus has interrupted Germany’s economic recovery.”
Italian Deputy Prime Minister Luigi Di Maio said the government is going to send EU a formal response on the “serious concerns” over its draft budget today. The response will provide explanations on raising budget deficit to 2.4% of GDP next year. Di Maio hoped that would provide “over a long discussion process … could lead the Commission to share the goals we have set.”
Di Maio, leader of the 5-star movement, reiterated that there is a concern of Italy leave the Euro or the EU, based on the jump in yield spreads. But he emphasized that “there is no Plan B (to leave Europe) but only Plan A which is to change Europe.” And he pledged that “As long as I’m head of this movement and a minister of this government I’ll always guarantee that Italy remains within the euro and in Europe.”
Nonetheless, European Commission is expected to formal reject Italy’s budget tomorrow, and ask for a resubmission. In a letter to Italy last week, EU described Italy’s draft budget as an “obvious significant deviation” of the recommendations adopted by the European Council” and “size of the deviation (a gap of around 1.5% of GDP) are unprecedented”.
Swiss KOF economic barometer dropped to 99.1 in November, down from 100.2 and missed expectation 99.8. It’s the second consecutive month of decline and is now below long term average again.
KOF noted that “this month’s decline was in particular due to less favourable export prospects. The impetus from foreign demand is likely to weaken somewhat in the coming months.” Also, “the development in the banking and insurance sector may lose some of its momentum.” On the other hand, there’s “slight support” from construction sector and private consumption. And, manufacturing is also “resisting downward tendency”.
New Zealand ANZ Business Confidence rose to -34.4 in June, up from May’s -41.8, but down from preliminary reading of -33.0. Activity Outlook index rose to -25.9, up from May’s -38.7 and preliminary reading of -29.1.
ANZ said “New Zealand is the envy of the world, with no social distancing measures imposed upon us and restaurants, bars, sporting events, all able to carry on as normal. But the fact remains, New Zealand with a closed border is a significantly smaller economy, at least in the near term, and the recession is just starting to make itself felt.”
UK PMI manufacturing dropped to 52.0 in February, down from 52.6 and matched expectation. Markit noted that stocks on inputs and finished goods rose sharpy. However, rate of job losses was at six-year high as optimism hits series low.
Rob Dobson, Director at IHS Markit, which compiles the survey:
“With Brexit day looming, UK manufacturers continued to implement plans to mitigate potential disruptions. Stockpiling of both inputs and finished products remained the order of the day, with growth in the former hitting a fresh record high.
“The current elevated degree of uncertainty is also having knock-on effects for business confidence and employment, with optimism at its lowest ebb in the survey’s history and the rate of job losses accelerating to a six-year high.
“Official data confirm that manufacturing is already in recession, and the February PMI offers little evidence that any short-lived boost to output from stock-building is sufficient to claw the sector back into growth territory.
“Apart from the uncertain outlook, manufacturers also face a darkening backdrop of a domestic market slowdown and weakening inflows of new export business, as global growth decelerates and trade tensions bite. Manufacturing and the broader UK economy therefore face a difficult 2019, with the slowdown being exacerbated later in the year as inventory positions are unwound and Brexit-related headwinds likely to linger.”
Also from UK, mortgage approvals rose to 67k in January. M4 money supply rose 0.2% mom in January.
ECB Executive Board member Benoit Coeure said Eurozone is facing a broader and longer slowdown, but not a lasting and serious one. And he’s confidence that ECB has existing and new tools to fight a slowdown.
Coeure told Barron’s in an interview that “We don’t think that we have enough elements to conclude that we’re facing a lasting and serious slowdown of the euro zone economy.” He added that “what we’re seeing now is that the slowdown may be broader and longer-lasting than originally forecast.”
In today’s parliamentary hearing, BoE Governor Andrew Bailey provided nuanced insights that suggest the central bank could be nearing the end of its interest rate-hiking cycle. While Bailey was cautious not to confirm that rates have peaked, he pointed to “current evidence” indicating the bank is “much nearer now to the top of the cycle.”
Bailey asserted that many economic indicators are behaving as expected, signaling a likely continued—and quite marked—fall in inflation by year-end. Although he warned of a temporary uptick in the next data release due to year-on-year changes in fuel prices, he brushed off the development as non-central to the inflation trajectory.
Reflecting on BoE’s recent shift in policy language, Bailey noted that the bank has moved from a posture of determining the “how much and over what time frame” of rate hikes to a more “evidence and data-driven” approach. He also emphasized that monetary policy is “now restricted in its impact,” indicating a limited scope for further significant rate hikes.
Deputy Governor Jon Cunliffe also weighed in on inflation, noting the presence of “mixed signals.” While pay growth and service price inflation remain strong, there are signs of “cooling in the labour market,” he said, framing this as a focal point of discussions moving forward.
Gold’s recent up trend from 1160.17 (2018 low) resumed today by breaking 1326.25 and reaches as high as 1327.60 so far. Near term outlook will now remain bullish as long as 1302.32 support holds. And current rally would target next resistance at 1366.05 (2018 high).
The question now is, whether gold is strong enough to resume the rebound from 1046.37 long term bottom (2015 low). That would imply a solid break of key fibonacci level of 38.2% retracement of 192.070 to 1046.37 at 1380.36. It tried this resistance twice since 2016 but failed.
As daily MACD now displays bearish divergence condition, we’d expect another failure this time. And, even if gold is to break 1380 eventually, a near term fall back, possibly back to 55 week EMA (now at 1265.20) would likely be seen first.
That is, while current rise might extend further, we’d expect upside to be limited below 1380 handle to bring near term reversal.
US Agriculture Secretary Sonny Perdue admitted that farmers are “one of the casualties” of Trump’s trade war. He told CNN that American farmers “are one of the casualties here with trade disruption”. And, “we knew going in that when you flew the penalty flag on China, the retaliation, if it came, would be against the farmer.”
Perdue added “I’ve told the President — and the President understands — you can’t pay the bills with patriotism. We know that, and certainly he knows that. That’s why he’s trying to supplement the damage they’re having from trade disruptions with market facilitation.” However, he said he cannot promise any more aids for 2020.
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US stocks regained bullishness overnight, with S&P 500 and NASDAQ closing at new record highs. FOMC minutes noted that tapering of asset purchases would happen “somewhat earlier” than expected, after seeing more data over the “coming months”. Meanwhile, rate hike could also come “somewhat earlier” than expected. The overall messages were largely consistent with the prior statement and projections.
Suggested readings on FOMC minutes:
S&P 500 rose 0.34% or 14.59 pts to close at 4358.13. The current medium term up trend is still on track to 100% projection of 2191.86 to 3588.11 from 3233.94 at 4625.94. In any case, near term outlook will stays bullish as long as 4257.16 support holds, in case of retreat.
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New Zealand GDP grew 0.6% in Q1, weak details keeps RBNZ on dovish side
New Zealand GDP grew 0.6% qoq in Q1, unchanged from prior quarter, and matched expectations. Looking at the sectors, growth were driven by 2.0% expansion in goods producing industries. Services growth slowed to 0.2% while primary industries contracted -0.7%. On the components, household spending was up 0.5%, investment spending was up 2.4%, exports of goods and services was up 2.8%
While the headline number was a little stronger than expected, slowdown in services, which accounted for two thirds of GDP, remained a concern. Also, investment growth was mainly driven by residential and nonresidential buildings. Contractions were seen in all other components. RBNZ might be granted some more room to wait-and-see with today’s data. But bias will remain towards easing beyond next week’s meeting.
Full release here.
NZD/JPY is steady in Asian session today as consolidation from 70.26 temporary low extends. Near term outlook remain bearish as long as 72.25 resistance holds. Fall from 76.78 is expected to retest 69.18 support next.