US initial jobless claims rises 2k to 205k in the week ending December 16, below expectation of 220k. Four-week moving average of initial claims fell -1.5k to 212k.
Continuing claims fell -1k to 1865k in the week ending December 9. Four-week moving average of continuing claims rose 6k to 1878k, highest since December 11, 2021.
Canada’s retail sales rose 0.7% mom to CAD 66.9B in October, below expectation of 0.8% mom. Core retail sales—which exclude gasoline stations and fuel rose 1.2% mom.
Sales were up in seven of nine subsectors and were led by increases at motor vehicle and parts dealers (+1.1%).
Advance estimates suggest that sales were relatively unchanged in November.
In an interview with 20 Minutos, ECB Vice President Luis de Guindos emphasized that it is “too early” to discuss rate cuts, despite recent favorable data. He stressed that the data available are still insufficient for ECB to alter its current monetary policy stance for now.
De Guindos highlighted ECB’s data-dependent approach: “We are data-dependent. The data have been favorable but still not enough for us to change our monetary policy.”
He also expressed confidence in the current interest rate levels, stating, “If sustained for a sufficiently long period of time, current interest rates will help bring inflation down to 2%.”
Addressing the prospect of a recession, de Guindos noted that ECB does not anticipate a technical recession, defined as two consecutive quarters of negative growth. However, he acknowledged a broader structural growth issue within Europe’s economy. ECB’s projections, along with those of European Commission, foresee only modest growth of around 1% until 2026.
De Guindos identified low productivity and the energy crisis as key challenges hindering Europe’s economic competitiveness, particularly given Europe’s reliance on energy imports. He argued for the necessity of structural reforms to address these issues.
While ECB’s focus remains on reducing inflation, de Guindos emphasized that achieving growth requires a broader set of solutions: “Structural reforms are therefore necessary. The aim of monetary policy is to reduce inflation, but to achieve growth, other factors must be brought into play.”
Summary of BoC’s December 6 meeting showed members collectively agreed “the likelihood that monetary policy was sufficiently restrictive to achieve the inflation target had increased.”
However, members also unanimously agreed that “risks to the inflation outlook remained.” Hence, BoC did not rule out the possibility of further interest rate hikes.
To effectively assess underlying inflationary pressures, BoC members agreed to focus on several key economic indicators. These include the balance of supply and demand in the economy, wage growth, corporate pricing behavior, and inflation expectations.
It’s clarified that while these indicators are not intermediate targets, they “provided helpful information on where inflation is headed.”
ECB Governing Council member Martins Kazaks, in an interview overnight, indicated that the most likely period for rate reductions could be around the “middle of next year”, specifically pointing to June or July as probable months.
However, Kazaks expressed caution about reducing rates too soon, stating, “But in the spring at the current moment that’s too early.” He also noted a disparity between his outlook and market expectations, particularly concerning the possibility of an initial rate cut in March, which he views as overly “optimistic”.
Kazaks also noted that interest rates are likely to remain at 4% for a while before any reduction is considered.
Philadelphia Fed President Patrick Harker, in a local radio interview overnight, shared expressed that while there will be a need to lower interest rates eventually, this shift should not happen “right away” or “too fast.”
Harker stated, “I’ve been in the camp of, let’s hold rates where they are for a while, let’s see how this plays out, we don’t need to raise rates anymore.”
Looking ahead, Harker acknowledged the necessity of reducing rates, saying, “it’s important that we start to move rates down.” However, he emphasized a gradual approach: “we don’t have to do it too fast, we’re not going to do it right away, it’s going to take some time.”
Harker also added a note of caution regarding the economic outlook, particularly concerning inflation. “Let me be clear: The job on inflation is not done, but we are moving in the right direction, things are starting to look better and better.”
US Conference Board Consumer Confidence rose from 101.0 to 110.7 in December, above expectation of 103.9. Present Situation Index rose from 136.5 to 148.5. Expectations Index rose from 77.4 to 85.6.
“December’s increase in consumer confidence reflected more positive ratings of current business conditions and job availability, as well as less pessimistic views of business, labor market, and personal income prospects over the next six months,” said Dana Peterson, Chief Economist at The Conference Board.
“While December’s renewed optimism was seen across all ages and household income levels, the gains were largest among householders aged 35-54 and households with income levels of $125,000 and above. December’s write-in responses revealed the top issue affecting consumers remains rising prices in general, while politics, interest rates, and global conflicts all saw downticks as top concerns. Consumers’ Perceived Likelihood of a US Recession over the Next 12 Months abated in December to the lowest level seen this year—though two-thirds still perceive a downturn is possible in 2024.”
Bundesbank President Joachim Nagel has issued a warning to investors and analysts anticipating an early interest rate cut by ECB.
In an interview, Nagel emphasized the importance of maintaining the current interest rate levels to ensure the effective management of inflation. “We must initially remain at the current interest rate plateau so that monetary policy can fully develop its inflation-dampening effect,” he stated.
Nagel’s cautionary words to those speculating on an imminent rate cut were stark: “Be careful, some people have already miscalculated that.” However, Nagel did acknowledge that interest rates have likely reached their peak, suggesting that while an immediate rate reduction may not be on the horizon, the period of aggressive rate hikes should have come to an end.
Germany’s Gfk Consumer Climate for January rose from -27.6 to -25.1. In December, income expectations rose from -16.7 to -6.9. Willingness to buy rose from -15.0 to -8.8. Willingness to save rose from 5.3 to 7.3.
“It remains to be seen whether the current increase represents the start of a sustained recovery in consumer sentiment,” explains Rolf Bürkl, consumer expert at NIM.
“Consumers still have major worries. Geopolitical crises and wars, sharply rising food prices and discussions around national budget for 2024 continue to cause uncertainty. As a result, the level of consumer sentiment is currently still very low.”
UK CPI slowed from 4.6% yoy to 3.9% yoy in November, below expectation of 4.3% yoy. Core CPI (excluding energy, food, alcohol and tobacco) slowed from 5.7% yoy to 5.1% yoy, below expectation of 5.5% yoy. CPI goods fell from 2.9% yoy to 2.0% yoy. CPI services also fell from 6.6% yoy to 6.2% yoy.
ONS noted, “The easing in the annual inflation rates reflected downward contributions from eight divisions, most notably transport, recreation and culture, and food and non-alcoholic beverages. There were no divisions with large offsetting upward effects.”
On a monthly basis, CPI was down -0.2% mom, below expectation of 0.2% mom rise.
Westpac Leading Index in Australia showed an encouraging rise from -0.39% to 0.30% in November, marking the first positive, above-trend reading since mid-2022. However, Westpac cautioned that this uptick might be influenced by temporary factors. Also, the shift in underlying momentum, as RBA’s tightening begins to slow, is seen more as a stabilization rather than the start of an upturn.
Further, Westpac highlighted weaker conditions in the domestic sphere, particularly impacting the household sector. This weakness is expected to continue into the first half of next year. Hence, Westpac anticipates that barring a “truly disastrous” December quarter CPI update, RBA is likely to maintain its current policy in the upcoming February meeting.
Japan’s trade statistics for November were, marked by a slight decline in exports and a more significant drop in imports. Exports fell marginally by -0.2% yoy, totaling JPY 8829B, marking the first drop in three months.
A closer look at export destinations shows contrasting trends. Exports to US continued to grow, marking a 5.3% increase and extending the expansion streak to 26 months. In contrast, exports to China fell by -2.2%, continuing a downward trend for the 12th consecutive month. One of the most notable declines was in food shipments, which plummeted by -60.3%, significantly impacted by China’s ban on Japanese seafood imports.
On the import side, Japan saw a more pronounced decline of -11.9% yoy, with total imports amounting to JPY 9597B. This reduction in imports contributed to a trade deficit of JPY -777B for the month.
When adjusted for seasonal variations, exports dropped by -1.8% mom to JPY 8567B, and imports decreased by -2.7% mom to JPY 8976B. Consequently, trade deficit narrowed from JPY -501B to JPY -409B.
RBNZ Governor Adrian Orr, in his address to a parliament select committee today, emphasized there is “still a long way to go” to curb inflation. He added, “it’s core inflation that’s going to be our challenge ahead”.
Orr also noted the complexity of this challenge, pointing out that much of the core inflation factors are entrenched within central and local government influences, including rates and taxes. He cautioned that tackling these elements in the “last five yards on the inflation battle is going to be tough.”
Adding to the economic challenges, Orr highlighted the current record-high levels of net inward migration in New Zealand. This surge in migration has surpassed RBNZ’s expectations and presents additional complexities for monetary policy, housing demand, asset prices, and the general inflation outlook.
Regarding the country’s economic growth, Orr mentioned that GDP was “surprisingly subdued,” with a contraction of -0.3% in Q3. He indicated that RBNZ is internalizing this complex situation and will provide more detailed insights in their monetary policy statement due in February.
Chicago Fed President Austan Goolsbee, in an interview with Fox News overnight, said that investors might be “a little ahead of themselves” with their “euphoria” as stock markets surged to record highs following Fed’s announcement last week.
Goolsbee did acknowledge that if inflation continues its downward trend towards target, Fed might reassess its restrictive stance. “If inflation continues to come down to target, then the Fed can reconsider how restrictive it wants to be,” he stated.
However, Goolsbee was clear in emphasizing Fed’s independence, asserting that the central bank will not be “bullied” by market pressures.
Richmond Fed President Thomas Barkin, in an interview with Yahoo Finance, acknowledged that the Fed is making “good progress” in its efforts to bring down inflation.
However, he pointed out that the economic data has been somewhat erratic, emphasizing his desire for “consistency” and “breadth” in the inflation metrics. He explained that he is looking for “consistency around our target and a broad-based disinflationary set of results.”
On the topic of interest rate cuts, Barkin’s stance was cautious and data-dependent. He suggested that a response from Fed would be appropriate if inflation trends downwards as hoped. However, he stressed the unpredictability of economic data
“If you’re going to assume that inflation comes down nicely, then, of course, we’d respond appropriately. You know, I don’t assume what the data is going to do. We’ll see what happens,” he said.
Atlanta Fed President Raphael Bostic emphasized a lack of urgency in cutting interest rates, projecting potential rate reductions only in the second half of 2024.
In an event overnight, Bostic expressed his view that inflation is likely to decrease gradually over the next six months. This outlook underpins his stance that there is no immediate need to deviate from the current restrictive monetary policy.
“For me, I’m thinking inflation is going to come down relatively slowly in the next six months, which means there’s not going to be urgency for us to pull off our restrictive stance,” he stated.
Bostic anticipates that Fed might implement two rate cuts in the latter half of 2024. However, he clarified, “It is not like there has been an active discussion on this.”
Highlighting the prevailing economic uncertainties, Bostic advocated for a “cautious but resolute” approach. This strategy involves a resistance to reacting hastily to individual data points and instead focuses on making sure “the trends are really trends.”
Canada CPI was unchanged at 3.1% yoy in November, above expectation of 2.9% yoy. Higher prices for travel tours put upward pressure on CPI. Offsetting the upward pressure was slower price growth for food alongside lower prices for cellular services and fuel oil. Excluding food and energy, CPI accelerated from 3.4% yoy to 3.5% yoy.
CPI median was unchanged at 3.% yoy, above expectation of 3.3% yoy. CPI trimmed was unchanged at 3.5% yoy, above expectation of 3.4% yoy. CPI common slowed from 4.2% yoy to 3.9% yoy, below expectation of 4.0% yoy.
BoE Deputy Governor Sarah Breeden acknowledged in a speech that the UK economy is making strides towards bringing inflation back to the BoE’s 2% target, but emphasized that “our job isn’t done.”
Breeden expressed a focused concern on the persistence of inflationary pressures, highlighting a key area of the BoE’s attention: “The question I am focused on is whether there is evidence of more persistent inflationary pressures which means we may need to tighten further.”
Emphasizing the need for a sustained restrictive monetary policy, Breeden stated, “Regardless, monetary policy still needs to be restrictive for an extended period of time to keep pushing down on inflation and to return it sustainably to target.”
Breeden also highlighted the importance of utilizing a diverse range of data sources to gauge the economy’s trajectory. She mentioned using “soft data, such as surveys, as well as real-world conversations with businesses and others,” to inform her assessment of economic trends.
Eurozone CPI was finalized at 2.4% yoy in November, down from October’s 2.9% yoy. CPI core (excluding energy, food, alcohol & tobacco) was finalized at 3.6% yoy , down from prior month’s 4.2% yoy. The highest contribution came from services (+1.69 percentage points, pp), followed by food, alcohol & tobacco (+1.37 pp), non-energy industrial goods (+0.75 pp) and energy (-1.41 pp).
EU CPI was finalized at 3.1% yoy, down from prior month’s 3.6% yoy. The lowest annual rates were registered in Belgium (-0.8%), Denmark (0.3%) and Italy (0.6%). The highest annual rates were recorded in Czechia (8.0%), Hungary (7.7%), Slovakia and Romania (both 6.9%). Compared with October, annual inflation fell in twenty-one Member States, remained stable in three and rose in three.
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Japan’s CPI core slows to 2.5% yoy, but services inflation hit three-decade high
Japan’s core CPI, which excludes fresh food, decreased from 2.9% yoy to 2.5% yoy in November, marking the lowest level since July 2022. Despite this deceleration, inflation remains above BoJ’s target of 2% for the twentieth consecutive month, indicating persistent inflationary pressures.
All-items CPI also experienced a slowdown, dropping from 3.3% yoy to 2.8% yoy. Additionally, core-core CPI, which excludes both fresh food and energy, showed a slight decrease from 4.0% yoy to 3.8% yoy.
Notably, goods inflation saw a significant reduction, declining from 4.4% yoy to 3.3% yoy. In contrast, service inflation showed an acceleration, rising from 2.1% yoy to 2.3% yoy. This increase in service inflation is the sharpest in three decades, dating back to October 1993, if the effects of past consumption tax hikes are excluded.
Energy prices, a key factor in inflation calculations, dropped by -10.1% yoy. Japanese government’s subsidies to reduce fuel costs played a role in tempering inflation rates. Without these subsidies, core CPI would have seen an increase of around 3%, according to the ministry.