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BoE’s Breeden focuses on inflationary persistence for future policy

    By
    ActionForex
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    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.

    Full speech of BoE Breeden here.

    Eurozone CPI finalized at 2.4%, core at 3.6%

      By
      ActionForex
      -

      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.

      Full Eurozone CPI release here.

      Yen weakens further after BoJ Ueda’s dovish press conference

        By
        ActionForex
        -

        Japanese Yen’s decline gained momentum following dovish comments by Bank of Japan (BoJ) Governor Kazuo Ueda in the post-meeting press conference. Ueda reaffirmed the central bank’s readiness to take “additional easing steps if necessary,” highlighting the “extremely high” level of uncertainty surrounding the economy.

        Addressing the possibility of a policy adjustment in January meeting, Ueda downplayed the likelihood of an abrupt rate hike, stating, “I don’t think the chance is high for us to say abruptly that we will hike rates at a subsequent meeting.” He also mentioned that “we won’t see much new data” to come before the meeting, except branch managers’ meeting which will provide insights into regional economies.

        Ueda spoke about various policy scenarios under consideration, recognizing the high degree of uncertainty in current economic forecasts. He noted the difficulty in outlining a clear exit strategy from the ultra-loose monetary policy due to the unpredictability of achieving sustainable and stable inflation at the target level. Ueda assured that once the BoJ foresees conditions aligning with their targets, more information will be disclosed.

        BoJ holds steady despite speculation for tweaks

          By
          ActionForex
          -

          BoJ decided to maintain its monetary policy unchanged, a move that has come as a disappointment to some observers who anticipated minor policy changes or at least some alterations in the statement.

          Under the Yield Curve Control framework, short-term policy interest rate remains at -0.1%. BoJ has also maintains its target for the 10-year JGB yield at approximately 0%, allowing for a cap of 1% for yield fluctuations. This decision was reached unanimously.

          In addition, BoJ reiterated its commitment to an easing bias, stating it “will not hesitate to take additional easing measures if necessary.”

          Regarding Japan’s economic outlook, BoJ expects a moderate ongoing recovery in the near term. However, it acknowledges downward pressures, primarily due to a slowdown in the recovery pace of overseas economies.

          Looking ahead, the central bank projects that as a positive cycle from income to spending strengthens, Japan’s economy will continue to grow at a rate above its potential growth rate.

          In terms of inflation, BoJ anticipates CPI core to remain above 2% through fiscal 2024. Underlying inflation is expected to “increase gradually toward achieving the price stability target.”

           

          Full BoJ statement here.

          RBA considered hike and hold, Dec minutes show

            By
            ActionForex
            -

            Minutes of RBA’s December 5 meeting revealed that both a 25bps hike and maintaining the status quo were considered. Ultimately, they opted to keep the interest rate unchanged at 4.35%. The rationale behind this decision was the perceived value in “waiting for further data to assess how the balance of risks was evolving and how best to balance these risks when setting policy.”

            The board members concurred that the need for additional monetary tightening to ensure inflation returns to the target within a reasonable timeframe would be contingent on how incoming data influences the economic outlook and the assessment of risks.

            The RBA emphasized its commitment to closely monitoring various economic indicators in its future policy decisions. This includes developments in the global economy, trends in domestic demand, and the outlook for inflation and the labor market.

            Full RBA minutes here.

            NZ ANZ business confidence improved to 33.2, with mixed inflation signals

              By
              ActionForex
              -

              New Zealand’s ANZ Business Confidence climbed from 30.8 to 33.2 in December. Looking into the specifics, own activity outlook improved from 26.3 to 29.3, indicating positive sentiment about future business conditions. However, investment intentions dropped from 4.5 to 2.7, suggesting some hesitancy in capital expenditures. Employment intentions rose from 5.4 to 7.0, reflecting moderately stronger inclination towards hiring.

              In terms of pricing, there was a noticeable increase, with pricing intentions moving from 46.8 to 50.2. This rise implies that more businesses are planning to increase their prices, which could contribute to inflationary pressures. Similarly, cost expectations saw an upward movement from 73.9 to 76.2, indicating rising costs for businesses. On the other hand, inflation expectations showed a decline from 4.79% to 4.61%.

              ANZ commented on the mixed nature of the inflation indicators, as they do not present an encouraging outlook for inflation. With more data expected before RBNZ’s February decision, this survey’s results might not be among the most favorable. While recent GDP data showed RBNZ’s measures gaining more traction than previously understood, the extent of economic downturn required to bring inflation down to the 2% target remains an unresolved question.

              Full NZ ANZ business confidence release here.

              New Zealand’s trade deficit narrows to NZD -1.2B, led by decreased trade with china

                By
                ActionForex
                -

                New Zealand’s goods trade deficit narrowed from NZD 1.7B to NZD 1.2B in November, aligning largely with market expectations. Exports fell by NZD 337m, representing -5.3% yoy decline, settling at NZD 6.0B. Meanwhile, imports saw a more substantial reduction of NZD 1.3B, -15% yoy decrease, totaling NZD 7.2B.

                A key factor in these changes is reduced trade volume with China, which led contraction in both imports and exports. Exports to China decreased by NZD 183m, -9.7% yoy fall. Imports from China also saw a substantial reduction of NZD 347m, marking -17% yoy decrease.

                Other key trading partners also showed varied trends. Exports to Australia and EU declined by NZD 35m (-4.5% yoy) and NZD 27m (-9.1% yoy), respectively. Conversely, exports to US increased by NZD 110m, a significant 18% yoy rise. Exports to Japan experienced a sharp decline of NZD 99m, -27% yoy drop.

                In the realm of imports, alongside China, EU, Australia, US, and South Korea all registered declines. Imports from the EU decreased by NZD 164m (-14% yoy), from Australia by NZD 219m (-23% yoy), from the US by NZD 68m (-11% yoy), and from South Korea by NZD 231m (-32% yoy).

                Full NZ goods trade balance release here.

                BoC’s Macklem see rate cuts in 2024, but with focus on core inflation trend

                  By
                  ActionForex
                  -

                  BoC Governor Tiff Macklem, in an interview with Bloomberg overnight, indicated that interest rate cuts are being considered “sometime in 2024,” but he emphasized that this decision hinges critically on the sustained easing of core inflation.

                  Macklem underlined the importance of core inflation as a key focus for BoC. He stated, “We’re very focused on core inflation.” Specifically, he pointed out the necessity for “a number of months with sustained downward momentum in core inflation” before the central bank can confidently move forward with interest rate cuts.

                  Nevertheles, Macklem expressed a growing confidence in the effectiveness of the current monetary policy, acknowledging that “increasingly, the conditions are in place to get us back to two-per-cent inflation.”

                  However, he was clear in conveying that this goal has not been fully achieved yet, stating, “but that is not yet assured, we’re not there yet.”

                  Fed’s Daly views 2024 as right for rate cuts, timetable uncertain

                    By
                    ActionForex
                    -

                    San Francisco Fed Bank President Mary Daly, in a Wall Street Journal interview yesterday, suggested that it might be appropriate for policymakers to start considering rate cuts in 2024, especially considering the easing of inflation this year. However, she also cautioned that it is premature to speculate on the exact timing of these rate reductions.

                    Daly emphasized the delicate balancing act Fed faces: the need to achieve price stability while minimizing job losses. Fed’s goal is to bring inflation down to its 2% target, but Daly highlighted the importance of doing so gently, “with as few disruptions to the labor market as possible.”

                    Another key point from Daly’s interview concerns the real borrowing costs for households and businesses. With inflation showing a downward trend, maintaining the current rate could inadvertently increase these costs. Daly conveyed her wariness that “we could overtighten quite easily, and so that’s what I’m mindful of”.

                    Aligning with the broader perspective of Fed policymakers, Daly’s views resonate with the median projections released last week. These projections suggest a majority of the 19 Fed policymakers anticipate a 75 basis-point reduction from the current target range of 5.25%-5.50% for the policy rate, aiming to bring inflation down to about 2.4% by the year’s end.

                    Fed’s Mester: The next phase is not when to reduce rates

                      By
                      ActionForex
                      -

                      In a Financial Times interview, Cleveland Fed President Loretta Mester put emphasis on the duration of maintaining restrictive monetary policy to ensure that inflation reliably returns to the 2% target. That’s contrary to market expectations, which centers on timing and extent of rate cuts.

                      Mester’s key statement, “The next phase is not when to reduce rates… It’s about how long do we need monetary policy to remain restrictive in order to be assured that inflation is on that sustainable and timely path back to 2%,”

                      “The markets are a little bit ahead. They jumped to the end part, which is ‘We’re going to normalize quickly’, and I don’t see that,” she added.

                      When the discussion eventually shifts to the timing and pace of rate cuts, Mester highlighted the importance of one-year forward inflation expectations and their alignment towards the 2% target.

                      “If you don’t take action as expected inflation comes down, then you’re really firming policy,” she warned. “You don’t want to inadvertently become more restrictive than you think is appropriate.”

                      ECB’s Vasle cautions against premature rate cut expectations

                        By
                        ActionForex
                        -

                        ECB Governing Council member Bostjan Vasle expressed skepticism about market expectations for imminent interest rate cuts, considering them “premature,” both in terms of timing and the overall scope of such moves. This perspective challenges the market’s anticipation of monetary easing, which currently sees 50-50 chance of a rate cut by March, with a full cut expected by April

                        Vasle emphasized that the current market pricing “has lowered the level of restriction”. Additionally, the accommodation priced into by interest rate expectations seems to be at odds with the monetary stance required to steer inflation back to the target.

                        Additionally, Vasle indicated that ECB would likely wait until at least the end of Q1 before considering any changes to its stance. This approach is grounded in the need for more comprehensive data, which will only be available around March or April. he added, “We will need to understand the underlying trends better, and we need the new projections, too.”

                        On the inflation front, Vasle posited that inflation could rebound at the year’s turn, potentially hovering between 2.5% to 3% through the first half of the next year. Vasle said, “So it’s appropriate to wait and observe price growth through this period and reassess our outlook.”

                        Germany’s Ifo business climate dips to 86.4, economy remains weak

                          By
                          ActionForex
                          -

                          Germany’s Ifo Business Climate fell from 87.3 to 86.4 in December, below expectation of 87.8. Current Assessment index fell from 89.4 to 88.5, below expectation of 89.5. Expectations index fell from 85.2 to 84.3, below expectation of 85.8.

                          By sector, manufacturing fell from -13.8 to -17.2. Services rose from -2.5 to -1.7. Trade fell from -22.2 to -26.6. Construction fell from -29.5 to -33.1.

                          The Ifo Institute’s statement encapsulates the current sentiment, noting that “companies were less satisfied with their current business” and expressing a more skeptical view of the first half of 2024. The acknowledgment that “the German economy remains weak as the year draws to a close” is telling of the challenges facing Europe’s largest economy.

                          Full German Ifo business climate release here.

                          NZ BNZ services rises to 51.2, maintains oscillating course

                            By
                            ActionForex
                            -

                            New Zealand BusinessNZ Performance of Services Index rose from 49.2 to 51.2 in November, crossing the threshold from contraction to expansion. However, it’s crucial to note that this figure remains below the long-term average of 53.5, suggesting that recovery is still in its nascent stages.

                            Looking at more details, activity/sales rose from 47.5 to 48.7. Employment rose from 49.5 to 51.0. New orders/business rose from 52.1 to 52.3. Stocks/inventories jumped from 51.5 to 55.0. Supplier deliveries rose from 50.1 to 52.9.

                            BusinessNZ Chief Executive Kirk Hope’s observation that the sector has been oscillating between contraction and expansion in recent months underscores the volatility and uncertainty still prevalent in the business environment.

                            The proportion of negative comments from businesses decreased from 58.2% in October to 54.0%. This reduction, though modest, is a positive sign, indicating a slight improvement in business sentiment. Hope added, “negative comments continued to be pinpointed on key areas such as the economy, inflation and cost of living”.

                            Full NZ BNZ PSI release here.

                            New Zealand Westpac consumer confidence rises to 88.9 in Q4, encouraging sign

                              By
                              ActionForex
                              -

                              New Zealand Westpac Consumer Confidence Index rose notably from 80.2 to 88.9 in Q4, hitting the highest level in nearly two years. Present Conditions Index rose from 69.5 to 77.1. Expected Conditions Index also rose from 87.4 to 96.7.

                              However, Westpac noted that the index is still below historical average. This means “many more New Zealanders [are] feeling pessimistic about economic conditions.” But it’s important to recognize the positive trajectory reflected in these recent months. The rise in the Consumer Confidence Index is an “encouraging sign,” as noted by Westpac.

                              Full NZ Westpac consumer confidence release here.

                              Fed’s Goolsbee: Declaring inflation victory now is premature, akin to counting the chickens

                                By
                                ActionForex
                                -

                                Appearing in CBS’s Face the Nation on Sunday, Chicago Fed President Austan Goolsbee acknowledged the significant progress made in 2023 but tempered expectations with a note of caution, emphasizing that the fight against inflation is far from over. His stated, “I still caution everyone, it’s not done”. As he also noted, “data is going to drive what’s going to happen to rates,”

                                Discussing the scenario of “soft landing” for the economy, Goolsbee expressed caution, deeming it premature to claim victory in this regard. He projected that 2023 would likely witness a significant reduction in inflation, coupled with a stable unemployment rate. Referring to this balance as “the golden path”.

                                In his words, Goolsbee conveyed a message of continued vigilance. He cautioned against premature celebration, using the metaphor of “counting the chickens” to emphasize the need for consistent evidence of economic recovery.

                                Full transcript of Fed’s Goolsbee’s interview here.

                                US PMI composite rises to 51.0, picks up a little momentum

                                  By
                                  ActionForex
                                  -

                                  US PMI Manufacturing fell from 49.4 to 48.2 in December. PMI Services rose from 50.8 to 51.3. PMI Composite rose from 50.7 to 51.0, a 5-month high.

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

                                  “The early PMI data indicate that the US economy picked up a little momentum in December, closing off the year with the fastest growth recorded since July.

                                  “Looser financial conditions have helped boost demand, business activity and employment in the service sector, and have also helped lift future output expectations higher. However, the increased cost of living and cautious approach to spending by households and businesses means the overall rate of service sector growth remains far short of that witnessed during the travel and leisure revival back in the spring and summer.

                                  “Manufacturing meanwhile remains a drag on the economy, with an increased rate of order book decline prompting factories to reduce production, cut back on headcounts and scale back their input buying.

                                  “Despite the December upturn, the survey therefore signals only weak GDP growth in the fourth quarter.

                                  “The survey’s selling price gauge, which tends to lead changes in consumer price inflation, remains sticky but at a level which is indicative of CPI running only modestly above 2%. Service sector input cost inflation, a key gauge of core inflation, once again remained notably elevated by historical standards, though even here the average rate of increase in the fourth quarter has been the lowest since mid-2020.”

                                  Full US PMI release here.

                                  ECB Villeroy: Rate hikes are over, but that doesn’t mean a quick cut

                                    By
                                    ActionForex
                                    -

                                    ECB Governing Council member Francois Villeroy de Galhau, in an Ecorama radio interview, stated, “Barring shocks or surprises, rate hikes are over. However, he emphasized that “doesn’t mean a quick rate cut.” He further clarified, “We are not guided by a calendar, we are guided by data,” and called for “confidence and patience.”

                                    Villeroy also commented on the pace of disinflation, noting it is occurring “a little quicker than expected,” largely due to the faster-than-anticipated transmission of monetary policy. He concluded, “In other words, monetary policy is effective.”

                                    Madis Muller, another ECB Governing Council member, expressed the view that markets might be “a bit optimistic” about the prospects of early rate cuts. This sentiment was echoed by Robert Holzmann, who stated that there were no discussions about rate cuts among policymakers. Holzmann also mentioned that a majority of the Council members perceive upside risks to inflation.

                                    UK services sector boosts PMI composite, averting recession, BoE cut premature

                                      By
                                      ActionForex
                                      -

                                      UK PMI Manufacturing fell from 47.2 to 46.4, below the expected 47.5. Conversely, PMI Services rose from 50.9 to 52.7, exceeding expectations of 51.0 and reaching a six-month high. This surge in services also lifted PMI Composite from 50.7 to 51.7, marking another six-month high.

                                      Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, commented, “The UK economy continues to dodge recession, with growth picking up some momentum at the end of the year to suggest that GDP stagnated over the fourth quarter as a whole.” He added that while employment fell for a fourth consecutive month, the decline was marginal and did not significantly impact unemployment.

                                      Williamson also highlighted the dual-speed nature of the UK economy, with manufacturing contracting sharply while services, particularly financial services, showed signs of growth. This growth in services was partly attributed to expectations of lower interest rates in 2024.

                                      The divergence between the two sectors is also evident in inflation pressures. While goods-producing sector showed falling prices, service providers reported persistent and elevated inflationary pressures, often linked to wage growth. Williamson indicated that this could keep inflation above 3% in the coming months.

                                      He added, “The service sector’s resilience and sticky inflation picture will add to speculation that it’s too early for the Bank of England to be talking about cutting interest rates.” However, he also cautioned that the tentative nature of December’s growth and the impact of looser financial conditions could raise fears of further policy tightening, potentially leading to economic decline.

                                      Full UK PMI release here.

                                      Eurozone PMI composite fell to 47.0, prolonged economic contraction

                                        By
                                        ActionForex
                                        -

                                        Eurozone PMI Manufacturing remained unchanged at 44.2 in December, falling short of anticipated 44.5. PMI Services index also declined from 48.7 to 48.1, below expected 49.0. Consequently, PMI Composite index decreased from 47.6 to 47.0.

                                        Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, provided a critical analysis of these figures. He noted, “Once again, the figures paint a disheartening picture as the Eurozone economy fails to display any distinct signs of recovery. On the contrary, it has contracted for six straight months.”

                                        This ongoing contraction underscores the challenges facing the Eurozone economy, with a high likelihood that it has been in a recession since the third quarter.

                                        De la Rubia also observed, “A closer look at the top two economies in the Eurozone reveals a positive comparison for Germany in relation to France, particularly within the service sector.” Germany is experiencing a slower contraction in services compared to the more pronounced downturn in France. The manufacturing sector exhibits similar trends, with France facing a faster pace of output decline than Germany.

                                        However, De la Rubia cautioned against any sense of satisfaction from Germany’s comparatively better performance, emphasizing, “Obviously, there’s no room for ‘Schadenfreude’ on the German side… the positive comparison does not change the fact that Germany’s economy is in a bad shape, in absolute terms.”

                                        Also released, France PMI Manufacturing fell from 42.9 to 42.0 in December, a 43-month low. PMI Services fell from 45.4 to 44.3, a 37-month low. PMI Composite fell from 44.6 to 43.7, also a 37-month low. Germany PMI Manufacutring rose from 42.6 to 43.1, a 7-month. PMI Services fell from 49.6 to 48.4. PMI Composite fell from 47.8 to 46.7.

                                        Full Eurozone PMI release here.

                                        China’s industrial output Surges, retail sales and investment miss expectations

                                          By
                                          ActionForex
                                          -

                                          China’s economic data for November 2023 presented a mixed picture, with industrial output exceeding expectations while retail sales and fixed asset investment fell short.

                                          Industrial output saw a significant increase of 6.6% yoy, surpassing the expected 5.6% yoy and marking the strongest expansion since February 2022.

                                          However, retail sales, rose by 10.1% yoy, which was below the anticipated 12.5%. It’s important to note that this increase was influenced by a low base effect from the previous year, when China’s stringent coronavirus pandemic control measures significantly impacted consumer activities.

                                          Fixed asset investment, a key driver of economic growth, increased by 2.9% ytd yoy, slightly missing the expected 3.0%.

                                          National Bureau of Statistics of China commented on the overall economic situation, stating: “There are still a lot of external instabilities and uncertainties, and the domestic demand appears insufficient.” The NBS emphasized the need to solidify the foundation of the economy’s recovery.

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