US initial jobless claims rose 45k to 770k in the week ending March 13, above expectation of 770k. Four-week moving average of initial claims dropped -16k to 746k.
Continuing claims dropped -18k to 4124k in the week ending March 6. Four-week moving average of continuing claims dropped -99k to 4225k.
New Zealand ANZ Business Confidence jumped to -6.9 in November, well above preliminary reading of -15.6 and October’s final of -15.7. Manufacturing confidence surged 14.5 pts and turned positive to 6.7. Retail confidence and services confidence also rose 17.9 pts and 10.2 pts to -3.8 and -6.6 respectively. Agriculture and construction dropped by -2.4 and -15.8 to -52.4 and -3.3.
Activity Outlook rose to 9.1, versus preliminary reading of 4.6 and October’s 4.7. Manufacturing outlook rose 13.4 to 15.0. Construction rose 14.5 to 23.3. Services rose 3.2 to 9.2. But retail dropped -2.2 to 0 while agriculture dropped -5.1 to -9.1.
ANZ noted: “Monetary and fiscal policy have undoubtedly done their jobs this year. But it’s worth remembering that both work by bringing forward spending from the future. There’s no free lunch, and they need to be used judiciously. The true underlying momentum of the economy should become clearer over the next few months as the impact of one-offs fade, but the case for further life-support measures is becoming less clear by the day. And that’s certainly something to celebrate.”
In the Summary of Opinions of BoJ’s January 20/21 meeting, it’s noted that there has been “no further increase in the possibility that the momentum toward achieving the price stability target will be lost.”. Therefore, it’s “appropriate” to keep monetary policy unchanged. Nevertheless, the possibility of inflation losing momentum continues to “warrant attention”. It’s “appropriate” to tilt toward monetary accommodation.
Also, Japan is just “only halfway toward moving out of the so-called Japanification” of secular stagnation where low growth, low inflation, and low interest rates last for a long period. Risk of deflation continues to “warrant attention”. Downside risks to economic activity and prices are “still significant”. It’s necessary to be prepared for possible economic downturn as one of the risk scenarios.
ECB Governing Council member Yannis Stournara, a known dove, proposed two rate reductions “before the summer break” and a total of four throughout the year. This strategy, he argues, is essential to ensure that ECB’s monetary policy “does not become too restrictive” in the face of current economic challenges.
In an interview, Stournaras emphasizes the urgency of beginning these rate cuts soon, but not in April, as there will be “only little new information” available before then.
The rationale behind Stournaras’s push for rate cuts stems from his observations on Eurozone’s economy is “much weaker than expected,” with risks skewed to the downside. Meanwhile, inflation, although significantly reduced, presents a balanced risk profile.
Addressing concerns about risk of “wage-price spiral,” Stournaras argued that wages are merely “catching up, not leading inflation.” He also highlights the moderating trend in nominal wage growth and the capacity of profits to absorb part of the pay increases, suggesting that fears of a wage-driven inflationary loop may be overstated.
Looking ahead, Stournaras envisions the deposit rate gradually decreasing to 2% by the end of 2025 or the beginning of 2026. However, he draws a line at this level, suggesting that rates should not fall below the pre-pandemic levels of 2%.
In the Regional Economic Report, BoJ upgraded economic assessment of 2 regions (Hokuriku and Kinki), downgraded 2 regions (Chugoku and Shikoku), and kept 5 regions unchanged (Hokkaido, Tohoku, Kanto-Koshinetse, Tokaiand Kyshu-Okinawa).
It added: “while they reported that their economy had remained in a severe situation due to the impact of the novel coronavirus (COVID-19) — with some reporting that it had seen a slowdown in the pace of its pick-up — many reported that it had picked up as a trend or had started to pick up.”
Governor Haruhiko Kuroda told branch managers, “Japan’s economy remains in a severe state but is picking up as a trend… As the pandemic’s impact gradually eases, the economy will recover thanks to increasing external demand, loose monetary policy and the effect of government stimulus measures.”
Atlanta Fed President Raphael Bostic said yesterday that he backed the plan of raising interest rate by 50bps in June and July. But a “pause” in September is also in his baseline view.
“I’m at 50 basis points as long as the economy proceeds as I think it’s going to,” Bostic said. “If inflation starts moving in a different direction than it is right now, I’d have to be open to us moving more aggressively. I do want to make it clear that nothing is off the table. As we go through the months, we will see how it plays out.”
“I have got a baseline view where for me I think a pause in September might make sense,” Bostic told reporters Monday following a speech to the Rotary Club of Atlanta. “After we get through the summer and we think about where we are in terms of policy, I think a lot of it will depend on the on-the-ground dynamics that we are starting to see. My motto is observe and adapt.”
CAD/JPY lost momentum after after hitting 88.28 last week. But overall, outlook remains bullish as long as 86.05 support holds. Current up trend from 73.80 is likely reversing the down trend from 106.48. 91.62 long term resistance is the next upside target. Sustained break there will confirm long term bullishness.
EUR/CAD also lost downside momentum after hitting 1.4737 last week. But overall, outlook stays bearishness with 1.4972 resistance intact. Focus is now on 161.8% projection of 1.5978 to 1.5313 from 1.5783 at 1.4707. Sustained break there will pave the way towards 1.4263 key support level. However, as current decline from 1.5991 could be just a leg inside the long term sideway pattern from 1.6103. We’d look for more signs of bottoming as it approaches 1.4623.
BoJ Governor Kazuo Ueda, in a speech today, delineated the two forces in play regarding Japan’s inflationary pressures: “The first force, led by import prices, has seen its year-on-year rate of increase decelerate,” and he anticipates this force will “gradually wane.”
As for the second force, Ueda suggested it is tied to changes in firms’ wage and price-setting behaviors, with the potential to strengthen as “wage growth accelerates owing to economic improvement, leading to moderate inflation.”
However, he cautioned that the spread and permanence of these behaviors are uncertain, adding, “Changes have started to be seen in some aspects of firms’ wage- and price-setting behavior, but there are extremely high uncertainties as to whether these changes will become widespread.”
Addressing Japan’s broader economic outlook, Ueda described the nation as being in a “critical phase” concerning the interplay between wages and prices. Stressing the importance of fostering nascent economic shifts, he emphasized the need “to carefully nurture the buds of change in the economy.”
Ueda reiterated BoJ’s stance on monetary policy, stating the need “to patiently continue with monetary easing under the framework of yield curve control.”
FOMC raised federal funds rate to 1.75-2.00% as widely expected. Statement below.
Federal Reserve Issues FOMC Statement
Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising at a solid rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Recent data suggest that growth of household spending has picked up, while business fixed investment has continued to grow strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy have moved close to 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.
In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 1-3/4 to 2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.
Voting for the FOMC monetary policy action were Jerome H. Powell, Chairman; William C. Dudley, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Loretta J. Mester; Randal K. Quarles; and John C. Williams.
ECB Governing Council member Robert Holzmann told FT in an interview, that he could “see no signs that core inflation is reducing” . He added that another big rate hike “would give a strong signal about our determination,” as “it would tell businesses and trade unions we are serious so don’t underestimate us, be careful.”
He backs another 75bps rate hike in December but he was still “open to changing my mind” based on the ECB’s new quarterly economic forecasts. He added that interest rates could need to rise to a level where they “caused pain”. Hence, it’s important to hike “early” because “afterwards the pain is much, much larger.”
Canada GDP grew strongly by 1.1% mom in February, above expectation of 0.8% mom. That’s the fastest monthly growth since March 2021, and the ninth consecutive monthly expansion. Services-producing industries grew 0.9% while goods-producing industries grew 1.5%. 16- of industrial sectors expanded. Advance information indicates that GDP increased 0.5% mom in March.
Gold failed to break through 1833.91 resistance again today. It reversed earlier gains in response to much stronger than expected ISM services data. The development suggests that consolidation pattern from 1833.91 is extending with another falling leg. Still for now, further rise is expected as long as 1789.42 support holds.
On the upside, firm break of 1833.91 will finally confirm resumption of rise from 1750.49, for 61.8% retracement of 1916.30 to 1750.39 at 1852.96.
BoC left overnight rate unchanged at effective lower bound of 0.25% as widely expected. Bank rate and deposit rate are held at 0.50% and 0.25% respectively. It maintained the forward guidance that conditions for rate hike is expected to happen “some time in the second half of 2022”.
The central bank also continued tapering and reduce weekly asset purchase target to CAD 2B, down from CAD 3B. It said that, “this adjustment reflects continued progress towards recovery and the Bank’s increased confidence in the strength of the Canadian economic outlook.”
As third wave of coronavirus slowed growth in Q2, BoC now expects around 6% GDP growth in 2021, “a little slower than was expected in April”. But it has revised up its 2022 forecast to 4.50% and projects 3.25% growth in 2023.
On inflation,with higher gasoline prices and on-going supply bottlenecks, it’s likely to “remain above 3 percent through the second half of this year”, then ease back to 2% in 2022.
Entering into US session, the forex markets remain steady today, with major pairs and crosses bounded inside yesterday’s range. Euro is so far the strongest one, followed by New Zealand and then Australian Dollars. Yen is the weakest one, followed by Swiss Franc and then Sterling. But it’s actually not too meaningful to name them as strongest and weakest considering the tight range the pairs are in.
For the week, Sterling is the strongest one so far. It’s rather hard to react to BoE’s new economic projections. Growth forecasts were revised up but inflation forecasts were revised down. Most importantly, BoE painted a much slower rate path and a full 25bps hike in Q4 2021, comparing Q3 2020. Euro is the second strongest, followed by Canadian. New Zealand Dollar and Australian Dollar are the weakest. Dollar pared back much losses after Fed Chair Jerome Powell indicated there is no urgency to shift interest rate in either direction. But there is no follow through buying after that.
In Europe:
Earlier in Asia:
China’s PBoC said that the country’s foreign currency reserves dropped to USD 3.104T in July, down from USD 3.119T. The modest decline suggested that PBoC has refrained from selling foreign exchange directly for currency intervention. And according to economists, China’s capital inflows and outflows are roughly balanced. Thus, there is little need for PBoC to buy of sell foreign currencies.
State Administration of Foreign Exchange spokeswoman Wang Chunying said China’s economy has continued ” the overall stable, steady and progressive development trend, and the main macroeconomic indicators have remained within a reasonable range.” Also, ” cross-border capital flows have remained stable. ” Wang also dismissed claim of China as currency manipulator as groundless.
Canada CPI rose 0.6% mom in January above expectation of 0.5% mom. Annually, CPI accelerated to 1.0% yoy, up from 0.7% yoy, above expectation of 0.9% yoy.
CPI common was unchanged at 1.3% yoy, below expectation of 1.4% yoy. CPI median slowed to 1.4% yoy, down from 1.8% yoy, below expectation of 1.8% yoy. CPI trimmed rose to 1.8% yoy, up from 1.6% yoy, above expectation of 1.6% yoy.
ECB President Mario Draghi told the ECON committee of the European Parliament today that data since September have been “weaker than expected”. And, the “loss in growth momentum mainly reflects weaker trade growth, but also some country and sector-specific factors.”
But he tried to talk down the slowdown as he said “A gradual slowdown is normal as expansions mature and growth converges towards its long-run potential.” Also, “some of the slowdown may also be temporary.” He maintained that “underlying drivers of domestic demand remain in place.” On prices, Draghi reiterated that “recent developments confirm the Governing Council’s earlier assessments of the medium-term inflation outlook.”
And ECB therefore “continues to anticipate that, subject to incoming data confirming our medium-term inflation outlook, net asset purchases will come to an end in December 2018.” But he also emphasized that “prevailing uncertainties still call for patience, prudence and persistence in calibrating our monetary policy stance.” And, “significant degree of monetary policy stimulus will be maintained, even after the end of net asset purchases.”
Japan’s Vice Minister of Finance for International Affairs, Masato Kanda, issued a strong warning as Dollar approaches 148 yen, marking a high for this year.
Kanda stated, “We are closely monitoring the situation, with a high sense of urgency. If such moves continue, the government will take appropriate measures, and all options are on the table.”
These remarks are the first significant warning since the Ten dropped below the 145-per-dollar mark in mid-August. Since then, Japanese authorities had been relatively silent.
With the declared “high sense of urgency”, Japan has effectively put currency traders on alert for potential intervention or other policy moves. The “all options are on the table” comment raises the possibility of multiple policy actions, ranging from more verbal warnings to more market interventions to curb yen’s fall.
UK Prime Minister Theresa May is travelling to Brussels to meet EU leaders to convince them to tweak the Irish backstop arrangement. And as the March 29 formal Brexit date is approaching, May is expected to ask European Commission President Jean-Claude Juncker, European Council President Donald Tusk and the European parliament’s Antonio Tajani to work “urgently”.
According to her office, May is expected to tell the parliament that the “The government now wants urgently to work with the EU to secure such changes … We must show determination and do what it takes to now get the deal over the line.” While the expectation on the meeting is low, May would describe today’s meeting as “part of a process leading to the government bringing back” a new vote on a Brexit agreement as soon as possible.
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UK published documents on no-deal Brexit preparations
UK government published a collection of documents on “How to prepare if the UK leaves the EU with no deal“. Topics covered include applying for EU-funded programs, civil nuclear and nuclear research, farming, Importing and exporting, labelling products and making them safe, money and tax, regulating medicines and medical equipment, state aid, studying in the UK or EU, workplace rights.
Brexit minister Dominic Raab said he wanted to make sure Britain “goes from strength to strength, even in the unlikely event that we do not reach a negotiated deal with the European Union.” Nonetheless, Raab remained “confidence that a good deal is within out sights”.