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BoE’s Pill: Maintaining restrictive rates, not hikes, essential for tackling inflation

    By
    ActionForex
    -

    BoE Chief Economist Huw Pill highlighted today that the existing policy rate, deemed restrictive, is sufficient to dampen inflationary pressures without necessitating further hikes.

    “Having established monetary policy in restrictive territory, it’s not the case that we need to raise rates in order to bear down on inflation,” he said in a speech to the Institute of Chartered Accountants in England and Wales.

    “Sustaining rates at their current restrictive level will continue to bear down on inflation,” he affirmed “It is that maintaining of the restrictive stance that is key to achieving the inflation target.”

    Pill also acknowledged the role of global economic developments in the inflation outlook but was keen to point out the influence of BoE’s actions. “That tightening of monetary policy is bearing down on inflation and contributing to this decline,” he stated.

    Despite these measures, Pill expressed caution, noting that inflation, especially in the service sector, has displayed more tenacity than anticipated, without a “decisive turning point” in sight.

    Moreover, wage growth is proving to be more persistent, signaling that it may take longer to align with the 2% inflation target than previously projected by models.

    Bitcoin breaks key fibonacci resistance amid ETF speculation

      By
      ActionForex
      -

      In a notable surge, Bitcoin has pierced through a key Fibonacci resistance level, stirring the market as whispers of a wave of Bitcoin ETF approvals by US SEC enhance investor optimism. The digital currency’s leap forward comes amid speculations that the SEC could, within an eight-day window that started today, green-light up to 12 spot Bitcoin ETF filings. Despite the buzz, the market consensus still eyes January 10 as the likely date for concrete decisions.

      Technically, near term outlook will now stay bullish as long as 33373 support holds. Next target is 100% projection of 15452 to 31815 from 24896 at 41259.

      For the medium term, the break of 38.2% retracement of 68986 to 15452 at 35902 now opens the door to further rally to 61.8% retracement at 48536. The structure and momentum of the current rise will be monitor to assess whether rise form 15452 is a medium term corrective move, or the start of a long term up trend.

      BoJ Ueda awaits wage trends before altering policy

        By
        ActionForex
        -

        In today’s parliamentary session, BoJ Governor Kazuo Ueda emphasized a cautious stance on Japan’s monetary policy, acknowledging the need for more evidence before making any adjustments.

        “We expect trend inflation to gradually approach 2 percent. But we’d like to wait until we have more conviction that sustained achievement of our price target comes into sight,” Ueda said.

        Highlighting the significance of wage trends, Governor Ueda noted, “Whether wage hikes will broaden and become embedded in society, firms begin to hike prices on prospects of rising wages, will be key to judging whether inflation target will be met sustainably.”

        He reaffirmed the Bank’s current strategy: “Until then, we will maintain negative interest rates and the yield curve control framework.”

        The Summary of Opinions from the BoJ’s October meeting, released separately, showed a notable stance from one member suggested optimism about wage growth, “It’s highly possible that wage growth to be agreed in next year’s base pay negotiations will exceed that agreed this year,” and added that “achievement of the BoJ’s price target is coming into sight.”

        One member went further to suggest that the chances of meeting the inflation target have increased, proposing that “It’s therefore necessary for the BOJ to gradually adjust the degree of monetary easing down from its maximum level.”

        Another member’s opinion highlighted that adjustments in yield controls are not just a mitigation of side-effects but also pave the way for future policy normalization.

        BoC minutes reflect division on path forward for interest rate

          By
          ActionForex
          -

          The latest deliberations within BoC have revealed a divide among officials over the course of monetary policy, as they confront the challenge of reigning in inflation without further rate hikes. At the heart of the debate is whether the current 5.00% policy rate will suffice in guiding inflation back to the targeted 2%.

          The minutes from the October 25 meeting, where BoC maintained the interest rate, reflect this uncertainty. A faction within the bank is leaning towards additional tightening measures. “Some members felt that it was more likely than not that the policy rate would need to increase further to return inflation to target,” the minutes read, highlighting concerns that the current policy stance may not be enough to temper rising prices.

          On the flip side, there is a sense of cautious optimism among other members, who believe that maintaining the current rate might achieve the desired effect over time. “Others viewed the most likely scenario as one where a five per cent policy rate would be sufficient to get inflation back to the two per cent target, provided it was maintained at that level for long enough,” the minutes elaborated.

          This divergence in views has culminated in a consensus to adopt a “patient” approach, reflecting a strategy of watchful waiting while assessing incoming data. “They agreed to revisit the need for a higher policy rate at future decisions with the benefit of more information,” according to the documented discussions.

          Bundesbank’s Nagel stresses final push to inflation target as toughest hurdle

            By
            ActionForex
            -

            Bundesbank President Joachim Nagel likened the journey toward ECB’s inflation target to an arduous “last mile,” which “may well be the hardest”.

            Nagel pointed out that a key strategy for businesses would involve absorbing recent wage hikes—a move that will necessitate accepting slimmer profit margins.

            On the other side, he emphasized the necessity of a more restrained fiscal approach from governments.

            While wage increases are anticipated to exert some pressure on pricing, Nagel reassured that currently, there’s no sign of a “self-reinforcing spiral” in wage-price dynamics. This suggests a cautious optimism that, while the path forward is steep, runaway inflation is not an imminent threat.

            ECB’s Lane: Some progress on underlying inflation, but not enough

              By
              ActionForex
              -

              ECB Chief Economist Philip Lane indicated that although there is “some progress” in mitigating underlying inflationary, he is not fully convinced of the sufficiency of these efforts to date.

              “This is why we are in this period now of holding interest rates at a significantly high level until this process makes further progress,” Lane explained,

              Lane also conveyed his reservations about the steep decline in headline inflation numbers, attributing the fall primarily to the base effect from last year’s energy price surges.

              Looking ahead, Lane projected that the descent in inflation rates might pause, with inflation likely hovering in the “high twos or low threes” range in 2024.

              He anticipates that a reversion to the ECB’s desired 2% inflation target would not materialize until 2025, suggesting a prolonged journey ahead for the central bank in its fight against persistent inflation.

               

              ECB survey reveals heightened short-term inflation expectations and economic pessimism

                By
                ActionForex
                -

                ECB’s latest Consumer Expectations Survey has provided a snapshot of the current economic mood, characterized a heightened anticipation of inflation pressures in the near term juxtaposed with a more pessimistic outlook on economic growth.

                The survey results for September show a discernible uptick in median consumer inflation expectations for the coming year, escalating from 3.5% to 4.0%. However, that consumers’ median inflation expectations over a three-year horizon held steady at 2.5%.

                Contrastingly, the survey indicates no change in the mean expectations for nominal income growth, which remains anchored at 1.2%. This static view on income growth, coupled with the slight increase in anticipated nominal spending growth from 3.3% to 3.4%, hints at a potential squeeze on real consumer spending power.

                The more negative tilt in expectations for economic growth, which have slipped from -0.8% to -1.2%, reflects an escalating concern over the economic direction. Furthermore, the anticipated unemployment rate has edged up from 11.1% to 11.4% for the coming year.

                Full ECB Consumer Expectations Survey here.

                Eurozone retail sales down -0.3% mom in Sep, EU fell -0.2% mom

                  By
                  ActionForex
                  -

                  Eurozone retail sales volume fell -0.3% mom in September, worst than expectation of -0.2% mom. Volume of retail trade decreased by -1.9% for non-food products and by -0.9% for automotive fuels, while it increased by 1.4% for food, drinks and tobacco.

                  EU retail sales volume was down -0.2% mom, Among Member States for which data are available, the largest monthly decreases in the total retail trade volume were registered in Slovakia (-2.0%), Sweden (-1.1%), Germany and the Netherlands (both -0.8%). The highest increases were observed in Slovenia (+1.1%), Poland (+1.0%) and Denmark (+0.9%).

                  Full Eurozone retail sales release here.

                  Short-term inflation fears abate according to RBNZ survey

                    By
                    ActionForex
                    -

                    In the latest RBNZ quarterly Business Survey of Expectations, near-term outlook for inflation has cooled, with one-year-ahead expectations retreating from 4.17% to 3.60%, a significant decline of 57 basis points. On a two-year horizon, the expectation for inflation has seen a marginal dip of 7 basis points to 2.76%.

                    Conversely, expectations for inflation over a five and ten-year span have inched upwards. The survey revealed a mean five-year-ahead annual inflation expectation of 2.43%, marking an 18 basis points increase from the previous quarter’s estimate. Ten-year expectations also saw a modest rise of 6 basis points to 2.28%.

                    With regard to the Official Cash Rate (OCR), the consensus is that it would hover at 5.50% by the end of December 2023. Looking one year ahead, the mean OCR expectation has fallen to 4.99%, indicating that businesses anticipate a loosening of monetary policy in the future once the immediate inflationary pressures have been mitigated.

                    On the growth front, respondents to the survey are more bullish. The mean one-year-ahead GDP growth expectation increased to 1.26%, up from 1.02%. The forecast for two-year-ahead GDP growth also saw an uptick, rising to 2.15% from the prior 1.95%.

                    Full RBNZ survey results here.

                    BoJ Ueda suggests easy policy exit could precede real wage recovery

                      By
                      ActionForex
                      -

                      In an address to the parliament today, BoJ Governor Kazuo Ueda indicated a forward-looking approach to monetary policy, wherein the anticipation of rising real wages could be a determinant for policy normalization, rather than their current state.

                      Ueda posited, “Real wages would likely have turned positive when a positive wage-inflation cycle kicks off.”

                      Delving into the timing of potential policy shifts, Ueda mentioned, “But in terms of how long we maintain our massive monetary easing… real wages don’t necessarily have to turn positive before that decision is made.”

                      Clarifying this point, he further elaborated that “The decision could be made if we can foresee with some certainty that real wages will turn positive ahead.”

                      Ueda also addressed the persistent gap between current inflation rates and the bank’s longstanding target, stating, “When looking at trend inflation, there’s still some distance towards our 2% target. That is why we are continuing with massive easing.”

                      Fed’s Bowman expects to raise interest rates further

                        By
                        ActionForex
                        -

                        In a speech overnight, Fed Governor Michelle Bowman asserted, “I continue to expect that we will need to increase the federal funds rate further to bring inflation down to our 2% target in a timely way.”

                        She acknowledged that interest rates “appears to be restrictive” while financial conditions “have tightened since September”. However, “We don’t yet know the effects of tightened financial conditions on economic activity and inflation, she cautioned.

                        “There is an unusually high level of uncertainty regarding the economy and my own economic outlook, especially considering recent surprises in the data, data revisions, and ongoing geopolitical risks,” she noted.

                        Full speech of Fed Bowman here.

                        Fed’s Logan: Tight financial conditions crucial to steer inflation back to target

                          By
                          ActionForex
                          -

                          At a Fed conference overnight, Dallas Fed President Lorie Logan said that inflation appears to be “trending toward 3%”, a figure still above the 2% target.

                          Despite a cooling labor market, Logan highlighted that it remains “too tight,” implying that the job market’s strength could continue to put upward pressure on wages and, consequently, inflation.

                          Logan emphasized the need “see tight financial conditions in order to bring inflation to 2% in a timely and sustainable way”. She will be looking at “data” and “financial conditions” as the next meeting in December approaches.

                          With a particular focus on recent retracement in 10-year Treasury yield and broader financial conditions, Logan suggests these elements will play a pivotal role in shaping Fed’s forthcoming monetary policy decisions.

                           

                          Fed’s Goolsbee: Job market getting into better balance

                            By
                            ActionForex
                            -

                            Chicago Fed President Austan Goolsbee, in recent comments to CNBC, noted that the job market is “getting into better balance,” a sign that the central bank’s policies may be having the desired effect without tipping the economy into a sharp downturn.

                            The Chicago Fed head also mentioned the need for a shift in focus from the height of rate hikes to the duration for which these elevated rates might need to be maintained.

                            “As long as we’re making progress,” he remarked, “the moment of arguing how high should the rate go is going to fade to how long should we keep rates at this level as inflation is coming down.”

                            Fed’s Kashkari sees inflation battle far from over

                              By
                              ActionForex
                              -

                              In a recent interview with Bloomberg TV, Minneapolis Fed President Neel Kashkari underscored Fed’s commitment to reining in inflation, stressing the importance of reducing the inflation rate to Fed’s target of 2% over a “reasonable period of time.”

                              However, he also candidly expressed that the exact measures required to achieve this goal are still uncertain, as the economic response will guide future actions.

                              “We have to get inflation back down to 2% over a reasonable period of time,” Kashkari stated, adding, “Ultimately, the economy will tell us how much is needed to get there. And I just don’t know.”

                              Kashkari’s remarks come at a time when the economy is displaying resilience in the face of aggressive monetary tightening, with economic indicators not showing signs of significant weakening. “I’m not seeing a lot of evidence that the economy is weakening,”

                              Despite Fed’s aggressive rate hikes aimed at cooling inflation, Kashkari emphasized that policymakers have not declared victory yet. The fight against inflation is ongoing, and Fed is prepared to implement additional tightening measures if they are deemed necessary.

                              Gold completes head and shoulder top, how low will it go?

                                By
                                ActionForex
                                -

                                Gold’s decline from 2009.26 continued today and the break of 1969.67 support completed a head and shoulder top pattern (ls: 1997.00, h: 2009.26, rs: 2003.90). The development suggests that it’s already in correction to the whole rally from 1810.26. Further decline should be seen towards 38.2% retracement of 1810.26 to 2009.26 at 1933.24.

                                Overall outlook is unchanged that correction from 2062.95 has completed with three waves down to 1810.26. Hence, strong support should be seen from 1933.24, which is close to 55 D EMA (now at 1933.62), to contained downside. Another rally through 2009.26 to retest 2062.95 high should be seen sooner rather than later.

                                However, sustained break of 1933 support zone, will dampen this above bullish view, and open up deeper fall 61.8% retracement at 1886.27, and possibly below.

                                Eurozone’s PPI at 0.5% mom, -12.4% yoy in Sep

                                  By
                                  ActionForex
                                  -

                                  Eurozone PPI came in at 0.5% mom, -12.4% yoy in September, versus expectation of 0.3% mom, -12.5% yoy. For the month, Industrial producer prices increased by 2.2% in the energy sector, while prices remained stable for capital goods and for durable consumer goods, and prices decreased by 0.2% for both intermediate goods and non-durable consumer goods. Prices in total industry excluding energy decreased by 0.1%.

                                  EU PPI came in at -0.6% mom, -11.2% yoy. The biggest monthly increases in industrial producer prices were observed in Luxembourg (+28.5%), Romania (+2.6%) and Bulgaria (+2.1%), while the largest decreases were recorded in Finland (-0.9%), Cyprus and Poland (both -0.3%) and Germany (-0.2%).

                                  Full Eurozone PPI release here.

                                  China’s export decline deepens while imports rebound

                                    By
                                    ActionForex
                                    -

                                    China’s export figures have taken a sharper downturn than anticipated in October, contracting by -6.4% yoy to USD 274.8B, exceeding market predictions of -3.1% yoy. This downturn marks the sixth consecutive month where China’s exports have receded.

                                    In contrast, imports defied expectations with a 3.0% yoy increase, a significant departure from the forecasted -5.4% yoy decline, and putting an end to an 11-month streak of contraction.

                                    The culmination of these trade activities resulted in a considerable narrowing of the trade surplus, which shrunk from USD 77.7B to USD 56.5B. This is a stark contraction compared to the anticipated figure of USD 84.2B.

                                    RBA hikes to 4.35%, future path hinges on evolving data

                                      By
                                      ActionForex
                                      -

                                      RBA announced an increase in cash rate target by 25 bps to 4.35%, aligning with market anticipations. Accompanying this move, RBA signaled a shift to a neutral policy stance, indicating that “whether further tightening of monetary policy is required… will depend upon the data and the evolving assessment of risks .”

                                      In the statement, RBA said inflation is “still too high” and is proving “more persistent than expected a few months ago”. A rate hike was was warranted today to be “more assured” that inflation would return to target in a “reasonable timeframe”.

                                      The central bank’s outlook is tempered by “significant uncertainties,” particularly regarding the persistence of services inflation which has been notably resilient internationally and could mirror in the Australian market.

                                      The effectiveness of monetary policy changes and the response of wage settings and pricing decisions amid a slowdown in economic growth are areas of unpredictability, especially given the current tightness of the labor market. Household consumption prospects are also veiled with uncertainty, too. T

                                      Looking abroad, RBA’s statement brought to light the ongoing global uncertainties, notably the economic trajectory of China and the far-reaching consequences of international conflicts, adding further dimensions to the central bank’s considerations.

                                      Full RBA statement here.

                                       

                                      Japan’s labor cash earnings up 1.2% yoy, but real wages down for 18th month

                                        By
                                        ActionForex
                                        -

                                        Japan reported a modest increase in nominal labor cash earnings in September, with 1.2% yoy rise that slightly exceeded market expectations of 1.0% yoy gain. This uptick, an improvement from the previous month’s 0.8%, may seem like a positive indicator at first glance, with base salary growth also marking an increase to 1.4% yoy from August’s 1.2% yoy.

                                        However, not all components of earnings showed strength. Special payments, often a volatile category, continued to decline by -6.0% yoy , albeit a less severe contraction than -6.3% yoy reported in August. Meanwhile, overtime pay exhibited a marginal increase, rising 0.7% yoy, suggesting a modest uptick in extra working hours.

                                        The nuanced picture of Japan’s wage situation becomes more concerning when adjusted for inflation. Real wages, which reflect the purchasing power of income, fell sharply by -2.4% yoy compared to the same month last year, marking the 18th consecutive month of decline. This persistent slide in real wages points to the squeeze on household income as inflation outpaces nominal wage growth.

                                        In line with the strain on incomes, household spending dipped by -2.8% yoy , although the figure is marginally better than the anticipated -3.0% yoy fall. This marks the seventh straight month of decline, underscoring the ongoing reticence of Japanese consumers to open their wallets amid economic uncertainties.

                                        On a more positive note, on a seasonally adjusted basis, household spending saw an unexpected increase of 0.3% mom, defying expectations of a -0.4% mom decline.

                                         

                                        BoE’s Pill suggests rate cuts by mid-2024 “not totally unreasonable”

                                          By
                                          ActionForex
                                          -

                                          In an online event overnight, BoE Chief Economist Huw Pill acknowledged the slower pace of reduction compared to global counterparts. The UK has also seen inflation climbed higher. Despite this lag, he expressed confidence that “We’re going to see the UK get down to levels more comparable to what we’re seeing in the rest of the world.”

                                          Pill’s remarks came amid the backdrop of market expectations that have priced in a potential rate cut as early as August 2024. He finds this timing “not totally unreasonable,” highlighting it’s a period when the Bank might reassess its stance, albeit with the usual caveat that economic conditions are fluid and subject to change.

                                          Moreover, Pill tempered expectations of a return to the ultra-low interest rate environment seen pre-pandemic, indicating that future rates are more likely to find a middle ground. This perspective reinforces the notion that the era of zero interest rates was an anomaly rather than a standard monetary condition.

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