Swiss KOF Economic Barometer rose slightly from 93.5 to 93.8 in September, better than expectation of of 86.2. yet, the reading remains below its long-term average, “augurs a cooling of the Swiss economy for the end of 2022.”
The slight increase is “primarily attributable to bundles of indicators from the manufacturing and other services sectors”. On the other hand, “indicators from the finance and insurance sector and for foreign demand are sending negative signals.”
Australia AiG Performance of Manufacturing dropped sharply from 60.8 to 51.6 in August. Looking at some more details, production dropped from -11.6 pts to 50.2. Employment dropped -9.4 to 51.4. New orders dropped -5.4 to 57.1. Supplier deliveries dropped -18.3 to 41.3. Exports dropped -8.5 to 45.1.
Ai Group Chief Executive Innes Willox said: “August saw a steep retreat from the healthy expansion in manufacturing performance that has characterised most of this year. Lockdowns across the country, particularly in NSW and Victoria were the major detractor from performance with ongoing strength outside of these states sufficiently strong to maintain the national performance in positive territory (although by a slim margin).
New Zealand BusinessNZ Performance of Manufacturing Index rose to 55.3 in November, up 2.9 pts. Production rose 3.4 pts to 55.4. New orders surged 4.8 pts to 57.6. However, Employment dropped -0.9 pts to 51.5.
BusinessNZ’s executive director for manufacturing Catherine Beard said, “overall, the sector is shaping up to end 2020 on a positive note, which would be a considerable contrast to what was seen during the first half of the year.”
BNZ Senior Economist, Doug Steel said that “as a measure of change, the PMI suggests that the manufacturing sector continues to move in the right direction after getting hit hard earlier in the year by COVID related restrictions.”
China Caixin PMI manufacturing rose 0.1 to 50.1 in October, matched expectations. Markit noted there was only “marginal increase in total new work amid further drop in export sales”.
Commenting on the China General Manufacturing PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:
“The Caixin China General Manufacturing PMI edged up to 50.1 in October from the month before. The subindexes for new orders and employment both edged higher, with the former remaining in expansionary territory and the latter in contractionary territory. The subindex for new export orders also recovered despite staying in negative territory, just off a more than two-year low in September.
“However, the output subindex dropped for the second straight month despite remaining in positive territory, which was in line with the recent significant drop in value-added industrial output despite the rise in manufacturing investment. This may indicate that investment was largely driven by demand related to environmental protection or technological transformation instead of capacity expansion. The subindex for future output, which reflects manufacturers’ production outlook over the next 12 months, stayed in positive territory but dipped further, suggesting ongoing low business confidence.
“The subindexes for output charges and input costs both stayed in positive territory, with the former falling and the latter climbing, indicating that upward pressure on the prices of industrial products remained. The subindexes for stocks of finished items and those of purchased items both rose marginally, with the former in negative territory and the latter in positive territory, pointing to a stable demand for manufactured goods. The subindex for suppliers’ delivery times fell in October following a rise in the previous month and stayed in negative territory, implying ongoing pressure on capital turnover among goods producers.
“Overall, expansion across the manufacturing sector was still weak. Production and business confidence continued to cool despite stable demand. The pressure on production costs didn’t ease. China’s economy has not seen obvious improvement.”
US ADP private employment grew 324k in July, well above expectation of 195k. By sector, goods-producing jobs rose 21k while service-providing jobs rose 303k. By establishment size, small companies added 237k jobs, medium added 138k, large lost -67k.
Job-stayers annual pay growth fell to 6.2% yoy, slowest pace since November. Job-changers annual pay growth also fell to 10.2% yoy.
Nela Richardson Chief Economist, ADP, said: “The economy is doing better than expected and a healthy labor market continues to support household spending. We continue to see a slowdown in pay growth without broad-based job loss.”
US Conference Board Consumer Confidence rose from 99.1 to 102.0 in November, above expectation of 101.0. Present Situation Index ticked down slightly from 138.6 to 138.2. Expectations Index rose from 72.7 to 77.8. Expectations Index remains below 80 for a third consecutive month—a level that historically signals a recession within the next year.
“Consumer confidence increased in November, following three consecutive months of decline,” said Dana Peterson, Chief Economist at The Conference Board. “This improvement reflected a recovery in the Expectations Index, while the Present Situation Index was largely unchanged. November’s increase in consumer confidence was concentrated primarily among householders aged 55 and up; by contrast, confidence among householders aged 35-54 declined slightly. General improvements were seen across the spectrum of income groups surveyed in November. Nonetheless, write-in responses revealed consumers remain preoccupied with rising prices in general, followed by war/conflicts and higher interest rates.”
Australia retail sales rose 0.8% mom s.a. in February, much higher than expectation of 0.3% mom. ABS Director of Quarterly Economy Wide Surveys, Ben Faulkner said: “There were improved results across most industries with rises in food retailing (0.8%), department stores (3.5%), household goods retailing (1.1%) and clothing, footwear and personal accessory retailing (1.6%). Other retailing (0.0% and cafes, restaurant and takeaway services (0.0% were relatively unchanged. The rise this month follows subdued results in December 2018 (-0.4%) and January 2019 (0.1%).”
Among the state and territories, there were rises in Queensland (1.4%), New South Wales (0.6%), Victoria (0.8%), Western Australia (0.6%), South Australia (0.7%), the Australian Capital Territory (1.7%) and the Northern Territory (1.4%). There was a fall in Tasmania (-0.7%).
RBA has repeatedly noted that household consumption is a key uncertainty for overall GDP. Tightness in labor market has not much been translated into wage growth and rise is household disposable income. Wealth effect of falling house price could also be a drag. But February data does give some positive news to RBA and some room for it to wait-and-see first.
US PPI for final demand rose 0.8% mom in November, above expectation of 0.6% mom. For the 12-month period, PPI rose 9.6% yoy, accelerated from 8.6% yoy, above expectation of 9.1% yoy. That’s also the largest annual advance on record since November 2010.
PPI less foods, energy, and trade services rose 0.7% mom, 6.9% yoy. The annual rise was the highest on record too, since August 2014.
IMF Managing Director Kristalina Georgieva said in a blog post that the fund is ready to mobilize its USD 1T lending capacity to help member countries on coronavirus impacts. And, “as a first line of defense, the Fund can deploy its flexible and rapid-disbursing emergency response toolkit to help countries with urgent balance-of-payment needs.”
Meanwhile she also urged that “the case for a coordinated and synchronized global fiscal stimulus is becoming stronger by the hour.” There are three areas of actions for the global economy, including fiscal policies, monetary policies and regulatory responses. “All this work—from monetary to fiscal to regulatory—is most effective when done cooperatively.”
BoJ keeps monetary policy unchanged today, despite some speculation of at least a minor tweak to the yield curve control. Short term policy rate is held at -0.10% and 10-year JGB yield target is kept at around 0%, by unanimous vote.
The band for 10-year JGB yield fluctuation is also kept at plus and minus 0.50% from the target level, by 8-1 majority vote. Nakamura Toyoaki dissented with preference for allowing greater flexibility in conducting YCC.
In the new economic forecasts, BoJ upgraded CPI core and CPI core-core forecasts for fiscal 2023, but other projections are kept largely unchanged.
Fed Vice Chair Lael Brainard said in a speech, “monetary policy will be restrictive for some time to ensure that inflation moves back to target over time.”
“It will take time for the cumulative effect of tighter monetary policy to work through the economy broadly and to bring inflation down.”
“In light of elevated global economic and financial uncertainty, moving forward deliberately and in a data-dependent manner will enable us to learn how economic activity, employment, and inflation are adjusting to cumulative tightening in order to inform our assessments of the path of the policy rate.” She said.
US CPI rose 0.1% mom in May while core CPI rose 0.1% mom. Annually, headline CPI slowed to 1.8% yoy, down from 2.0% yoy and missed expectation of 1.9% yoy. Core CPI slowed to 2.0% yoy, down from 2.1% yoy and missed expectation of 2.1% yoy.
EUR/USD spikes higher after the release but is quickly under pressure again. Deeper fall could be seen towards 1.1251 minor support. But for now, there is no confirmation of short term topping yet with 1.1251 support intact. Rise from 1.1107 could still extend higher through 1.1347.
Canada GDP grew 3.0% mom in July, slightly above expectation of 2.9% mom. That’s the three consecutive monthly gain, offsetting some of the steep drops in March and April. But overall economic activity was still about -6% below February’s pre-pandemic level.
All 20 industrial sectors posted increases in July as the agriculture, utilities, finance and insurance as well as real estate rental and leasing sectors surpassed their February pre-pandemic levels, joining retail trade which did so in June.
Both USD/JPY and USD/CAD broke out to the downside in European session, as Dollar selloff intensifies. Break of 102.87 support in USD/JPY confirms resumption of whole down trend from 111.71. Outlook will now stay bearish as long as 103.89 resistance holds. Such down trend should now extend to retest 101.18 low.
USD/CAD’s break of 1.2688 also confirm resumption of the down trend from 1.4667. Outlook will stay bearish as long as 1.2957 resistance holds. Next near term downside target is 100% projection of 1.3172 to 1.2688 from 1.2957 at 1.2473.
According to China’s National Health Commission, as of end of February 2, total number of confirmed coronavirus case rose to 17205, with 2296 serious cases. Death tolls rose to 361. Suspected cases rose to 21558. Number of tracked people rose to 189583.
Globally, at least 171 cases were reported in Australia, Britain, France, Germany, Hong Kong, Japan, Russia, Spain, Thailand, Taiwan the United States and 13 other countries. Person-toperson transmission was reported in the US, Germany, Japan, Thailand, Vietnam and South Korea. The Philippines reported the first death outside of China on Sunday.
PBoC unexpectedly lowered interest rates today in response to the crisis in the country. Seven-day reverse repo rate was cut from 2.50% to 2.40%. 14 day tenor was cut from 2.65% to 2.55%. The central bank also injected CNY 1.2T case into the money markets through reverse bond repurchase agreements.
China Shanghai SSE is back from prolonged holiday and is trading down -7.5% at the time of writing. Yuan’s selloff resume today, albeit lower momentum. Further rise is expected in USD/CNH as long as 6.9526 support holds. Sustained trading above the near term channel resistance will confirm completion of the corrective fall from 1.1953 at 6.8452. Further rise should then be seen to 7.0867 resistance next.
Japan Economy Minister Toshimitsu Motegi said US and Japan agreed to speed up trade negotiations. He noted that after meeting US Trade Representative Robert Lighthizer in Osaka as sideline of G20 leaders summit. Working level meetings will be held starting next month, towards a bilateral trade agrement.
However, Motegi also said there is no time frame for completing the deal. He said noted “we share understanding of each other’s thinking and stance and where our gap lies. Based on that, we are discussing ways to narrow our differences.”
Entering into US session, New Zealand Dollar remains the strongest one as supported by improvement in RBNZ’s own preferred core inflation measure. Swiss Franc is trading as the second strongest one, partly on speculation that SNB could start to raise interest rate finally by the end of 2019. Dollar’s fortune reversed as markets await Fed chair Jerome Powell’s Congressional testimony. Meanwhile, Sterling is trading as the weakest one, receiving no support from an after all solid set of job data. Yen follows as the second weakest.
In other markets, Nikkei closed up 0.44% at 22697.36 today, but that came after hitting as high as 22832.22. Singapore Strait Times was up 0.21% at 3239.64. China Shanghai SSE pared back much losses to closed down -0.57% at 2798.13, barely unable to regain 2800 handle. WTI crude oil continues to press 68 handle while gold gyrates around 1240.
Today will begin Powell’s two-day testimony, starting with Senate Banking Committee. House Financial Services Committee comes tomorrow. Expectation is rather low on the event. Fed’s rate path is clear for the near term, that is two more hikes in 2018. Recent economic data support the path, with solid job market and improving inflation. Powell will most likely reiterate the views as see in the minutes of the June 13 FOMC meeting.
Nonetheless, his views on the topic of flattening or even inverting yield curve might raise some eyebrows. Minneapolis Fed President Neel Kashkari said in an essay released yesterday that ‘This time is different’ are the four most dangerous words, in response to those who tried to talk down flattening yield curve and the link to recession. So, to Powell, it’s this time the same? Or is it different?
US durable goods orders rose 7.3% mom to USD 206.9B in June, above expectation of 6.5% mom. Ex-transport orders rose 3.3% mom, slightly below expectation of 3.5% mom. Ex-defend orders rose 9.2% mom. Transportation equipment rose 20.0% mom.
France PMI Services was finalized at 56.8 in July, down from June’s 57.8. PMI Composite was finalized at 56.6, down from July’s 57.4. Markit said robust demand supported strong activity growth. Backlogs rose at joint-fastest pace since April 2011. Output price inflation hit decade high.
Joe Hayes, Senior Economist at IHS Markit said: “Although the headline PMI dipped slightly, the data is consistent with activity growing at a strong pace, much like we saw in the previous two months since pandemic-related restrictions have been peeled back. Pent-up demand is considerable, and firms are struggling to meet it, as evidenced by one of the strongest increases in backlogs of work for a decade. This is a good thing in the short-term as it means the economic recovery will have legs to continue through the third quarter and hopefully beyond.
“That said, current conditions have handed businesses an incredible amount of pricing power. While inflationary pressures are not quite as alarming as they are in the manufacturing sector, there’s clear spillover effects from the severe supply chain disruptions, as firms cited this as a reason behind July’s 34-month high in input costs. In response, firms upped their fees to the greatest extent in a decade. If the price rises we’re seeing remain sticky, inflation will no longer be transitory.”
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BoC stands pat, concerned on slow disinflation progress
BoC left overnight rate unchanged at 5.00% as widely expected. Bank Rate and deposit rate are held at 5.25% and 5.00% respectively. The Governing Council expressed concerns that “progress towards price stability is slow and inflationary risks have increased”. The central bank is “prepared to raise the policy rate further if needed”, maintaining hawkish bias.
Growth projections are revised notably lower for 2023 and 2024, but raised slightly for 2025. GDP growth is projected to be at 1.2% in 2023 (vs prior 1.8%), 0.9% in 2024 (vs prior 1.2%), and 2.5% in 2025 (vs prior 2.4%).
CPI inflation forecasts are revised higher through the projection horizon, at 3.9% in 2023 (vs prior 3.7%), 3.0% in 2024 (vs prior 2.5%), and 2.2% in 2025 (vs prior 2.1%).
Full BoC statement and Monetary Policy Report here.