Canada retail sales fell -0.1% mom to CAD 66.1B in August, matched expectations. Sales were down in six of nine subsectors and were led by decreases at motor vehicle and parts dealers (-0.9%). Excluding gasoline stations, fuel, motor vehicles and parts, sales were down -0.3% mom. In volume terms, retail sales declined -0.7% mom.
Advance estimate suggests that sales were unchanged in September.
BoE Governor Andrew Bailey, in an interview with Belfast Telegraph, expressed that he “wasn’t surprised” by the latest inflation report released on Wednesday. This report showcased consumer prices having ascended by 6.7% compared to the previous year in September, mirroring the growth rate observed in August.
Bailey’s added the inflation rate was “not far off what we were expecting.” Even more reassuring was the slight dip in core inflation, a development hefound “quite encouraging.”
He optimistically anticipates a “noticeable drop” in the headline inflation rate with the forthcoming October data. This anticipated decline can be attributed to the significant surge in energy prices last year, which will be excluded from the annual comparison.
However, Bailey warned, “Pay growth as measured is still well above anything that’s consistent with the target.”
UK retail sales volumes fell sharply by -0.9% mom in September, much worse than expectation of -0.4% mom. Sale volumes excluding automotive fuel dropped -1.0% mom.
Looking at some details, non-food stores sales volumes fell -1.9% mom. Non-store retailing sales volumes fell -2.2% mom. Foot stores sales volumes rose rose 0.2% mom. Automotive fuel sales volumes rose by 0.8% mom.
Looking at the quarterly picture, sales volumes fell by -0.8% in the three months to September when compared with the previous three months. Ex-fuel sales volumes fell -1.0%.
In value term, retail sales value dropped -0.2% mom. Sales value excluding automotive fuel fell -0.4% mom.
Inflationary momentum in Japan showed signs of easing in September, with all-item CPI decelerating to 3.0% yoy, down from 3.2% yoy in the prior month. Core CPI, which strips out the volatile food prices, also showed a downtrend, registering at 2.8% yoy, a dip from 3.1% yoy. Furthermore, core-core CPI, which excludes both food and energy prices, declined marginally from 4.3% yoy to 4.2% yoy.
Remarkably, core inflation dipped below the 3% mark for the first time since August 2022. Nevertheless, it remains above BoJ’s 2% target, marking the 18th consecutive month of surpassing this benchmark.
The detailed breakdown of the data indicates that energy prices were a significant drag, plunging by -11.7% yoy. This downturn can be attributed to the government’s proactive measures to trim utility bills, resulting in double-digit falls in electricity and city gas prices. On the contrary, food prices remained on an upward swing, posting 8.8% yoy increase.
There are reports suggesting an upward revision in BoJ’s core CPI forecast for fiscal 2023. Sources familiar with the bank’s deliberations indicate a possible revision from 2.5% to nearly 3.0%. All eyes will now be on BoJ ‘s policy meeting scheduled for Oct 31, where a new outlook report is anticipated.
New Zealand’s trade balance for September reveals a deficit of NZD -2.3B, driven by a notable fall in goods exports of -18% yoy, bringing the total to NZD 4.9B. The decline in imports was also significant, dropping by -15% yoy to NZD 7.2B.
A striking feature of this downturn is the notable reduction in exports to China, marking a deviation from the consistent growth observed over the past decade. International trade manager Alasdair Allen noted, “Over the past decade, exports to China have been steadily increasing, with a flat period during COVID-19, but in recent months this has started to shift.”
Breaking down the export figures by country, China recorded a 20% yoy drop, equivalent to NZD 332 million, leading the downturn. Exports to Australia, US, EU, and Japan also experienced declines, calculated at -3.3%, -6.7%, -26%, and -12% yoy, respectively.
On the imports front, China once again played a significant role, with imports from the country decreasing by -17% yoy. Imports from EU and Australia also dropped by -1.5% yoy and -21% yoy respectively. Imports from South Korea contracted by -16% yoy. In contrast, imports from US saw a growth of 6.1% yoy.
Comments from some key Fed officials overnight underscore the central bank’s cautious approach in the face of evolving economic conditions, particularly the rise in treasury yields and persistent inflation.
Philadelphia Fed President Patrick Harker asserted, “We are at the point where we can hold rates where they are.” He acknowledged the recent data trends, noting, “So far, economic and financial conditions are evolving roughly as I expected,” but added that some indicators have been “a tad stronger than my baseline forecast.” Harker championed patience in monetary policy, suggesting that “a resolute, but patient, stance of monetary policy will allow us to achieve the soft landing that we all wish for our economy.”
Dallas Fed President Lorie Logan emphasized the natural tightening effect of the recent uptick in treasury yields, stating they have “done some of this tightening work for us.” While Logan recognized some progress in inflation management, she conceded, “it’s still too high.” Stressing the importance of the broader economic environment, she remarked, “It’s important that we have continued restrictive financial conditions.”
Chicago Fed President Austan Goolsbee approached the inflation debate from a historical perspective. He noted, “There’s a widely held conventional wisdom that if you get the inflation rate down more than 5 percentage points you will have to have a big recession to do that.” Contrary to this belief, Goolsbee expressed optimism, saying, “So far, we haven’t had that recession, I’m still hopeful we can avoid it entirely.”
Lastly, Atlanta Fed President Raphael Bostic laid clear his priorities, stating, “As for inflation, that is job one for now.” He elucidated the broad impacts of inflation, observing that “Across the economy and demographic groups, inflation is the force that is most painful and drives more people to precariousness.”
Fed Chair Jerome Powell, in his speech at the Economic Club of New York, asserted that while the option for an additional rate hike remains open, a prudent and careful approach will be the governing principle. Market participants, digesting Powell’s words, now overwhelmingly anticipate an extension of Fed’s pause in November, a sentiment reflected in fed fund futures pointing towards a 100% chance of this outcome. Referring to the recent rise in yields, he said it might have an effect “at the margins” on reducing the necessity for further rate hikes.
Powell suggested that the surge in yields might be linked to growing concerns surrounding fiscal deficits and mentioned that the process of Quantitative Tightening could also be influencing it. Highlighting that the uptick in yields acts as a de facto policy tightening, Powell raised the possibility that this might reduce the need for aggressive rate hikes in the future.
Although inflation metrics have dipped during the summer, Powell emphasized, “inflation is still too high, and a few months of good data are only the beginning.” The inflation outlook remains uncertain, marked by the unpredictability of its stabilization point in the upcoming quarters, and Powell concedes that, “the path is likely to be bumpy.”
With an eye on economic growth and labor market dynamics, Powell indicated that persistent above-trend growth or sustained labor market tightness could trigger a reevaluation of the inflation outlook. Such developments “could warrant further tightening of monetary policy.”
Underscoring the complexities and potential pitfalls ahead, Powell stated, Committee is “proceeding carefully.” “We will make decisions about the extent of additional policy firming and how long policy will remain restrictive based on the totality of the incoming data, the evolving outlook, and the balance of risks,” he added.
US initial jobless claims fell -13k to 198k in the week ending October 14, below expectation of 210k. Four-week moving average of initial claims dropped -1k to 206k.
Continuing claims rose 29k to 1743k in the week ending October 7. Four-week moving average of continuing claims rose 19k to 1694k.
In the Regional Economic Report released today, BoJ upgraded the economic assessment for six regions, marking the most substantial uplift since July 2022. The regions experiencing this optimistic revision include Hokkaido, Tohoku, Hokuriku, Kanto-Koshinetsu, Chugoku, and Shikoku. Conversely, the economic outlook for Tokai, Kinki, and Kyushu-Okinawa remained steady.
This comprehensive upgrade underscores the resilience and adaptability of the Japanese economy. Despite the headwinds presented by decelerating recovery in overseas economies and rising prices domestically, all nine regions delineated a narrative of an economy that is either picking up momentum or recovering at a moderate pace.
On a related note, a separate report from branch managers indicated that many companies, due to a structural labor shortage, are gearing up to continue wage increments in the upcoming fiscal year. However, the magnitude of these wage hikes will largely depend on competitor trends and upcoming price movements, especially as the spring labor unions of next year approach.
Australian businesses are displaying signs of renewed optimism, as revealed by NAB Quarterly Business Confidence index for Q3. The index improved, moving up from -4 in the second quarter to -1 in the third. Moreover, the gauge for Current Business Conditions also indicated better sentiment, rising from 11 to 13.
However, an undercurrent of concern persisted regarding cost dynamics. Labour cost growth experienced an increase, shifting up to 1.8% from the 1.3% witnessed in Q2. On the other hand, purchase costs growth showed a modest climb, reaching 1.4% from the 1.3% seen in the previous quarter. In a positive sign, fewer businesses highlighted materials as a limiting factor, with the percentage dropping to 32% from the 36% reported in Q2.
NAB’s Chief Economist Alan Oster noted, “Price growth remained elevated in Q3. This is in line with our expectation for a reasonably strong inflation print of 1.1% for the quarter when the full Q3 CPI is released next week.”
However, he tempered the immediate inflationary concerns with a longer-term view, adding, “Still, we do expect inflation to moderate gradually as the economy slows.”
Full Australia NAB Quarterly Business Confidence release here.
Australia’s job market portrayed a mixed picture in September, with a significant undershoot in employment growth countered by a lower-than-expected unemployment rate.
The country added a mere 6.7k jobs in the month, a far cry from the anticipated 20.3k. Delving deeper into the data, full-time employment took a hit, shrinking by -39.9k. However, this was partly offset by increase in part-time roles, which swelled by 46.5k.
Unemployment rate showed slight improvement, ticking down to 3.6% from previous 3.7%, despite expectations that it would remain steady. Yet, this decline could be attributed to a drop in participation rate, which receded from 67.0% to 66.7%. Meanwhile, total monthly hours worked contracted by -0.4% mom, equivalent to a reduction of 8 million hours.
Kate Lamb, ABS’s head of labour statistics, highlighted that, when considering the last two months, the average monthly employment growth stood at 35k, in line with the yearly average growth. However, Lamb also drew attention to the declining unemployment rate in September, indicating it primarily resulted from a shift of people from the unemployed category to being outside the labor force altogether.
Furthermore, she noted, “The recent softening in hours worked, relative to employment growth, may suggest an easing in labour market strength.”
Japan saw a welcomed increase in exports in September, breaking a two-month declining trend and outpacing forecasts. Exports rose by 4.3% yoy to JPY 9198B, surpassing the anticipated growth of 3.1% yoy.
A closer examination of the trade partners reveals a contrasting scenario. Exports to China, Japan’s prominent trading partner, dipped by -6.2% yoy, marking the tenth consecutive month of decline. A staggering -58% yoy drop in food shipments contributed significantly to this contraction. Conversely, trade ties with US and Europe exhibited robustness, with exports expanding by 13.0% yoy and 12.9% yoy respectively.
On the import front, Japan reported a decline of -16.3% yoy to JPY 9136B, a steeper fall than the anticipated -12.9% yoy. Trade dynamics shifted, with Japan posting a trade surplus of JPY 62.4B.
When assessed in seasonally adjusted terms, exports went up by 7.2% mom to JPY 8910B, while imports climbed by 5.4% mom, reaching JPY 9345B. Consequently, trade deficit was reduced to JPY -434B.
Eurozone CPI was finalized at 4.3% yoy in September, down from 5.2% yoy in August. Core CPI was finalized at 4.5% yoy, down from prior month’s 5.3% yoy.
The highest contribution to the annual Eurozone inflation rate came from services (+2.05 percentage points, pp), followed by food, alcohol & tobacco (+1.78 pp), non-energy industrial goods (+1.06 pp) and energy (-0.55 pp).
EU CPI was finalized 4.9% yoy, down from August’s 5.9% yoy. The lowest annual rates were registered in the Netherlands (-0.3%), Denmark (0.6%) and Belgium (0.7%). The highest annual rates were recorded in Hungary (12.2%), Romania (9.2%) and Slovakia (9.0%). Compared with August, annual inflation fell in twenty-one Member States, remained stable in one and rose in five.
UK CPI was unchanged at 6.7% yoy in September, above expectation of slowing to 6.6% yoy. CPI core (excluding energy, food, alcohol and tobacco) slowed from 6.2% yoy to 6.1% yoy, above expectation of 6.0% yoy.
CPI goods annual rate fell slightly from 6.3% to 6.2%. CPI services annual rate rose from 6.8% to 6.9%, joint highest rate (with May 2023) since March 1992.
On a monthly basis, CPI rose 0.5% mom, above expectation of 0.4% mom, quickly than prior month’s 0.3% mom.
China’s economy exhibited resilience in Q3, with GDP growing at 4.9% yoy, outpacing anticipated 4.5% yoy increase. However, this growth rate reflects deceleration from 6.3% yoy expansion observed in Q2. On quarterly basis, the economy grew 1.3% qoq, marking an improvement from revised 0.5% qoq in the preceding quarter and outpacing anticipated 1.0% qoq expansion.
Industrial output in September echoed the positive trend, registering a 4.5% yoy uptick, marginally above 4.3% yoy forecast. Retail sales also followed suit, with 5.5% yoy increase, surpassing expected 4.9% yoy rise. However, fixed asset investments underperformed expectations, with year-to-date growth of 3.1% yoy, slightly below anticipated 3.2%.
Despite these seemingly positive indicators, China’s National Bureau of Statistics sounded a note of caution. The NBS underscored the challenges posed by a complicated external environment and lackluster domestic demand, calling for enhanced efforts to fortify the economic recovery’s foundation.
Separately, International Monetary Fund adjusted its growth outlook for China downward, citing a “losing steam” recovery impacted significantly by the property sector’s frailty. IMF now projects China’s economy to grow by 5% in 2023 and 4.2% in 2024, a downward revision from its earlier forecast of 5.2% and 4.5% respectively.
The IMF’s report highlighted contraction in manufacturing purchasing managers’ indexes from April to August, coupled with additional weaknesses in real estate sector, as pivotal factors behind the revised forecast.
Australia’s economic outlook remains subdued as indicated by the Westpac Leading Index, which, though it rose slightly from -0.48% to -0.34% in September, continues to signal prolonged weak conditions. Fourteen successive months of subzero readings on the headline index growth rate project that the anaemic sub-trend growth momentum is anticipated to linger into 2024.
Westpac anticipates the nation’s GDP growth to decelerate to 1.2% in 2023, maintaining this tepid pace into the initial half of 2024, with an annualized growth rate pegged at 1.1%. This projection is notably beneath the expected population growth, which is projected to hover around 2.3%.
The recent minutes from RBA’s October meeting shed light on the central bank’s discomfort with the current inflationary environment, revealing its “low tolerance” towards unexpected inflationary spikes.
As the market casts its gaze towards the upcoming RBA meeting slated for November 7, Westpac anticipates revisions in the near-term forecasts for headline inflation. However, adjustments to the central bank’s medium-term view, a critical determinant for any further rate hike, are not expected.
However, this anticipation hinges significantly on the unveiling of the September quarter CPI, scheduled for release on October 25. Any significant surprises in this data could recalibrate expectations and potentially prompt the RBA to rethink its stance.
RBA Governor Michele Bullock voiced concerns over stickiness in services inflation, rising house prices and tight labor market at an Australian Financial Security Authority event.
“We’re seeing a slowdown in consumption,” Bullock said, pointing out a decline in per capita consumption. This can be attributed to the central bank’s policy measures, as indicated by her remark, “monetary policy is starting to bite.” She elaborated that businesses were starting to find it hard to pass on cost increases as demand begins to taper.
However, the stickiness of inflation remains a significant concern. Bullock highlighted a stubborn rise in services inflation, which encompasses various sectors, from restaurants to hairdressers. “That inflation is running at a bit over 4 per cent,” she noted, acknowledging it exceeds RBA’s target and mirrors inflationary trends observed globally.
Additionally, housing prices are on the rise again, coupled with a tight employment market, contributing to inflationary pressures. These economic elements, combined with external factors such as the Israel-Gaza conflict escalating fuel costs, suggest that inflation might remain a persistent issue.
US retail sales rose 0.7% mom to USD 704.9B in September, above expectation of 0.3% mom. Ex-auto sales rose 0.6% mom to USD 469.7B, above expectation of 0.2% mom. Ex-gasoline sales rose 0.7% mom to USD 648.2B. Ex-auto, gasoline sales rose 0.7% mom to USD 513.0B.
Total sales for July through September period were up 3.1% from the same period a year ago.
In September, Canada’s CPI deceleration surpassed expectations. The annual inflation rate receded to 3.8% yoy, falling short of the anticipated 4.0% and marking a downtick from August’s 4.0% yoy.
Gasoline prices, affected by the base-year effect, showed an escalation, recording a 7.5% yoy ascent compared to August’s 0.8% yoy . Nevertheless, when gasoline was excluded, CPI realized a slowdown to 3.7% yoy from the previous month’s 4.1% yoy.
On a monthly basis, CPI was down by -0.1% mom, contradicting the expected 0.1% mom incline. A -1.3% monthly decline in gasoline prices significantly influenced this downturn.
In the examination of the core inflation measures, which BoC meticulously observes, all three – CPI median, CPI common, and CPI trimmed – fell short of expectations.
CPI median receded from 4.1% to 3.8% yoy, against the projected 4.0% yoy. CPI common retreated from 3.9% yoy to 3.7% yoy, not meeting 3.8% yoy expectation. Similarly, CPI trimmed dwindled from 4.8% yoy to 4.4% yoy, undermining the anticipated 4.7% yoy rate.
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Fed’s Bostic eyes late 2024 for possible rate cut, remains focused on curbing inflation
In an interview with CNBC, Atlanta Federal Reserve President Raphael Bostic emphasized that reigning in inflation remains a top priority, and the metric needs to approach the 2% mark before a rate cut can be seriously considered.
“Inflation is job one, we have to get that under control,” Bostic asserted. But rate cut is possible next year and “I would say late 2024”, he added.
“There’s still a lot of momentum in the economy. My outlook says that inflation is going to come down but it’s not going to like fall off a cliff,” he explained.
“It’ll be sort of a progression that’s going to take some time. And so we’re going to have to be cautious, we’re going to have to be patient, but we’re going to have to be resolute,” added Bostic.
In the context of a broader economic outlook, Bostic dismissed the possibility of a recession. He projected a slowdown in economic activity but remained optimistic about the economy’s resilience and the eventual return of inflation to the 2% target.