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German ZEW improves to -11.4, but situation tumbles to -79.4

    By
    ActionForex
    -

    Germany’s ZEW Economic Sentiment for September experienced an uptick, rising from -12.3 to -11.4, surpassing the anticipated drop to -15.0. However, not all was rosy for the nation, as Current Situation index witnessed a downturn, descending from -71.3 to -79.4, which was a more significant dip than forecasted 75.0.

    On a broader scale, Eurozone’s ZEW Economic Sentiment slid from -5.5 to -8.9, trailing the predicted -6.2. Current Situation for the zone also decreased marginally, moving by -0.6 to rest at -42.6.

    Shedding light on these figures, ZEW President Professor Achim Wambach remarked, “The assessment of the current economic situation in Germany by the financial market experts is even more pessimistic than in August 2023.” While this paints a subdued picture of the present scenario, Wambach highlighted a silver lining, pointing to the “slight improvement in expectations regarding Germany’s economic situation over the next six months.”

    Drawing connections to the international arena, Wambach added, “The brighter economic prospects for Germany align with a notably more optimistic view of international stock market developments.” He attributed this, in part, to the growing segment of respondents who foresee stability in interest rates within both Eurozone and US. Furthermore, experts are looking eastwards, projecting a relaxation in China’s interest rate policy.

    Full Germany ZEW release here.

    UK payrolled employment down -1k in Aug, median monthly pay growth slowed

      By
      ActionForex
      -

      In August, UK saw a minimal decline in payrolled employment by -1,000 (-0.0% mom) bringing the total to 30.1 million. In a positive revision, prior month’s figures were adjusted from a -4k decrease to a substantial increase of 97k. Despite this, there is no dismissing the slowed momentum in the job market as reflected in the slight decline in August.

      Dive deeper into the earnings, and one notices a yoy rise of 6.7% for the median monthly pay, touching GBP 2,260. The service activities sector led this growth, clocking an 8.7% yoy rise, while the finance and insurance sector recorded the lowest at 3.2% yoy. However, there was a perceptible deceleration in the growth rate of median monthly pay, down from July’s 7.6% yoy and notably from June’s 9.6% yoy, with the latter month having a peak of GBP 2,305.

      Turning to median monthly pay, service activities sector spearheaded growth, showcasing an 8.7% yoy increase, attaining the highest growth rate across sectors. Contrastingly, finance and insurance sector lagged, recording the lowest annual growth rate at 3.2% yoy. Overall, median monthly pay elevated by 6.7% yoy to GBP 2,260. However, there was a perceptible deceleration in growth rate of median monthly pay, down from July’s 7.6% yoy and notably from June’s 9.6% yoy, with the latter month having a peak of GBP 2,305.

      The three months leading to July painted a similar picture of mixed outcomes. Unemployment settled at 4.3%, rising by 0.5% from the previous quarter, in line with market anticipations. Meanwhile, employment rate dropped by 0.5% to 75.5% alongside a modest increase in economic inactivity rate to 21.1%, up by 0.1%.

      Total weekly hours dropped -18.5% over the three-month period. Average earnings excluding bonus was unchanged at 7.8% 3moy, matched expectations. Average earnings including bonus rose to 8.5% 3moy, above expectations of 8.2%.

      Full UK labor market release here.

      Japan’s FM Suzuki expects BoJ to liaise with government closely

        By
        ActionForex
        -

        In the wake of the spike in Yen, prompted by BoJ Governor Kazuo Ueda’s remarks, Finance Minister Shunichi Suzuki made clarifying comments today. Yen’s climb was chiefly attributed to Ueda’s interview with Yomiuri Shimbun, where he hinted at the possibility of exiting negative rates policy in the coming year.

        At a regular press conference, Suzuki underlined the autonomy of BOJ, stating that the “specific monetary policy conduct is up to the BOJ to decide.”

        However, the minister did not hold back from expressing the government’s expectations . Suzuki conveyed his aspirations for BOJ, emphasizing its collaboration with the government. He said, “I expect the BOJ to continue to liaise with the government closely and conduct monetary policy appropriately.”

        The guiding principle for this collaboration, as Suzuki suggests, should be a comprehensive evaluation of the economy, considering factors like pricing and prevailing financial conditions. The ultimate aim is to “achieve its price stability target in a stable and sustainable way.”

        The remarks by the Finance Minister, while emphasizing BOJ’s autonomy, also subtly convey the weight of responsibility the central bank carries in managing the nation’s economic health, especially in unpredictable financial climates.

        Australia consumer sentiment fell to 79.7, languishes at deeply pessimistic levels

          By
          ActionForex
          -

          Australia’s consumer sentiment, as depicted by Westpac Consumer Sentiment Index, witnessed a dip of -1.5% mom, settling at 79.7 in September. The sentiment has been gloomily “languished at deeply pessimistic levels”.

          Westpac draws attention to the historical context, pointing out that since the initiation of the survey back in 1974, such enduring periods of pessimism have been rare. The most notable instance was during early 1990s’ recession when sentiments dipped even lower and remained so for a duration exceeding two years.

          On the brighter side, households showcased reduced apprehension about potential rate hikes, with noticeable surge in confidence, up 7.8%, particularly among mortgagors. However, looming worries about cost of living and inflation continue to weigh down on consumer spirits. Although job confidence has steadied itself, it has drastically plummeted, down -33% from its peak levels. One silver lining is the buoyed expectations around house prices.

          Westpac expects RBA to maintain their status quo until August 2024. By this timeframe, Westpac envisions inflation receding to 3.4%, a jump in unemployment rate to 4.5%, and a noticeable slowdown in the annual growth rate of consumer spending, tapering to a mere 0.8%.

          Full Australia Westpac consumer sentiment release here.

          New York Fed Survey: Consumer inflation expectations rise slightly

            By
            ActionForex
            -

            The August 2023 New York Fed Survey of Consumer Expectations has revealed a moderate increase in the median one- and five-year-ahead inflation expectations, both witnessing a rise of 0.1% to sit at 3.6% and 3.0%, respectively. However, expectations for three-year-ahead inflation demonstrated a dip, dropping by -0.1% to 2.8%.

            On the unemployment front, there was a noticeable increase in mean unemployment expectations, with the mean probability of a higher unemployment rate one year from now spiking by 1.8%, settling at 38.5%. Despite this increase, the figure remains beneath its 12-month trailing average which stands at 40.2%.

            Median expectation for growth in household income experienced a decrement, falling by -0.3% to arrive at 2.9% in August, marking the lowest figure since July 2021.

            New York Fed Survey of Consumer Expectations release here.

            BoE Mann: Risk of tightening too little more salient

              By
              ActionForex
              -

              BoE MPC member Catherine Mann expressed a potent concern regarding the UK’s current economic landscape, emphasizing the “salient” risk of “tightening too little” in her speech today.

              Mann cited alarming data where inflation in core and services has consistently remained above 6% for over a year now. Drawing from econometric analyses which break down inflation dynamics into components of “expectations and inertia”, she highlighted an unsettling trend — a steady increase in these components, encouraging continuation of inflation persistence. “Worrying to me,” Mann noted, “is that a statistically-derived time-varying trend of inflation has drifted above 2%.”

              Mann elucidated the channels through which monetary policy transmits its effects on financial markets, influencing price settings and impacting the real economy prominently through an “expectations channel”.

              She emphasized that “duration above target matters for policy risk assessment”, pointing out that the longer the inflation rates hover markedly above target levels, the more challenging and costly it becomes to rein it back to the desired target.

              In her assessment, “to pause or to hold the policy rate lower for longer” poses a substantial risk, potentially embedding inflation more deeply and necessitating a more intensive future tightening to alter inflationary expectations and to eliminate the ingrained inflation resulting from a prolonged above-target duration.

              To mitigate such adverse outcomes, she championed an approach inclined towards over-tightening, arguing that this strategy would act as a preventive measure against the deeper entrenchment of inflation.

              However, Mann remained adaptive to changing economic narratives. She conveyed a readiness to “not hesitate to cut rates” if she observes faster deceleration in inflation paired with notable dip in economic activities.

              Full speech of BoE Mann here.

              EU downgrades Eurozone growth forecasts, Germany in contraction this year

                By
                ActionForex
                -

                European Commission, in its Summer 2023 interim forecast, revised down its growth projections for Eurozone. For 2023, growth outlook was cut from 1.1% to 0.8%, while 2024 projection was trimmed from 1.6% to 1.3%. On the inflation front, expectations for 2023 was djusted downward from 5.8% to 5.6%, yet 2024 forecast saw a minor uptick from 2.8% to 2.9%.

                Delving into individual nations, Germany’s economic forecast has been dampened significantly. Growth projection for 2023 is now set at a contraction of -0.4%, a stark difference from prior 0.2% growth prediction. 2024 projection has been revised down from 1.4% to 1.1%.

                On the contrary, France has seen a boost in its 2023 growth projection, raised from 0.7% to 1.0%. However, its 2024 growth forecast was trimmed slightly, from 1.4% to 1.2%.

                Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People,said: “The persistently high inflation rate has exacted a heavy cost, although signs of its abating are visible. Following a spell of economic slack, we anticipate a modest rebound in growth in the coming year. This optimism is driven by a resilient labor market, historical lows in unemployment, and diminishing price pressures. Nonetheless, the economic trajectory remains uncertain, necessitating vigilant risk monitoring.”

                Echoing these sentiments, Paolo Gentiloni, Commissioner for Economy, stated, “Our economies have been battling numerous challenges this year, culminating in softer growth than our spring projections had indicated. While inflationary pressures are waning, the rate varies across the EU. Furthermore, Russia’s aggressive actions against Ukraine persist, leading not just to human distress but also significant economic upheaval.”

                Full EC Summer 2023 Economic Forecast here.

                10-year JGB yield hits 9-year high on BoJ Ueda, Yen rebounds

                  By
                  ActionForex
                  -

                  Yen saw a notable uptick in Asian session, buoyed by hawkish sentiments by BoJ Governor Kazuo Ueda. Concurrently, 10-year JGB yield scaled its highest level in nine years, breaching 0.7% mark.

                  In an interview with Yomiuri newspaper published over the weekend, Ueda hinted at the possibility that BoJ might have sufficient data by the close of the year to contemplate ending its negative interest rate policy. Such remarks from Ueda have spurred speculation among market analysts, with some interpreting them as early signals for the markets, suggesting a potential end to negative interest rates by Q1 2024. Before this step, there also are anticipations of yield curve control being phased out later this year.

                  On the flip side, certain analysts, referencing recent data which highlights decelerating wage growth, argue that the transition from negative rates might not be imminent. They believe Ueda’s remarks might be more of a countermeasure to Yen’s recent depreciation.

                  Ueda, during the interview, emphasized the need for Japan to witness a consistent rise in inflation, complemented by wage growth, before implementing changes. “If we judge that Japan can achieve its inflation target even after ending negative rates, we’ll do so,” Ueda asserted. However, he also reiterated the central bank’s stance on maintaining its ultra-loose policy for now, until there’s firm confidence that inflation will consistently hover around the 2% mark, bolstered by robust demand and wage growth.

                  He cautioned, “While Japan is showing budding positive signs, achievement of our target isn’t in sight yet.” Looking ahead, Ueda underscored the importance of wage trajectories in the coming year, indicating that conclusive decisions would be data-driven. “We can’t rule out the possibility we’ll get enough information and data by year-end,” Ueda added.

                   

                  Canada employment grew 39.9 in Aug, unemployment rate steady at 5.5%

                    By
                    ActionForex
                    -

                    Canada employment grew 39.9k in August, well above expectation of 20.0k. Unemployment rate was unchanged at 5.5%, below expectation of 5.6%, stabilized after three consecutive monthly increases. Employment rate fell -0.1% to 61.9%.

                    Average hourly wages rose 4.9% yoy, down from July’s 5.0% yoy. Total hours worked rose 0.5% mom, 2.6% yoy.

                    Full Canada employment release here.

                    Germany poised for mild economic contraction in 2023, DIW reports

                      By
                      ActionForex
                      -

                      Germany stands on the brink of being the only major economy to register a contraction in 2023, with German economic research institute, DIW, projecting a -0.4% dip in the nation’s economic output for the year. This downturn is primarily attributed to sluggish domestic consumption and a falter in export dynamics, exacerbated by a slowed Chinese economy.

                      Looking forward, however, the institute holds a more positive outlook, forecasting a steady 1.2% growth in both 2024 and 2025. Geraldine Dany-Knedlik, the co-head of forecasting and economic policy at DIW, envisages that a pronounced increase in wages and salaries would spur household expenditure, kickstarting a recovery phase.

                      Timm Bönke, also a co-head at the DIW’s forecasting department, anticipates a notable improvement in the consumer sentiment owing to a substantial dip in inflation rates in the forthcoming period. Households will be encouraged to enhance their spending, propelled by improved financial conditions and a potentially steadier inflation environment.

                      Full DIW release here.

                      USD/JPY dips briefly after Japan Suzuki’s verbal intervention

                        By
                        ActionForex
                        -

                        Japan’s Finance Minister Shunichi Suzuki said today that the government is closely watching the currency market’s developments with a “heightened sense of urgency.” His comments reverberate a growing concern amidst Japanese policymakers about the recent depreciation of Yen.

                        Suzuki emphasized that “appropriate action” would be taken to counter any excessive volatility, without ruling out any options. The finance minister stressed the government’s position that currency movements should remain stable and echo the economic fundamentals Additionally, he rejected the notion that the government has set specific intervention levels in mind.

                        This vigilance is echoed by Vice Minister of Finance for International Affairs, Masato Kanda, who warned on Wednesday that “all options are on the table” if such fluctuating trends persist, signaling a high readiness to intervene to maintain market stability.

                        Following the minister’s comments, USD/JPY spiked lower to 146.57, but it rapidly recuperated, reclaiming 147 handle shortly after. The current downturn from 147.88 is perceived as a short-term correction as of now. 55 4H EMA is furnishing support at present, with no overt signs pointing towards a trend reversal in the USD/JPY just yet.

                        Japan cash earnings growth slows to 1.3% yoy, real wages down for 16th month

                          By
                          ActionForex
                          -

                          In July, Japan experienced slowdown in growth of labor cash earnings, recording increase of 1.3% yoy, a figure notably below expectation of 2.4% yoy. This decline comes in the wake of a 2.3% yoy surge in June and a 2.9% yoy hike in May.

                          Drilling down into the details, while the base annual salary grew 1.6% yoy, outpacing June’s 1.3% yoy rise, overtime pay experienced a reduced uplift of 0.5% yoy, a significant deceleration from the 1.9% yoy in June.

                          One of the more concerning revelations is the continued drop in real wages, which adjusted for inflation, decreased by -2.5% yoy, a deepening from June’s -1.6% yoy decline. This marks the 16th consecutive month of falling real wages, spotlighting inability of salaries to keep pace with escalating prices, thereby exacerbating the financial strain on households.

                          Corroborating this trend is separate data published earlier this week which highlighted a pronounced drop in household spending in July, plummeting -5.0% yoy, marking its most substantial decline in close to two and a half years.

                          Fed Logan: Skipping in Sep does not imply stopping

                            By
                            ActionForex
                            -

                            Dallas Fed President Lorie Logan remains unconvinced that the central bank has fully “extinguished excess inflation”, and “there is work left to do.”

                            With the upcoming FOMC meeting slated for September 19-20, Logan noted “another skip could be appropriate.” However, she was quick to add that “skipping does not imply stopping,” suggesting that further policy actions might still be on the table.

                            Logan expressed a consciousness of the dual risks presented at this junction: the peril of sustained high inflation and the danger of dampening the economy too much.

                            With this in mind, she emphasized, “In coming months, further evaluation of the data and outlook could confirm that we need to do more to extinguish inflation.”

                            Fed Goolsbee foresees change in rate debate focus

                              By
                              ActionForex
                              -

                              Chicago Fed President Austan Goolsbee expressed a cautious optimism in an interview with Marketplace Radio yesterday, noting that the focal point of discussions surrounding interest rates might soon shift.

                              Goolsbee acknowledged “overall level of inflation is still above where we want to be.” Despite the circumstances, he demonstrated a semblance of confidence that “There’s a growing confidence that we can pull it off.”

                              However, he asserted that the achievement wasn’t set in stone, adding a note of caution: “that’s not a guarantee.”

                              Goolsbee foresees a change in narrative in the coming times. Instead of deliberating on the scale of rate hikes, he envisaged that the discourse would gravitate towards the duration for which rates should be maintained at the established levels to steer the economy back on the desired path.

                              Putting it succinctly, he remarked, “We are very rapidly approaching the time when our argument is not going to be about how high should the rates go.”

                              Elaborating on this, he stated, “it’s going to be an argument of how long do we need to keep the rates at this position before we’re sure that we’re on the path back to the target.”

                              Fed Williams: Still an open question as we go forward

                                By
                                ActionForex
                                -

                                New York Fed President John Williams, engaged in a discussion moderated by Bloomberg yesterday, where he noted that while is “pretty clear we’re restrictive” on monetary policy, there remains “still an open question as we go forward.”

                                Williams expressed optimism that “things are moving in the right direction and we’ve got policy in a good place.” However, he insisted on the continuous need to be “data-dependent” and closely watch economic developments to make informed decisions regarding monetary policy trajectory.

                                He urged for sustained focus on comprehensive data analysis, stating, “We’ll have to keep watching the data carefully analyzing all of that and really asking ourselves the question: is this sufficiently restrictive.”

                                BoC Macklem concerned that inflation progress has slowed

                                  By
                                  ActionForex
                                  -

                                  BoC Governor Tiff Macklem said in a speech overnight that 2% inflation target is now in sight”. However, he cautioned, “we are not there yet and we are concerned progress has slowed”. Also, “monetary policy still has work to do”.

                                  In a bid to harmonize the potentially conflicting risks of “under- and over-tightening,” BoC opted to hold policy rate at 5% this week. Macklem didn’t rule out the possibility of further rate hike, mentioning that such a step might become necessary “if inflationary pressures persist.”

                                  As Canada navigates a period riddled with economic uncertainties, the central bank adopts a vigilant stance, closely monitoring an array of indicators to assess the trajectory of inflation. Macklem highlighted the multifaceted nature of the factors affecting inflation data month on month, distinguishing between temporary influences and those with a potential for a lasting impact.

                                  Full speech of BoC Macklem here.

                                  US jobless claims down to 216k, vs exp. 235k

                                    By
                                    ActionForex
                                    -

                                    US initial jobless claims fell -13k to 216k in the week ending September 2, better than expectation of 235k. Four-week moving average of initial claims dropped -8.5k to 229k.

                                    Continuing claims dropped -40k to 1679k in the week ending August 26. Four-week moving average of continuing claims fell -1k to 1701.5k.

                                    Full US jobless claim release here.

                                    BoE Decision Maker Panel indicates easing inflation expectations

                                      By
                                      ActionForex
                                      -

                                      In the latest release of BoE Decision Maker Panel survey data for August, there is a tangible shift in business expectations pointing towards a decrease in both output price inflation and CPI inflation over the coming year, albeit with a lingering high degree of uncertainty.

                                      According to the report, firms anticipate a fall in output price inflation over the next year, with the year-ahead output price inflation envisioned to be 4.9% in the three months leading up to August. This projection denotes a dip of -0.5% in comparison to the data gathered in the three months to July.

                                      One-year ahead CPI inflation expectations lowered to 4.8% in August, a significant reduction from the 5.4% foreseen in July. Furthermore, when casting the net wider to encompass a three-year period, August data records a slight decrease to 3.2%, down by a marginal -0.1% from July’s expectations.

                                      In the realm of wage growth, there is a persistence of the previously noted trend with expectations for the year ahead holding steady at 5.0% in August. Despite this, it is essential to note that the figure is overshadowed by the realized wage growth reported at a higher 6.9% for both single month data and the cumulative data for the three months to August.

                                      However, amidst these optimistic projections, businesses seem to be grappling with considerable uncertainty. A substantial 53% of firms expressed that they are facing high to very high levels of uncertainty, a statistic that has remained unchanged from July.

                                      Full BoE DMP release here.

                                      China’s exports and imports continue to contract, Yuan weakness persists

                                        By
                                        ActionForex
                                        -

                                        In August, China reported a fourth consecutive monthly contraction in exports, dropping -8.8% yoy to USD 284.9B. However, the contraction was narrower than market’s expectation of a -9.5% yoy decline and an improvement from July’s -14.5% yoy fall.

                                        Imports also shrank by -7.3% yoy to USD 216.5B, beating expectations of -9.4% yoy decline and improving from July’s -12.4% yoy drop. This marks a consistent trend of contracting imports every month in 2023 compared to the year-ago period.

                                        Despite these figures beating expectations, trade surplus shrank from USD -80.6B to USD -68.4B, almost in line with expectation of USD -60.0B.

                                        While the narrowing contraction in exports and imports could be seen as a mildly positive development, it doesn’t significantly alter the broader narrative of economic cooling in China.

                                        Offshore Chinese Yuan continued its decline today, sparking questions about the timing and intent of potential interventions by Chinese authorities.

                                        USD/CNH’s correction from 7.3491 should have completed at 7.2387 already. Rise from there is likely resuming the larger up trend 6.6971. From a pure technical perspective, USD/CNH should be ready to rise through 7.3745 (2022 high) to 61.8% projection of 6.8100 to 7.2853 from 7.1154 at 7.4091.

                                        However, this raises two crucial questions: when will the Chinese authorities step in to intervene in the currency markets, and what will be the nature of such intervention—i.e., whether they aim to set a floor for Yuan or merely slow its depreciation.

                                        RBA Lowe cautions against complacency in managing inflation risks

                                          By
                                          ActionForex
                                          -

                                          In his final public speech as RBA Governor, Philip Lowe stated that for inflation to average around 2.5%, wage increases should typically align with productivity growth plus an additional 2.5%. He sees it as a “reasonable benchmark”, even it’s “not a hard and fast rule”.

                                          Lowe’s recent attention has been particularly focused on the risk associated with the current period of high inflation. Specifically, he warned of the peril that “wages growth and profits running ahead of the rate that is consistent with a sustainable return of inflation to target.”

                                          In such a scenario, he cautioned, inflation would become “sticky,” necessitating “tighter monetary policy and more economic pain later on.”

                                          Lowe acknowledged that recent data offers some level of comfort but emphasized the importance of remaining alert to these inflation risks. Rise in productivity growth, he noted, would be a welcome development as it would facilitate stronger growth in both nominal and real wages and profits.

                                          Full speech of RBA Lowe here.

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