BoJ Governor Haruhiko Kuroda told the parliament, “there’s no change now to my view a weak yen is generally positive for Japan’s economy.”
He also reiterated the view that “cost-push inflation that is not accompanied by wage hikes will hurt Japan’s economy.” And as such, “it won’t lead to sustained achievement of our price target. That’s why the BOJ will continue to maintain powerful monetary easing.”
ECB Executive Board member Isabel Schnabel said yesterday that it had “left the door ajar” for more asset purchases if the impact of Russia invasion of Ukraine turn out to be much worse.
“If we now fall into a deep recession due to the Ukraine crisis, we’ll have to rethink that,” she said. “Otherwise, we’ll end the bond purchases in the third quarter and as soon as we’ve done that we can raise rates at any time depending on how inflation develops.”
Separately, Governing Council member Mario Centeno emphasized “normalization of the ECB’s monetary policy will be carried out gradually and proportionally at the end of this year”.
Chicago Fed President Charles Evans said he’s “comfortable” with a 25bps hike and “open” to a 50bps move.
“We want to be careful, we want to be humble and nimble, and get to neutral before too long — maybe 50 helps, I’m open to that,” he said in a Q&A session after a speech. “I would be comfortable with each meeting increasing by a quarter point.”
“This is a signal of more general pressure from aggregate demand on today’s impinged supply,” he said in the speech. “If monetary policy did not respond to these broader pressures, we would see higher inflation become embedded in inflation expectations, and we would have even harder work to do to rein it in.”
“Policymakers need to be cautious, humble, and nimble as we navigate the course ahead,” Evans said. “Monetary policy is not on a preset course” but will be decided at each Fed meeting.
Minneapolis Fed President Neel Kashkari said he has penciled in seven 25bps rate hike this year as “we need to adjust” monetary policy. “The data just keeps coming in in that direction, and we just have to respond,” referring to skyrocketing inflation.
However, he warned that “there’s a danger to overdoing it”. Supply bottlenecks could be fixed faster than expected, or labors could return in big numbers. He added, “we’re going to get information”.
US durable goods orders dropped -2.2% mom in February to USD 271.5B, worse than expectation of -0.6% mom. Ex-transport orders dropped -0.6% mom, below expectation of 0.6% mom. Ex-defense orders dropped -2.7% mom. Transportation equipment dropped for the third straight month, by -5.6% mom to USD 82.6B.
US initial jobless claims dropped -28k to 187k in the week ending March 19, much better than expectation of 210k. That’s also the lowest level since September 6, 1969, when it was 183k. Four-week moving average of initial claims dropped -12k to 212k.
Continuing claims dropped -67k to 1350k in the week ending March 12. That’s the lowest since January 3, 1970, when it was 1332k. Four-week moving average of continuing claims dropped -31k to 1432k, lowest since February 28, 1970, when it was 1421k.
ECB Executive Board member Frank Elderson said in a speech that there are two channels through which Russia invasion of Ukraine weighs Eurozone outlook. They are “negative confidence effects, which have an impact on both international trade and on financial markets, and high energy prices.”
But he noted that outlook prevailing the invasion was “quite favorable”. And, “this implies that in our updated baseline outlook, and also in more adverse and severe scenarios for the impact of the war, stagnation is not foreseen.”
“It is a well-established practice in monetary policy that in times of uncertainty prudent policy calls for gradualism,” Elderson said. “This holds particularly true when we approach potential turning points in the monetary policy cycle.”
“If the evolution of the inflation outlook supported by incoming data allows a further normalisation of monetary policy, we stand ready to adjust our instruments accordingly.”
UK PMI Manufacturing rose dropped from 58.0 to 55.5 in March, below expectation of 57.7, a 13-month low. PMI Services rose from 60.5 to 61.0, above expectation of 58.0, a 9-month high. PMI Composite dropped from 59.9 to 59.7.
Chris Williamson, Chief Business Economist at S&P Global said: “The survey indicators point to potentially sharply slower growth in the coming months, accompanied by a further acceleration of inflation and a worsening cost of living crisis, which paints an unwelcome picture of ‘stagflation’ for the economy in the months ahead.”
Eurozone PMI Manufacturing dropped from 58.2 to 57.0 in March, above expectation of 55.9. But that’s still a 15-month low. PMI Services dropped from 55.5 to 54.8, above expectation of 54.3. PMI Composite dropped from 55.5 to 54.5.
Chris Williamson, Chief Business Economic at S&P Global said: “The survey data underscore how the Russia-Ukraine war is having an immediate and material impact on the eurozone economy, and highlights the risk of the eurozone falling into decline in the second quarter…
“The war has aggravated existing pandemic-related price pressures and supply chain constraints, leading to record inflation rates for firms’ costs and selling prices, which will inevitably fee through to higher consumer prices in the months ahead…
“Businesses are themselves bracing for weaker economic growth, with expectations of future output collapsing in march as firms growth increasingly concerned about the impact of the war”.
Germany PMI Manufacturing dropped from 58.4 to 57.6 in March, above expectation of 55.9. PMI Services dropped from 55.8 to 55.0, above expectation of 54.3. PMI Composite dropped from 55.6 to 54.6.
Phil Smith, Economics Associate Director as S&P Global said: “Manufacturing is already starting to drag on overall growth, due to its greater exposure to the supply chain disruption and drop in export demand that have resulted from the war in Ukraine and sanctions on Russia…. Already-high inflation pressure has been exacerbated by the war… business confidence has taken a considerable hit.”
SNB keeps sight deposit rate unchanged at -0.75% as widely expected. It reiterated that is is “willing to intervene in the foreign exchange market as necessary, in order to counter upward pressure on the Swiss franc”. The Swiss franc remains “highly valued”.
SNB said, “the war in Ukraine has had an effect on the Swiss economy above all via the strong increase in commodity prices”, and are likely to “weigh on consumption and increase companies’ production costs”. Trade is likely to be affected by “albeit not severely given Switzerland’s limited direct economic ties to Ukraine and Russia”. Supply bottlenecks “could deteriorate further” and uncertainty could have an “adverse impact on investment activity.”. 2022 growth forecasts was revised lower to around 2.5%.
The inflation forecast, conditioned on policy rate at -0.75%, was raised in general. But inflation is projected to peak at 2.2% in Q2 2022, then slow gradually to 0.7% in Q2 2023, then climb back to 1.1% in Q1. For the year as a whole, inflation is projected to be 2.1% in 2022 (upgraded from 1.0%), 0.9% in 2023 (up graded from 0.6%), and then 0.9% in 2024 (new).
France PMI Manufacturing dropped from 57.2 to 54.8 in March, below expectation of 55.1. That’s also a 5-month low. PMI Services rose from 55.4 to 57.4, above expectation of 55.2, a 4-month high. PMI Composite rose from 55.5 to 56.2, an 8-month high.
Joe Hayes, Senior Economist at S&P Global said: “Services was the sole driver of March’s accelerated expansion as manufacturing output growth slowed sharply since February… Russia’s invasion of Ukraine has intensified already existing issues for businesses. According to survey respondents, the war has worsened the availability of certain inputs, generated hesitancy among some clients to place new orders, dented business confidence and exerted further considerable upward pressure on costs due to the impact on fuel, energy and commodity prices.”
Japan PMI Manufacturing rose from 52.7 to 53.2 in March. Manufacturing output rose from 49.3 to 50.6. PMI Services rose from 44.2 to 48.7. PMI Composite rose from 45.8 to 49.3.
Usamah Bhatti, Economist at S&P Global, said: “Flash PMI data indicated that activity at Japanese private sector businesses fell for the third month running during March. The decline in output eased from the previous survey period however, and was only marginal as companies noted that COVID-19 cases had continued to reduce, allowing the lifting of the quasi-state of emergency across Japan. By sector, manufacturers noted a renewed rise in output in at the end of the first quarter, while service providers indicated a softer deterioration in business activity.
Australia PMI Manufacturing rose from 57.0 to 57.3 in March. PMI Services rose from 57.4 to 57.9, a 10-month high. PMI Composite rose from 56.6 to 57.1, also a 10-month high.
Jingyi Pan, Economics Associate Director at S&P Global said: “The Australian economy continued to expand strongly in March… reflecting robust business conditions post the COVID-19 Omicron wave. Price pressures worsened, however, unsurprisingly aggravated by the slew of issues including floodings in Australia, the Ukraine war and broader supply chain constraints…
“Higher employment levels in March had been a positive sign, though firms also widely reported higher wages. Meanwhile the reopening of the international borders led to the first new export business growth in the service sector since June 2021.”
In a report, IMF urged RBNZ to have “significant increases” in interest range in the near term to address inflation as a priority.
IMF said, “with the recovery well-entrenched, tight labor market conditions, and elevated inflation, it is appropriate to withdraw fiscal and monetary support as envisaged.”
Fiscal policy should “remain agile”. “While the scheduled tightening of fiscal policy is appropriate, the authorities should calibrate the fiscal stance to the evolution of the pandemic and economic conditions, providing additional, targeted support where needed.”
As for monetary policy, IMF said it should remain “data dependent, and continued, swift policy normalization will be appropriate under baseline conditions.”
“Given New Zealand’s strong cyclical position and inflationary pressures, significant increases in the Official Cash Rate in the near term are appropriate, signaling the RBNZ’s commitment to addressing inflation as a priority.”
BoJ board member Goushi Kataoka warned in a speech to business leaders, “disruptions in Russia-related trade will weigh not just on Russia’s economy but global growth by prolonging worldwide supply constraints.” And for the time being, “we must pay attention to downside risks to Japan’s economy…as well as upside risks to prices.”
Separately, meeting of January BoJ meeting noted one member said, “We’re seeing stock prices rise for companies that hike prices. Price hikes may broaden, and heighten medium- to long-term inflation expectations.”
Another member said, “many companies are feeling the limit of sticking to a business model that was effective deflation. As they change their price-setting behaviour, inflationary pressure may heighten.”
However, “nominal wage growth must exceed 2per cent for Japan to stably meet the BOJ’s price target,” on member was quoted.
San Francisco Fed President Mary Daly said she has “everything on the table” for the May FOMC meeting. “If we need to do 50, that is what we’ll do,” she added. “We’re prepared to do whatever it takes to ensure that we get price stability, which clearly no one thinks we have right now.”
Daly pointed to the new dot plot projection that interest rate will rise to 1.9% this year, and 2.8% by the end of next. “Relative to previous periods of tightening, this is quite a bit of front-loading just as the SEP (Summary of Economic Projections) has indicated.”
“I don’t think it’s appropriate to you, you know, really ratchet up so quickly, that we forget about the risks out there, but rather we be data dependent,” she said.
“We could get a lot of tightening in financial conditions globally and that is something we have to think about,” she said. “Some increase in the policy rate above neutral is likely to be required. That’s down the road in 2023. Right now I don’t think we need to be so decisional on what that looks like.”
Cleveland Fed President Loretta Mester reiterated yesterday that Fed should “front-load” interest rate hikes in the first of of the year, and start quantitative tightening at the same time. “We have to recognize that inflation is very elevated. It is well above our goal. We have to do what we can with both our policy tools to get inflation under control,” she emphasized.
“I think we’re going to need to do some 50 basis-point moves,” Mester added. “I don’t want to presuppose every meeting from here to July, but I do think we need to be more aggressive earlier rather than later.”
US commercial crude oil inventories dropped -2.5m barrels in the week ending March 18, larger than expectation of -0.7m decline. At 413.4m barrels, oil inventories are about -13% below the five year average for this time of year.
gasoline inventories dropped -2.9m barrels. Distillate dropped -2.1m barrels. Propane/propylene rose 0.3m barrels. Total commercial petroleum inventories dropped -6.7m barrels.
WTI crude oil’s rebound from 93.98 resumes today and it’s now pressing 61.8% retracement of 131.82 to 93.98 at 117.36. Sustained break there could pave the way back to 131.82 high. And in any case, further rally will now remain in favor as long as 109.30 minor support holds.
While the correction from 131.82 was deep, WTI held well above 85.92 resistance turned support. It also drew notable support from 55 day EMA, keeping medium term outlook bullish. Thus, while the corrective pattern from 131.82 might still extend with another falling leg, an eventual upside breakout is still favored.
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UK Gfk consumer confidence dropped to -31, a wall of worry is confronting
UK Gfk Consumer Confidence Index dropped from -26 to -31 in March. That’s the lowest level since November 2020. Personal Financial Situation over last 12 months dropped from -11 to -13. Personal Financial Situation over next 12 months dropped from -14 to -18. General Economic Situation over last 12 months dropped slightly from -50 to -51. Genera Economic Situation over next 12 months dropped from -43 to -49.
Joe Staton, Client Strategy Director GfK, says: “A wall of worry is confronting consumers this month and there is an unmistakable sense of crisis in our numbers. Consumers across the UK are experiencing the impact of soaring living costs with 30-year-high levels of inflation, record-high fuel and food prices, a recent interest-rate hike and the prospect of more increases to come, and higher taxation too – all against a background of stagnant pay rises that cannot compensate for the financial duress. This is the fourth month in a row that UK consumer confidence has dropped.”
Full release here.