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Eurozone Sentix rose to -18.9, but no joy about this development

    By
    ActionForex
    -

    Eurozone Sentix Investor Confidence rose from -22.5 to -18.9 in August, much better than expectation of -25.0. Current Situation Index was unchanged at -20.5. Expectations Index rose from -24.5 to -17.3. Inflation theme barometer rose to -11, indicating a decline in inflationary pressure. Central bank policy barometer also rose to -13.

    Nevertheless, Sentix noted, “Investors are thus by no means positive about economic developments, the expected rate of deterioration is merely easing. Thus, at the beginning of August 2023, the economy in the euro zone remains in recession mode. There can therefore be no joy about this development.”

    In Germany, Sentix Investor Confidence fell from -28.4 to -30.4, lowest since October 2022. Current Situation Index dropped from -28.0 to -35.3. worst since July 2020. Expectations index rose slightly from -28.8 to -26.0.

    Full Eurozone Sentix release here.

    BoJ opinions: Flexible YCC needed while maintaining monetary easing

      By
      ActionForex
      -

      In the Summary of Opinions at the July 27-28 meeting, BoJ reinforced its commitment to monetary easing but highlighted a pressing need for more “flexibility” in its yield curve control approach policy.

      The bank’s primary stance was evident among board members: Achieving a 2% price stability target “has not yet come in sight”, necessitating continued monetary easing and the preservation of the current YCC framework.

      “There is still a significantly long way to go before revising the negative interest rate policy, and the framework of yield curve control needs to be maintained,” one member noted.

      However, there will be potential market disruptions by strictly capping 10-year JGB yields at 0.5%, another opinion noted.

      Also, given the “increasingly significant upside and downside risks” to prices outlook, flexible YCC is needed for allowing market-driven interest rates, ensuring liquidity, and preventing abrupt rate shifts.

      The bank also remarked on the current inflation trends, suggesting they primarily stem from import inflation. A rise in earning power, especially for small and medium-sized firms, was emphasized as crucial before instituting broader YCC flexibility.

      At the meeting, BoJ permitted a rise in the 10-year yield beyond its usual 0.5% limit, reaching up to 1%.

      Full BoJ Summary of Opinions here.

      Fed Bowman: Additional rate hikes likely needed

        By
        ActionForex
        -

        Fed Governor Michelle Bowman projected the necessity of further rate hikes during a weekend speech, asserting they are likely needed to push inflation back down to the Fed’s 2% target.

        Bowman expressed her support for Fed’s rate hike in July and stated, “I also expect that additional rate increases will likely be needed to get inflation on a path down to the FOMC’s 2 percent target.”

        However, Bowman was careful to emphasize that Fed policy is “not on a preset course”. Further decisions will be based on “incoming data and its implications for the economic outlook,” she stated.

        She said, “We should remain willing to raise the federal funds rate at a future meeting if the incoming data indicate that progress on inflation has stalled.”

        While recent lower inflation reading was seen as positive, Bowman asserted the necessity of consistent evidence of inflation moving meaningfully toward the 2% goal when contemplating additional rate hikes and the duration of restrictive federal funds rates.

        Full remarks of Fed Bowman here.

        Canada employment down -6.4k in Jul, unemployment rate rose to 5.5%

          By
          ActionForex
          -

          Canada employment fell -6.4k in July, below expectation of 15.5k growth.

          Unemployment rate rose from 5.4% to 5.5%, matched expectations, and marked the third consecutive monthly increase.

          Average hourly wages growth jumped from 4.2% yoy to 5.0% yoy. Total hours worked was virtually unchanged over the month, and up 2.1% yoy.

          Full Canada employment release here.

          US NFP rose 187k in Jul, missed expectations

            By
            ActionForex
            -

            US non-farm payroll employment rose 187k in July, below expectation of 200k. That’s also notably lower than the average monthly gain of 312k over the prior 12 months.

            Unemployment rate ticked down from 3.6% to 3.5%, below expectation of 3.6%. Unemployment rate has been ranging between 3.4% and 3.7% since March 2022. Labor force participation rate was unchanged at 62.6% for the fifth consecutive month.

            Average hourly earnings rose 0.4% mom, above expectation of 0.3% mom. Over the past 12 months, average hourly earnings has increased by 4.4% yoy. Average workweek fell slightly by -0.1 hour to 34.3 hours.

            Full US non-farm payroll release here.

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

              By
              ActionForex
              -

              Eurozone retail sales dropped -0.3% mom in June, much worse than expectation of 0.3% mom. Volume of retail trade decreased by -0.3% for food, drinks and tobacco and by -0.2% for non-food products, while it increased by 1.0% for automotive fuels.

              EU retail sales fell -0.2% mom. Among Member States for which data are available, the largest monthly decreases in the total retail trade volume were registered in the Slovenia (-2.6%), Romania (-1.9%) and Portugal (-1.6%). The highest increases were observed in Luxembourg (+2.6%), Netherlands (+1.5%) and Belgium (+1.2%).

              Full Eurozone retail sales release here.

              NFP: Where’s the balance between job growth and wage inflation?

                By
                ActionForex
                -

                The imminent NFP report poses a potential quandary for both Fed and market participants. On one hand, steady job growth aligns with Fed’s intention to engineer a soft landing for the US economy. On the other, elevated wages growth due to tight labor market could compel Fed to maintain its tightening course, potentially complicating the soft landing strategy.

                Expectations are set for a 200k job increase in July, while unemployment rate is predicted to hold steady at 3.6%. Average hourly earnings are projected to climb 0.3% month-on-month.

                Based on recent developments, economists are gradually warming to the idea that Fed might achieve its “soft-landing” scenario for the economy. Consistent job growth around the 200,000 region per month would provide further support for this possibility.

                However, uncertainties loom regarding wage growth. With an expected 0.3% mom growth, the annual rate could comfortably remain above 4% yoy – a figure significantly higher than the levels consistent with Fed’s 2% inflation target. A strong report will certainly spark debates in the market about whether Fed will need to tighten its monetary policy further toward a peak of 6%, up from the current 5.25-5.50%.

                Relevant employment data presents a mixed bag. ISM Services Employment index was at 50.7 in July, down -2.4 points from 53.1 in June. Meanwhile, ISM Manufacturing Employment was lower at 44.4, marking a decline of -3.7 points from 48.1 in June. In contrast, ADP reported private payrolls at 324k against forecast of 195k and prior month’s stronger 455k.

                 

                RBA downgrades 2023 CPI and GDP forecasts slightly

                  By
                  ActionForex
                  -

                  In the quarterly Statement on Monetary Policy, RBA reiterated that “some further tightening of monetary policy may be required”. This decision, however, would hinge on the incoming data and the evolving assessment of risks. Economic forecasts remain largely unchanged, with a slight downgrade in 2023 CPI forecast as well as 2023 and 2024 GDP projections.

                  The central bank’s outlook for inflation remains more or less steady as compared to three months ago. “CPI inflation is forecast to continue to decline, to be around 3¼ per cent at the end of 2024 and back within the 2–3 per cent target range in late 2025,” the statement highlighted. The Board maintains that the risks around the inflation outlook are “broadly balanced”.

                  While the labour market remains tight, conditions have seen slight relaxation. The bank notes, “In response to the tight labour market and high inflation, wage growth picked up to its highest rate in a decade.”

                  The economic growth perspective appears somewhat muted, with the statement acknowledging that “Growth in economic activity has been subdued this year.” Looking ahead, the central bank remains cautious, predicting that “Growth in the economy is expected to remain subdued over the period ahead.”

                  New economic forecasts

                  CPI inflation at (vs previous forecast):

                  • 4.25% in Dec 2023 (down from 4.50%).
                  • 3.50% in June 2024 (unchanged).
                  • 3.25% in Dec 2024 (unchanged).
                  • 300% in Jun 2025 (unchanged).
                  • 2.75% in Dec 2025 (new).

                  Trimmed mean CPI inflation at:

                  • 4.00% in Dec 2023 (unchanged).
                  • 3.25% in Jun 2024 (unchanged).
                  • 3.00% in Dec 2024 (unchanged).
                  • 3.00% in Jun 2025 (unchanged).
                  • 2.75% in Dec 2025 (new).

                  Year-average GDP growth at:

                  • 1.50 in 2023 (down from 1.75%).
                  • 1.25% in 2024 (down from 1.50%).
                  • 2.00% in 2025 (new).

                  Full RBA Statement on Monetary Policy here.

                  US ISM services fell to 52.7 in Jul, corresponds to 1% annualized GDP growth

                    By
                    ActionForex
                    -

                    US ISM Services PMI dropped from 53.9 to 52.7 in July, slightly below expectation of 53.0. Looking at some details, business activity/production dropped from 59.2 to 57.1. New orders dropped from 55.5 to 55.0. Employment dropped from 53.1 to 55.9. Prices rose from 54.1 to 56.8.

                    ISM said: “The past relationship between the Services PMI® and the overall economy indicates that the Services PMI® for July (52.7 percent) corresponds to a 1-percent increase in real gross domestic product (GDP) on an annualized basis.”

                    Full US ISM services release here.

                    US initial jobless claims rose 6k to 227k

                      By
                      ActionForex
                      -

                      US initial jobless claims rose 6k to 227k in the week ending July 29, above expectation of 223k. Four-week moving average of initial claims dropped -5.5k to 228k.

                      Continuing claims rose 21k to 1700k in the week ending July 22. Four-week moving average of continuing claims dropped -4.5k to 1712k.

                      Full US jobless claims release here.

                      BoE hikes 25bps, softens hawkish bias slightly

                        By
                        ActionForex
                        -

                        BoE raises Bank rate by 25bps to 5.25% today. Two members, Jonathan Haskel and Catherine Mann voted for 50bps hike. Swati Dhingra voted for no change again. Six other MPC members vote for the decision.

                        Hawkish bias was somewhat softened slightly, as the language that “the MPC will adjust Bank Rate as necessary” was dropped. Nevertheless, the central bank maintained that “If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.”

                        In the new economic forecast, modal CPI inflation was downgraded slightly from 7.0% to 6.9% in 2023 Q3, and from 2.9% to 2.8% in 2024 Q4. CPI forecast was upgraded from 1.0% to 1.7% in 2025 Q3.

                        Full BoE statement here.

                        ECB’s Panetta advocates for persistence over aggressiveness in monetary policy approach

                          By
                          ActionForex
                          -

                          ECB Executive Board member Fabio Panetta delivered a speech today, emphasizing the importance of “persistence” over “level” in executing the bank’s monetary policy given the present economic context.

                          Panetta stated, “In the current context where policy rates are around the level necessary to deliver medium-term price stability, I will argue that monetary policy may operate not just by increasing rates but also by keeping the prevailing level of policy rates for longer. In other words, persistence matters as much as level.”

                          The ECB official highlighted two primary approaches to the bank’s disinflationary monetary policy: the ‘level’ approach, which involves raising the policy rate beyond its current position, risking a potential need for faster and earlier cuts, and the ‘persistence’ approach, which advocates for maintaining the policy rates at their prevailing level for an extended duration.

                          “Emphasizing persistence may be particularly valuable in the current situation,” said Panetta, “where the policy rate is around the level necessary to deliver medium-term price stability, the risk of a de-anchoring of inflation expectations is low, inflation risks are balanced, and economic activity is weak.”

                          He warned against the pitfalls of an aggressive rate hike strategy, stating that it “might amplify the risk associated with overtightening, which could subsequently require rates to be cut hastily in a deteriorating economic environment.”

                          By contrast, Panetta argued, the ‘persistence’ element allows for greater flexibility, granting the central bank more time to assess the effects of its past policies and fine-tune its stance as new information emerges.

                          He added that by underlining the importance of this ‘breathing space’, stating, “This is crucial given that – as I said before – the transmission of our monetary policy may actually turn out to be stronger than our projections indicate.”

                          Full speech of ECB Panetta here.

                          Eurozone PPI down -0.3% mom, -3.4% yoy in June

                            By
                            ActionForex
                            -

                            Eurozone PPI was down -0.3% mom, -3.4% yoy in June, versus expectation of -0.2% mom, -3.1% yoy. For the month, industrial producer prices decreased by -0.7% for intermediate goods and by -0.5% in the energy sector, while prices remained stable for durable consumer goods and for non-durable consumer goods, and prices increased by 0.1% for capital goods. Prices in total industry excluding energy decreased by -0.3%.

                            EU PPI was down -0.3% mom, -2.4% yoy. The largest monthly decreases in industrial producer prices were recorded in Hungary (-2.5%), Bulgaria and Latvia (both -2.4%) and Belgium (-2.2%), while the highest increases were observed in Ireland (+4.0), Croatia (+1.3%) and Sweden (+1.2%).

                            Full Eurozone PPI release here.

                            UK PMI composite finalized at 50.8, economy to flatline at best

                              By
                              ActionForex
                              -

                              UK PMI Services was finalized at 51.5 in July, down from June’s 53.7. PMI Composite was finalized at 50.8, down from June’s 52.8, sparking concerns over the possibility of an economic stagnation in the coming months.

                              Tim Moore, Economics Director at S&P Global Market Intelligence: “The loss of momentum signalled by service providers in July suggests that the UK economy is set to flatline at best in the coming months.

                              “There were sporadic reports that subdued demand had led to more competitive pricing and the pass through of lower fuel costs, which contributed to a slowdown in output charge inflation to its second-lowest since August 2021.

                              “However, there was no let-up in pressure on business expenses as the rate of input cost inflation was virtually unchanged from that seen on average in the second quarter of 2023.

                              “Survey respondents widely commented on strong cost pressures due to higher salary payments in July, which will add to concerns among policymakers that sticky inflation and stagnant growth will prove a persistent challenge for the UK economy during the second half of the year.”

                              Full UK PMI Services release here.

                              Eurozone PMI composite finalized at 48.6, off to a bad start in H2

                                By
                                ActionForex
                                -

                                Eurozone’s PMI Services was finalized at a six-month low of 50.9 in July, a considerable drop from June’s figure of 52.0. Moreover, PMI Composite was finalized at 48.6, descending from 49.9 in June, marking an eight-month low.

                                Turning attention to specific member states, PMI Composites revealed that Spain posted a 51.7, reflecting a six-month low. Ireland’s index equaled 50.0, an eight-month low, while Italy and Germany saw similar eight-month lows of 48.9 and 48.5, respectively. However, France’s PMI Composite showed the most significant contraction, falling to a staggering 32-month low of 46.6.

                                Reflecting on this troubling data, Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, stated: “The Eurozone is off to a bad start in the second half of the year. Economic output fell in July after stagnating the month before and showing generally solid growth during the first five months of the year.”

                                He pointed out that manufacturing primarily drove this slump in activity, though the services sector also saw a slowdown. He noted, “In the services sector, a weak phase is heralded by the fall of the incoming new business index into contractionary territory.”

                                De la Rubia also noted the divergent economic performance across Eurozone, with French service companies scaling back their activities significantly while Spanish companies continue to expand, albeit at a slower pace than in the first quarter.

                                “The contrasting economic performance is making the already-difficult job for the ECB even more challenging,” he added.

                                Full Eurozone PMI Composite release here.

                                Swiss CPI slowed to 1.6% yoy in Jul, core CPI down to 1.7% yoy

                                  By
                                  ActionForex
                                  -

                                  Swiss CPI fell -0.1% mom in July, matched expectations. Core CPI (excluding fresh and seasonal products, energy and fuel) was down -0.2% mom. Domestic products prices rose 0.2% mom while imported product prices dropped -1.2% mom.

                                  Annually, CPI slowed from 1.7% yoy to 1.6% yoy, above expectation of 1.5% yoy. Core CPI decelerated from 1.8% yoy to 1.7% yoy. Domestic products prices was unchanged at 2.3% yoy. Imported products prices dropped further from -0.1% yoy to -0.6% yoy.

                                  Full Swiss CPI release here.

                                  BoE to hike for sure, but by 25bps or 50bps?

                                    By
                                    ActionForex
                                    -

                                    BoE is widely expected to continue tightening today, though the extent of interest rate hike remains a point of contention. Markets currently slightly favor a 25 bps increment to 5.25%. However, a more aggressive 50bps hike to 5.50% cannot be entirely dismissed. The Bank’s unexpected 50bps raise in June took markets by surprise, leading some economists to posit a strategic shift in the institution’s response strategy. Conversely, CPI for June, which slowed more-than-expected to 7.9%, was perceived as a positive development by BoE policymakers, and could argue for a return to slowing tightening.

                                    Regardless of today’s decision, it is widely understood that this will not conclude the ongoing tightening cycle. Compared to ECB and Fed, BoE is anticipated to continue tightening for an extended period. Nonetheless, expectation of terminal rate has been fluctuating widely recently though, swinging from as high as 6.5% to 5.75% in a matter of weeks, suggesting a persisting uncertainty about the path ahead.

                                    In addition to the anticipated rate decision, market observers will be closely watching two key aspects. First, today’s voting could provide insight into the approach of MPC’s newest member, Megan Greene, who recently succeeded known dove Silvana Tenreyro. If Greene presents a less dovish stance, Swati Dhingra may stand out as the only dissenter, making the vote an 8-1 majority.

                                    Secondly, BoE is also set to release its new economic forecasts. Governor Andrew Bailey has repeatedly suggested that inflation is expected to decline fairly swiftly in the second half of the year, prompting keen interest in whether this prediction will still be reflected in the forthcoming projections.

                                    Here are some readings on BoE:

                                    GBP/CHF’s technical picture is mixed for now, with some dovish favor. From the near term angle, recovery from 1.1057 is clearly corrective looking, favoring a downside breakout. But the pair has been trading in medium term range of 1.1024/1574 since last October, keeping it neutral-at-worst. Yet, prior rejection by 55 W EMA is keeping the long term outlook bearish to neutral-at-best.

                                    Still, further fall is more likely than not as long as 1.3105 support turned resistance zone. Decisive break of 1.1024 will bring deeper decline to 38.2% 1.0183 to 1.1574 at 1.0714 in rather quick manner. Let’s see how GBP/CHF would reaction to today’s BoE announcement.

                                    China’s Caixin PMI composite fell to 51.9, lowest since Jan

                                      By
                                      ActionForex
                                      -

                                      China’s Caixin PMI Services increased slightly from 53.9 to 54.1 in July, surpassing the anticipated figure of 52.5. However, this reading fell short of the 55.5 average seen over the previous six months. Concurrently, PMI Composite dropped from 52.5 to 51.9, its lowest mark since January.

                                      Commenting on the latest figures, Wang Zhe, a Senior Economist at Caixin Insight Group, expressed that the uneven recovery of the service and manufacturing industries remains a prominent concern. He noted, “Although the manufacturing sector was a drag, the steady expansion of the services industry still helped overall output, demand, and employment remain in positive territory.”

                                      The contraction in exports appeared pronounced, and while input costs saw a slight uptick, output prices registered a minor drop. Despite these challenges, expectations for future output remained on the optimistic side, though this metric recorded a new low since November.

                                      On the broader economic landscape, Wang Zhe noted, “Although the data for industrial production and investment in June showed some signs of recovery, macroeconomic growth remained sluggish, and considerable downward pressure on the economy persisted.”

                                      Turning to policy recommendations, he emphasized the need for employment guarantees, stabilization of expectations, and boosting household income. He further argued that “At present, monetary policy only has a limited effect on boosting supply. An expansionary fiscal policy that targets demand should be prioritized.”

                                      Full China Caixin PMI Services release here.

                                      US ADP jobs rose 324k, slowdown in pay growth without broad-based job loss

                                        By
                                        ActionForex
                                        -

                                        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.”

                                        Full US ADP job report here.

                                        Fitch cuts US sovereign rating on steady deterioration in standards of governance

                                          By
                                          ActionForex
                                          -

                                          Asian stock markets took a significant plunge following Fitch Ratings’ surprise decision to downgrade US sovereign rating from AAA to AA+. This move mirrors S&P Global Ratings’ decision made over a decade ago, causing considerable unrest among investors.

                                          Fitch’s statement highlighted, “In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025.”

                                          US Treasury Secretary Janet Yellen fiercely contested the downgrade, calling it “arbitrary and based on outdated data.” The White House has also voiced opposition to Fitch’s assessment, with press secretary Karine Jean-Pierre declaring, “It defies reality to downgrade the United States at a moment when President Biden has delivered the strongest recovery of any major economy in the world.”

                                          Both Nikkei and HSI are down more than -2% at the time of writing.

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