Tue, Oct 26, 2021 @ 06:00 GMT

US Philly Fed manufacturing dropped to 23.8, price indicators remained elevated

    In the October Philadelphia Fed Manufacturing Business Outlook Survey, the diffusion index for current general activity dropped to 23.8, down from 30.7, below expectation of 26.0.

    Looking at some details, current shipments index was essentially unchanged at 30.0. New orders rose 15 pts to 30.8. Employment index rose from 26.3 to 30.7. The index for prices paid rose 3 pts to 70.3. Current prices received index dropped -2 to 51.1. Price indicators remained elevated.

    Full release here.

    US initial jobless claims dropped to 290k, continued to trend down

      US initial jobless claims dropped -6k to 290k in the week ending October 16, better than expectation of 298k. It’s also the lowest level since March 14, 2020. Four-week moving average of initial claims dropped -15k to 320k, lowest since March 14, 2020 too.

      Continuing claims dropped -122k to 2481k in the week ending October 9, lowest since march 14, 2020. Four-week moving average of continuing claims dropped -85k to 2656k, lowest since March 21, 2020.

      Full release here.

      Australia NAB business confidence dropped to -1 in Q3

        Australia NAB business confidence dropped from Q2’s 18 to -1 in Q3. Current business conditions dropped from 30 to 13. Conditions for the next 3 months dropped from 35 to 8. Conditions for the next 12 months also dropped from 33 to 19. Capex plans for the next 12 months dropped from 37 to 26. Trading conditions dropped from 36 to 16. Profitability dropped from 30 to 11. Employment dropped from 23 to 11.

        Alan Oster, NAB Group Chief Economist, “With lockdowns in place for most of Q3, it’s unsurprising to see both business conditions and confidence take a fairly large hit for the quarter… While conditions deteriorated sharply, they didn’t fall to the depths seen during the first lockdowns in 2020.”

        “While these survey results confirm the large hit to activity that took place in Q3, we are optimistic for a strong rebound in activity in Q4 and into 2022 and reopening progresses.”

        Full release here.

        Fed Mester: Rate hikes are not coming any time soon

          Cleveland Fed President Loretta Mester told CNBC “the thought about raising interest rates is not a near-term consideration at all.” Instead, “we’re going to think about the decision coming up, which is about the asset purchases, and then as those wind down we’ll have time to assess where the economy is.”

          “I don’t think that interest rate hikes are coming any time soon because I don’t think we’ll reach our goals which are maximum employment and inflation at and above 2% for some time,” Mester said.

          “So far the medium-run inflation expectations and longer-run inflation expectations are still at levels consistent with our 2% inflation goal,” she said. “We don’t want to get into a situation where they continue to move up because that would be a signal that we may have to do an adjustment.”

          Fed Quarles quite wary of further increases in inflation expectations

            Fed Governor Randal Quarles said in a speech, “we have met the test of substantial further progress toward both our employment and our inflation mandates”. He would “support a decision at our November meeting to start reducing these purchases and complete that process by the middle of next year”.

            He said Fed is not behind the curve on inflation, for three reasons: “Most of the biggest drivers of the very high current inflation rates will ease in coming quarters, some measures of underlying inflation pressures are less worrisome, and longer-term inflation expectations are anchored, at least for now”.

            But, “forecast for growth and uncertainty about the resolution of supply constraints mean that there are upside risks to inflation next year.. Hence, his focus is “beginning to turn more fully from the rapidly improving labor market to whether inflation begins its descent toward levels that are more consistent with our price-stability mandate.”

            “I would also be quite wary of further increases in inflation expectations in this environment,” Quarles said, “if inflation does remain more than moderately above 2 percent, be assured that the FOMC has the framework and the tools to address it.

            Full speech here.

            Canada CPI rose to 4.4% yoy in Sep, highest since 2003

              Canada CPI accelerated to 4.4% yoy in September, up from August’s 4.1% yoy, above expectation of 4.3% yoy. That’s the fastest pace since 2003. Excluding gasoline CPI rose 0.3% yoy.

              CPI common was unchanged at 1.8% yoy, below expectation of 1.9% yoy. CPI median rose to 2.8% yoy, up from 2.6% yoy, above expectation of 2.6% yoy. CPI trimmed rose to 3.4% yoy, up from 3.3% yoy, above expectation of 3.3% yoy.

              Full release here.

              Bundesbank Weidmann: It’s crucial not to lose sign of prospective inflationary dangers

                Bundesbank President Jens Weidmann warned, “it will be crucial not to look one-sidedly at deflationary risks, but not to lose sight of prospective inflationary dangers either.” The comment came as Weidmann announced he’s stepping down from the post on December 31, as “more than 10 years is a good measure of time to turn over a new leaf – for the Bundesbank, but also for me personally.”

                ECB President Christine Lagarde said in statement, “I respect Jens Weidmann`s decision to step down from his position as President of Deutsche Bundesbank at the end of this year after more than 10 years of service, but I also immensely regret it.”

                Eurozone CPI finalized at 3.4% yoy in Sep, EU at 3.6% yoy

                  Eurozone CPI was finalized at 3.4% yoy in September, up from August’s 3.0% yoy. The highest contribution to the annual euro area inflation rate came from energy (+1.63 percentage points, pp), followed by services (+0.72 pp), non-energy industrial goods (+0.57 pp) and food, alcohol & tobacco (+0.44 pp).

                  EU CPI was finalized at 3.6% yoy, up from August’s 3.2% yoy. The lowest annual rates were registered in Malta (0.7%), Portugal (1.3%) and Greece (1.9%). The highest annual rates were recorded in Estonia, Lithuania (both 6.4%) and Poland (5.6%). Compared with August, annual inflation fell in one Member State, remained stable in one and rose in twenty-five.

                  Full release here.

                  UK CPI slowed to 3.1% in Sep, core CPI dropped to 2.9% yoy

                    UK CPI slowed to 3.1% yoy in September, down from 3.2% yoy, below expectation of 3.2% yoy. Core CPI also dropped to 2.9% yoy, down from 3.1% yoy, below expectation of 2.9% yoy. RPI, on the other hand rose to 4.9% yoy, up from 4.8% yoy, above expectation of 4.7% yoy.

                    Also released, PPI input came in at 0.4% mom, 11.4% yoy, versus expectation of 0.8% mom, 11.6% yoy. PPI output was at 0.5% mom, 6.7% yoy, versus expectation of 0.9% mom, 6.8% yoy. PPI output core was at 0.5% mom, 5.9% yoy, versus expectation of 0.9% mom, 5.8% yoy.

                    AUD/JPY pressing 85.78 high, ready for up trend resumption

                      AUD/JPY rises further today, following the strong close in US stocks overnight, as well as rally in treasury yields. It’s now pressing 85.78 high and decisive break there will resume whole up trend from 59.85 (2020 low). Such development would align the outlook with CAD/JPY and NSD/JPY, which complete the upside breakout last week already.

                      The up trend would then extend to 61.8% projection of 59.85 to 85.78 from 77.88 at 93.90 in the medium term. This bullish case will now be favored as long as 84.25 minor support holds.

                      Japan exports rose 13% yoy in Sep, imports rose 38.6% yoy

                        Japan’s exports rose 13.0% yoy to JPY 6481B in September, above expectation of 11.0% yoy. Imports rose 38.6% yoy to JPY 7464B, above expectation of 34.4% yoy. Trade balance reported JPY -623B deficit, versus expectation of JPY -519B.

                        The weakening in exports could be partly attributed to the -40.3% yoy decline in car shipments, first in seven months. But the situation is expected to improve as supply bottlenecks are solved. Shipment to China grew 10.3% yoy, led by semiconductors and plastic materials. Shipment to the US dropped -3.3% yoy, on cars and airplanes.

                        In seasonally adjusted terms, exports dropped -3.9% mom to JPY 6750B. Imports rose 0.2% mom to JPY 7375B. Trade deficit came in at JPY -625B.

                        Australia Westpac leading index turned negative, but rebound expected ahead

                          Australia Westpac-MI Leading Index dropped from 0.5% to -0.5% in September. That’s the first negative reading since September 2020, which was the followed by strong surge after the economy moved out of lockdown. Westpac expects another strong rebound in the economy ahead as both Sydney and Melbourne are reopening this time too. It also expects the Australia economy to growth by 1.6% in Q4, building towards a 5.6% growth in H2 of 2022.

                          Westpac expects RBA to maintain current policy setting at the November 2 meeting, followed by tapering in February. The most important aspect of the November meeting will be whether RBA has lifted its inflation forecasts.

                          Full release here.

                          Fed Waller: More Aggressive policy response warranted if inflation continues to run high

                            Fed Governor Governor Christopher Waller warned in a speech that “the next several months are critical for assessing whether the high inflation numbers we have seen are transitory.” And, “if monthly prints of inflation continue to run high through the remainder of this year, a more aggressive policy response than just tapering may well be warranted in 2022.

                            He noted, “substantial further progress” towards employment and inflation was already made. He supports ” the FOMC beginning to reduce asset purchases following our meeting in November.” He emphasized that “this action should not tighten financial conditions” since a later 2021 tapering has already been priced in by most market participants. Also, he favored the tapering pace “that would result in the end of asset purchases by the middle of 2022”.

                            Waller didn’t expect rate hike to occur soon after completing tapering, as “the two policy actions are distinct”. But, if inflation staying “considerably above 2 percent well into 2022”, then he’d “favor liftoff sooner than I now anticipate.”

                            Full speech here

                            ECB Vasle: We should be very careful about second round effects

                              ECB Governing Council member Bostjan Vasle warned that “there are early signs that in parts of the economy and certain regions, the risk regarding the labour market could become more material.”

                              “In some parts of the economy, labour is in short supply and if this trend will continue, or spread to other sectors, it could pose a risk to inflation,” he said said. “That’s why I think we should be very careful about second round effects.”

                              He also said if the trends of economic recovery continue, ” then in next March it will be appropriate to end PEPP, as announced when the programme was implemented.” But he emphasized, “even when we decide to end it, we’ll continue to provide plenty of liquidity to the economy with our other instruments.”

                              Rehn: ECB leans on the side of not overreacting to inflation

                                Governing Council Member Olli Rehn said there is still “plenty of economic slack” in Eurozone and inflation is “still mostly transitory”.

                                He added that “evidence speaking for transitory inflation is quite convincing” while core inflation was still “subdued”. Also, there is “no major evidence of second round effects”. Hence, ECB “leans on the side of not overreacting”.

                                ECB Villeroy said French economy to be back to pre-pandemic level by year end

                                  ECB Governing Council member, Bank of France Chairman Francois Villeroy de Galhau said he expected the French economy to be back to pre-pandemic level by year-end. He acknowledged that the auto sector was underperforming, but “areas of the economy are doing well.”

                                  He also emphasized “there is still big difference in terms of rising energy prices and overall total inflation.” He expected inflation to get back to below 2% level by the end of next year.

                                  “So today there is no reason, for example, for the European Central Bank to raise interest rates next year.” Though, “we remain very vigilant on inflation,” he added.

                                  Regarding the risk of China’s Evergrande turning into a Lehman Brothers, Villeroy said “history is not in the process of being repeated”. “I think that Evergrande is mainly a Chinese problem,” he added.

                                  NZD/USD extending rally to 0.7169 resistance first

                                    New Zealand Dollar is leading commodity currencies higher again this today. It’s additionally backed by expectation of more RBNZ rate hike ahead, after report of decade high consumption inflation earlier this week.

                                    NZD/USD is extending the rebound from 0.6858 and further rise should be seen to 0.7169 resistance. Decisive break there will resume the rise from 0.6804 and target 100% projection of 0.6804 to 0.7169 from 0.6858 at 0.7223. Sustained break there would firstly indicate upside acceleration. Secondly, it will reaffirm the case that correction form 0.7463 has completed with three waves down to 0.6804. Stronger rally would then be seen to 161.8% projection at 0.7449, which is close to 0.7463 high. This will be the favored case as long as 0.7048 minor support holds.

                                    RBA: Global supply chain disruptions had limited effect on inflation

                                      In the minutes of October 5 meeting, RBA reiterated that economic recovery was interrupted by the outbreak of Delta. Economy is expected to return to growth in Q4, after contraction in Q3, and then back to pre-Delta path in H2 of 2022. Economy recovery was “likely to be slower than in late 2020/early 2021” and “much would depend on health outcomes and the nature and timing of the easing of restrictions on activity.”

                                      RBA also noted, “while disruptions to global supply chains were affecting the prices of some goods, the effect of this on the overall rate of inflation in Australia was limited”. Wages growth and underlying inflation were “expected to pick up only gradually as the economy recovers.

                                      It acknowledged that house prices and credit growth had continued to rise strongly. “while less accommodative monetary policy would, all else equal, see lower housing prices and credit growth, it would result in fewer jobs and lower wages growth, which would in turn create further distance from the goals of monetary policy – namely, full employment and inflation sustainably within the target range.”

                                      Overall, the conditions for rate hike “will not be met before 2020”. “Meeting this condition will require the labour market to be tight enough to generate materially higher wages growth than at the time of the meeting.”

                                      Full minutes here.

                                      ECB Visco: Some flexibility should remain in asset purchases to help against unexpected shocks

                                        Governing Council member Ignazio Visco said even if the inflation pressures in Eurozone “may last for some months and well during the next year”, it’s still “largely transitory”. He added that market expectations for rate hike in late 2022 were “not that consistent” with ECB’s forward guidance.

                                        Visco also said “flexibility should remain” after the emergency PEPP program as. “We certainly have to discuss how to adjust our purchase programs,” he said. “It will help against unexpected shocks, and it will help to avoid fragmentation that may rise again.”

                                        BoE Bailey sent another signal that “we have to act”

                                          BoE Governor Andrew Bailey warned that rising energy prices means inflation will “last longer” and “get into the annual numbers for longer as a consequence.” The development raised the “fear and concern of embedded expectations.”

                                          “Monetary policy cannot solve supply-side problems,” he noted. “But it will have to act and must do so if we see a risk, particularly to medium-term inflation and to medium-term inflation expectations”

                                          “That’s why we, at the Bank of England have signaled, and this is another signal, that we will have to act”, he said. “But of course that action comes in our monetary policy meetings.”