NZD/USD heads back to 0.5858 short term bottom

    NZD/USD experienced a sharp decline overnight, attributed largely to a vigorous rebound seen in Dollar. Bearish momentum for the pair continued into Asian session, further weighed down by disappointing manufacturing data from New Zealand.

    From a technical standpoint, price actions stemming from 0.5858 short term bottom appear to have a corrective structure. The pronounced drop seen today suggests the possibility that this corrective phase might have concluded at 0.6054, just shy of 38.2% retracement of 0.6410 to 0.5858 at 0.6069.

    Near term focus is now turned to 0.5858 low. Decisive break there will confirm resumption of whole down trend from 0.6537. Next target is 61.8% projection of 0.6410 to 0.5858 from 0.6054 at 0.5713.

    In the event of recovery, 0.6054 resistance remains pivotal. As it stands, unless this level is surpassed, any recovery attempts are likely to be short-lived, keeping the bearish bias intact.

    FOMC minutes indicate cautious approach and possible softening in hawkish stance

      A key takeaway from FOMC minutes from October 31-November 1 meeting is the consensus on proceeding with caution, as indicated by the unanimous agreement that “the Committee was in a position to proceed carefully.”

      The minutes also emphasized Fed’s readiness to implement further tightening measures if the progress toward its inflation target is deemed insufficient. This stance is aligned with Fed’s ongoing commitment to combatting inflation, as reflected in the sentiment that “further tightening of monetary policy would be appropriate if incoming information indicated that progress toward the Committee’s inflation objective was insufficient.”

      The committee members were also unanimous in their view that restrictive policy stance should be maintained until inflation shows a sustainable decline towards Fed’s target. This highlights Fed’s focus on ensuring that inflationary pressures are adequately managed before considering any policy easing.

      However, a notable shift in the committee’s outlook was observed in the latest minutes. The previous stance, which suggested that “one more increase in the target federal funds rate at a future meeting would likely be appropriate,” was conspicuously absent in the latest document. This omission may signal a slight softening in the FOMC’s hawkish stance, indicating a potential pivot in future policy decisions.

      Full FOMC minutes here.

      Fed hikes 75bps, rate to reach 4.4% by year end

        Fed raises interest rate by 75bps to 3.00-3.25% as widely expected, by unanimous vote. In the accompanying statement, Fed said job gains have been “robust” with unemployment rate “remained low”. Inflation remains “elevated”. FOMC would be ” prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”

        In the new economic projections, Fed projects (median) interest rates to reach 4.4% in 2022, 4.6% in 2023, before falling back to 3.9% in 2024, and then 2.9% in 2025. GDP growth is projected to be at 0.2% in 2022, 1.2% in 2023, 1.7% in 2024, and then 1.8% in 2025. Unemployment rate is projected to be at 3.8% in 2022, 4.4% in 2023, 4.4% in 2024, and then 4.3% in 2025. Core PCE inflation is projected to be at 4.5% in 2022, 3.1% in 2023, 2.3% in 2024, and then 2.1% in 2025.

        Full statement here.

        Full projection here.

        ECB Panetta: Conditions for second round inflation inflation not in place

          ECB Executive Board member Fabio Panetta said in a speech, “the likelihood that demand in the euro area will be strong enough to test the supply constraints of the economy – beyond short-term bottlenecks – does not look as high as in the United States.”.

          Eurozone inflation “will rise this year” he added, “but this will be a temporary increase”. Policymakers do not see ” convincing signs that this upward movement will translate into a sustained inflationary process.” Also, “the risk of second-round effects remains limited, as the conditions for them to emerge are not yet in place.”

          Full speech here.

          Eurozone PMI composite finalized at 50.1, GDP to rise 0.1% in Q3 at best

            Eurozone PMI Services was finalized at 51.6, down from August’s 53.5. PMI Composite was finalized at 50.1, down from August’s 51.9. That’s the lowest level since June 2013. Looking at the member states, Germany PMI Services dropped to 48.5, an 83-month low. Italy rose to 2-month high of 50.6. France hit 5-month low of 50.8. Ireland hit 78-month low of 51.0. Spain also hit 2-month low at 51.7.

            Chris Williamson, Chief Business Economist at IHS Markit said:

            “The eurozone economy ground to a halt in September, the PMI surveys painting the darkest picture since the current period of expansion began in mid-2013. GDP looks set to rise by 0.1% at best in the third quarter, with signs of further momentum being lost as we head into the fourth quarter, meaning the risk of recession is now very real. Inflows of new business are falling at the fastest rate for over six years and employment growth has hit the lowest since early 2016. Companies are increasingly looking to reduce overheads and tighten belts in the face of falling demand and an uncertain outlook.

            “The downturn also shows further signs of spreading from manufacturing to services. While the goods-producing sector is stuck in its deepest downturn since 2012, the service sector has also seen its growth rate slow sharply to one of the weakest for six years.

            “The deteriorating picture is being led by a downturn in Germany, but France and Italy are also close to stalling and Spain has seen growth slow to the joint-lowest in around six years.

            “The growing risk of recession, coupled with a further moderation of inflationary pressures, will add to expectations that the ECB will need to do more to stimulate the economy in coming months.”

            Full release here.

            Australia Westpac consumer sentiment dropped to 83.7, RBA averted a much bigger fall

              Australia Westpac Consumer Sentiment Index dropped -0.9% mom to 83.7 in October. Westpac said the index remains in “deeply pessimistic territory”, at a level comparable to the lows “briefly reached during the pandemic”, and during the Global Financial Crisis.

              It added RBA’s smaller than expected 25bps rate hike “averted a much bigger fall” in sentiment. Sentiment amongst those sampled before the RBA decision showed a “depressing” 77.4 index read. But the post RBA “relief rebound” is “unlikely to be repeated in future months”.

              Westpac expects four more consecutive 25bps rate hikes at RBA’s November, December, February and March meetings.

              Full release here.

              BoJ Kuroda: Prices won’t rise sustainably without wage hikes

                BoJ Governor Haruhiko Kuroda told the parliament today that core inflation (all items excluding fresh food) is “likely to remain around 2% for about 12 months”, unless energy prices drop sharply.

                However, he emphasized that “prices won’t rise sustainably, stably unless accompanied by wage hikes.” That’s seen as in indication that recent rise in inflation is not enough to lead to exit of the ultra-loose monetary policy.

                Also from Japan, Tokyo CPI core was unchanged at 1.9% yoy in May, below expectation of 2.0% yoy.

                Fed Clarida: Most of early rise in inflation will revert by year-end

                  Fed Vice Chair Richard Clarida said in a Bloomberg TV interview that there is a lot of “pent-demand” as well as “pent-up supply” in the economy. Both supply and demand will be in play as the year progresses. The “baseline expectation” is that most of the early rise in inflation this year will “revert by year-end”.

                  “If inflation at the end of the year has not declined from where it is at the middle of the year might be ‘good evidence’ of inflation that is not transitory,” he added.

                  Also, Clarida reiterated that “substantial progress is actual progress.” Fed will inform the public about the progresses “as we go through the year”. “We will have ample opportunities as data comes in to inform Fed observers on our progress”, he said.

                  BoJ stands pat, lowers inflation forecasts once again

                    BoJ left monetary policy unchanged today as widely expected, by 7-2 vote again. Short term policy interest rate is held at -0.1%. On long term interest rate, BoJ will continue with asset purchases to keep 10 year JGB yield at around 0%. G. Kataoka dissented again, pushing for more monetary easing due to “heightening uncertainties regarding development in economic activity and prices”. Y. Harada dissented because “allowing the long-term yields to move upward and downward to some extent was too ambiguous”.

                    In the Outlook for Economic Activity and Prices report, BoJ noted that the economy is likely to continue to grow above potential in fiscal 2018. For fiscal 2019 and 2020, the economy is expected to continue on an “expanding trend”, partly supported by “external demand”. But growth is projected to decelerate due to a “cyclical slowdown” in business fixed investments and the scheduled sales tax hike.

                    CPI continued to show “relatively weak developments” comparing to growth and labor market. Though, BoJ maintained that “further price rises are likely to be observed widely and then medium- to long-term inflation expectations are projected to rise gradually”. Thus, CPI will gradually increase towards 2% target. On risks, BoJ said both economic and prices risks are “skewed to the downside”.

                    In the updated economic projects, fiscal 2018 growth forecast was downgraded from 1.5% to 1.4%. Growth forecasts for 2018 and 2019 were kept unchanged at 0.8%. Fiscal 2018 core CPI projection was lowered notably to 0.9%, down from 1.1%. For fiscal 2019 and 2020, ex-sales-tax-hike core CPI projections were also lowered, to 1.4% and 1.5%, down from 1.5% and 1.6% respectively.

                    Also, note that the ex-sales-tax-hike core CPI projections are notably lower than April’s forecasts, at 1.8% in fiscal 2019 and fiscal 2020 respectively.

                    Bundesbank: German economy regaining some lost momentum

                      Bundesbank said in the latest monthly report released today that the German economy is regaining some momentum currently. It noted that “the economy has likely showed better momentum in the spring than at the start of the year.” Nonetheless ” it is unlikely that the high growth rates of the past year will be repeated, manufacturing was once again the key economic driving force.”

                      The report noted that car production increased sharply with pharmaceutical products. But intermediates goods remained weak. Household consumption remained a cornerstone for growth. Government consumption also rebounded. Also, “activity in the booming construction sector likely increased significantly, despite capacity constraints.”

                      ECB Lagarde: First hike could come only few weeks after early Q3

                        ECB President Christine Lagarde indicated in a speech that the asset purchases could end “early” in Q3, and interest rate hikes could start “only a few weeks” after that.

                        “We will end net purchases under the asset purchase programme. Judging by the incoming data, my expectation is that they should be concluded early in the third quarter,” she said.

                        “The first rate hike, informed by the ECB’s forward guidance on the interest rates, will take place some time after the end of net asset purchases,” she reiterated.

                        “We have not yet precisely defined the notion of ‘some time’, but I have been very clear that this could mean a period of only a few weeks. After the first rate hike, the normalisation process will be gradual,” she added..

                        Full speech here.

                        Australia Westpac consumer sentiment rose to 108.8 despite NSW lockdown

                          Australia Westpac-Melbourne Institute Consumer Sentiment rose 1.5% to 108.8 in July, up from 107.2. Confidence has “held up overall” despite a sharp fall in New South Wales, as Victoria and Western Australia recorded strong “bounce-backs”.

                          Westpac said RBA is not expected announce any change at August 3 meeting. The focus would mainly be on the Statement on Monetary Policy on August 6. RBA would have a few more weeks to assess the impact of the lockdown in Sydney.

                          Full release here.

                          ECB Wunsch: If core inflation remains persistent, terminal rate of 3.5% would be a minimum

                            ECB Governing Council member Pierre Wunsch said, “I don’t think we’re going to move from 50 basis points (in March) to zero.”

                            “It might be another 50 basis points or we might be moving to 25. I will certainly not exclude another 50 basis points but that’s going to be dependent on the data,” he added.

                            “If core remains persistent, if we keep seeing core momentum being close to 5%, for me a terminal rate of 3.5% would be a minimum,” Wunsch said. “But I don’t want to give any number that is not conditional on incoming data.”

                            “Rates are clearly above 4% in the UK and the U.S.; that would also be a reference for me,” Wunsch said. “Why would we stay at 3% if we have more or less similar core numbers?”

                            “I’m not saying we need to go to 4%… but if incoming data continue to show very persistent core, we will have to look at what the U.S. and UK seem to consider as a restrictive enough interest rates to bring inflation back to 2%.”

                             

                            US CPI slowed to 5% yoy and missed expectations, core CPI ticked up to 5.6% yoy

                              US CPI rose 0.1% mom in March, below expectation of 0.3% mom.  CPI core (all items less food and energy) rose 0.4% mom, matched expectations. Energy index decreased -3.5% mom while food index was unchanged.

                              Over the last 12 months, CPI slowed from 6.0% yoy to 5.0% yoy, below expectation of 5.2% yoy, marked the lowest level since June 2021. CPI core (all items less food and energy) accelerated from 5.5% yoy to 5.6% yoy, matched expectations. Energy index for down -6.4% yoy while food index rose 8.5% yoy.

                              Full US CPI release here.

                              RBA stands pat, recovery stronger than earlier expected

                                RBA left monetary policy unchanged as widely expected. Cash rate and 3-year yield target are held at 0.10%. Parameters of the Term Funding Facility and the government bond purchase program are kept unchanged too. The central bank also keep the pledge to “maintaining highly supportive monetary conditions until its goals are achieved”. The conditions for raising cash rate is not expected to be met “until 2024 at the earliest”.

                                The bond purchases were “brought forward this week to assist with the smooth functioning of the market”. A cumulative AUD 74B of government bonds has been purchased under the initial AUD 100B program. A further AUD 100B will be purchases after the current program completes. And RBA is “prepared to do more if that is necessary”.

                                Globally, RBA noted that longer-term bond yields increased “considerably over the past month”. That “partly reflects a lift in expected inflation over the medium term to rates that are closer to central banks’ targets”. The movement in yields have been associated with volatility in other asset prices including foreign exchange rates, Australian Dollar “remains in the upper end of the range of recent years”.

                                Australian economic recovery is “well under way” and has been “stronger than was earlier expected”. GDP is expected to grow3.5% over both 2021 and 2022. Also GDP is expected to return to its end-2019 level “by the middle of this year”. But wage and prices pressures “subdued” and are expected to “remain so for some years”. CPI is expected to be at 1.25% over 2021 and 1.50% over 2022. CPI inflation is expected to “rise temporarily because of the reversal of some COVID-19-related price reductions.”

                                Full statement here.

                                Swiss GDP grew 1.8% qoq in Q2, retail sales dropped -2.6% yoy in Jul

                                  Swiss GDP grew 1.8% qoq in Q2, slightly below expectation of 1.9% qoq. Total GDP was only -0.5% below the pre-crisis level seen in Q4 2019. Looking at some details, from production approach, manufacturing grew 0.9%, trade rose 4.8%, accommodation and food rose 48.9%, arts, entertainment and recreation rose 52.9%. From expenditure approach, private consumption rose 4.1%, government consumption rose 5.5%.

                                  Also from Swiss, real retail sales dropped -2.6% yoy in July, much worse than expectation of 0.2% yoy. CPI came in at 0.2% mom, 0.9% yoy in August, above expectation of 0.1% mom, 0.8% yoy.

                                  German factory orders -3.9% mom, Swiss unemployment rate at 2.9%

                                    German factory orders Feb: -3.9% mom vs exp -1.6% mom vs prior 3.0% mom

                                    Swiss unemployment rate Feb: 2.9% vs exp 2.9% vs prior 3.0%

                                    Little reaction to the data as markets await ECB later today. Recent rebound in EUR/CHF suggests pull back from 1.1832 has completed at 1.1445 already. But the corrective pattern from 1.1832 could still extend with another falling leg before completion. Mario Draghi’s message will likely decide whether EUR/CHF will target 1.1832 first, or 1.1445 again first.

                                    IMF ready to mobilize $1T lending capacity as coronavirus response

                                      IMF Managing Director Kristalina Georgieva said in a blog post that the fund is ready to mobilize its USD 1T lending capacity to help member countries on coronavirus impacts. And, “as a first line of defense, the Fund can deploy its flexible and rapid-disbursing emergency response toolkit to help countries with urgent balance-of-payment needs.”

                                      Meanwhile she also urged that “the case for a coordinated and synchronized global fiscal stimulus is becoming stronger by the hour.” There are three areas of actions for the global economy, including fiscal policies, monetary policies and regulatory responses. “All this work—from monetary to fiscal to regulatory—is most effective when done cooperatively.”

                                      China Caixin PMI composite rose to 54.5, more time still needed to return to normal

                                        China Caixin PMI Services rose to 55.0 in May, up from April’s 44.4. PMI Composite rose to 54.5, up from 47.6, back in expansion territory. Markit said that business activity and new work rose at quickest pace since late 2010. Pandemic continued to weigh heavily on export orders. Employment fell slightly as firms look to raise efficiency.

                                        Wang Zhe, Senior Economist at Caixin Insight Group said: “In general, the improvement in supply and demand was still not able to fully offset the fallout from the pandemic, and more time is needed for the economy to get back to normal. The composite employment gauge stayed in negative territory as companies were cautious about increasing headcounts. But they were relatively optimistic about the economy’s forward momentum, and look forward to implementation of the policies announced during the annual session of China’s top legislature.”

                                        Full release here.

                                        US NFP grew 128k, unemployment rate edged higher to 3.6%

                                          US non-farm payroll report showed 128k growth in October, above expectation of 105k. Prior month’s figure was revised sharply higher from 136k to 180k. Job growth has averaged 167k per month thus far in 2019, compared with an average monthly gain of 223k in 2018. Unemployment edged higher to 3.6%, from 3.5%, matched expectations. Participation rate was little changed at 63.3%. Average hourly earnings rose 0.2% mom in October, below expectation of 0.3% mom.

                                          Full release here.