Eurozone CPI slowed from 6.1% yoy to 5.5% yoy in June, below expectation of 5.6% yoy. CPI core rose from 5.3% yoy to 5.4% yoy, matched expectations.
Looking at the main components, food, alcohol & tobacco is expected to have the highest annual rate(11.7%, compared with 12.5% in May), followed by non-energy industrial goods (5.5%, compared with 5.8% in May), services (5.4%, compared with 5.0% in May) and energy (-5.6%, compared with -1.8% in May).
Swiss KOF Economic Barometer dropped slightly from 91.4 to 90.8 in June, above expectation of 89.2. That’s the third consecutive monthly decline.
KOF said: ” The downward movement in the Barometer is primarily caused by bundles of indicators that capture foreign demand. Here, the outlook continues to deteriorate.
“The indicators covering private consumption and the economic sector of other services also give a slightly negative signal. The indicators for manufacturing and construction, on the other hand, point slightly in a positive direction.”
June saw a modest uptick in China’s NBS PMI Manufacturing from 48.8 to 49.0, missing expectation of 49.5. The manufacturing sector remains in contractionary state, albeit with a slight improvement from the previous month.
In some details of PMI Manufacturing, new orders improved slightly, climbing to 48.6 from May’s 48.3. However, new export orders saw a five-month low at 46.4, suggesting weakening demand from overseas. Employment fell from 48.4 to 48.2.
In parallel, PMI Non-Manufacturing dropped from 54.5 in May to 53.2 in June, underperforming 53.7 forecast. This decline marks the weakest reading index since December. Employment sub-gauge for non-manufacturing sector fell noticeably, from 48.4 to 46.8.
Additionally, PMI Composite, which combines both manufacturing and service sector activity, declined from 52.9 to 52.3. This lower figure highlights a broader slowdown in China’s economic activity beyond manufacturing alone.
Japan’s industrial production recorded a sharper decline than anticipated, dropping by -1.6% mom in May. This marked the first contraction in four months, surpassing expectations of -1.0% decrease. According to survey by Ministry of Economy, Trade and Industry, manufacturers forecast industrial output to recover by 5.6% in June, only to fall again by -0.6% in July.
Among the 15 industrial sectors, 12 reported falling output, with only three seeing rise in production. Notably, motor vehicle sector bore the brunt of the decline, experiencing substantial -8.9% slump from the previous month, with passenger cars and auto body parts being the significant contributors.
Also released, the country’s unemployment rate remained unchanged at 2.6%, as expected. The number of jobless individuals decreased by -30k from the prior month, standing at 1.77 million. However, the Ministry of Health, Labor and Welfare revealed a slight downturn in the job market, with ratio of job openings to job seekers in May dropping to 1.31, down 0.01 point from April.
Meanwhile, Tokyo CPI edged down to 3.1% yoy in June, from 3.2% in May. Core CPI, which excludes fresh food, held steady at 3.2% yoy. Core-core CPI, excluding both food and energy, saw a mild decrease from 3.9% yoy to 3.8% yoy.
US initial jobless claims dropped -26k to 239k in the week ending June 24, below expectation of 265k. Four-week moving average of initial claims rose 1.5k to 257.5k, highest since November 13, 2021 when it was 260k.
Continuing claims dropped -19k to 1742k in the week ending June 17. Four-week moving average of continuing claims dropped -13k to 1758k.
Atlanta Fed President Raphael Bostic signaled a more cautious stance on interest rate hikes, contrary to someof his peers’ sentiments. he said, “I don’t see as much urgency to move as stated by others, including my Chair,” expressing his willingness to assess further signs of economic slowdown before advocating for more aggressive action.
Bostic highlighted the fact that Fed has “only been in restrictive territory for 8-10 months”. He is waiting for “more signs that a slowdown is happening in the next several months”.
Nevertheless, Bostic left room for adaptability based on incoming data. He remarked, “If inflation moves away from target or seems to significantly stall out, then we’ll probably have to do more.” However, he also noted that, “We’re not seeing either of those right now.”
Eurozone Economic Sentiment Indicator dropped from 96.4 to 95.3 in June, slightly below expectation of 96.0. Employment Expectations Indicator rose from 104.6 to 105.0. Economic Uncertainty Indicator dropped from 21.6 to 20.4. Industry confidence fell from -5.3 to -7.2. Services confidence fell from 7.1 to 5.7. Retail trade confidence fell from -5.3 to -6.0. Construction confidence fell from -0.3 to -2.0. Consumer confidence improved from -17.4 to -16.1.
EU Economic Sentiment Indicator fell from 95.1 to 94.0. Employment Expectation Indicator rose from 103.9 to 104.3. Economic Uncertainty Indicator dropped from 21.2 to 20.1. Amongst the largest EU economies, the ESI deteriorated in Germany (-1.9), Italy (-1.1), the Netherlands (-1.0) and Spain (-0.9), while it remained virtually unchanged in Poland (-0.1) and improved in France (+0.8).
In a speech today, Fed Chair Jerome Powell underscored the ongoing battle with inflation, asserting, “Inflation pressures continue to run high, and the process of getting inflation back down to 2 percent has a long way to go.”
He added that “a strong majority of Committee participants expect that it will be appropriate to raise interest rates two or more times by the end of the year,” referring to the latest dot plot.
Powell painted a mixed picture of the U.S. economy. He noted that “recent indicators suggest that economic activity has continued to expand at a modest pace.” He also pointed to the effects of higher interest rates and slower output growth on business fixed investment.
His comments also highlight the persistent tightness in the labor market. “Over the past three months, payroll job gains have been robust,” Powell said, adding that “labor demand still substantially exceeds the supply of available workers.” Nevertheless, he also observed “some easing in nominal wage growth, and declining vacancies.”
In the latest release from Japan, retail sales rose 1.3% mom, surpassing the anticipated increase of 0.8% mom. This growth also reflects a robust 5.7% yoy rise, again beating expectations of 5.2% year-on-year.
While inflation remaining above 3% mark could have been a contributing factor in boosting retail sales, there is evidence to suggest that return of overseas tourists is also playing a substantial role in stimulating economic activity.
Earlier reports from Japan National Tourism Organization highlighted that number of overseas visitors is nearing 70% of pre-pandemic levels as of May, indicating a resilient recovery of the tourism sector, and with it, potential for further economic growth.
In separate release, Consumer Confidence index nudged up from 36.0 to 36.2. This is the highest reading observed since January 2022, suggesting that households are more optimistic about the economy’s trajectory. This could potentially translate into a higher propensity to spend, further bolstering retail sales and overall economic performance in the coming months.
Australia retail sales turnover rose 0.7% mom to AUD 35.52B in May, well above expectation of 0.1% mom. Through the year, sales turnover was up 4.2% yoy.
Ben Dorber, ABS head of retail statistics, said: “Retail turnover was supported by a rise in spending on food and eating out, combined with a boost in spending on discretionary goods.
“This latest rise reflected some resilience in spending with consumers taking advantage of larger than usual promotional activity and sales events for May.”
New Zealand ANZ Business Confidence Index improved notably from -31.1 to -18.0 in June, marking the highest level since November 2021. Furthermore, the outlook for their own activity rose from -4.5 to 2.7, turning positive for the first time in 14 months.
Digging into the details reveals a more nuanced picture. Despite the improved overall business sentiment, export intentions dipped from 2.0 to -1.8. However, there were more encouraging signs in other areas: investment intentions rose from -6.8 to -2.7, and employment intentions followed suit, moving from -5.7 to -3.5. Meanwhile, pricing intentions have shown a modest decline from 52.4 to 49.3.
On the inflation front, there are tentative signs that pressures might be easing slightly. Cost expectations dropped from 84.1 to 76.0, and inflation expectations decreased from 5.47% to 5.29%. There was also a slight improvement in profit expectations, which rose from -27.4 to -24.1.
Commenting on the results, ANZ noted, “for now, cautious optimism appears to be emerging that the worst could be past – but it’s conditional on those inflation indicators continuing to fall.”
In an engaging dialogue at ECB forum, central bank leaders from across the globe hinted at the ongoing struggle against inflation, with an emphasis on the need for continued restrictive monetary policy.
Christine Lagarde, President of ECB, highlighted the necessity of sustained effort in the face of inflation, saying, “We still have more ground to cover.” She underlined the lack of “tangible evidence” that domestic prices, a key indicator of underlying inflation, were stabilizing and starting to fall.
Meanwhile, Fed Chair Jerome Powell echoed this sentiment, asserting that, despite the current restrictive stance, monetary policy “may not be restrictive enough and it has not been restrictive for long enough.” Leaving the door open for consecutive rate hikes, he said, “I wouldn’t take moving in consecutive meetings off the table at all.”
Andrew Bailey, Governor of BoE, justified last week’s significant 50 basis point rate hike, attributing it to the persistence of inflation and labor market pressures. He stated, “The cumulative data… caused us to conclude that we had to make really quite a strong move.”
On the other hand, Kazuo Ueda, Governor of BoJ, projected a temporary slowdown in inflation due to diminishing effects of past import price increases. However, he forecasted an inflation uptick into 2024, albeit admitting less confidence about this second phase. Ueda mentioned that confirmation of this second inflationary surge could be a “good reason to shift policy.”
US goods exports dropped -7.5% yoy to USD 162.84B in May. Goods imports dropped -8.8% yoy to USD 253.98B. Goods trade deficit came in at USD -91.1B, versus expectation of USD -92.3B.
Wholesale inventories fell -0.1% mom to USD 912.9B. Retail inventories rose 0.8% mom to USD 787.7B.
ECB Governing Council member Bostjan Vasle has emphasized the need for further monetary tightening in the face of persistent inflation, speaking on the sidelines of the ECB Forum.
“Given the persistence of inflation, we need to keep tightening monetary policy at our next meeting,” Vasle stated.
Beyond July, the decision to further hike rates will be “data-dependent”. However, Vasle conveyed that the “burden of proof” lies in data indicating “further rate hike is not needed instead that it is needed.”
Vasle dismissed arguments that weaker growth readings might ease the ECB’s fight against inflation. He asserted, “All these suggest that growth developments are not significantly different than our most recent projections.”
The ECB official also expressed concerns over expectations that corporate profit margins might decline and absorb the impact of wage hikes, terming such a prospect as bearing significant risks.
“The labour market is strong and consumption is resilient. So firms might continue to enjoy pricing power, especially because demand is too strong to push down margins,” he said.
ECB Vice President Luis de Guindos has provided a somber outlook for the Eurozone’s economic performance, emphasizing both stubborn inflation pressures and slower economic growth in an interview with Bloomberg TV in Sintra, Portugal.
When discussing the ECB’s potential interest rate policy moves, de Guindos indicated that the decision to hike rates in July seems to be a “fait accompli”, while the situation for September is “open”.
De Guindos voiced his concerns about underlying inflation, which he expects to prove more stubborn than currently anticipated. The Vice President linked these persistent pressures to a potentially strong summer tourist season that could drive services costs higher.
Regarding the economy, “the data that we are receiving about growth are not very good,” he confessed, adding that “some of these downside risks have started to materialize and are becoming much more visible.”
German Gfk Consumer Sentiment for July fell from -24.4 to -25.4, below expectation of 23.0. In June, economic expectations fell from 12.3 to 3.7. Income expectations fell from -8.2 to -10.6. Propensity to buy improved from -16.1 to -14.6.
“The current development in consumer sentiment indicates that consumers are once again more uncertain. This is reflected in the fact that the propensity to save increased again this month,” explains Rolf Bürkl, GfK consumer expert.
“After eight consecutive increases, the consumer sentiment must suffer a first setback. Continued high inflation rates, currently at around six percent, are noticeably eroding the purchasing power of households and preventing private consumption from making a positive contribution.”
Australian Dollar falls broadly after data showed that CPI slowed much more than expected in May. Some economists are now seeing consumer inflation, at 5.6% and around the very lower end of forecasts, being soft enough to give confidence for RBA to pause again next week. On the other hand, without any downside surprise from Canadian CPI released overnight, BoC is more likely to continue tightening next month than not.
AUD/CAD’s decline could finally be taking off with today’s selloff. Technically, further fall is expected as long as 0.8836 minor resistance holds. The whole fall from 0.9545 should target 61.8% projection of 0.9545 to 0.8781 from 0.9114 at 0.8642, or further to 0.8596 (2022 low). Nevertheless, break of 0.8836 will argue that the sentiment could have flipped again and mix up the outlook.
Australia monthly CPI slowed notably from 6.8% yoy to 5.6% yoy in May, below expectation of 6.1% yoy. That’s also the lowest reading in more than a year since April 2022. Excluding volatile items and travel, CPI also ticked down from 6.5% yoy to 6.4% yoy.
The most significant contributors to the annual increase in the monthly CPI indicator in May were Housing (+8.4 per cent), Food and non-alcoholic beverages (+7.9 per cent), and Furniture, household equipment and services (+6.0 per cent). Partly offsetting the rise was a fall in Automotive fuel (-8.0 per cent).
US Conference Board Consumer Confidence rose from 102.5 to 109.7 in June, well above expectation of 103.6. Present Situation Index rose from 148.9 to 155.3. Expectations Index jumped from 71.5 to 79.3, but remained below 80 which was associated with a recession within the next year.
“Consumer confidence improved in June to its highest level since January 2022, reflecting improved current conditions and a pop in expectations,” said Dana Peterson, Chief Economist at The Conference Board.
“Assessments of the present situation rose in June on sunnier views of both business and employment conditions.”
“Although the Expectations Index remained a hair below the threshold signaling recession ahead, a new measure found considerably fewer consumers now expect a recession in the next 12 months compared to May.”
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Eurozone unemployment rate unchanged at 6.5%, EU down to 5.9%
Eurozone unemployment rate was unchanged at 6.5% in May, matched expectations. EU unemployment rate ticked down from 6.0% to 5.9%.
Eurostat estimates that 12.937m persons in the EU, of whom 11.014, in Eurozone, were unemployed in May 2023. Compared with April 2023, unemployment decreased by -75k in the EU and by -57k in Eurozone.
Full Eurozone unemployment rate release here.