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BoE Mann: Monetary policy needs to keep inflation expectations anchored

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    ActionForex.com
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    BoE MPC member Catherine Mann said in a speech that the key topics for her for the May meeting was on “how much and when the expected consumption drag (from high energy inflation) materialises”. And, “whether we start to see any indication of price forecast revisions in the DMP survey”.

    “If they do, this potentially would short-circuit the expectations-formation process underpinning the domestic inflation ratchet, which has been my central concern”, she added.

    However, “should the impact on aggregate demand of the energy price shock end-up being more modest than currently foreseen, should wage and price expectations and outcomes remain as strong as they currently are, and should financial markets return to being copacetic on private credit and duration risk, a reassessment of the pace of tightening would be warranted.

    “Monetary policy needs to keep inflation expectations anchored; by doing so now, less tightening will be required later, when demand may still be weak”, she added.

    Full speech here.

     

    Fed will hold interest rates this year according to consensus of a Reuters poll

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      ActionForex.com
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      According to a Reuters poll in June 7-12 period over 100 economists, consensus is that Fed will hold interest rates at current 2.25-2.50% this year. However, median from a smaller sample showed 55% of one Fed cut this year, 40% for two. The median chance of a recession in the next 12 months increased slightly by 5% to 30%. But the range from 10% to 80% is huge. For the next two years, median chance stood at 40%, with range from 10% to 90%.

      Opinions are divided as some point out that concerns are mainly on the risks to economic outlook, rather than the outlook. And the risks and uncertainty could turn out to be a lot weaker. Fed’s decision remain data dependent and some strong numbers could push out a possible July rate cut. Meanwhile Fed could resume rate hikes next year should the risks not materialize.

      However, the probability of a recession has risen due to trade tensions. The next round of tariffs against China is the “big, big concern”. Some expected recession in second half of 2020 and an insurance rate cut by Fed is seen as not enough in this case. Fed could be forced to start a full blown cutting cycle next year.

      Japan’s CGPI records eighth consecutive month of slowdown in August

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        ActionForex.com
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        Japan’s annual wholesale inflation, as measured by Corporate Goods Price Index, registered a slowdown for the eighth consecutive month in August. CGPI eased to 3.2% yoy, aligning with market expectations and continuing its downward trend from the peak of 10.6% yoy recorded in December.

        Export price index recorded a lesser contraction of -0.8% yoy compared to -2.6% yoy in July. Meanwhile, import price index also demonstrated a slight moderation in its decline, posting a -15.9% yoy compared to -16.0% yoy observed in the preceding month.

        On a month-on-month basis, PPI saw an uptick of 0.3% mom. Delving into the specifics, export price index witnessed a recovery, improving by 0.5% mom. In contrast, the import price index reported a decline of 0.9% mom. within the same period.

        Full Japan PPI release here.

        US Navarro: A bill has to come due for China

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          ActionForex.com
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          White House advisor Peter Navarro warned today that “a bill has to come due for China ” for its role in the global coronavirus pandemic. He said, “it’s not a question of punishing them, it’s a question of holding China accountable, the Chinese Communist Party accountable.”

          “They inflicted tremendous damage on the world which is still ongoing,” Navarro said. “We’re up to close to $10 trillion we’ve had to appropriate to fight this battle.”

          US-Mexico bilateral NAFTA talks postponed to Wednesday

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            ActionForex.com
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            Mexico and the US postponed a high level NAFTA meeting to Wednesday (originally scheduled for Tuesday yesterday). Politico quoted unnamed sources saying that the two sides are targeting to formally announce an agreement on Thursday. And after that Canada would be allowed to rejoin the negotiations.

            However, as of now, there is not clear message that a deal is reached between Mexico an the US. A US Trade Representative spokesman said “there is no deal on NAFTA. There are major issues outstanding.” Mexico also denied the “handshake” deal with the US. Meanwhile, Canadian government also said it received no notification of an imminent NAFTA deal.

            Eyes will stay on the postponed meeting between Mexican Economy Minister Ildefonso Guajardo and US Trade Representative Robert Lighthizer today.

            US goods trade deficit narrowed to USD -83.8B

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              ActionForex.com
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              US goods exports dropped -3.1% mom to USD 168.9B in November. Goods imports dropped -7.6% mom to USD 252.2B. Trade deficit narrowed from USD -98.8B to USD -83.3B, much smaller than expectation of USD -96.9B.

              Wholesale inventories rose 1.0% mom to USD 933.6B. Retail inventories rose 0.1% mom to USD 738.7B.

              Full release here.

              BoC Governor Tiff Macklem comments on weak growth and rate cut expectations

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                ActionForex.com
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                Following BoC’s decision to keep interest rates unchanged at 4.50%, Governor Tiff Macklem addressed concerns about the country’s economic growth during a press conference. He acknowledged the weak growth projections, stating, “We are seeing inflation come down even as the economy continues to grow. That is encouraging. But yes, we do expect growth to be weak. It’s expected to be weak through the rest of the year, pick up gradually over the course of next year.”

                Regarding the potential for negative growth quarters, Macklem clarified that the central bank is forecasting “small positives,” but conceded that “you can’t rule out that there’s going to be a couple quarters of small negatives.” He emphasized that BoC is not forecasting a major contraction or significant increases in unemployment, distancing the current situation from a typical recession.

                Addressing market expectations of a rate cut, Macklem said, “based on the information we have today, the implied expectation in the market that we’re going to be cutting our policy rate later in the year, that doesn’t look today like the most likely scenario to us.” This statement suggests that the central bank may not follow the market’s anticipated course of action, given the current data available.

                BoE and SNB to hike for sure, but… by how much?

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                  ActionForex.com
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                  As BoE gears up for its monetary policy decision today, market observers find themselves divided on the scale of the expected rate hike. This indecision comes in the wake of a consumer inflation report released yesterday that muddied the waters. Headline CPI for May remained static at 8.7%, exceeding BoE’s own forecasts, while core CPI climbed to 7.1%, reaching its highest level since 1992.

                  Market participants are currently betting on a 40% probability of a more substantial 50bps increase to 5.00%, and a 60% chance of a modest 25bps hike. The critical shift also lies in elevated projections for the terminal rate, which has shot up to 6.00%, a marked rise from below 5% merely a month ago.

                  The verdict for today’s decision will also pivot significantly on the voting breakdown, which will serve as a bellwether for BoE’s future steps. Known doves Silvana Tenreyro and Swati Dhingra are more likely to vote against any changes. The real wildcard, however, is how many of the remaining seven members will advocate for a 50bps hike, even if a 25bps increase is ultimately implemented.

                  SNB is also expected to announce its own rate hike from the current 1.50%. Chairman Thomas Jordan has signalled that interest rates may need to ascend above 2% threshold – a restrictive level – to reel inflation back below 2% mark. The quotes lies in timing of the attainment of this peak rate. Presently, the likelihood of either a 25bps or a 50bps hike today seems evenly split, making it a nail-biter.

                  Some previews on BoE and SNB:

                  GBP/CHF’s rally was choked after hitting 1.1502 earlier in the week, kept below 1.1574 resistance. For now, the favored case is still that triangle consolidation pattern from 1.1574 has completed at 1.1024. Rise from 1.1024 is seen as resuming the whole rally from 1.0183. Decisive break of 1.1574 will confirm this bullish case and target 61.8% projection of 1.0183 to 1.1574 from 1.1024 at 1.1884. However, firm break of 1.1347 support will dampen this view, and extend the pattern from 1.1574 with another fall.

                  China’s 2023 economic growth at 5.2%, population shrinks for second year

                    By
                    ActionForex.com
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                    China’s GDP grew 5.2% yoy in Q4, an uptick from Q3’s 4.9% yoy. For the full year of 2023, the economy also recorded a growth rate of 5.2%. On a quarter-by-quarter basis, GDP growth rate was 1.0% qoq, matched expectation, though this marked a slowdown from the previous quarter’s revised 1.5% qoq gain.

                    In the industrial sector, production rose by 6.8% yoy in December, slightly higher than the previous month’s 6.6%, meeting market forecasts. However, retail sales growth decelerated to 7.4% yoy, a drop from November’s 10.1% yoy and below the expected 8.1% yoy.

                    Investment patterns showed a mixed trend. Overall fixed asset investment in 2023 grew by 3.0%, slightly exceeding the 2.9% expectation. Within this category, real estate investment saw a significant drop of -9.6%. Conversely, investment in infrastructure and manufacturing rose by 5.9% and 6.5%, respectively, signaling growth in these areas.

                    Amidst these economic developments, China faces a demographic challenge as its population fell for the second consecutive year in 2023. Total population decreased by -2.75m to 1.409B, a more rapid decline than in 2022.

                    US oil inventories dropped -2.5m barrels, WTI ignores and extends decline

                      By
                      ActionForex.com
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                      US commercial crude oil inventories dropped -2.5m barrels in the weekending January 10, versus expectation of 0.4m barrels rise. At 428.5 million barrels, crude oil inventories are at the five year average for this time of year.

                      WTI crude oil pays little attention the the data, however. WTI’s decline from 65.38 is in progress and reaches as low as 57.35 so far. Outlook is unchanged that such decline is a leg in the sideway pattern that started back at 66.49. As long as 60.34 resistance holds, we’d expect further fall towards 50.86 support.

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

                        By
                        ActionForex.com
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                        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.

                        Eurozone economic sentiment indicator rose to 114.0 in Feb, EU rose to 112.8

                          By
                          ActionForex.com
                          -

                          Eurozone Economist Sentiment Indicator rose from 112.7 to 114.0 in February. Industry confidence rose from 13.9 to 14.0. Services confidence rose from 9.1 to 13.0. Consumer confidence rose from -8.5 to -8.8. Retail trade confidence rose from 3.7 to 5.4. Employment Expectation Indicator rose from 112.7 to 116.2, highest since May 2000.

                          EU Economic Sentiment Indicator rose from 111.6 to 112.8. Employment Expectation Indicator rose from 113.4 to 115.8, an all time high. Amongst the largest EU economies, the ESI improved in Spain (+2.4), France (+1.9), Germany (+1.2) and Italy (+1.0), whereas it weakened in the Netherlands and Poland (both -1.7).

                           

                          Full release here.

                          BoJ watching developments in Hong Kong and Asia financial markets

                            By
                            ActionForex.com
                            -

                            BoJ Governor Haruhiko Kuroda reiterated the central bank’s pledge to take all necessary steps to support the economy. He said, “given the uncertainty over outlook on coronavirus pandemic, government and BO need to take all means available flexibly.”

                            On the financial markets, he stressed that “Hong Kong dollar’s peg to the US dollar holds key to Hong Kong’s economy.” The central bank is “watching carefully developments in Hong Kong, Asian financial markets.”

                            AUD/JPY and NZD/JPY extends up trend, break long term resistance

                              By
                              ActionForex.com
                              -

                              Both AUD/JPY and NZD/JPY ride on broad based weakness in Yen and surge strongly this week. More important, both have breached key long term resistance levels.

                              As for AUD/JPY, there might be some initial rejection by 90.29 resistance. But near term outlook will stay bullish as long as 85.78 resistance turned support holds. Next medium term target is 61.8% projection of 59.85 to 85.78 from 78.77 at 94.79.

                              More importantly, AUD/JPY’s rise from 59.85 should be reversing the whole down trend from 105.42 (2013 high), which has completed in a three wave structure. Firm break of 94.79 would set the stage for 100% projection at 104.70, which is close the top of a two decade range at 105.42/107.88.

                              Similarly, NZD/JPY also breaks 83.90 resistance. Near term outlook will stay bullish as long as 80.17 resistance turned support holds. Next medium term target is 61.8% projection of 59.49 to 80.17 from 75.22 at 88.00.

                              Sustained break of 88.00 will pave the way to 100% projection at 95.90, which is also at the top of two decade range at 94.01/87.74.

                              US durable goods orders rose 0.2% mom in Aug, above expectations

                                By
                                ActionForex.com
                                -

                                US durable goods orders rose 0.2% mom to USD 284.7B in August, much better than expectation of -0.4% mom decline.Ex-transport orders dropped rose 0.4% mom to USD 187.0B, above expectation of 0.2% mom. Ex-defense orders dropped -0.7% mom to USD 267.2B. Machinery rose 0.5% mom to USD 37.8B.

                                Full US durable goods orders release here.

                                Will SNB, BoE, and ECB hint at upcoming rate cuts?

                                  By
                                  ActionForex.com
                                  -

                                  Three major central banks – SNB, BoE and ECB – are set to announce their policy decisions. All three will keep their interest rates unchanged. This comes in the wake of Fed’s outlined plans for rate cuts in 2024 in the dot plot released overnight. Now, that raises questions about whether these central banks will follow and signal policy loosening for the next year.

                                  SNB is expected to hold its key policy rate steady at 1.75%. This decision is supported by forecasts from Swiss State Secretariat for Economic Affairs released yesterday, projecting a slowdown in inflation to 1.9% in 2024 and further to 1.1% in 2025. Economic growth in Switzerland is also expected to decelerate to 1.1% in 2024 before rebounding to 1.7% in 2025.

                                  BoE is anticipated to maintain interest rates at 5.25%. Traders have increased their bets on the BoE cutting rates following the unexpectedly sharp contraction in UK’s monthly GDP for October. The market has fully priced in 100bps easing in monetary policy for 2024, bringing borrowing costs down to 4.25%. The first rate cut is anticipated in June. Today’s voting pattern and accompanying statement from BoE will be under close scrutiny.

                                  Similarly, the ECB is expected to keep its main refinancing rate at 4.50% and deposit rate at 4.00%. The focus will likely be on new DP and inflation forecasts and their implications for the rate path in the coming year. Money markets are currently pricing in almost 150bps of rate cuts for the next year.

                                  In terms of currency performance, Swiss Franc appears to be the firmer one for the near term. As long as 0.9543 resistance holds, outlook in EUR/CHF remains bearish. Decisive break of 0.9402 support will resume larger down trend to 61.8% projection of 0.9995 to 0.9416 from 0.9683 at 0.9325.

                                  GBP/CHF’s fall from 1.1153 resumed this week, and should be on track to 100% projection of 1.1153 to 1.0978 from 1.1085 at 1.0910. Sustained break there could prompt downside acceleration to 1.0779 and below, to resume larger down trend from 1.1574.

                                  While Euro appears to be light strong then Sterling in the past few days, risk in EUR/GBP remains on the downside as long as 0.8648 resistance holds. Break of 0.8548 will likely bring deeper decline through 0.8491 to resume the medium term down trend.

                                   

                                  DIHK downgrades Germany growth forecasts to 3.0% in 2022

                                    By
                                    ActionForex.com
                                    -

                                    Germany’s Chambers of Industry and Commerce (DIHK)  lowed 2022 growth forecasts from 3.6% to 3.0%. That is, the economy will probably not reach the pre-crisis level until middle of the year.

                                    “The economy is holding its breath. There is still a cautiously optimistic mood in the companies. However, many do not know how things will continue due to great uncertainty,” said DIHK Managing Director Martin Wansleben.

                                    “In addition to the Corona crisis and delivery bottlenecks, the biggest stress factors are above all the sharp rise in energy and raw material prices and the shortage of skilled workers. In addition, there are further expected cost increases due to the transformation in climate protection. It is still an open question, especially for companies that are in international competition how such a compensation should work. Many fear a deterioration of their position on the world markets.”

                                    Full release here.

                                    Into US session: Dollar strongest as recovery continues, Euro shrugs weak data

                                      By
                                      ActionForex.com
                                      -

                                      Entering into US session, Dollar remains the strongest one for today as recovery continues. The second place is taken up by Euro, despite weak Sentix Investor Confidence and PPI. Canadian Dollar also remains firm as WTI crude oil edges higher to 55.85. Nevertheless, oil price is suffering some profit taking currently, which oil drags down the Loonie.

                                      Meanwhile, Australian Dollar is the weakest one for today, weighed down by poor housing data. Focus will turn to tomorrow’s RBA rate decision. No change in interest rate is expected. But RBA could give some hints on revisions on economic projections. Details will be published with the Statement on Monetary Policy on Friday. Yen is following as the second weakest, then Sterling.

                                      In European markets:

                                      • FTSE is up 0.28%.
                                      • DAX is down -0.16%.
                                      • CAC is down -0.53%.
                                      • German 10-year yield is down -0.001 at 0.166, staying far below 0.2 handle.

                                      Earlier in Asia:

                                      • Nikkei rose 0.46%.
                                      • Hong Kong HSI rose 0.21%.
                                      • China started lunar new year holiday already.
                                      • Singapore Strati Times dropped -0.13%.
                                      • Japan 10-year JGB yield rose 0.008 to -0.012, staying negative.

                                      Stocks fall, Dollar and Yen surge as Trump ready to tariff additional $267B in Chinese goods

                                        By
                                        ActionForex.com
                                        -

                                        DOW drops “slightly” by -130 pts, Dollar and yen surge, after Trump said he’s ready for more tariffs on China. The public hearing on 25% tariffs on USD 200B of Chinese goods ended yesterday. Trump said he has additional USD 267 billion in goods identified to tariff any time. Additionally, he said he’s started trade negotiation with Japan. And on Canada, he added “we’ll see what happens”.

                                        Australia CPI jumped back to 6.8% yoy in Apr, ex-volatile items down to 6.5% yoy

                                          By
                                          ActionForex.com
                                          -

                                          Australia monthly CPI jumped from 6.3% yoy to 6.8% yoy in April, well above expectation of 6.4% yoy. Excluding volatile items of automotive fuel, fruit and vegetables and holiday travel, CPI slowed from 6.9% yoy to 6.5% yoy.

                                          Michelle Marquardt, ABS head of prices statistics, said: “It’s important to note that a significant contributor to the increase in the annual movement in April was automotive fuel. The halving of the fuel excise tax in April 2022, which was fully unwound in October 2022, is impacting the annual movement for April 2023.”

                                          Full Australia monthly CPI release here.

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