PBoC to continue with targeted easing as domestic economy improves

    PBoC Governor Yi Gang said the Chinese central back will continue with the current targeted easing, even though domestic economy is improving. The targeted measures will ensure sufficient liquidity, lower borrowing costs and provided cheap credits. The measures have been working well and PBoC is planning to make the policy more precise.

    Yi added that PBoC will deepen reform of the loan prime rate, and the benchmark lending rate, to help lower real lending rates. Also, it will steadily unify benchmark deposit, lending rates and market interest rates.

    Nevertheless, he still warned that the global economy is facing severe challenge. The current downturn “will very likely be worse than the global financial crisis in 2008 and even the Great Recession.”

    Fed Cook weighs economic momentum against headwinds

      In a speech yesterday, Fed Governor Lisa Cook discussed her considerations for the future path of monetary policy, weighing the implications of stronger economic momentum against potential headwinds from recent banking developments.

      Cook explained, “On the one hand, if tighter financing conditions restrain the economy, the appropriate path of the federal funds rate may be lower than it would be in their absence. On the other hand, if data show continued strength in the economy and slower disinflation, we may have more work to do.”

      Regarding Fed’s strategy on rate hikes, Cook mentioned that FOMC has been raising rates in smaller increments, aiming for a sufficiently restrictive monetary policy to return inflation to 2% over time. She emphasized the benefit of taking smaller steps, as it allows Fed to observe economic and financial conditions and evaluate the cumulative effects of their policy actions.

      Cook also touched on FOMC’s recent adjustments to its forward guidance on the path of the policy rate in its March statement. The committee shifted from anticipating “ongoing increases” to stating that “some additional policy firming may be appropriate.” Cook believes this communication is suitable as Fed seeks to calibrate monetary policy amid uncertainty about the economic outlook.

      Full speech of Fed Cook here.

      BoE Haldane: None of the conditions of negative rates satisfied

        BoE Chief Economist Andy Haldane said in a speech that the MPC minutes “contained no such signal” as it’s introducing negative rates in the near-term. The operational feasibility assessment of negative rates is “likely to take a number of months”. Then, judgement on negative rates will depend on the economic outlook. The decision would then depend on the balance of costs and benefits, , with comparison to other monetary tools.

        “All three of these conditions would need to be satisfied before negative rates became a reality. At present, none of those conditions is in my view satisfied,” he added.

        Haldane also urged that “encouraging news about the present needs not to be drowned out by fears for the future. Now is not the time for the economics of Chicken Licken”

        “This is human nature at times of stress. But it can also make for an overly-pessimistic popular narrative, which fosters fear, fatalism and excess caution. This is unhealthy in itself but, if left unaddressed, also risks becoming self-fulfilling.”

        Full speech here.

        South Korea the first that got indefinite exemption on US steel tariffs

          The South Korea’s Ministry of Trade said today that is’ exempted from the US steel and aluminum tariffs. However, South Korea now received a quota of around 2.68m tonnes of steel exports. And that is 70% of the annual average of Korean steel exports to the US between 2015-2017. South Korean contributed to 9.7% of US steel imports in 2017.

          In the mean time, Both countries also agreed on 20-year extension of Korean pickup trucks, until 2041. US automakers could also bring in 50000 vehicles to South Korean annually, doubling from prior amount of 25000.

          That is the first of many US allies to receive an indefinite exemption on the steel and aluminum tariffs. Other six, Argentina, Australia, Brazil, Canada, Mexico and EU are just having the tariffs temporarily suspended.

          At this point, there is no news regarding the expemption on Japan and Taiwan, two other major US allies in Asia, yet.

          US update: DOW turns red after initial gain, Yen trying to fight back

            After being pressured for most of the day, Yen is trying to make a come back as rally in US stocks lost steam. But for now, Sterling remains the strongest for today as lifted by stronger than expected wage data. Resilient Euro is following and then Dollar.

            But for the greenback, tomorrow’s CPI will likely be the more important event. On the other hand, New Zealand dollar is the weakest one for now, followed by Swiss Franc and then Canadian.

            DOW opened higher earlier today and hit as high as 26248.67. But just like yesterday, it’s failing to sustain momentum and turns red for now. Yesterday’s low was also breached. The strong rally from last week’s low of 24680.57 looks stretched and we’d expect a correction soon, possibly back to 55 day EMA (now at 25762).

            Into US session: Australian Dollar strong as Chinese stocks closed up, Swiss Franc weakest

              Entering into US session, Euro is mixed after ECB left monetary policy unchanged as widely expected. Focus will turn to President Mario Draghi’s press conference. But other than comments regarding Italy, there shouldn’t be anything that could move markets much.

              For now, Australian Dollar is trading as the strongest one for today. The late rebound in Chinese stocks is a factor that’s supporting the Aussie. Indeed, while it’s all red in Asia, the Shanghai SSE composite closed up 0.02% at 2603.80, even defended 2600 handle. Swiss Franc is the weakest one. We’ve noticed that recently, the Franc has been much more sensitive to emerging markets than Eurozone or EU. And, today’s decline in USD/TRY is possibly a factor dragging down the Franc.

              In Europe, at the time of writing:

              • FTSE is down -0.12 at 6955
              • DAX is up 0.25% at 11219
              • CAC is up 1.13% at 5009
              • German 10 year yield is up 0.0032, just above 0.4 at 0.401
              • Italian 10 year yield is down -0.1032 at 3.514. German-Italian spread is below 320, an unsustainable level to Tria, but still way above 300.

              Earlier in Asia:

              • Nikkei dropped sharply by -3.72% or -822.45 pts to 21268.73
              • Hong Kong HSI closed down -1.01 at 24944.46
              • China Shanghai SSE “rose” 0.02% to 2603.80
              • Singapore Strait Times dropped -0.63% to 3012.84.
              • 10 year JGB yield dropped -0.0206 to 0.114. It was above 0.15 just a few days ago. But BoJ might like to see it moving closing back to it’s allowed back of -0.1 to 0.1%.

              USD/TRY is currently down 09.75% at 5.64. The recovery since last week could have completed after hitting 55 day EMA.

              Canada retail sales down -1.4% mom in March

                Canada retail sales decreased -1.4% mom to CAD 65.3B in March, slightly worse than expectation of -1.3% mom. Sales decreased in 5 of the 9 subsectors, representing 55.5% of retail trade, led by decreases at motor vehicle and parts dealers (-4.4%) and gasoline stations and fuel vendors (-3.9%).

                Core retail sales—which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers—increased 0.3% mom.

                In volume terms, retail sales decreased -1.0% mom.

                Advance estimate suggests that sales increased 0.2% mom in April.

                Full Canada retail sales release here.

                BoE Mann: Monetary policy needs to keep inflation expectations anchored

                  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.

                   

                  Eurozone Sentix investor confidence rose to -24.8, An upswing but reversals not yet assured

                    Eurozone Sentix Investor Confidence improved to -24.8 in June. That’s the second straight month of rebound, from April’s -42.9 then May’s -41.8. Current situation index rose from -73.0 to -61.5. Expectations index jumped from -3.0 to 21.8, turned positive, and hit the highest level since November 2017.

                    Sentix questioned: “But what do these numbers mean? Is there a “normal” upswing that will soon bring us back to a normal, good economic situation? To get a better understanding of these figures, we conducted a special survey among investors. We wanted to know how much of the economic slump caused by the Corona pandemic will be made up within a year. So where does the recovery go?!”

                    They then added: “The result is likely to disappoint optimists. For the eurozone, investors expect that within a year, just over 50% of the slump can be made up. This means that in a year’s time we would still be noticeably below the pre-crisis level. And this despite all the stimulus measures, the fiscal packages and monetary easing. An upswing has begun, but a real trend reversal is not yet assured.”

                    Full report here.

                    Into US session: Sterling strongest on BoE, but it’s not bullish yet

                      Entering into US session, Sterling is now the strongest one today as boosted by hawkish BoE hold. Most importantly, heavy weight Chief Economist Andy Haldane joined known hawks Ian McCafferty and Michael Saunders to vote for a hike. Euro is now trading as the second weakest, followed by Yen and New Zealand Dollar.

                      GBPUSD H and 6H action bias has turned neutral with the rebound, after a string of downside red bars. Still, it’s kept well below 1.3471 near term resistance. Overall outlook remains bearish though but some more consolidation could come first.

                      Meanwhile, EUR/GBP is still clearly held in range with a neutral outlook.

                      GBP/JPY is also neutral as the corrective pattern from 144.37 extends.

                      OECD downgrades global GDP forecast, but upgrades Eurozone and China

                        OECD warned that trade conflict, weak business investment and persistent political uncertainty are weighing on the world economy and raising the risk of long-term stagnation. Global GDP growth for 2020 was revised down by 0.1% to 2.9%, same as this year, lowest annual rate since the financial crisis. That’s also a sharp slowdown from 3.5% back in 2018.

                        OECD Chief Economist Laurence Boone said: “It would be a mistake to consider these changes as temporary factors that can be addressed with monetary or fiscal policy: they are structural. Without coordination for trade and global taxation, clear policy directions for the energy transition, uncertainty will continue to loom large and damage growth prospects.”

                        OECD Secretary-General Angel GurrĂ­a said: “The alarm bells are ringing loud and clear. Unless governments take decisive action to help boost investment, adapt their economies to the challenges of our time and build an open, fair and rules-based trading system, we are heading for a long-term future of low growth and declining living standards.”

                        Look at some details:

                        Global GDP growth is projected at

                        • 2.9% in 2019 (unchanged).
                        • 2.9% in 2020 (down from September’s 3.0%).
                        • 3.0% in 2021 (new).

                        G20 GDP:

                        • 3.1% in 2019 (unchanged).
                        • 3.2% in 2020 (unchanged).
                        • 3.3% in 2021 (new).

                        US GDP:

                        • 2.3% in 2019 (down from 2.4%).
                        • 2.0% in 2020 (unchanged).
                        • 2.0% in 2021 (new).

                        Eurozone GDP:

                        • 1.2% in 2019 (up from 1.1%).
                        • 1.1% in 2020 (up from 1.0%).
                        • 1.2% in 2021 (new).

                        China GDP:

                        • 6.2% in 2019 (up from 6.1%).
                        • 5.7% in 2020 (unchanged).
                        • 5.5% in 2021 (new).

                        RBA minutes reveal hawkish tilt, another hike in Nov?

                          Minutes of RBA’s October meeting surprised market participants with a more hawkish tone than anticipated. The board seriously contemplated a rate hike at the meeting, but opted to hold due to a lack of “sufficient new information.

                          Additionally, the central bank underscored its “low tolerance” for a delayed return of inflation to target. It suggested that “some further tightening” might be imminent if inflation proves to be more persistent than current expectations.

                          As RBA steers ahead, its forthcoming November meeting is expected to be crucial. The board will be equipped with additional economic data on factors such as inflation, labour market dynamics, and overall economic activity. Additionally, they will have at their disposal revised staff forecasts

                          The minutes highlighted, “members considered two options for monetary policy at this meeting: raising the cash rate target by a further 25 basis points; or holding the cash rate target steady.” However, the decision to maintain the status quo was reached as “members agreed that the case to leave the cash rate target unchanged at this meeting was the stronger one.” This consensus was influenced by the absence of “sufficient new information over the preceding month from economic data or financial markets to necessitate an adjustment in the stance of monetary policy.”

                          However, the upcoming November meeting might paint a different picture. The board is set to receive “additional data on economic activity, inflation and the labour market, as well as a set of revised staff forecasts.”

                          “In reaching their decision, members noted that some further tightening of policy may be required should inflation prove more persistent than expected. The Board has a low tolerance for a slower return of inflation to target than currently expected,” the minutes detailed.

                          Full RBA minutes here.

                          BoC keeps overnight rate at 0.25%, lowers GDP and CPI forecasts

                            The central bank adopts a hawkish bias and said “the Governing Council expects interest rates will need to increase, with the timing and pace of those increases guided by the Bank’s commitment to achieving the 2% inflation target.”

                            The reinvestment phase of bond holdings will continue. Holdings of government bonds will be “roughly constant at least until it begins to raise the policy interest rate.”

                            Full statement here.

                            In the new economic projections, BoC lowered 2022 GDP growth forecasts from 4.3% to 4.0%, and 2023 from 3.7% to 3.5%. BoC said economic impact of Omicron is expected to be less severe than previous waves. “Economic growth is then expected to bounce back and remain robust over the projection horizon, led by consumer spending on services, and supported by strength in exports and business investment.”

                            CPI forecasts was lowered for 2022 from 4.2% to 3.4%, but kept unchanged at 2.3% for 2023. BoC said, “as supply shortages diminish, inflation is expected to decline reasonably quickly to about 3% by the end of this year and then gradually ease towards the target over the projection period.”

                            Full monetary policy report here.

                            SNB Jordan: It’s really important to bring inflation down to price stability level

                              Swiss National Bank Chairman Thomas Jordan said today “It’s really important to bring Swiss inflation to a level of price stability.”

                              He added that inflation is more persistent that the bank thought, adding that there are signs of second and third round effects.

                              Jordan also emphasized that it would not be a good idea to wait for inflation to rise and then have to raise interest rates.

                              “When inflation remains under 2% for a long time, we don’t have a problem,” Jordan noted.

                              German ZEW dropped to -22.8, US-China trade settlement doesn’t diminish economic scepticism

                                German ZEW Economic Sentiment dropped to -22.8 in October, down from -22.5 and beat expectation of -27.0. Current Situation Index, however, dropped to -25.3, down from -19.9, below expectation of -25.5. Eurozone ZEW Economic Sentiment dropped to -23.5, down from -22.4, better than expectation of -26.7. Eurozone Current Situation also dropped sharply by -10.8 to -26.4.

                                “The slight decrease in both the ZEW Indicator of Economic Sentiment and the situation indicator shows that financial market experts continue to expect a further deterioration of the German economy. The recent settlement in the trade dispute between the USA and China does not seem to diminish economic scepticism at this stage,” comments ZEW President Professor Achim Wambach.

                                Full release here.

                                WTI oil plunged in worst day since Sep, pressing 59 support

                                  Oil price plunged sharply overnight on the worst selloff since last September. Concerns over slowdown in global vaccination was a factor that triggered pull back in optimism over oil demand. More than a dozen European countries are still suspending AstraZeneca. Even UK, the best performer in vaccinations, warned over significant reduction in weekly supply from April, relating to manufacturing issue in India.

                                  Technically, WTI’s failure to sustain above 65.43 structural resistance at this first attempt is not too surprising. A short term top should have be formed at 67.83 with breach of 59.17 support. Focus is now on whether WTI could hold on to the support zone between 55 day EMA (now at 57.97) and 59.17. If so, sideway consolidation should follow for the near term, to digest recent up trend, and build the base for another rally. However, firm break of 57.97/59.17 support zone would trigger deeper pull back to 38.2% retracement of 33.50 to 67.83 at 54.71 at least.

                                  Fed Harker wants to start tapering sooner than later

                                    Philadelphia President Patrick Harker told WSJ that he’s “in the camp of starting the tapering process.” Asked if tapering should start this year, he said “yes”

                                    “I would like to see tapering begin. I’d like to see it happen sooner rather than later,” he added. “I’d like to see it being a slow, methodical process.”

                                    Japan PMI manufacturing finalized at 48.4, negatively contribute to GDP to Q4

                                      Japan PMI Manufacturing was finalized at 48.4 in December, down from November’s reading of 48.9. Key findings include: 1) Production Cut at strongest rate since March; 2) Weak domestic and external conditions weigh on demand; 3) Output charges reduced as firms try to stimulate sales.

                                      Commenting on the latest survey results, Joe Hayes, Economist at IHS Markit, said:

                                      “Japan’s manufacturing sector has ended 2019 where it started, stuck in contraction with little hope of an imminent turnaround. Taking all fourth quarter survey data as one, the manufacturing economy has endured its worst performance in over three years, with momentum clearly to the downside heading into 2020.

                                      “Looking at the sub-sector data, the capital goods market appears to be suffering the most and has subsequently contributed to the stronger decline in the goods-producing economy. That said, survey data highlighted that weak demand remains an industry-wide problem, impacting output volumes and causing firms to cut their prices in hopes of turning the tide.

                                      “Overall, the manufacturing sector appears set to negatively contribute to GDP in the fourth quarter and, if considered in tandem with the December flash services PMI figures, the chance of an economic contraction in the fourth quarter looks strong.”

                                      Full release here.

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

                                        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.

                                        RBNZ Orr: Coronavirus economic disruption expected to persist well into 2021 at least

                                          RBNZ Governor Adrian Orr said the global economic disruption caused by the coronavirus pandemic is “expected to persist and lead to lower economic growth, employment, and inflation well into 2021 at the least.”

                                          The central bank and New Zealand’s financial system and institutions are “well positioned to both weather this economic storm and support and prosper in the inevitable recovery”.

                                          He’s confident of the position because “the banking system was required, by us, to hold more capital, liquidity, and lower risk mortgage loans during the ‘good times’ of recent years.” And, banks can now be part of the economic recovery.”

                                          Full statement here.