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RBA Lowe: The board is not on pre-set course

    By
    ActionForex
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    RBA Governor Philip Lowe reiterated in a speech that after today’s 25bps rate hike, “some further tightening of monetary policy may be required”. But he added the decision will “depend upon how the economy and inflation evolve”, and the central bank is “not on a pre-set course”. The Board will pay close attention to developments in the global economy, household spending, inflation and labor market outlook.

    Lowe also explained today’s decision, and noted that while there was “confirmation” that inflation has peaked, ” it will be some time yet before inflation is back in the target range.” Labor market is “still very tight” and service inflation is “uncomfortably persistent abroad”.

    He warned, “if people think inflation is going to remain high then, understandably, they will adjust their behaviour.” Firms will be more willing to put up their prices and workers will seek larger pay rises. If this adjustment in expectations were to happen, high inflation would become entrenched and the end result would be even higher interest rates and a poorer outlook for jobs.

    Full speech of RBA Lowe here.

    Eurozone CPI rose to 7.0% yoy in Apr, core CPI down to 5.6% yoy

      By
      ActionForex
      -

      Eurozone CPI accelerated from 6.9% yoy to 7.0% yoy in April, above expectation of 6.9% yoy. CPI core (all item excluding energy, food, alcohol & tobacco) slowed from 5.7% yoy to 5.6% yoy, below expectation of 5.7% yoy.

      Looking at the main components, food, alcohol & tobacco is expected to have the highest annual rate in April (13.6%, compared with 15.5% in March), followed by non-energy industrial goods (6.2%, compared with 6.6% in March), services (5.2%, compared with 5.1% in March) and energy (2.5%, compared with -0.9% in March).

      Full Eurozone CPI release here.

      UK PMI manufacturing finalized at 47.8, remained in the doldrums

        By
        ActionForex
        -

        UK PMI Manufacturing was finalized at 47.8 in April, slightly down from March’s 47.9. Output, new orders, employment and stocks of purchases all contracted and vendor lead times improved (a sign of weaker demand for inputs hurting suppliers).

        Rob Dobson, Director at S&P Global Market Intelligence, said: “The UK manufacturing sector remained in the doldrums at the start of the second quarter. Output and new orders contracted, as manufacturers felt the impacts of client uncertainty, destocking and tightening cost controls. There was no escape from the subdued mood of the market, with both domestic and export customers remaining reticent to commit to new contracts.”

        Full UK PMI Manufacturing release here.

        Eurozone PMI manufacturing finalized at 45.8, 35-month low

          By
          ActionForex
          -

          Eurozone PMI Manufacturing was finalized at 45.8 in April, a 35-month low. The index was also below the 50 no-change mark for a tenth straight month. PMI Manufacturing Output was finalized at 48.5, a 4-month low.

          PMI Manufacturing of all major states declined in the month, and recorded contractionary reading except Greece (52.4). Ireland (48.6), France (45.6), the Netherlands (44.9), Germany (44.5) and Austria (42.0) were all at 35-month low. Spain was at 3-month low of 49.0 while Italy was at 6-month low at 46.8.

          Full Eurozone PMI Manufacturing release here.

          RBA defies expectations with rate hike, may still require further tightening

            By
            ActionForex
            -

            In a surprising move, RBA raises cash rate target by 25bps to 3.85%, contrary to market expectations of a hold. Nevertheless, RBA softened its tightening bias, stating, “some further tightening of monetary policy may be required,” depending on “how the economy and inflation evolve.”

            Despite acknowledging that Australian inflation “has passed its peak” and “recent data showed a welcome decline,” the central bank still expects inflation to be at 4.25%, slowing to 3% in mid-2025. That is, “it takes a couple of years before inflation returns to the top of the target range”. RBA added that services price inflation remains “still very high and broadly based” with upside risks, while goods inflation is decelerating.

            RBA projects the economy to grow by 1.25% in 2023 and around 2% over the year to mid-2025. With anticipated below-trend economic growth, unemployment rate is forecast to gradually increase to around 4.5% in mid-2025.

            Full RBA statement here.

            IMF raises 2023 Asia growth forecasts on strong emerging markets

              By
              ActionForex
              -

              IMF raised its 2023 growth forecast for Asia by 0.3% to 4.6%, outpacing the 3.8% growth rate in 2022. For 2024, the growth projection has been slightly downgraded by -0.2% to 4.4%.

              The growth forecast for advanced economies in the region was downgraded by -0.4% to 1.6% in 2023 and by -0.2% to 1.7% in 2024. Meanwhile, emerging markets and developing economies experienced an upgraded growth forecast of 0.3% to 5.3% in 2023, although their 2024 projections were downgraded by -0.1% to 5.1%.

              IMF highlighted that “Asia’s domestic demand has so far remained strong despite monetary tightening, while external appetite for technology products and other exports is weakening”.

              However, the organization warned that “Global growth is poised to decelerate as rising interest rates and Russia’s war in Ukraine weigh on activity. Inflation remains stubbornly high, and banking strains in the United States and Europe have injected greater uncertainty into an already complex economic landscape.”

              Full IMF release here.

              RBNZ Hawkesby: Not currently seeing widespread financial distress amongst households or businesses

                By
                ActionForex
                -

                According to RBNZ Financial Stability Report, debt servicing costs for households with mortgages are expected to more than double by the end of the year. Despite this, household balance sheets remain resilient, with most having substantial equity buffers. Early-stage arrears have increased but remain low compared to post-Global Financial Crisis levels. Banks’ strong capital positions allow them to support customers, and borrowers facing stress are encouraged to seek assistance from their banks.

                “We are not currently seeing widespread financial distress amongst households or businesses, which reflects the strength in the economy and labour market to date. However, more borrowers may fall behind on their payments this year, given the ongoing repricing of mortgages and expected weakening in the labour market,”Deputy Governor Christian Hawkesby says.

                “Recent profitability and strong capital positions puts banks in a good position to take a long-term view and support their customers. We encourage borrowers encountering stress to talk to their banks, as hardship programmes may be available, and some customers may be able to temporarily switch to interest-only payments or increase the remaining term of their loan.”

                Full RBNZ press release here.

                US ISM manufacturing rose to 47.1, sixth month of contraction

                  By
                  ActionForex
                  -

                  US ISM Manufacturing PMI rose from 46.3 to 47.1 in April, above expectation of 46.6. Looking at some details, new orders rose from 44.3 to 45.7. Production rose from 47.8 to 48.9. Employment rose from 46.9 to 50.2. Prices rose from 49.2 to 53.2.

                  ISM said: “This is the sixth month of contraction and continuation of a downward trend that began in June 2022. Of the five subindexes that directly factor into the Manufacturing PMI, only one (Employment) is in growth territory.”

                  “The past relationship between the Manufacturing PMI and the overall economy indicates that the April reading (47.1 percent) corresponds to a change of minus-0.6 percent in real gross domestic product (GDP) on an annualized basis.”

                  Full US ISM Manufacturing release here.

                  Japan’s PMI manufacturing finalized at 49.5, sector remains in contraction

                    By
                    ActionForex
                    -

                    Japan’s PMI Manufacturing for April was finalized at 49.5, marginally above March’s 49.2, marking the sixth consecutive month of contraction in the sector. Jibun Bank noted that new order volumes displayed further signs of stabilization, while output charges experienced their strongest rise in five months. Additionally, input delivery times only lengthened slightly.

                    Usamah Bhatti, an economist at S&P Global Market Intelligence, commented that the Japanese manufacturing sector remained in contraction territory at the start of Q2 2023. However, the rate of deterioration eased to the softest in the current six-month sequence, primarily due to the slowest reduction in new order inflows since July of last year.

                    Bhatti further observed that firms reported supply chains continued on the path to normalization, with the softest lengthening in delivery times in the current 39-month sequence. Inflationary pressures remained historically high, but manufacturers signaled that input prices rose at the softest pace since August 2021. To protect profit margins, firms increasingly passed higher cost burdens onto customers, resulting in charge inflation accelerating to a five-month high.

                    Full Japan PMI manufacturing release here.

                    China’s manufacturing PMI contracts for first time this year

                      By
                      ActionForex
                      -

                      Released over the weekend, China’s official PMI Manufacturing declined from 51.9 in March to 49.2 in April, falling short of expectation of 51.4. This drop also brought the reading below the 50-mark, signaling the first contraction in manufacturing activity this year.

                      A significant contributor to the decline in the headline indicator was the new orders sub-index, which dipped to 48.8 from 53.6, suggesting a decrease in market demand. Additionally, new export orders decreased to 47.6 from 50.4, reaching a three-month low.

                      Senior NBS statistician Zhao Qinghe attributed the contraction in April to a lack of market demand and the high-base effect resulting from the rapid manufacturing recovery in the first quarter. The chemical fiber, ferrous metal mining, and processing sectors have experienced slowed production due to weak market demand, while the special equipment and electrical and mechanical equipment sectors continue to expand, according to a separate NBS statement.

                      PMI Services index also fell, dropping from 58.2 to 56.4, below the expected 57.0, but it remains the second-highest reading this year. The composite PMI, encompassing both manufacturing and non-manufacturing activity, declined to 54.4 from 57.0.

                      Canada GDP grew 0.1% mom in Feb, but down -0.1% in Mar

                        By
                        ActionForex
                        -

                        Canada GDP grew 0.1% mom in February, below expectation of 0.2% mom. Both services-producing industries and goods-producing industries edged up 0.1%. Overall, 12 of 20 subsectors increased.

                        Advance information indicates that real GDP edged down -0.1% in March. This advance information indicates a 0.6% increase in real GDP by industry in the first quarter of 2023.

                        Full Canada GDP release here.

                        US PCE inflation slowed to 4.2% yoy, core PCE slightly down to 4.6% yoy

                          By
                          ActionForex
                          -

                          US personal income rose 0.3% mom or USD 67.9B in March, above expectation of 0.2% mom. The increase in income primarily reflected increases in compensation, personal income receipts on assets, and rental income of persons that were partly offset by decreases in proprietors’ income and personal current transfer receipts

                          Personal spending rose less than 0.1% mom or USD 8.2B, better than expectation of -0.1% mom contraction. The increase reflected a USD 44.9 billion increase in spending for services that was partly offset by a USD 36.7 billion decrease in spending for goods

                          For the month PCE price index increased 0.1% mom. Excluding food and energy, PCE price index increased 0.3% mom. Prices for goods decreased -0.2% mom and prices for services increased 0.2%. Food prices decreased -0.2% and energy prices decreased -3.7% mom.

                          From the same month one year ago, PCE price index March slowed from 5.1% yoy to 4.2% yoy, below expectation of 4.6% yoy. Excluding food and energy, PCE price index ticked down from 4.7% yoy to 4.6% yoy, above expectation of 4.6% yoy. Prices for goods increased 1.6 yoy and prices for services increased 5.5% yoy. Food prices increased 8.0% yoy and energy prices decreased 9.8% yoy.

                          Full US personal income and spending release here.

                          Eurozone GDP rose 0.1% qoq in Q1, EU up 0.3 qoq

                            By
                            ActionForex
                            -

                            Eurozone GDP grew 0.1% qoq in Q1, matched expectations. EU GDP rose 0.3% qoq.

                            Among the Member States for which data are available for the first quarter of 2023, Portugal (+1.6%) recorded the highest increase compared to the previous quarter, followed by Spain, Italy and Latvia (all +0.5%). Declines were recorded in Ireland (-2.7%) as well as in Austria (-0.3%). The year-on-year growth rates were positive for all countries except for Germany (-0.1%).

                            Full Eurozone GDP release here.

                            Germany GDP stalled in Q1, worst than expectations

                              By
                              ActionForex
                              -

                              Germany GDP stalled in Q1 (price, seasonally and calendar adjusted), below expectation of 0.1% qoq growth. GDP was up a price adjusted 0.2% compared with the first quarter of 2022. The price and calendar adjusted GDP was -0.1% lower because there was one working day more than in the same period a year earlier.

                              The final consumption expenditure of both households and government declined at the beginning of 2023, according to the Federal Statistical Office (Destatis). Positive contributions, in contrast, came from capital formation and exports.

                              Full Germany GDP release here.

                              Swiss KOF dropped to 96.4, the economy cannot find its footing

                                By
                                ActionForex
                                -

                                Swiss KOF Economic Barometer dropped from 99.2 to 96.4 in April, dipping slightly lower under its medium-​term average value. KOF said, “at the moment, the Swiss economy cannot really find its footing.”

                                The majority of the indicator bundles are affected by the softening. In particular, the indicators for manufacturing, services, hospitality and private consumption. In contrast, the outlook for foreign demand is stable and that for financial and insurance services is brightening.

                                Full Swiss KOF release here.

                                France’s Q1 GDP sees modest growth of 0.2% qoq

                                  By
                                  ActionForex
                                  -

                                  France’s Q1 GDP growth came in at a modest 0.2% qoq, slightly outperforming market expectations of 0.1% qoq.

                                  Final domestic demand (excluding inventories) contributed negatively to GDP growth, albeit less so than in the previous quarter (-0.1 points in Q1 2023 after -0.4 points). This was due to household consumption stabilizing (0.0% after -1.0%), while gross fixed capital formation (GFCF) experienced a minor decline (-0.2% after 0.0%).

                                  In contrast, foreign trade provided a positive contribution to GDP growth (+0.6 points after +0.2 points). Imports decreased this quarter (-0.6% after +0.1%), while exports remained strong (+1.1% after +0.9%).

                                  Lastly, the contribution of inventory changes to GDP growth was negative this quarter (-0.3 points after +0.2 points in Q4 2022).

                                  Full France GDP release here.

                                  BoJ stands pat, to take 1-1.5 yrs to review monetary policy

                                    By
                                    ActionForex
                                    -

                                    BoJ keeps monetary policy unchanged as widely expected, by unanimous vote. Under the yield curve control, short-term policy interest rate is held at -0.10%. 10-year JGB yield will be kept at around 0% with bond purchases without upper limit. 10-year JGB yield will continue to be allowed to fluctuate in range of around plus and minus 0.50% from 0% level.

                                    The central bank maintained the pledge to continue with Quantitative and Qualitative Monetary Easing with Yield Curve Control for “as long as it is necessary” for meeting inflation target in a “stable manner”. It “will not hesitate to take additional easing measures if necessary”. BoJ will conduct a “broad-perspective review of monetary policy”, with a planned time frame of around 12 to 18 months.

                                    In the new economic projections, while core inflation forecasts were upgraded, it’s not expected to sustain at the 2% level throughout the horizon.

                                    • Real GDP forecasts (versus January estimates):
                                      • Fiscal 2023 at 1.4% (down from 1.7%).
                                      • Fiscal 2024 at 1.2% (up from 1.1%).
                                      • Fiscal 2025 at 1.0% (new)
                                    • CPI Core forecasts (versus January estimates):
                                      • Fiscal 2023 at 1.8% (up from 1.6%).
                                      • Fiscal 2024 at 2.0% (up from 1.8%).
                                      • Fiscal 2025 at 1.6% (new).
                                    • CPI Core-Core forecasts (versus January estimates):
                                      • Fiscal 2023 at 2.5% (up from 1.8%).
                                      • Fiscal 2024 at 1.7% (up from 1.6%).
                                      • Fiscal 2025 at 1.8% (new).

                                    Full BoJ statement here.

                                    Full Outlook for Economic Activity and Prices here.

                                    S&P 500 stays near term bullish after biggest rally since Jan

                                      By
                                      ActionForex
                                      -

                                      US stocks rallied strongly overnight, the DOW and S&P 500 recording their largest rallies since January, and NASDAQ since March. The turnaround in sentiment was driven by Meta’s impressive quarterly performance, which saw shares close up 14%. Additionally, weaker-than-expected Q1 GDP data fueled expectations that Fed is getting closer to ending its tightening cycle, providing ammunition for pessimists to call for a potential rate cut before year-end should the economy continue to deteriorate.

                                      Technically, DOW, S&P 500, and NASDAQ all found robust support from their respective 55 D EMA this week. In the case of SPX, the development keeps the rally from 3808.83 alive. Near-term outlook remains bullish as long as 4049.35 support level holds. Break of 4195.44 resistance will confirm resumption of the overall rebound from 3491.58.

                                      Meanwhile, a critical obstacle lies in the 4325.28 cluster resistance (61.8% retracement of 4818.62 to 3491.58 at 4311.69) for SPX. Sustained break of this cluster resistance will pave the way for further rally towards historical high of 4818.62. The market’s reaction to the 4300 handle will largely depend on next week’s FOMC rate decision and Chair Jerome Powell’s press conference.

                                      Japan industrial production rose 0.8% mom, with signs of moderate pick up

                                        By
                                        ActionForex
                                        -

                                        Japan’s industrial production expanded for the second consecutive month, recording a 0.8% mom growth in March, surpassing the expected 0.4% mom increase. The growth was driven by output in eight sectors, led by motor vehicles, while declines were observed in seven sectors, including electronic components and devices.

                                        The Ministry of Economy, Trade and Industry upgraded its basic assessment for the month, stating that industrial production was “showing signs of moderately picking up” as parts supply shortages continued to ease. This is a marked improvement from the previous month’s assessment of “weakening.” The ministry also projects a further 4.1% growth in industrial production for April and a -2.0% decline in May.

                                        Other economic indicators released include 7.2% yoy increase in retail sales for March, surpassing expectations of 6.5% yoy. However, unemployment rate rose for the second month in a row, reaching 2.8%, above expectation of 2.5%.

                                        April, Tokyo core CPI, which excludes fresh food, accelerated from 3.2% to 3.5% yoy, exceeding expectations of 3.2% yoy. Core-core CPI, which excludes fresh food and fuel costs, accelerated from 3.4% to 3.8% year-on-year, marking the highest rate since April 1982.

                                        US initial jobless claims down -16k to 230k

                                          By
                                          ActionForex
                                          -

                                          US initial jobless claims dropped -16k to 230k in the week ending April 22, better than expectation of 245k. Four-week moving average of initial claims dropped -4k to 236k.

                                          Continuing claims dropped -3k to 1858k in the wee ending April 15. Four-week moving average of continuing claims rose 10k to 1837k, highest since December 18, 2021.

                                          Full US jobless claims release here.

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