NIESR forecasts UK GDP to bounce back by 0.3% in Apr

    National Institute of Economic and Social Research (NIESR) forecasts a modest rebound in UK’s monthly GDP in April with growth of 0.3%, largely driven by services sector. However, this is viewed as a modest increment rather than the robust ‘jump-start’ the UK economy may need. Paula Bejarano Carbo, Associate Economist at NIESR, highlighted the situation as “(welcome) low growth”.

    Meanwhile, the think tank significantly downgrades annual GDP outlook for 2023 to a mere 0.3%, a stark contrast to 4.1% achieved in 2022. This economic stagnation is attributed to persistently high inflation and interest rates, which continue to weigh heavily on household and corporate budgets, and is expected to suppress demand in the forthcoming months.

    The forecast paints a paradoxical picture of the UK’s economic future. While there is cautious optimism as it appears the worst of the energy price shock has passed and the country seems poised to avoid an imminent recession, the subdued outlook suggests that it will feel like a recession for many households. NIESR predicts an average fall in real personal disposable incomes of approximately 2% over the next three years, further pressuring households already grappling with the economic challenges.

    Full NIESR release here.

    Bundesbank Weidmann: Tragic to roll back EU reforms and fiscal consolidations

      German Bundesbank President Jens Weidmann said that the Euro currency union is not yet “crisis proof in a durable way”. He pointed to the recent financial market turbulence in Italy as it “illustrates” that.

      Weidmann also said it would be “tragic” in the reforms and fiscal consolidations achieved during the global financial crisis are rolled back. He supports some of the proposals of German Chancellor Angela Merkel and French President Emmanuel Macron. They include common backstop for failing banks. However, Weidmann disagree to joint insurance for deposits, until the balance sheets are cleaned up.

      The reforms will be discussed as a EU summit on June 28-29.

      RBA’s Bullock undecided on rate hike following CPI surprise

        In the Senate Economics Committee session today, RBA Governor Michele Bullock indicated that the bank was not entirely caught off guard by the stronger than expected CPI data released yesterday. She refrained from offering a definitive direction for the bank’s next steps

        The Q3 and September CPI data, which Bullock admitted “came out a little higher” than the projections in the August Statement on Monetary Policy, still aligned with the bank’s expectations. She clarified, “The numbers were pretty much where we thought it would come out”.

        When queried on the prospect of another rate hike in the forthcoming meeting, Bullock responded, “We’re still analyzing the numbers at the moment. I wouldn’t like to say more or less likely, we’re still looking at it.”

        Bullock reiterated the bank’s position, stating, “We’ve always said we have a low tolerance” on inflation surprises. She added, “We are wary and we don’t know if the job has been done yet.”

        Looking forward, Bullock hinted at imminent changes to their economic projections, announcing, “We will be releasing a new set of forecasts after the board meeting.” Moreover, she alluded to the significance of these revisions by stating, “There is going to be a change to our forecasts. We have to look at whether or not it’s material enough to change our views on monetary policy.”

        ECB bulletin: Eurozone output to exceed pre-pandemic level in Q1

          In the monthly economic bulletin, ECB said, “the global economy remains on a recovery path, although persisting supply bottlenecks, rising commodity prices and the emergence of the Omicron variant of the coronavirus (COVID-19) continue to weigh on the near-term growth prospects.”

          “Supply bottlenecks are expected to start easing from the second quarter of 2022 and to fully unwind by 2023.” But “the future course of the pandemic remains the key risk affecting the baseline projections for the global economy.” Risk to growth outlook are “tilted to the downside” and balance of risks to global inflation is “more uncertain”.

          Eurozone growth is “moderating” but “activity is expected to pick up again strongly in the course of this year.” Output is expected to exceed pre-pandemic level in Q1 of 2022. However, as some Eurozone countries have reintroduced tighter restrictions, “this could delay the recovery, especially in travel, tourism, hospitality and entertainment”.

          Full economic bulletin here.

          UK PM May denied childish document on plan to announce Brexit deal on Nov 19

            BBC reported, based on a “leaked” document titled “Brexit Communications Grid Summary” that UK Brexit Minister Dominic Raab is set to announce the full withdrawal agreement on November 19 and put to parliament. And, according to the document, the Parliament would vote on the bill on November 27.

            But Prime Minister Theresa May’s spokesman quickly came out and denied it. The spokesman said “The misspelling and childish language in this document should be enough to make clear it doesn’t represent the government’s thinking. You would expect the government to have plans for all situations – to be clear, this isn’t one of them.”

            For your entertainment, here is the full text of the notes:

            Brexit Communications Grid Summary

            Cabinet reviews the deal this Tuesday, the 6th November. They expect all the details to then leak.

            “A moment of decisive progress” will be announced this Thursday. Raab to announce.

            The narrative is going to be measured success, that this is good for everyone, but won’t be all champagne corks popping.

            Then there’s recess until 12th.

            After the announcement of decisive progress there follows the 10 days of Sherpa meetings with EU 27 and then daily themed announcements.

            19th November – “We have delivered on the referendum” PM speaks at the CBI conference.

            Saying this deal brings the country back together, now is the time for us all to unite behind it for the good of all our futures etc. She will also hold a business reception.

            This is the day both the Withdrawal Agreement and Future Framework will be put to Parliament by way of a statement from Raab who will also do media. Junior ministers are doing regional media all day. Government lining up 25 top business voices including Carolyn Fairburn and lots of world leaders eg Japanese PM to tweet support for the deal.

            20th – Theme is Delivering for the Whole of the UK – PM to visit the north and or Scotland and the Commons will debate in business motions the date of the Meaningful Vote.

            PM will be back in the house to vote. The Cabinet Office publishes its explainer of the deal and what it means for the public, comparing it to No Deal, but not to our current deal.

            Other business leaders to come out and back it eg Adam Marshall from Chambers of Commerce and supportive voices in devolved regions like Andy Street and Andy Burnham. Also hoping to get 3rd Sector voices out supporting it.

            21st – Theme is Economy, Jobs, Customs. Philip Hammond to open debate in Commons and Raab to close it. Institute of Directors to speak out.

            Hoping for Stephen Martin, Martin McTeague etc

            22nd – Theme is immigration – take back control of our borders. Home Sec doing media and visits. Raab on QT in the West mids.

            Hope Mike Hawes of SMMT will speak out in favour along with influential voices from the rest of the world saying how great this is for the flow of global talent.

            23rd – Theme is money – NHS funding and structural funds. Matt Hancock hospital visit. David Everett to welcome the deal alongside Tech for UK.

            24th Theme is Northern Ireland and The Union – no hard border in the UK and the integrity of the Union is protected. PM visits border communities and business in NI and maybe also to Wales to visit agri and export businesses. Karen Bradley doing media.

            Trying to get Varadker to support and Anand Menon and Henry Newman too.

            25th – Theme is global Britain. We can strike trade deals with RoW (rest of world) security in this one too.

            Speech from Liam Fox. Jeremy Hunt on Marr. Hope Miles Celic to come out in support (City UK).

            Lining up lots of former foreign secs to come out in support and Mark Littlewood of the IEA.

            26th – theme is taking back control of our laws, Raab doing media. PM interview with Dimbleby.

            27th – morning theme is agri and fisheries. Gove doing a visit and media.

            Evening is the vote. HISTORIC MOMENT, PUT YOUR OWN INTERESTS ASIDE, PUT THE COUNTRY’S INTERESTS FIRST AND BACK THIS DEAL.

            ECB Kazimir: We need to deliver another rate hike in July

              ECB Governing Council member Peter Kazimir stressed today the necessity for continued monetary policy tightening to address prevailing inflationary pressures. he specifically highlighted the need for another rate hike in July to move further into a restrictive policy stance.

              “We need to deliver another rate hike in July and move further into restrictive territory,” Kazimir stated. He underscored that a continuation of monetary policy tightening is “the only reasonable way ahead.”

              Looking ahead to September, Kazimir cautioned that an updated analysis would be required to assess the impact of ECB’s rate hike cycle before proceeding with further tightening measures. However, he emphasized that halting rate hikes prematurely presents a “much more significant” risk than overtightening.

              Kazimir drew attention to several factors contributing to inflation risks, asserting, “Upward inflation risks are still substantial, linked to the labour market situation, food prices and, last but not least, profit margins.”

              WTO services trade barometer at 98.4, broad loss of momentum

                The new WTO’s Services Trade Barometer came in at 98.4, slightly below baseline value of 100. The reading indicates that serves trade continued to face strong headwinds into second half of the year.

                WTO noted that “declines in most of the Services Trade Barometer’s component indices drove the second quarter softening, as they signalled a broad loss of momentum across various services sectors.” However, despite loss of momentum this year, “services trade has generally held up better than goods trade since the latter is more directly affected by recent trade tensions.”

                Full release here.

                US initial jobless claims dropped to 210k, continuing claims dropped to lowest since 1973

                  US initial jobless claims dropped -5k to 210k in the week ended October 13, matched expectations. Four-week moving average of initial claims rose 2k to 211.75k.

                  Continuing claims dropped -13k to 1.64m in the week ended October 6, lowest since August 3, 1973. Four-week moving average of continuing claims dropped -1.25k to 1.653m, lowest since August 18, 1973.

                  Philly Fed manufacturing index dropped 0.7 to 22.2, above expectation of 21.0

                  Canada GDP rose 0.4% mom in Oct, 6th consecutive rise

                    Canada GDP rose 0.4% mom in October, above expectation of 0.3% mom. That’s the sixth consecutive month of increase. Overall, total economic activity was about -4% below February’s pre-pandemic level. Goods-producing industries rose 0.1% mom. Services-producing industries rose 0.5%. Activity rose in 16 of 10 industrial sectors.

                    Full release here.

                    EU Tusk: Unity needed facing capricious assertiveness of the American administration

                      European Union Council President Donald Tusk urged unity in EU in his remarks ahead of the EU-Western Balkans summit.

                      Tusk said a “united European front” is needed after US withdrawal from the Iran nuclear deal. The deal is “good for European and global security” and should be maintained. And officials should also “protect European companies from negative consequences of the US decision.”

                      Regarding EU-US trade frictions, Tusk emphasized unity as “our greatest strength” and urged Europeans to “stick to our guns”. That is, a permanent exemption from the steel tariffs “if we are to discuss possible trade liberalisation with the US.”

                      Tusk also named a new phenomenon of “capricious assertiveness of the American administration.” He pointed to latest decisions of Trump and noted “with friends like that who needs enemies.” And thanks to Trump,” Europeans have “got rid of all illusions”. And, ” if you need a helping hand, you will find one at the end of your arm. ”

                      Full speech here

                      US PMI composite fell to 50.4, near stagnation

                        US PMI Manufacturing fell form 49.0 to 47.0 in August. PMI Services fell from 52.3 to 51.0. PMI Composite fell from 52.0 to 50.4.

                        Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:

                        “A near-stalling of business activity in August raises doubts over the strength of US economic growth in the third quarter. The survey shows that the service sector-led acceleration of growth in the second quarter has faded, accompanied by a further fall in factory output.

                        “Companies report that demand is looking increasingly lethargic in the face of high prices and rising interest rates. A resultant fall in new orders received by firms in August could tip output into contraction in September as firms adjust operating capacity in line with the deteriorating demand environment. Hiring could likewise soon turn into job shedding in the coming months after a near-stagnation of employment in August.

                        “Rising wage pressures as well as increased energy prices have meanwhile pushed input cost inflation higher, which will raise concerns over the stickiness of consumer price inflation in the months ahead. One upside is that weak demand is starting to limit pricing power, which should help keep a lid on inflation around the 3% mark.”

                        Full US PMI release here.

                        BCC downgraded UK growth forecasts, economy to grow at a snail’s pace

                          The British Chambers of Commerce downgraded UK growth forecasts, citing “weaker outlook for trade and investment” as main reasons. Key points in the new forecasts:

                          • 2018 GDP growth at 1.1%, down from 1.3%. 2019 GDP growth at 1.3%, down from 1.4%. 2020 GDP growth at 1.6%, unchanged.
                          • 2018 exports growth at 1.7% only, down from 2.8% in prior forecast.
                          • 2018 total investment growth at 1.4%, down from 1.8%. 2019 at 1.4% and 2020 at 1.5%.
                          • BoE expected to hike in Q1 2019 and Q2 2020. Bank rate to hit 1.25% by the end of the forecast period.

                          Quote from Dr Adam Marshall, Director General of the British Chambers of Commerce (BCC):

                          “UK economy as a whole is set to grow at a snail’s pace. Brexit uncertainty continues to weigh heavily on many firms, as most of the practical questions facing trading businesses remain unanswered. The lack of precision on the nature of the UK’s future relationship with the EU is lowering expectations for both business investment and export growth.”

                          “The drag effect on investment and trade would intensify in the event of a ‘messy’ and disorderly Brexit”

                          “A deal with Brussels won’t deliver stronger UK growth on its own. The Prime Minister and the Chancellor must now pull out all the stops here at home to bolster business confidence, slash costs, and crowd in investment.”

                          Full release here.

                          Eurozone PMI composite hits 12-month high at 52.3, pointing to 0.3% GDP growth in Q2

                            In May, Eurozone’s PMI Manufacturing rose from 45.7 to 47.4, surpassing expectations of 46.6 and marking a 15-month high. PMI Services remained unchanged at 53.3, slightly below the forecast of 53.5. PMI Composite increased from 51.7 to 52.3, reaching a 12-month high.

                            Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, noted that Eurozone’s economy is “gathering further strength.” He highlighted that new orders are growing at a healthy rate, and companies’ confidence is reflected in a steady hiring pace.

                            Additionally, de la Rubia pointed out some positive developments for ECB. Rates of inflation for input and output prices in the services sector have softened. This trend supports ECB’s apparent stance to cut rates at the upcoming meeting on June 6.

                            Incorporating PMI numbers into their GDP nowcast, de la Rubia suggested that Eurozone will likely grow at a rate of 0.3% during Q2, effectively dispelling fears of a recession. He further indicated that GDP growth rate of nearly 1% could be achievable this year, with potential for even higher growth.

                            Full Eurozone PMI release here.

                            Also released, French PMI Manufacturing rose from 45.3 to 46.7 in May. PMI Services fell from 51.3 to 49.4. PMI Composite fell from 50.5 to 49.1, back in contraction.

                            Germany PMI Manufacturing rose from 42.5 to 45.4 in May, a 4-month high. PMI Services rose from 53.2 to 53.9, an 11-month high. PMI Composite rose from 50.6 to 52.2, a 12-month high.

                            Chinese officials delivered bullish comments, but interest rate and RRR cut said to be underway

                              At a financial forum in Shanghai, Chinese Vice Premier Liu He said there are plenty of policy tools to use to deal with the challenges the economy is facing. He also sounded confidence and said major macroeconomic indicators all remain within reasonable ranges. Meanwhile, China will roll out more strong measures on reforms in the near future.

                              In the same forum, Pan Gongsheng, head of the State Administration of Foreign Exchange, said the country’s FX market is largely stable with FX reserves steadily rising. And, China is capable and confident of keeping its currency basically stable. Guo Shuqing, head of the China Banking and Insurance Regulatory Commission (CBIRC) reiterated there are plans to further open up its banking securities and insurance sectors.

                              Separately, the official China Daily said that more money and credit supply adjustment are under way to counter the downside risks of trade war. Measures could include cuts in interest rates or reserve ratio requirements. The newspaper noted the near for stronger measures to maintain liquidity in the financial market and support infrastructure investment

                              Germany PMI manufacturing dropped to 84-mth low, from bad to worse

                                Germany PMI manufacturing dropped to 43.1 in July, down from 45.0 and missed expectation of 45.2. That’s also the lowest level in 84 months. PMI services dropped to 55.4, down from 55.8, beat expectation of 55.2, a 2-month low. PMI Composite dropped to 51.4, down from 52.6, a 4-month low.

                                Commenting on the flash PMI data, Phil Smith, Principal Economist at IHS Markit said:

                                “The health of German manufacturing went from bad to worse in July, according to the flash PMI data, raising the risk of the euro area’s largest member state entering a mild technical recession.

                                “The performance from Germany’s goods producers in July is the worst recorded by the survey in seven years, with the renewed weakness mainly stemming from an accelerated drop in export orders – the most marked seen in over a decade.

                                “Still solid growth in the service sector means that the German economy is just about keeping its head above water for now, but even here there are signs of increased worries among companies as optimism hit a three-and-a-half year low.

                                “In a further sign of the slowdown in new orders and gloomier outlook affecting firms’ hiring decisions, July’s flash data showed employment rising at the slowest rate for over four years, with factory job losses accelerating.”

                                Full release here.

                                EU to pay EUR 6000 per migrant taken in for volunteering member state

                                  As follow up to the agreement at June EU summit regarding control of immigration, the European Commission released the proposal of a plan on expanding the disembarkation and controlled center concepts. The primary aim of the controlled centers is to “improve the process of distinguishing between individuals in need of international protection, and irregular migrants with no right to remain in the EU, while speeding up returns.”

                                  And under the proposal, host member states will receive full support from EU and EU agencies, including full operational support; rapid, secure and effective processing that prevents secondary movements. In additiona, volunteering member states will recent full financial support on instrature and operation. Also, there will be EUR 6000 per person for the member states accepting transfers of those disembarked.

                                  The European Commission will push for a pilot phase with flexible approach to start as soon as possible. The proposal will be discussed tomorrow on July 25.

                                  Commissioner Avramopoulos said: “Now more than ever we need common, European solutions on migration. We are ready to support Member States and third countries in better cooperating on disembarkation of those rescued at sea. But for this to work immediately on the ground, we need to be united – not just now, but also in the long run. We need to work towards sustainable solutions.”

                                  Full release here.

                                  Into European Session: China SSE up 5% on trade, AUD & NZD strongest

                                    Entering into European session, Australian and New Zealand Dollar are the strongest ones for today so far. Market sentiments are generally lifted by the “substance progress” in US-China trade talks. And, Trump announced to delay the March 1 trade truce deadline. He’s also planning a summit with Xi at Mar-a-Lago to seal the deal.

                                    The strongest reactions are seen in Chinese stocks with Shanghai SSE hitting the highest level since June 2018. 3000 handle is now within touching distance.

                                    Canadian Dollar is the weakest one for now but it’s merely paring some of last week’s strong gains. It’s followed by Dollar and then Yen. Sterling is also mildly firmer after UK delays another Brexit meaningful vote from Wednesday to March 12, just 17 days ahead of the formal Brexit date.

                                    The economic calendar is rather light today. Focus will be on BoE Governor Mark Carney’s speech, as well as comments from Fed Vice Chair Richard Clarida.

                                    In Asia:

                                    • Nikkei closed up 0.48%.
                                    • Hong Kong HSI is up 0.35%.
                                    • China SSE is up 4.98%.
                                    • Singapore Strait Times is down -0.02%.
                                    • Japan 10-year JGB yield is up 0.006 at -0.034.

                                    Germany Ifo rose to 88.6, entering holiday with a sense of hope

                                      Germany Ifo Business Climate rose from 86.4 to 88.6 in December, above expectation of 87.2. Current Situation Index rose from 93.2 to 94.4, above expectation of 93.5. Expectations Index rose from 80.2 to 83.2, above expectation of 82.0.

                                      By sector, manufacturing rose from -11.5 to -5.6. Services rose from -5.3 to -1.2. Trade rose from -26.9 to -20.0. Construction, however, dropped from -21.5 to -22.2.

                                      Ifo said: “Sentiment in the German economy has brightened considerably. The ifo Business Climate Index rose to 88.6 points in December, up from 86.4 points (seasonally adjusted) in November. Companies assessed their current situation as better again. This comes on the heels of six consecutive falls in the indicator for the current situation. Expectations also improved noticeably. German business is entering the holiday season with a sense of hope.”

                                      Full release here.

                                      GBP/CAD trapped in medium and long term range pattern

                                        GBP/CAD is bounded inside both medium and long term sideway pattern after last week’s rebound. For the near term, firm break of 1.7674 resistance is needed to be the first sign of underlying bullishness. Retest of 1.8052 high could be seen next in this case. However, break of 1.6768 would indicate that whole rise from 1.5875 has completed at 1.8052. Deeper fall could then be seen through 1.6542 support to confirm this bearish case.

                                        In the bigger picture, it’s staying well inside long term patter that started at 1.5746 (2016 low). With this in mind, in case of the a near term upside breakout through 1.8052, upside could be capped by 1.8415 resistance, at least for first attempt. Meanwhile, any decline should be contained by 1.5875 support too.

                                        NASDAQ closed at new 2022 low, but a turnaround soon?

                                          NASDAQ closed at new 2022 low at 10213.28 overnight as investor sentiment turned sour in thin holiday trading. Technically, it’s still staying above intraday low at 10088.82, but a break of that level should be seen soon, probably 10000 handle too.

                                          Technically, the key level lies in 9660/89 cluster projection level (61.8% projection of 16212.22 to 10565.13 from 13181.08 at 9689.96, 61.8% projection of 13181.08 to 10088.82 from 11571.64 at 9660.62). Strong support from this cluster level in January could set up the markets for a trend reversal attempt in the first half of 2023. But sustained break there would set up down trend extension for the upcoming period.

                                          We’ll soon find out whether a turn in the market is around the corner.