UK PMIs: Economic returns to modest growth in Q1

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Mar 24 23, 09:39 GMT

UK PMI Manufacturing dropped from 49.3 to 48.0 in March. PMI Services dropped from 53.5 to 52.8. PMI Composite dropped from 53.1 to 52.2. All three were two-month lows.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, indicated that the UK economy has shown signs of growth in the first quarter, with the flash PMI surveys indicating a second consecutive month of rising output in March. The data suggests a modest quarterly GDP growth rate of 0.2%, which is a welcome change from the stagnation seen in the second half of the previous year.

Despite concerns over the banking sector, businesses remain optimistic about growth possibilities, and the improvement in order book growth suggests that a near-term recession has been averted. The upturn in companies’ expectations for the year ahead indicates that firms are more focused on growth opportunities rather than banking sector challenges.

Full UK PMI release here.

Eurozone PMI composite rose to 10-month high on strong services

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Mar 24 23, 09:11 GMT

Eurozone PMI Manufacturing dropped from 48.5 to 47.1 in March, hitting a 4-month low. However, PMI Services rose sharply from 52.7 to 55.6. PMI Composite rose from 52.0 to 54.1. Both PMI Services and Composite were the highest levels in 10 months.

According to Chris Williamson, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, the eurozone economy is experiencing a resurgence, with business activity in March growing at the fastest rate in ten months. The data indicates a 0.3% GDP growth in Q1, accelerating to a 0.5% rate in March. This growth is attributed to fading recession fears, easing inflation pressures, and significant improvements in supplier delivery times.

Despite these positive signs, inflationary pressures continue to be a concern, particularly in the service sector and rising wage costs. The growth remains unbalanced, with the service sector driving growth while manufacturing struggles to maintain production amid falling demand.

Full Eurozone PMI release here.

Also released, Germany PMI Manufacturing dropped further from 46.3 to 44.3 March, a 34-month low. But PMI Services rose from 50.9 to 53.9, a 10-month high. PMI Composite rose from 50.7 to 52.6, also a 10-month high.

France PMI Manufacturing ticked up from 47.4 to 47.7 in March. PMI Services rose from 53.1 to 55.5, a 10-month high. PMI Composite rose from 51.7 to 54.0, also a 10-month high.

BoE Bailey: Interest rates will go up further if inflation got embedded

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Mar 24 23, 09:03 GMT

In a interview with BBC, BoE Governor Andrew Bailey emphasized that the central bank expects inflation to decline sharply this year as the impact of last year’s steep energy price increases drops from year-on-year price comparisons. He expressed relief that inflation had stabilized and noted some “encouraging signs” of progress. However, he urged continued vigilance, stating, “we have to be extremely vigilant on that front.”

Bailey also issued a warning to businesses setting prices, cautioning that “if we get inflation embedded, interest rates will have to go up further.” While acknowledging that companies must set prices according to the costs they face, he urged them to remember the anticipated decrease in inflation this year when setting prices: “we do expect inflation to come down sharply this year and I would just say please bear that in mind.”

UK retail sales volume up 1.2% mom in Feb, sales value rose 1.6% mom

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Mar 24 23, 07:32 GMT

UK retail sales volume rose 1.2% mom in February, well above expectation of 0.2% mom. Ex-fuel sales volume rose 1.5% mom, above expectation of 0.1% mom. Nevertheless, in the three months to February, comparing to the prior three month, sales volume declined -0.3%, while ex-fuel sales volume dropped -0.4.

In value term, total sales rose 1.6% mom while ex-fuel sale rose 2.2% mom. In the three months to February, comparing to the prior three months, total sales value rose 0.7% while ex-fuel sales value rose 1.0%.

Full UK retail sales release here.

Japan CPI core down sharply to 3.1%, but core-core rose to 40-yr high

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Mar 24 23, 05:15 GMT

Japan’s headline CPI in February experienced a sharp slowdown from 4.3% yoy to 3.3% yoy, falling below the expected 4.1% yoy. CPI core (all items excluding food) dropped from 4.2% yoy to 3.1% yoy, meeting expectations. Meanwhile, CPI core-core (all items excluding food and energy) rose from 3.2% yoy to 3.5% yoy, surpassing the anticipated 3.4% yoy.

Despite the steep decline in CPI core from a 41-year high of 4.2% to 3.1%, the figure remains well above the Bank of Japan’s (BoJ) 2% target. The core-core reading, closely monitored by the BoJ as an indicator of domestic demand, reached its highest rate since January 1982.

The data suggests that incoming BoJ Governor Kazuo Ueda may need to address a shift from cost-push inflation to demand-driven inflation, which could prove more sustainable.

Japan PMIs: Growth continues with strong services but struggling manufacturing

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Mar 24 23, 05:04 GMT

Japan PMI Manufacturing rose from 47.7 to 48.6 in March, slightly above expectation of 48.2. PMI Manufacturing Output rose from 45.3 to 47.4. PMI Services ticked up from 54.0 to 54.2, the best reading since October 2013. PMI Composite improved from 51.1 to 51.9.

Japanese private sector firms experienced growth for the third consecutive month, with the services sector witnessing a notable improvement. Demand conditions strengthened, as government support and the lifting of COVID-19 restrictions in mainland China led to increased activity and new orders.

However, the manufacturing sector continued to face challenges, with output and new orders still contracting, albeit at a slower rate than February. Manufacturers reported ongoing supply chain normalization, as supplier delivery times lengthened at the slowest pace since October 2020.

Full Japan PMI release here.

Australia PMI composite dropped to 48.1, renewed contraction

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ActionForex

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Mar 24 23, 04:55 GMT

Australia PMI Manufacturing dropped from 50.5 to 48.7 in March, a 34-month low. PMI Services dropped from 50.7 to 48.2, a 3-month low. PMI Composite dropped from 50.6 to 48.1, a 3-month low. All readings indicated renewed contraction in the private sector following improvements in February.

Looking at some details, the results indicate a continued economic slowdown, with composite output and new orders indexes at their lowest since the 2021 Delta lockdowns. Despite easing labor demand, employment indexes suggest businesses are still looking to expand their workforce in 2023. Price indicators have eased but remain elevated, with Australian inflation peaking in late 2022. Service industry input prices are still high, suggesting potential inflationary pressures in 2023 due to labor costs and energy prices.

As the Reserve Bank of Australia (RBA) prepares for its April meeting, it faces a tough decision on whether to pause its tightening cycle amid global financial uncertainty, strong employment numbers, and concerns about inflation levels. Some argue that the RBA should raise the cash rate closer to 4% before pausing to observe the economy’s performance over the next few months.

Warren Hogan, Chief Economic Advisor at Judo Bank noted: “There is no point pausing for a month before hiking again. The RBA Board need to get the cash rate to a level that they think will buy them the time to observe how the economy unfolds for at least three months, if not longer.”

Full Australia PMI release here.

BoE’s Bailey uncertain about rate peak as inflation remains high

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Mar 23 23, 14:29 GMT

Following BoE’s decision to raise interest rates by 25bps to 4.25%, Governor Andrew Bailey expressed uncertainty about whether this would be the peak for rates.

Talking to broadcasters, Bailey said, “We don’t know whether it’s going to be the peak,” adding that “We’ve seen signs of inflation really peaking now. But of course it’s far too high… We need to see it starting to come down progressively and get back to target.”

In a separate video, Bailey explained the rationale behind the rate hike, stating, “Inflation is still too high, but we continue to expect it to fall sharply from the middle of this year. Raising interest rates is the best way we have of making sure that happens.”

He also emphasized that “low and stable inflation is the foundation of a healthy economy,” and that raising rates is the “best tool” for bringing inflation back under control.

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US initial jobless claims ticked down to 191k

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Mar 23 23, 12:36 GMT

US initial jobless claims dropped -1k to 191k in the week ending March 18, better than expectation of 195k. Four-week moving average of initial claims dropped -250 to 196.25k.

Continuing claims rose 14k to 1694k in the week ending March 11. Four-week moving average of continuing claims rose 8.5k to 1684k.

Full release here.

BoE hikes 25bps, door open for further tightening or pause

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ActionForex

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Mar 23 23, 12:14 GMT

BoE raised its Bank Rate by 25 basis points to 4.25% as expected, with a 7-2 vote by the Monetary Policy Committee. MPC members Swati Dhingra and Silvana Tenreyro voted against the rate hike, opting for no change, while no member voted for a larger increase.

The central bank left the possibility of further rate hikes open, stating, “if there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.” Simultaneously, it also means the door is open for a pause in the rate hike cycle too.

BoE acknowledged that CPI inflation “increased unexpectedly in the latest release” but maintained that it is “likely to fall sharply over the rest of the year.” The central bank emphasized that the degree to which domestic inflationary pressures ease will depend on the economy’s evolution, including the impact of the significant Bank Rate increases so far.

Full BoE statement here.

SNB hikes 50bps, signals more tightening possible

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Mar 23 23, 08:51 GMT

SNB raises its policy rate by 50bps to 1.50% as widely expected. The central bank indicated the openness to further tightening while inflation forecasts are raised due to stronger second-round effects and increased overseas inflationary pressure.

The central bank said the rate hike is for “countering the renewed increase in inflationary pressure”. It also noted in the statement, “it cannot be ruled out that additional rises in the SNB policy rate will be necessary to ensure price stability over the medium term.” It also remains “willing to be active in the foreign exchange market” with focus on “selling foreign currency” for some quarters.

The bank’s conditional inflation forecast assumes an interest rate of 1.5% over the horizon. Average inflation estimates for 2023 and 2024 were raised from 2.4% to 2.6% and from 1.8% to 2.0%, respectively. Inflation is projected to average 2.0% in 2025, a new forecast.

SNB statement highlighted that “stronger second-round effects and the fact that inflationary pressure from abroad has increased again mean that, despite the raising of the SNB policy rate, the new forecast is higher through to mid-2025 than in December.”

The central bank anticipates a modest GDP growth of around 1% for the year, citing subdued foreign demand and the dampening effect of inflation on purchasing power.

Full SNB statement here.

GBP/CHF extending range trading ahead of BoE and SNB

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Mar 23 23, 06:19 GMT

BoE and SNB are both expected to raise interest rates today. A 25bps hike by BoE to 4.25% is widely anticipated, though the case for a subsequent pause has been shaken by the reacceleration of consumer inflation in February. The Monetary Policy Committee is known for its divided outlook on the amount of tightening needed, and today’s voting should continue to reflect this pattern.

An explicit indication of a pause could put downward pressure on Sterling, but such a signal is unlikely to emerge. Instead, BoE is more likely to adopt a non-committal stance, waiting for incoming data and the next economic projections in May before making a firm judgment.

Concurrently, SNB is expected to hike by 50bps to 1.50%. Market expectations suggest a possible 25bps hike in June to a terminal rate of 1.75%, followed by a pause. However, the SNB’s comments and projections could reshape these expectations.

Here are some previews for BoE and SNB:

GBP/CHF is still bounded in medium term sideway consolidation from 1.1574. Outlook is kept bullish as the crosses quickly recovered after breaching 38.2% retracement of 1.0183 to 1.1574 at 1.1043 briefly. A break through 1.1574 resistance to resume the rise form 1.0184 is expected. But that might not happen today, unless there is some drastic surprise from BoE or SNB.

S&P 500 down, reacted more to Yellen than Powell?

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ActionForex

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Mar 23 23, 04:45 GMT

US markets experienced a complex development overnight due to simultaneous reactions to two events. Initially, the markets responded bullishly to the Fed’s less hawkish than expected rate hike and press conference. However, just an hour before the close, sellers jumped in, and the three major indexes closed -1.6% lower.

The selloff might be more attributed to Treasury Secretary Janet Yellen’s comments at a Senate committee. She explicitly stated, “I have not considered or discussed anything having to do with blanket insurance or guarantees of deposits.”

Yellen further elaborated, “when a bank failure is deemed to create systemic risk, which I think of as the risk of a contagious bank run…we are likely to invoke the systemic risk exception, which permits the FDIC to protect all depositors, and that would be a case-by-case determination.”

Meanwhile, Asian markets have remained sluggish and mixed today, without any apparent signs of bearishness carried over. It may take some more time to understand the unfolding situation fully.

Technically, near term outlook in S&P 500 isn’t too bearish yet given it’s holding inside a near term channel. However, break of 3901.27 support will argue that the corrective rebound from 3808.85 has completed at 4039.49, after hitting falling trend line resistance. Deeper selloff would then follow through 3808.86 to resume whole decline from 4195.44.

Fed softened hawkish tone, but not dovish

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Mar 23 23, 04:17 GMT

In light of the Fed announcement and press conference overnight, it appears that another 25bps rate hike is likely in May, followed by a prolonged pause with no rate cut expected until next year. The overall picture remains hawkish, albeit not as much as after Fed Chair Jerome Powell’s earlier testimony this month.

As anticipated, Fed raised interest rates by 25bps to 4.75-5.00%. While the tightening bias was maintained, the statement softened its tone, stating, “some additional policy firming may be appropriate.” Despite recent market turmoil, median projections still indicated an interest rate peak of 5.1% this year, suggesting one more 25bps hike before pausing until next year. The median projection for 2024 interest rate increased from 4.1% to 4.3%, signaling a slower path of rate cuts.

During the post-meeting press conference, Powell acknowledged that “financial conditions seem to have tightened” recently, adding that if the situation persists, it could “easily have a significant macroeconomic effect, and we would factor that into our policy decisions.” While he admitted that a pause was considered during the meeting, he emphasized that a rate cut this year was “not our baseline expectation,” stating, “the key is we have to have policies tight enough to bring inflation down to 2%.”

Fed chair Jerome Powell press conference live stream

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Mar 22 23, 18:26 GMT

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Fed hikes 25 bps, terminal rate forecast unchanged at 5.1%

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Mar 22 23, 18:24 GMT

Fed raise interest rate by 25bps to 4.75-5.00% as mostly expected, on unanimous vote. Tightening biased is maintained as “the Committee anticipates that some additional policy firming may be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time”.

The terminal rate is still put at 5.00-5.25% this year. But a smaller rate cut is projected in 2024. Growth projections are lowered for 2023 and 2024. Core inflation forecasts were raised slightly for this year and next.

In the new economic projections (median):

Federal funds rate for 2023 was unchanged at 5.1%.
Federal funds rate for 2024 was raised from 4.1% to 4.3%.
Federal funds rate for 2025 was unchanged at 3.1%.
GDP growth in 2023 was lowered from 0.5% to 0.4%.
GDP growth in 2024 was lowered from 1.6% to 1.8%.
GDP growth in 2025 was raised from 1.8% to 1.9%.
Unemployment rate in 2023 was lowered from 4.6% to 4.5%.
Unemployment rate in 2024 was unchanged at 4.6%.
Unemployment rate in 2025 was raised from 4.5% to 4.6%.
Headline PCE inflation in 2023 was raised from 3.3% to 3.1%.
Headline PCE inflation in 2024 was unchanged at 2.1%.
Headline PCE inflation in 2025 was unchanged at 2.1%.
Core PCE inflation in 2023 was raised from 3.5% to 3.6%.
Core PCE inflation in 2024 was raised from 2.5% to 2.6%.
Core PCE inflation in 2025 was unchanged at 2.1%.

In the new dot plot:

In 2023, the majority, 10 committee members, expect interest rate at 5.00-5.25% , with only one expecting lower rates.
In 2024, 14 members at least at least two rate cut from 5.00-5.25% level. Majority of 10 members expect rates to be between 4.00-4.75% range.

Full FOMC minutes here.

Full Summary of Economic Projections here.

ECB Lagarde stresses robust strategy amid high inflation and market uncertainty

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ActionForex

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Mar 22 23, 09:39 GMT

In a speech today, ECB President Christine Lagarde highlighted the challenges posed by persistent high inflation and increasing uncertainty. She noted, “Since July last year we have raised interest rates by 350 basis points. However, inflation is still high, and uncertainty around its path ahead has increased. This makes a robust strategy going forward essential.”

Lagarde outlined a three-pronged strategy to tackle these issues:

Data-dependent rate path: Emphasizing the importance of data dependency in times of high uncertainty, Lagarde stated, “This means, ex ante, that we are neither committed to raise further nor are we finished with hiking rates.”
Liquidity support amidst market volatility: Acknowledging recent financial market turbulence, she assured, “We are ready to act and provide liquidity support to the financial system if needed.” Lagarde emphasized the ECB’s proven ability to “set the appropriate policy stance to control inflation and at the same time use other instruments to address risks to monetary policy transmission.”
Clear reaction function: The third element focuses on continuous monitoring of three key inputs – inflation outlook, underlying inflation, and policy transmission. Lagarde explained, “The future calibration of the rate path will be determined by – and will require continuous monitoring of – these three key inputs.”

Full speech of ECB Lagarde here.

Bundesbank Nagel insists fight against inflation continues

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Mar 22 23, 09:27 GMT

In an Financial Times interview, Bundesbank President Joachim Nagel expressed that the fight against inflation is far from over, despite the ECB’s efforts to curb it. He stated, “Our fight against inflation is not over. There’s certainly no mistaking that price pressures are strong and broad-based across the economy.”

Nagel emphasized the need for persistence in combating inflation, suggesting that “If we are to tame this stubborn inflation, we will have to be even more stubborn.”

He also highlighted the progress made by ECB, mentioning that they are “approaching restrictive territory.” However, he warned against the potential pitfalls of stopping rate hikes too soon and succumbing to calls for rate cuts. According to Nagel, doing so would risk a repeat of the 1970s, when “inflation flared up again” following the oil supply shocks.

As for concerns surrounding the recent banking crisis, Nagel dismissed comparisons to the 2008 financial crisis. He confidently asserted, “We are not facing a repeat of the financial crisis we saw in 2008. We can manage this with the Eurozone’s “resilient” banking system.

UK CPI rose back to 10.4% yoy in Feb, core CPI up to 6.2% yoy

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Mar 22 23, 07:18 GMT

UK CPI accelerated from 10.1% yoy to 10.4% yoy in February, well above expectation of slowing to 9.8% yoy. The reading was still below recent peak of 11.1% yoy in October 2022, the highest since 1981. CPI excluding food, energy, alcohol and tobacco (core CPI) jumped from 5.8% yoy to 6.2% yoy, above expectation of 5.7% yoy.

On a monthly basis, CPI rose 1.1% mom, more than reversing January’s -0.6% mom decline, above expectation of 0.6% mom.

Full UK CPI release here.

Also released, RPI came in at 1.2% mom, 13.8% yoy, above expectation of 0.8% mom, 13.2% yoy. PPI input was at -0.1% mom, 12.1% yoy, versus expectation of 0.8% mom, 12.5% yoy. PPI core output was at -0.2% mom, 10.4% yoy, versus expectation of 0.4% mom, 9.9% yoy.

Fed expected to hike 25bps, divided opinion on future path

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Mar 22 23, 04:47 GMT

Today marks a significant moment as Fed is expected to continue with its tightening policy. Amid the recent banking crisis and market turmoil, it is widely anticipated that Fed will raise interest rates by 25bps to the 4.75-5.00% range, with around 85% probability. Fed Chair Jerome Powell is likely to stress the importance of bringing inflation back on target during the post-meeting conference, while acknowledging the current market turbulence.

The Fed’s future rate path remains a hot topic of debate. According to Fed fund futures pricing, there is over 55% chance of an additional 25 basis point hike in May, bringing the interest rate to 5.00-5.25%. However, this is followed by a over 62% probability of a -25 basis point cut in June, reverting the rate back to 4.75-5.00%. This apparent contradiction reflects the divided opinions on whether there will be another rate move in May. But in more certainty, traders seem to be leaning more towards a rate cut in September, with around 75% chance of interest rate falling back into the 4.50-4.75% range.

The new staff economic projections scheduled for release today were initially expected to provide some clarity on the future rate path. However, it is speculated that the Fed might choose to delay or suspend these projections, as it did in March 2020 during the onset of the pandemic, to avoid creating further confusion. As a result, a clear answer to the future rate path may remain elusive for now.

Here are some previews:

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Live Comments

UK PMIs: Economic returns to modest growth in Q1

Eurozone PMI composite rose to 10-month high on strong services

BoE Bailey: Interest rates will go up further if inflation got embedded

UK retail sales volume up 1.2% mom in Feb, sales value rose 1.6% mom

Japan CPI core down sharply to 3.1%, but core-core rose to 40-yr high

Japan PMIs: Growth continues with strong services but struggling manufacturing

Australia PMI composite dropped to 48.1, renewed contraction

BoE’s Bailey uncertain about rate peak as inflation remains high

US initial jobless claims ticked down to 191k

BoE hikes 25bps, door open for further tightening or pause

SNB hikes 50bps, signals more tightening possible

GBP/CHF extending range trading ahead of BoE and SNB

S&P 500 down, reacted more to Yellen than Powell?

Fed softened hawkish tone, but not dovish

Fed chair Jerome Powell press conference live stream

Fed hikes 25 bps, terminal rate forecast unchanged at 5.1%

ECB Lagarde stresses robust strategy amid high inflation and market uncertainty

Bundesbank Nagel insists fight against inflation continues

UK CPI rose back to 10.4% yoy in Feb, core CPI up to 6.2% yoy

Fed expected to hike 25bps, divided opinion on future path