Japan industrial production declined -4.6% mom in January, much worse than expectation of -2.6% mom.
Upon the release of the data, the METI downgraded its assessment of industrial production, saying that it has weakened. Never the less, the ministry forecast industrial production to bounce back by 8.0% in February, and then a further 0.7% in March.
Retail sales rose 6.3% yoy, above expectation of 4.0% yoy.
Incoming BoJ Deputy Governor Shinichi Uchida told an upper house confirmation hearing, “BOJ must maintain monetary easing. It shouldn’t modify easy policy just because there are side-effects. Rather, it must come up with ideas” to mitigate the costs and help sustain stimulus.
He also noted it’s premature to discuss an exit from the ultra-loose monetary policy. Any exit would involve adjustments in the interest targets and the balance sheet. “In what order and at what timing the BOJ will make these adjustments will depend on economic and financial developments at the time,” Uchida said.
BoJ Deputy Governor Masazumi Wakatabe said, “the mild-inflation regime has not come to an end, and we should say that the potential dangers of secular stagnation and Japanification have not yet passed.”
“When an exogenous shock occurs, there is an adjustment from the old to a new price system. After adjustment, the rising inflation rate is likely to return to the steady-state inflation rate,” he said.
“So the important point is how this rate is affected. Of course, it is possible that cost-push factors will remain, but whether they will push up the steady-state inflation rate is uncertain,” Wakatabe said, adding that it was “well known that cost-push inflation does not last long.”
ECB Governing Council member Boris Vujcic told Bloomberg TV yesterday, “as long as core (inflation) persists at the levels we’re talking about and this is significantly higher than our rates are and significantly higher than where are target is, we should persevere.”
The markets have been raising their bets on higher interest rates and are betting tightening extending into 2024. Vujcic said, “I think this repricing in a way is what we did during our last projections, where we projected basically higher inflation for longer, core inflation which turns out to be stickier than most people probably expected.”
“Probably markets are now repricing and saying ‘OK, we might see higher rates for maybe longer,'” he said.
In a speech, Fed Governor Philip Jefferson said, “core goods inflation has started to come down. Several indicators suggest that housing services inflation is likely to come down in the coming months. There is more uncertainty surrounding inflation in core services excluding housing. Over time, we’ll learn more about inflation dynamics in this sector.”
“The inflation outlook for this nonhousing category of core services partly depends on whether growth in nominal labor costs comes back down, and recent data suggest that labor compensation has indeed started to decelerate somewhat over the past year,” he also noted.
Jefferson also rejected the idea of changing Fed’s longer-run inflation objective of 2%. He said that would “introduce an additional risk by calling into question the FOMC’s commitment to stabilizing inflation at any level because it might lead people to suspect that the target could be changed opportunistically in the future”.
US durable goods orders dropped -4.5% mom to USD 272.3B in January, worse than expectation of -4.0% mom. But ex-transport orders rose 0.7% mom to 179.4B. above expectation of 0.0% mom. Ex-defense orders dropped -5.1% mom to USD 253.9B. Transportation equipment dropped -13.3% mom to USD 92.8B.
Eurozone Economic Sentiment Indicator ticked down from 99.8 to 99.7 in February. Employment Expectation Indicator dropped from 109.7 to 109.4. Economic Uncertainty Indicator dropped from 26.2 to 23.3. Industry confidence dropped from 1.2 to 0.5. Services confidence dropped form 10.4 to 9.5. Consumer confidence improved from -20.7 to -19.0. Retail trade confidence rose from -0.7 to -0.1.
EU Economic Sentiment Indicator was unchanged at 97.8. Employment Expectation Indicator dropped from 108.1 to 107.7. Economic Uncertainty Indicator dropped from 25.8 to 23.3. Amongst the largest EU economies, the ESI decreased in Spain (-2.0) and France (-1.5), while it increased in the Netherlands (+2.9) and stayed broadly flat in Germany (+0.1), Italy (±0.0) and Poland (-0.2).
ECB President Christine Lagarde said in an interview, “Interest rates are the most efficient tool in the present circumstances. There is every reason to believe that we will do another 50 basis points in March. After that, we will see. We are data dependent.”
“We will do more hikes if necessary to return inflation to our target of 2% in a timely manner. It will take what it will take,” She added.
“I don’t have a timeline. I have an objective, which is our target. We need to raise interest rates to a level that is sufficiently restrictive to return inflation to 2%, and to keep rates there for as long as necessary to be confident that inflation returns to 2% in a timely manner. That’s the mantra.” She said.
“Hiking rates inevitably dampens demand. And what we’re trying to do is to adjust demand. That’s the mechanical impact that we expect from what we are doing.”
Incoming BoJ Governor Kazuo Ueda told the upper house of parliament today, “there’s still some distance for Japan to see inflation sustainably and stably meet the BoJ’s 2% target.”
“Big improvements must be made in Japan’s trend inflation for the BoJ to shift towards monetary tightening,” he said.”It’s not that I have no ideas on how to tweak the BoJ’s current policy. But the desirable tweak will vary depending on economic changes at the time.”
“In guiding monetary policy, central banks must weigh the benefits and costs of each step,” Ueda said. “At present, the benefits of the BoJ’s current policy exceed the costs.”
“There are various side-effects emerging, but the BoJ’s current policy is necessary and appropriate” to achieve its 2% inflation target, he said.
New Zealand retail sales volume dropped -0.6% qoq in Q4, below expectation of 0.2% qoq rise. Retail sales value rose 1.7% qoq.
By industry, the largest movements in sales volume were: electrical and electronic goods retailing (down -9.7%), motor vehicle and parts retailing (up 2.3%), food and beverage services (up 2.4%), fuel retailing (up 2.6%), furniture, floor coverings, houseware, and textile goods (down -5.2%).
ECB Governing Council member Ignazio Visco told Bloomberg TV on Saturday, “I don’t think that we can indicate now what the terminal rate will be, not even if it’ll be 3.5%, 3.25% or 3.75%, because really it is data-dependent.
“Our objective is to go back to an inflation rate of 2% in the medium term. If we need to be more restrictive, we’ll be more restrictive,” he said.
Visco said “determined” steps are needed in Q2. “We have to be sure that core inflation isn’t remaining at this high level… This may induce wage increases beyond what is compatible with a medium-term 2% inflation rate, which is our target. So that is why we are observing this with a lot of care — but I’m not worried.”
US personal income rose 0.6% mom or USD 131.1B in January, below expectation of 1.0% mom. But personal spending rose 1.8% mom or USD 312.5B, above expectation of 1.0% mom.
For the month, PCE price index rose 0.6% mom, above expectation of 0.5% mom. Core PCE (excluding food and energy) rose 0.6% mom, above expectation of 0.4% mom. Prices for goods and services rose 0.6% mom. Food prices rose 0.4% mom. Energy prices rose 2.0% mom.
For the year, PCE price index accelerated from 5.3% yoy to 5.4% yoy, above expectation of 4.9% yoy. Core PCE accelerated from 4.6% yoy to 4.7% yoy, above expectation of 4.1% yoy. Goods prices rose 4.7% yoy. Services rose 5.7% yoy. Food rose 11.1% yoy and energy rose 9.6% yoy.
Bundesbank President Joachim Nagel said, “What seems distinctive to me is that core inflation will remain at a very high level beyond March.”
“That’s why I don’t rule out that further significant interest rate hikes beyond March will be necessary,: he added.
Nagel also said ECB’s interest rate is not restrictive yet. He warned that stopping tightening too early would be a “cardinal error.”
Germany Gfk Consumer Confidence for March rose from -33.8 to -30.5, slightly below expectation of -30.0. In February, economic expectations rose from -0.6 to 6.0. Income expectations rose from -32.2 to -27.3. Propensity to buy rose from -18.7 to -17.3.
“Despite ongoing crises, such as the war in Ukraine, a weakening global economy, and high inflation rates, consumer sentiment has once again increased noticeably. It thus remains firmly on the path to recovery, even if the level remains low. Consumer pessimism, which peaked last fall, is fading”, explains Rolf Bürkl, GfK consumer expert.
“Recent drops in energy prices and reports that experts believe a recession in Germany this year can now be avoided mean that optimism is slowly returning.”
At a parliamentary confirmation hearing, incoming BoJ Governor Kazuo Ueda said, “current policy is a necessary, appropriate means to achieve 2% inflation,” despite various side effects emerging from the stimulus.
“Japan’s trend inflation is likely to rise gradually. But it will take some time for inflation to sustainably and stably achieve the BOJ’s 2% target,” he said.
“Consumer inflation is likely to fall below 2% in the latter half of the next fiscal year. It takes time for the effect of monetary policy to appear on the economy. ”
“It’s standard practice to act preemptively to demand-driven inflation, but not respond immediately to supply-driven inflation. Otherwise, the BOJ will be cooling demand, worsening economy and pushing down prices by tightening monetary policy.”
“If trend inflation heightens significantly and sustained achievement of the BOJ’s 2% target comes into sight, the central bank must consider normalizing policy. But if trend inflation lacks strength, the bank must continue how to maintain its ultra-easy policy, while paying attention to deterioration in market function.”
Japan all item CPI rose from 4.0% yoy to 4.3% yoy in January, below expectation of 4.5% yoy. CPI core (all-item ex-food) rose from 4.0% yoy to 4.2% yoy, matched expectations. CPI core-core (all-item ex-food and energy) rose from 3.0% yoy to 3.2% yoy, matched expectations.
Core CPI rate of 4.2% was the highest in 41-year since September 1981. The core inflation rate stayed above BoJ’s 2% target for nine consecutive months.
RBNZ Assistant Governor Karen Silk said in a Bloomberg interview “there’s still more work to do here” on interest rate and fighting inflation. While “all levels are on the table” for April meeting, the central bank is not contemplating a pause.
“This is still an economy that has excess demand, a tight labor market, and as a consequence both headline inflation and core inflation at levels that are well outside the (target) band,” she said.
Regarding April meeting, “all levels are on the table for discussion at every meeting,” she said. “I’m not going to turn round and comment on whether we would be looking at 25, 50 or 75, they will all be on the table for discussion and they will depend on the information at hand.”
Nevertheless, a pause in tightening is “certainty not something that we’re contemplating at this point in time,” she said.
Silk also noted that some upside risk was built into the forecast interest peak of 5.5%. However, “without building that in, any variation to that peak would have been still at the margin,” she said. “There’s potentially still some upside risk on the fiscal side of it. Let’s just see how it plays out over the next six weeks.”
US initial jobless claims dropped -3k to 192k in the week ending February 18, better than expectation of 200k. Four-week moving average of initial claims rose 1.5k to 191k.
Continuing claims dropped -37k to 1654k in the week ending February 11. Four-week moving average of continuing claims dropped -3k to 1669k.
BoE MPC member Catherine Mann said in a speech that while monetary policy taken has been historically aggressive, it’s perhaps “insufficiently so relative to the multiple shocks, the behaviours pushing up inflation, and the initial accommodative starting point”.
“The stage was set for a transmission of monetary policy to financial markets that has been quick, but also has been partially absorbed,” she said. “And… are already incorporating the expected future inflection in monetary stance.
“All this adds up to financial conditions that are now looser than what likely will be needed to moderate the embedding of on-going inflation into the wage- and price-setting paths.”
“This constellation could yield extended persistence of inflation into this year and the next. The resulting long period of time above the 2% target could increase the degree of backward-lookingness, or catch-up behaviour, in the system.”
“Given that the risk of increasingly persistent inflation rises disproportionately with the share of backward-lookingness, I believe that more tightening is needed, and caution that a pivot is not imminent. In my view, a preponderance of turning points (Mann, 2023) is not yet in the data.”
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NZ ANZ business confidence rose to -43.3, firms wary but getting on with the job
New Zealand ANZ Business Confidence improved form -52.0 to -43.3 in February. Own Activity Outlook rose from -15.8 to -9.2.
Looking at some details, export intentions ticked up from -5.4 to -5.2. Investment intentions rose from -13.7 to -4.9. Employment intentions jumped from -11.1 to -3.4. Pricing intentions dropped from 62.4 to 58.8. Cost expectations dropped from 91.3 to 88.3. Inflation expectations ticked down from 5.99 to 5.94.
ANZ said: “The shock value of the November Monetary Policy Statement appears to have faded into the rear-vision mirror as firms focus on the risks and opportunities that are front and centre…. Opportunity is clearly still knocking. That said, the level of most indicators remain subdued – firms are still very wary, and understandably so. But they are getting on with the job.”
Full release here.