BoJ Governor Haruhiko Kuroda reiterated in a speech that “consumption is expected to pick up if further progress in vaccinations allow society to curb infections, while resuming economic activity.”
“But the timing and pace of recovery in consumption remains highly uncertain and could change depending on how the pandemic unfolds,” he added.
“We will scrutinise the impact of the pandemic on the economy and take additional easing steps without hesitation if needed,” he pledged again.
Swiss KOF Economic Barometer dropped from 113.5 to 110.6 in September, slightly above expectation of 110.3. That’s the fourth decline in a row. The index remains above its long-term average, but the slowing in recovery is “likely to continue in the coming months”.
KOF also said: “The recurring decline is primarily attributable to bundles of indicators concerning foreign demand. Indicators of the manufacturing sector send an additional negative signal, followed by indicators of the economic sector other services. By contrast, indicators from the finance and insurance sector are providing slightly positive impulses.”
UK Q2 GDP growth was finalized at 5.5% qoq, revised up from 4.8% qoq. GDP remained -3.3% below the pre-pandemic level at Q4 2019.
In output terms, the largest contributors to this increase were from wholesale and retail trade, accommodation and food service activities, education and human health, and social work activities.
There were increases in all main components of expenditure, with the largest contribution from household consumption.
China Caixin PMI Manufacturing rose from 49.2 to 50.0 in September, above expectation of 49.6. Caixin said new orders returned to growth. Output fell at softer pace. Inflation pressures picked up amid material shortages.
Wang Zhe, Senior Economist at Caixin Insight Group said: “On the one hand, the epidemic continued to impact demand, supply, and circulation in the manufacturing sector. The state of the epidemic overseas and the shortage of shipping capacity also dragged down total demand. Epidemic control measures have clearly impacted the logistics industry.”
Also released, the official NBS PMI Manufacturing dropped from 50.1 to 49.6 in September, versus expectation of 50.2. PMI Non-Manufacturing rose from 47.5 to 53.2, above expectation of 50.8.
Japan industrial production dropped -3.2% mom in August, worse than expectation of -0.5% mom. Production in auto dropped -15.2% mom as affected by global semiconductor shortage and factory shutdowns in Southeast Asia. Output of electrical machinery and information and communication electronics equipment also dropped -10.6% mom.
The Ministry of Economy, Trade and Industry downgraded the assessment of industrial production, and said recovery “has paused. Nevertheless, based on a poll of manufacturers, production is expected to rise 0.2% mom in September and then 6.8% mom in October.
Also released, retail sales dropped -3.2% yoy in August, versus expectation of -1.3% yoy. That’s the first decline in six months.
New Zealand ANZ Business Confidence rose to -7.2 in September, up from August’s -14.5. Own Activity Outlook dropped to 18.2, down from 20.2. Looking at some details, export intentions dropped from 8.4 to 7.4. Investment intentions dropped from 15.4 to 9.2. Cost expectations dropped from 85.0 to 84.2. Employment intentions dropped from 17.9 to 14.1. Inflation expectations ticked down from 3.06% to 3.02%.
ANZ said: “The Auckland COVID outbreak drags on but businesses so far appear to be keeping their eyes on the prize. Spending has already bounced back quite a lot, particularly outside Auckland, and experience has shown momentum tends to recover quickly. In that context, interest rate increases may well prove more of a challenge. The housing market is vulnerable, with headwinds gathering, and there’s no question the housing market and construction more generally have been key drivers of growth over the past 18 months – for what’s definitely been a mix of better and worse.”
San Francisco Fed President Mary Daly said, “by the end of the year, if things continue as I expect them to with the economy, then I would expect us to hit that ‘substantial further progress’ goal, threshold, by later this year and it would be appropriate to start dialing back” asset purchases.
Daly also noted that Fed has set a different, higher bar for rate hike. “If we should get there in the time frame of next year that would be a tremendous win for the economy,” she said, but “I don’t expect that to be the case.”
In an online seminar hosted by ECB yesterday, President Christine Lagarde noted that “how long how those bottlenecks will take to be resolved” is one of the question marks. She expected the impact of higher energy prices to “go out in the first part of ’22”. Also, “the last of the uncertainties that we have to account for…is potential new waves of a pandemic that would be vaccine-resistant.”
BoE Governor Andrew Bailey said, “I expect us to be back to the pre-pandemic level in the early part of next year, possibly a month or two later than we thought we would be at the start of August.”
Some analysts took a message from September MPC minutes that BOE could raise interest rate in November, while the asset purchase program is still in its final stages. Bailey declined to comment directly. But he noted, “the preferred tool will always be rates because we understand the effect of rates in the monetary policy transmission mechanism. But that’s not to pre-judge what we will decide in November,”
BoJ Governor Haruhiko Kuroda maintained said, “whatever fiscal, regulatory or any other policies the new government pursues, the BOJ will continue to maintain extremely accommodative monetary policy in order to achieve its 2% price stability target as soon as possible.”
“In coming years, we must achieve our 2% price stability target. That is true. But at this moment, (achieving) economic recovery and faster growth are the most important challenges faced by us,” Kuroda said.
Philadelphia Fed Bank President Patrick Harker said, “I am in the camp that believes it will soon be time to begin slowly and methodically — frankly, boringly — tapering our $120 billion in monthly purchases of Treasury bills and mortgage-backed securities.”
Harker expected the economy to grow by 6.5% this year, and moderate to 3.5% next. He also expects inflation to be around 4% this year, and then slow back to 2% in 2022. “We’re already seeing some moderation there, as prices of used cars finally stabilize,” he added.
ECB Governing Council member Gabriel Makhlouf warned in a Bloomberg TV interview, “we must be very vigilant of the risks out there.” He referred to the risk of persistently high inflation sue to supply bottlenecks.
“That’s the risk that we at the ECB need to be very cautious of and very aware of and ready to respond to if it happens,” Makhlouf said. “Right now I don’t think we should be looking to raise rates or respond to transitory inflation.”
The crisis program “was set up for an emergency at the start of the pandemic. As we see the emergency disappear there are logical consequences to that particular program,” Makhlouf said. “On the other hand there’s a long discussion to be had at the ECB, there’s a lot of uncertainty around with what’s happening in economies.”
Eurozone Economic Sentiment Indicator rose slightly from 117.6 to 117.8 in September, above expectation of 116.9. Employment Expectation Indicator rose 0.8 pts to 113.6, highest since 2018. Industrial confidence rose from 13.8 to 14.1. Services confidence dropped from 16.8 to 15.1. Consumer confidence rose from -5.3 to -4.0. Retail trade confidence dropped from 4.6 to 1.3. Construction confidence rose from 5.5 to 7.5.
EU ESI was unchanged at 116.6 while EEI rose 1 pt to 113.6 (highest since 2018). Amongst the largest EU economies, the ESI rose in Spain (+1.7), Germany (+0.8), the Netherlands and Poland (both +0.6), while it worsened in France (-1.3) and Italy (-0.9).
The strong rally in US treasury yields continued overnight, with 5-year yield closing up 0.040 at 1.023, back above 1% handle finally. The break of 0.988 high indicates resumption of whole up trend from 0.192. Next target is 61.8% projection of 0.192 to 0.988 from 0.606 at 1.098. For now, we’re not expecting a strong break there, at least for the first attempt.
US stocks tumbled deeply together with the surge in treasury yields. NASDAQ lost -2.83% to close at 14546.68, back below 55 day EMA. For now, while deeper correction cannot be ruled out, we’d look for strong support from 14175.11 resistance turned support to contain downside and bring rebound. However, sustained break of 14175.11, accompanied by a strong break of 1.098 in FVX mentioned above, could indicate that the underlying trend in the stock markets has turned. That would open up the case for NASDAQ to drop further to 13002.52 support and possibly below in the medium term.
Japan’s Government Pension Investment Fund (GPIF) said it will not investment in Chinese government bonds, even though FTSE Russell’s World Government Bond Index starts to include them in October. GPIS is the world’s largest pension fund, with total assets of JPY 192T.
Masataka Miyazono, president of GPIF, said, “Chinese government bonds cannot be settled in an international settlement system that can be used for other major government bonds. The market’s liquidity is still limited compared with the size of GPIF’s investment scale. Trading of futures is not allowed for foreign investors.”
Atlanta Fed president Raphael Bostic said yesterday that, “at the end of the day the trajectory of the economy is solid.” He added, “my models and the data I am seeing suggest we are on firm footing towards a full recovery and momentum is going to continue strong even amidst the rise of Delta.”
Separately, Fed Chair Jerome Powell told the Senate Banking Committee, “what I said last week was that we had all but met the test for tapering.” He added, “I made it clear that we are, in my view, a long way from meeting the test for maximum employment.”
ECB Governing Council member said Peter Kazimir said “concerns about the cliff effect (of ending PEPP) cannot automatically mean demands for increasing the standard programs (APP)”. “There is no automatic formula,” he said. “We’ll be deciding according to conditions at the given time.”
He also said, the PEPP has been “functioning very well and naturally it is now in the final stage of its life cycle.” “It’s a special tool designed for a special situation, and it will be phased out when it’s not needed anymore,” he added. “The market seems to understand that this tool will be terminated with the end of the pandemic.”
“If inflation remains elevated next year because of supply bottlenecks, my concern is that it could spill into wage negotiations for the following year as well,” he said. But “we are not seeing this happening in key countries so far.”
US Conference Board Consumer Confidence Index dropped to 109.3 in September, down from 115.2, below expectation of 114.3. Present Situation Index dropped from 148.9 to 143.4. Expectations Index dropped from 92.8 to 86.6.
“Consumer confidence dropped in September as the spread of the Delta variant continued to dampen optimism,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board.
“Concerns about the state of the economy and short-term growth prospects deepened, while spending intentions for homes, autos, and major appliances all retreated again. Short-term inflation concerns eased somewhat, but remain elevated.
“Consumer confidence is still high by historical levels—enough to support further growth in the near-term—but the Index has now fallen 19.6 points from the recent peak of 128.9 reached in June. These back-to-back declines suggest consumers have grown more cautious and are likely to curtail spending going forward.”
St. Louis Fed President James Bullard said he expects inflation to remain above 2.8% through next year. It’s going to “stay above target over the forecast horizon”, and there is “now a risk we are going to overachieve and be too high for too long”.
In his outlook, interest rates should be raised twice next year, reflecting faster and more persistent inflation than foreseen. It may all work out “and we will converge into bliss at the steady state where inflation is at 2% and we never change the funds rate again,” he said. “That is the current scenario…We all know reality will probably be something messier.”
“It could easily be the case that inflation could fall back to target and it will be all beautiful the way we have described it,” he added. “Inflation could also be a lot more persistent than we had hoped and in that case we will have to recalibrate how we are going to keep inflation under control.”
In a speech, ECB President Christine Lagarde said, “the key challenge is to ensure that we do not overreact to transitory supply shocks that have no bearing on the medium term, while also nurturing the positive demand forces that could durably lift inflation towards our 2% inflation target.”
And, “once the pandemic emergency comes to an end – which is drawing closer – our forward guidance on rates as well as purchases under the asset purchase programme will ensure that monetary policy remains supportive of the timely attainment of our medium-term 2% target.”
US exports of goods rose USD 1.1B to USD 149.0B in August. Imports of goods rose USD 1.9B to AUD 236.6B. Goods trade balance deficit widened to USD -87.6B, versus expectation of USD -87.0B. Wholesale inventories rose 1.2% mom to USD 731.0B. Retail inventories rose 0.1% mom to USD 603.3B.
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Silver’s down trend continues, targeting 20.92 projection level
Silver’s down trend resumes this week and hits as low as 21.41 so far. The larger down trend from 30.07 is in progress for 61.8% projection of 28.73 to 22.36 from 24.86 at 20.92 next. Also prior rejection both 55 day and 55 week EMA affirmed near term and medium term bearishness. Firm break of 20.92 will target 61.8% retracement of 11.67 to 30.07 at 18.69 before completing the current down trend.
Meanwhile, break of 23.13 resistance is needed to be the first sign of short term bottoming. Otherwise, outlook will stay bearish in case of recovery.