ECB Villeroy: Starting rate hike faster does not mean ending higher

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Jul 22 22, 09:03 GMT

ECB Governing Council member Francois Villeroy de Galhau said today, “starting the increase in interest rates faster does not mean that (the cycle of increases) will end higher”.

Regarding the new Transmission Protection Instrument (TPI), Villeroy said, “if needed, we will be as determined in activating (the programme) as we have been in setting it up, and there are no pre-defined limits on the amount of possible purchases.”

Another Governing Council member Pablo Hernandez de Cos said the political crisis in Italy this week was not the reason behind the creation of anti-fragmentation tool. He added that the rate decision for September will be data-dependent.

UK PMI composite output dropped to 17-mth low, growth slowed to a crawl

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Jul 22 22, 08:36 GMT

UK PMI Manufacturing dropped from 52.8 to 52.2 in July, above expectation of 52.0. that’s the lowest level in 24 months. PMI Services dropped from 54.3 to 53.3, above expectation of 53.2. That’s the lowest level in 17 months. PMI Composite dropped from 53.7 to 52.8, a 17-month low.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: “UK economic growth slowed to a crawl in July, registering the slowest expansion since the lockdowns of early-2021. Although not yet in decline, with pent-up demand for vehicles and consumer-oriented services such as travel and tourism helping to sustain growth in July, the PMI is now at a level consistent with just 0.2% GDP growth….

“The concern is that rising interest rates, as the Bank of England seeks to control inflation, will cause demand growth to weaken further in the coming months. To be hiking interest rates at a time of such weak business growth is unprecedented over the past quarter-century of survey history.

Full release here.

Eurozone PMI composite output dropped to 49.4, indicative of -0.1% quarterly GDP contraction

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Jul 22 22, 08:30 GMT

Eurozone PMI Manufacturing dropped from 52.1 to 49.6 in July, below expectation of 51.0. That’s the lowest level in 25 months. PMI Services dropped from 53.0 to 50.6, below expectation of 52.0. That’s the lowest level in 15 months. PMI Composite Output dropped from 52.0 to 49.4, a 17-month low.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: “The eurozone economy looks set to contract in the third quarter as business activity slipped into decline in July and forward-looking indicators hint at worse to come in the months ahead…

“Excluding pandemic lockdown months, July’s contraction is the first signalled by the PMI since June 2013, indicative of the economy contracting at a 0.1% quarterly rate. Although only modest at present, a steep loss of new orders, falling backlogs of work and gloomier business expectations all point to the rate of decline gathering further momentum as the summer progresses…

“With the ECB raising interest rates at a time when the demand environment is one that would normally see policy being loosened, higher borrowing costs will inevitably add to recession risks.”

Full release here.

Germany PMI composite output dropped to 25-mth low, outlook turning increasingly negative

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Jul 22 22, 08:25 GMT

Germany PMI Manufacturing dropped from 52.0 to 49.2 in July, below expectation of 50.6. That’s the lowest level in 25 months. PMI Services dropped from 52.4 to 49.2, below expectation of 50.6. That’s the lowest level in 7 months. PMI Composite output dropped from 51.3 to 48.0, a 25- month low.

Paul Smith, Economics Director at S&P Global Market Intelligence said:

“Having enjoyed a growth boost from the previous easing of virus-related restrictions, a collision of various headwinds in July served to push the German economy into contraction territory for the first time in 2022 so far.

“Ongoing supply-delays and the uncertainty caused by the war in Ukraine continued to be reported as factors weighing on company performance, but based on a reading of anecdotal evidence, inflation and the pressures these are having on budgets was a noticeable feature behind the worst performance of private sector activity since the height of the first pandemic wave in the spring of 2020. With this in mind, whilst we are seeing a downward trend in our price indices, inflation rates remain stubbornly elevated according to the July survey.

“The decline in output was broad-based, with the downturn in manufacturing deepening, and service sector activity dropping into contraction territory for the first time since December. Moreover, given the noticeable falls in new business across both sectors, activity was somewhat prevented from experiencing a sharper fall thanks to the availability of previously secured contracts. With signs that this supportive prop is coming to an end, and warehouse inventories rising at a near-record rate in manufacturing, the outlook for output is turning increasingly negative. No wonder then company expectations have subsequently dropped into negative territory for the first time in over two years.”

Full release here.

France PMI composite dropped to 16-mth low, heading towards a recession

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Jul 22 22, 08:20 GMT

France PMI Manufacturing dropped from 51.4 to 49.6 in July, below expectation of 50.6. That’s the lowest level in 20 months. PMI Services dropped from 53.9 to 52.1, below expectation of 52.7. That’s the lowest level in 15 months. PMI Composite dropped from 52.5 to 50.6, a 16-month low.

Joe Hayes, Senior Economist at S&P Global Market Intelligence said: “July ‘flash’ PMI data raises further concerns that the French economy is heading towards a recession as data signalled worsening trends across a number of key indicators. The level of output was up only marginally from June and solely reflected activity growth at services firms. The manufacturing sector is already in a steep downturn, with production levels falling at the fastest rate since the initial phase of the COVID-19 pandemic in the first half of 2020. The growth trend in the service sector meanwhile worsened further, and momentum is clearly to the downside here.

“Demand is being adversely impacted by the intense inflationary environment, with clients reluctant to place orders at these elevated prices. Consequently, new business fell for the first time since February 2021. It’s difficult to imagine the near-term trend improving when anecdotal evidence from panellists continues to portray a picture of worsening health for demand. This is especially the case for the services economy, which is rapidly losing support from the post-pandemic recovery in consumer spending.”

Full release here.

UK retail sales down -0.1% mom, -5.8% yoy in volume; up 1.3% mom, 14.4 yoy in value

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Jul 22 22, 06:33 GMT

In volume term, UK retail sales dropped -0.1% mom in June, better than expectation of -0.3% mom. Ex-fuel sales rose 0.4% mom, above expectation of -0.3% mom.

Compared with the same period a year earlier, sales volume dropped -5.8% yoy, versus expectation of -5.3% yoy. Ex-fuel sales dropped -5.9% yoy, versus expectation of -6.2% yoy.

In value term, retail sales rose 1.3% mom, 14.4% yoy. Ex-fuel sales rose 1.3% mom, 12.9% yoy.

Full release here.

Japan CPI core ticked up to 2.2% yoy, core-core up to 1.0% yoy

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Jul 22 22, 05:15 GMT

Japan all-item CPI dropped from 2.5% yoy to 2.4% yoy in June. CPI core (all-items ex-fresh food), rose from 2.1% yoy to 2.2% yoy, matched expectations. CPI core-core (all-items ex-fresh food, energy) rose from 0.8% yoy to 1.0% yoy.

The CPI core reading has now stayed above BoJ’s 2% target for a third consecutive month. The core-core reading was also the strongest since February 2016.

BoJ left monetary policy unchanged yesterday. According to the new economic forecasts, core CPI will hit 2.3% this year, but then slowed back to 1.4% in fiscal 2023, and then 1.3% in fiscal 2024.

Japan PMI manufacturing dropped to 52.2 in July, services down to 51.2

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ActionForex

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Jul 22 22, 05:09 GMT

Japan PMI Manufacturing dropped from 52.7 to 52.2 in July, below expectation of 53.1. PMI Services dropped from 54.0 to 51.2. PMI Composite output dropped from 53.0 to 50.6.

Usamah Bhatti, Economist at S&P Global Market Intelligence, said: “Flash PMI data indicated that activity at Japanese private sector businesses rose at a softer rate during July. The expansion in output was the softest recorded since March and only marginal as companies noted that shortages of raw materials and rising energy and wage costs had increasingly dampened output and new order inflows. This was notably evident at manufacturers, who recorded a reduction in production levels for the first time in five months. Service providers meanwhile reported the slowest rise in activity since April”.

Full release here.

Australia PMI composite dropped to 6-mnth low, further deceleration in growth

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Jul 22 22, 05:04 GMT

Australia PMI Manufacturing dropped from 56.2 to 55.7 in July. PMI Services dropped from 52.6 to 50.4, a 6-month low. PMI Composite dropped from 52.6 to 50.6, also a 6-month low.

Laura Denman, Economist at S&P Global Market Intelligence said: “Latest survey data has pointed to a further deceleration in the rate of private sector growth. Panellists suggested that interest rate increases, alongside persistent inflationary pressures, have been a pivotal factor contributing to the weakened private sector improvement this month. Further interest rate increases by Australia’s central bank present a downside risk to the private sector, with sentiment slipping to a 27-month low.”

Full release here.

ECB press conference live stream

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Jul 21 22, 12:36 GMT

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US initial jobless claims rose to 251k, continuing claims rose to 1.384m

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Jul 21 22, 12:35 GMT

US initial jobless claims rose 7k to 251k in the week ending July 16, above expectation of 240k. Four-week moving average of initial claims rose 4.5k to 240.5k.

Continuing claims rose 51k to 1384k in the week ending July 9. Four-week moving average of continuing claims rose 13k to 1353k.

Full release here.

ECB hikes 50bps, frontloading exit from negative deposit rate

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Jul 21 22, 12:22 GMT

ECB announced to raise the three key interest rates by 50bps today. The main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will be increased to 0.50%, 0.75% and 0.00% respectively, with effect from 27 July 2022.

The “larger first step” in policy normalization was based on the “updated assessment of inflation risks and the reinforced support provided by the TPI for the effective transmission of monetary policy.” The “frontloading” of exit from negative deposit rate ” allows the Governing Council to make a transition to a meeting-by-meeting approach to interest rate decisions.” Future policy path will continue to be “data-dependent”.

Also, the Governing Council approved the Transmission Protection Instrument (TPI), to “ensure that the monetary policy stance is transmitted smoothly across all euro area countries”.

Full statement here.

ECB to hike by 25bps or 50bps? EUR/CHF to head back to parity?

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Jul 21 22, 06:22 GMT

ECB will finally raise interest rates for the first time in 11 years today. Opinions are divided on whether ECB would hike by 25bps as pre-committed, or opt for a larger 50bps hike this time. In addition to this question, markets will be eager to get any guidance for the size of hike in September, and any indication for October.

Here are some previews on ECB:

EUR/CHF is holding steady in range above 0.9804 temporary low. For now, outlook stays bearish with 0.9953 minor resistance intact. Downside breakout remains in favor. However, downside momentum has been clearly diminishing as seen in 4 hour MACD. Firm break of 0.9953 will bring stronger rebound back to 55 day EMA (now at 1.0109), that is, back above parity.

BoJ stands part, downgrades 2022 growth forecasts, upgrades inflation

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Jul 21 22, 06:15 GMT

BoJ left monetary policy unchanged today as widely expected. Under the yield curve control frame work, short-term policy rate is held at -0.10%. BoJ will also will continue to purchase JGBs, without setting upper limit, to keep 10-year yield at around 0%. It will continue to offer to purchase 10-year JGBs at 0.25% yield every business day through fixed rate operations. Goushi Kataoka dissented again, pushing for further strengthening monetary easing.

In the new economic projections, BoJ downgraded fiscal 2022 GDP forecasts, but upgraded both fiscal 2023 and 2024. CPI forecasts was upgraded across the horizon. Here are the new projections.

Fiscal 2022 GDP growth at 2.4% (downgraded from April’s 2.9%).
Fiscal 2023 GDP growth at 2.0% (up from 1.9%).
Fiscal 2024 GDP growth at 1.3% (up from 1.1%).
Fiscal 2022 CPI at 2.3% (up from 1.9%).
Fiscal 2023 CPI at 1.4% (up from 1.1%).
Fiscal 2024 CPI at 1.3% (up from 1.1%).
Fiscal 2022 CPI core-core (ex-fresh food and energy) at 1.3% (up from 0.9%).
Fiscal 2023 CPI core-core at 1.4% (up from 1.2%).
Fiscal 2024 CPI core core at 1.5% (unchanged).

Full statement here.

Full Outlook for Economic Activity and Prices.

Australia NAB business condition rose to 20 in Q2, but confidence dropped to 5

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Jul 21 22, 05:27 GMT

Australia NAB quarterly business confidence dropped from 15 to 5 in Q2. Current business conditions rose from 11 to 20. Next 3 months business conditions was unchanged at 26. next 12 months business conditions dropped from 34 to 29. Capex plan for next 12 months dropped from 33 to 31.

Alan Oster, NAB Group Chief Economist, “Conditions strengthened in Q2 as the disruptions related to the virus receded. Trading, profitability, and employment were all higher with conditions approaching the high levels seen in early 2021.”

“Confidence eased in Q2, down to around long-run average levels,” said Oster. “That likely reflects the waning of some of the pandemic-recovery optimism, as well as the mounting challenges of rising inflation and also rising interest rates that businesses are confronting.”

Full release here.

New Zealand good imports jumped 25% yoy on petroleum, imports rose 7.7% yoy

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Jul 21 22, 05:21 GMT

New Zealand goods exports rose 7.7% yoy to NZD 6.4B in June. Goods imports rose 25.0% yoy to NZD 7.1B. Trade balance came in at NZD -701m deficit, versus expectation of NZD 204m surplus.

“Petroleum and products imports rose $795 million to reach a new high of $1.2 billion,” Stats NZ. “This rise lead the sharp increase in total imports for the month compared with June 2021.”

US leads monthly export rise, up 22%. Exports to EU were up 28% and Japan up 24%. Exports to China were down -6% and to Australia down -12%.

Import form all top partners rose, with China up 12%, EU up 11%, Australia up 6%, US up 30%, and Japan up 4.1%.

Full release here.

IMF: Germany GDP to grow 1.2% in 2022, persistent shutoff of Russian gas the greatest threat

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Jul 20 22, 14:48 GMT

IMF said in a report that Germany’s GDP growth is expected at 1.2% in 2022 and 0.8% in 2023. Unemployment rate is estimated at 3.1% in 2022 and 3.4% in 2023. Headline inflation is projected at 7.7% in 2022 and 4.8% in 2023.

It added, “uncertainty is very high, with risks to the baseline growth forecast skewed downward and risks to the inflation forecast skewed upward.”

The greatest threat is a “persistent shutoff” of the remaining Russian gas exports to Europe, which could cause “sizable reductions in German economic activity and increases in inflation”.

“Prolonged war and resurging COVID-19 infections could also intensify supply chain disruptions. ”

“Persistently-high inflation and fears of a de-anchoring of inflation expectations can prompt major central banks to tighten policies faster than currently expected”.

Full report here.

Canada CPI accelerated ot 8.1% yoy, 7 of 9 major components up 3% or more

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Jul 20 22, 13:17 GMT

Canada CPI accelerated from 7.7% yoy to 8.1% yoy in June, missing expectation of 8.8% yoy. Excluding gasoline, CPI accelerated from 6.3% yoy to 6.5% yoy. That’s still the highest level since January 1983. Statistics Canada said the acceleration was mainly due to higher prices for gasoline, however, price increases remained broad-based with seven of eight major components rising by 3% or more.

CPI common rose from 4.5% yoy to 4.6% yoy, above expectation of 4.2% yoy. CPI median was unchanged at 4.9% yoy, below expectation of 5.1% yoy. CPI trimmed was unchanged at 5.5% yoy, below expectation of 5.6% yoy.

Full release here.

UK CPI rose to 9.4% yoy in Jun, goods up 12.7% yoy, services up 5.2% yoy

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Jul 20 22, 06:20 GMT

UK CPI accelerated from 9.1% yoy to 9.4% yoy in June, above expectation of 9.3% yoy. That’s also the highest level since the series began in January 1991. Indicative model estimates that it’s the highest since 1982, when it was 11%.

The CPI all goods index rose by 12.7% yoy, accelerated from 12.4%. CPI all services rose 5.2% yoy, accelerated from 4.9%. CPI core (excluding energy, food, alcohol, and tobacco) slowed from 5.9% yoy to 5.8% yoy, below expectation of 6.0% yoy.

Full CPI release here.

Also published from the UK, PPI input was at 1.8% mom, 24.0% yoy, versus expectation of 0.9% mom, 23.5% yoy. CPI output was at 1.4% mom, 16.5% yoy, versus expectation of 2.0% mom, 16.8% yoy. CPI output core was at 0.8% mom, 15.2% yoy, versus expectation of 2.0% mom, 15.5% yoy.

NZD/JPY ready for upside breakout, AUD/JPY to follow

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ActionForex

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Jul 20 22, 05:12 GMT

Kiwi and Aussie are both trading broadly higher today, with help from improving market sentiment. Asian stocks are trading higher, following the strong rebound in US indexes overnight. Technically, speaking, NZD/JPY looks ready for an upside breakout, while AUD/JPY could follow soon.

NZD/JPY’s consolidation pattern from 86.80 should have completed 83.30, after struggling around 55 day EMA. Break of 86.80 resistance should send the cross through 87.33 high to resume larger up trend. Next target will be 100% projection of 79.44 to 86.80 from 83.00 at 90.36. But break of 84.85 will dampen this view and bring more corrective trading first.

AUD/JPY is lagging behind for now. But it’s also possible that corrective pattern from 96.86 is complete at 91.41. Further rise is in favor as long as 93.96 minor support holds. Break of 96.86 will confirm up trend resumption. Next target is 100% projection of 87.28 to 96.86 from 91.41 at 100.99.

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Live Comments

ECB Villeroy: Starting rate hike faster does not mean ending higher

UK PMI composite output dropped to 17-mth low, growth slowed to a crawl

Eurozone PMI composite output dropped to 49.4, indicative of -0.1% quarterly GDP contraction

Germany PMI composite output dropped to 25-mth low, outlook turning increasingly negative

France PMI composite dropped to 16-mth low, heading towards a recession

UK retail sales down -0.1% mom, -5.8% yoy in volume; up 1.3% mom, 14.4 yoy in value

Japan CPI core ticked up to 2.2% yoy, core-core up to 1.0% yoy

Japan PMI manufacturing dropped to 52.2 in July, services down to 51.2

Australia PMI composite dropped to 6-mnth low, further deceleration in growth

ECB press conference live stream

US initial jobless claims rose to 251k, continuing claims rose to 1.384m

ECB hikes 50bps, frontloading exit from negative deposit rate

ECB to hike by 25bps or 50bps? EUR/CHF to head back to parity?

BoJ stands part, downgrades 2022 growth forecasts, upgrades inflation

Australia NAB business condition rose to 20 in Q2, but confidence dropped to 5

New Zealand good imports jumped 25% yoy on petroleum, imports rose 7.7% yoy

IMF: Germany GDP to grow 1.2% in 2022, persistent shutoff of Russian gas the greatest threat

Canada CPI accelerated ot 8.1% yoy, 7 of 9 major components up 3% or more

UK CPI rose to 9.4% yoy in Jun, goods up 12.7% yoy, services up 5.2% yoy

NZD/JPY ready for upside breakout, AUD/JPY to follow