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Jun 20 22, 09:27 GMT

In June economic report, Japan’s government said “industrial production appears to be pausing for picking up.” That’s a downgraded assessment from May’s “industrial production shows movements of picking up.” Exports continued to be “almost flat”.

It reiterated that “full attention should be given to the downside risks due to rising raw material prices, supply-side constraints and fluctuations in the financial and capital markets while there are concerns regarding the effects of lengthening the state of affairs of Ukraine and suppression of economic activities in China.”

Nevertheless, for the short-term, the economy is “expected to show movements of picking up, supported by the effects of the policies while all possible measures are being taken against infectious diseases, and economic and social activities proceed to normalization”.

BoJ Kuroda: PM Kishida didn’t say anything special about exchange rate

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Jun 20 22, 09:09 GMT

After a meeting with Japan Prime Minister Fumio Kishida, BoJ Governor Haruhiko Kuroda said “I told the prime minister that recent rapid yen moves were undesirable”.

“(Kishida) did not say anything special but I told him that it was important for currencies to move stably reflecting economic fundamentals,” he added. “I’ll fully watch currency movements carefully from now on as well and will appropriately respond to them while liaising with the government.”

10-yr JGB yield back below 0.21% after massive BoJ purchases

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Jun 20 22, 05:20 GMT

BoJ offered to purchase unlimited amounts of 5- and 10-year JGBs today. That’s part of the central bank’s move to cap 10-year yield at 0.25%, after doubling down on maintaining this position and the overall ultra loose policy stance last Friday. Just last week, BoJ bought JPY 10.9T yen of government bonds, the most on record according to data compiled by Bloomberg.

BoJ’s move seems to be working well finally with 10-year JGB yield now down below 0.21% handle, after breaking above 0.27% later week.

New Zealand BusinessNZ services rose to 55.2, back above average

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Jun 20 22, 05:00 GMT

New Zealand BusinessNZ Performance of Services Index rose from 52.2 to 55.2 in May. Activity/sales rose sharply from 53.3 to 59.6. But employment dropped from 51.0 to 48.5. New orders/business rose from 55.2 to 62.0. Stocks/inventories ticked down from 55.0 to 54.6. Supplier deliveries rose from 40.5 to 45.0.

BNZ Senior Economist Doug Steel said that “while the improvement was far from universal across components, reflecting many ongoing challenges across segments of the service sector, the overall outcome was the first above average result since the outbreak of Delta in August last year.”

Fed Waller: Fed is all in on re-establishing price stability

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Jun 20 22, 04:55 GMT

Fed Governor Christopher Waller said in a speech over the weekend that “if the data comes in as I expect, I will support a similar-sized move at our July meeting,” referring to the 75bps hike at the June meeting. He added, “the Fed is ‘all in’ on re-establishing price stability.”

“It should not have been a surprise that the policy rate would rise fast in 2022. Rate hikes would need to be larger and more frequent, relative to the 2015-2018 tightening pace, to get back to neutral.”

“Looking back, should the Committee have signaled a steeper rate path once the liftoff criteria had been met? Perhaps another lesson is that giving forward guidance about liftoff should also include forward guidance about the possible path of the policy rate after liftoff.”

Full speech here.

Fed George: 75bps hike adds to policy uncertainty

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Jun 17 22, 15:37 GMT

In a statement explaining her dissent to Fed’s 75bps rate hike this week, Kansas City Fed President Esther George said, “I viewed that move as adding to policy uncertainty simultaneous with the start of balance sheet runoff.”

“The speed with which we adjust the policy rate is important,” she explained. “Policy changes affect the economy with a lag, and significant and abrupt changes can be unsettling to households and small businesses as they make necessary adjustments. It also has implications for the yield curve and traditional bank lending models, such as those prevalent among community banks.”

Fed Kashkari supports another 75bps hike in Jul, and 50bps afterwards

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Jun 17 22, 15:31 GMT

Minneapolis Fed President Neel Kashkari said in an article, ” I supported increasing the federal funds rate by 75 basis points at this week’s meeting, and could support another such move in July”. But he also warned to “too much more front-loading”.

“A prudent strategy might be, after the July meeting, to simply continue with 50-basis-point hikes until inflation is well on its way down to 2 percent,” he said. “Obviously, in such a scenario, the FOMC would still need to remain data-dependent and have the flexibility to account for economic developments that might arise.”

Full article here.

BoE Pill: There’s a conditionality for forceful policy actions

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Jun 17 22, 13:01 GMT

BoE Chief Economist Huw Pill told BloombergTV that in yesterday policy decision statement, ” the word ‘forcefully’ – which clearly is the word the market is focused on, you focused on, and has a meaning – it’s also important to see that that was put in the context of ‘if necessary we will act forcefully’, and so there’s a conditionality there.”

“If we do see greater evidence that the current high level of inflation is becoming embedded in pricing behavior by firms, in wage setting behavior by firms and workers, then that will be the trigger for this more aggressive action,” he added.

But he also indicated that the statement had “a certain level of flexibility because it had to encompass those different views… we were trying to emphasise is that that flexibility also applies to what the decisions are. I don’t think it’s all about August. We talked about the pace, timing and scale of future decisions.”

Eurozone CPI finalized at 8.1% yoy in may, core CPI at 3.8% yoy

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Jun 17 22, 09:11 GMT

Eurozone CPI was finalized at 8.1% yoy in May, up from April’s 7.4% yoy. All-items excluding energy rose from 4.1% yoy to 4.6% yoy. All-item excluding energy, food, alcohol and tobacco rose from 3.5% yoy to 3.8% yoy. Energy prices accelerated from 37.5% yoy to 39.1% yoy. Food, alcohol and tobacco prices accelerated from 6.3% yoy to 7.5% yoy.

EU CPI was finalized at 8.8% yoy, up from April’s 8.1% yoy. The lowest annual rates were registered in France, Malta (both 5.8%) and Finland (7.1%). The highest annual rates were recorded in Estonia (20.1%), Lithuania (18.5%) and Latvia (16.8%). Compared with April, annual inflation fell in one Member State and rose in twenty-six.

BoJ Kuroda: 10-yr JGB yields above 0.25% would diminish effect of monetary easing

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Jun 17 22, 08:47 GMT

BoJ Governor Haruhiko Kuroda said in the post-meeting press conference, “the recent rapid weakening of the yen is raising uncertainty over the outlook and making it hard for companies to draw up business plans so it is negative and undesirable for the economy.”

“We will have to closely watch developments in financial and currency markets and their impact on the economy and prices,” he added.

Kuroda also added, “policy tightening is not appropriate at this point.” And he warned, “if the 10-year JGB yield exceeds 0.25%, that would diminish the effect of our monetary easing.”

CHF/JPY resumes up trend towards 140

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Jun 17 22, 04:57 GMT

CHF/JPY’s up trend resumes this week on diverging monetary policy of SNB and BoJ. SNB surprised the markets by announcing a 50bps rate hike yesterday, and indicated that more is coming. However, BoJ just kept policy unchanged today, with yield cap maintained at 0.25% too. At the same time, risk aversion is supporting both, making things even.

For the new term, outlook in CHF/JPY will stay bullish as long as 134.00 support holds. Next target is 61.8% projection of 127.48 to 137.77 from 134.00 at 140.35, and then 100% projection at 144.29.

Also, note that CHF/JPY is extending a healthy long term up trend that started at 101.66, still in acceleration mode. 2015 high at 151.22 is a feasible target is policy of SNB and BoJ continues to diverge.

New Zealand BusinessNZ manufacturing rose to 52.9, excess demand abating

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Jun 17 22, 04:44 GMT

New Zealand BusinessNZ Performance of Manufacturing index rose from 51.2 to 52.9 in May. Production rose from 49.4 to 52.8. Employment rose from 49.8 to 53.0. New orders dropped from 55.2 to 53.0. Finished stocks dropped from 54.0 to 53.1. Deliveries rose from 49.7 to 55.4.

BNZ Senior Economist, Craig Ebert stated that “The net result of the sub-index values was the inference that excess demand alleviated during May. New orders are perhaps the cleanest representation of demand, while deliveries speak more to the supply side. To the extent excess demand is abating, so too will be core inflation pressure”.

BoJ leaves rate unchanged at -0.1%, keeps 0.25% 10-yr yield cap

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Jun 17 22, 04:39 GMT

BoJ left short-term policy interest rate unchanged at -0.10%, and 10-year JGB target at around 0% under the yield curve control. It will continue to defend the 0.25% 10-year JGB yield cap, by offering to purchase it at the rate on every business day through fixed-rate purchase operations.

The decision was made by 8-1 vote. Goushi Kataoka dissented again, pushing for further strengthening monetary easing by lowering short- and long-term interest rate.

The central bank also said “it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan’s economic activity and prices.”

US initial jobless claims dropped to 229k, slightly below expectations

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Jun 16 22, 12:45 GMT

US initial jobless claims dropped -3k to 229k in the week ending June 11, slightly better than expectation of 230k. Four-week moving average of initial claims rose 3k to 219k.

Continuing claims rose 3k to 1312k in the week ending June 4. Four-week moving average of continuing claims dropped slightly by -750 to 1317.5k, lowest since January 10, 1970, when it was 1311k.

BoE hikes by 25bps, three members want 50bps

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Jun 16 22, 11:15 GMT

BoE raises the Bank Rate by 25bps to 1.25%. The decision was not unanimous, with three members (Catherine Mann, Michael Saunders and Jonathan Haskel) voted for a 50bps hike. The MPC said it will take necessary actions to return inflation to 2% target. The scale, pace and timing of further rate hikes will reflect the assessment of economic outlook and inflation pressures.

Nevertheless, it emphasized, “the Committee will be particularly alert to indications of more persistent inflationary pressures, and will if necessary act forcefully in response.”

BoE also said GDP was weaker than expected in April, and it expect GDP to fall by -0.3% in Q2 as a while, weaker than anticipated at in the May Monetary Policy Report. CPI inflation’s rise to 9% was “close to expectations” at the time of the May report. CPI is expected to be over 9% “during the next few months” and rise to “slightly above 11% in October.

SNB Jordan: Swiss Franc no longer highly valued

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Jun 16 22, 09:12 GMT

SNB Chairman Thomas Jordan said in the post-meeting pressing conference, “the new inflation forecast shows that further increases in the policy rate may be necessary in the foreseeable future.”

“In the current environment, price increases were being passed on more quickly, and are also being more readily accepted, than was the case until recently,” he said. “There is the threat of second-round effects becoming entrenched if inflation remains above 2% for a long period.”

Jordan also noted that the Franc’s strength on safe-haven flow helped dampen the impact on higher fuel and food import prices. But that was less the case following recent decline. “Thus the inflation imported from abroad has increased,” he said. “Another consequence of this depreciation coupled with significantly higher inflation abroad is that the franc is no longer highly valued.”

EUR/CHF dives after SNB, heading back to parity?

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Jun 16 22, 07:54 GMT

EUR/CHF dives through 1.0216 support after surprised SNB rate hike. The development now argues that corrective rebound from 0.9970 has completed at 1.0513. More importantly, rejection by 1.0505 support turned resistance, as well as 55 week EMA, maintain medium term bearishness.

The development now raises the chance of down trend long term down trend resumption through 0.9970 low at a later stage. If that happens, next target is 100% projection of 1.2004 to 1.0505 to 1.1149 at 0.9650.

SNB surprisingly hikes 50bps, adopts tightening bias

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Jun 16 22, 07:48 GMT

SNB surprises the markets by raising the sight deposit rate by 50bps to -0.25% today, “to counter increased inflationary pressure”. It also adopts a tightening bias and said, “it cannot be ruled out that further increases in the SNB policy rate will be necessary in the foreseeable future to stabilise inflation in the range consistent with price stability over the medium term.” SNB also maintains the willingness to intervene in the currency markets if necessary.

Even with higher interest rates, the conditional inflation forecasts were also raised across forecast horizon. Inflation is projected to peak at 3.2% in Q3, then slow to below 1.4% in Q4 2023, then rise back to 2.1% in Q1 2025. Average inflation is forecasts to be at 2.8% in 2022, 1.9% in 2023, and 1.6% in 2024, upgraded from 2.1%, 0.9% and 0.9% respectively.

As for the economy, SNB still expected 2.5% GDP growth in 2022 while unemployment is “likely to remain low”. However, “if the energy supply in Europe were to be adversely affected, this could have a serious impact on the Swiss economy. The global supply bottlenecks and further increases in commodity prices could also slow growth. Furthermore, a resurgence of the coronavirus pandemic cannot be ruled out.”

GBP/CHF staying bearish as SNB and BoE loom

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