In volume term, UK retail sales fell -0.9% mom in March, below expectation of -0.5% mom. Ex-fuel sales declined -1.0% mom, below expectation of -0.7% mom. For the year, retail sales was down -3.1% yoy while ex-fuel sales was down -3.2% yoy, versus expectation of -3.1% for both.
In value term, retail sales was down -0.9% mom and up 4.5% yoy. Ex-fuel sales was down -0.6% mom and up 6.0% yoy.
The low-level trade talks between delegation led by US Treasury Under Secretary David Malpass and Chinese Commerce Vice Minister Wang Shouwen ended without any progress.
White House spokesperson Lindsay Walters said in an email statement that “we concluded two days of discussions with counterparts from China and exchanged views on how to achieve fairness, balance, and reciprocity in the economic relationship.”
The Chinese Ministry of Commerce said in a brief statement that both sides conducted “constructive and frank exchanges” and “will maintain contact for the next step.”
A fresh round of tariffs on USD 16B of goods of both sides kicked in yesterday and trade war between US and China continued.
China’s Customs Tariff Commission of the State Council. announced today tariffs exemptions on 697 lines of US imports, as fulfilment of the US-China trade deal phase one. The products include farm and energy, such as pork, beef, soybeans, liquefied natural gas and crude oil. Dozens of types of medical equipment are also included.
Importers can apply for tariffs exemptions starting from march 2. Such exemptions would only be effective for one year, subject to an approval process. China said that these exemptions are “to support enterprises to import goods from the US based upon their business considerations.”
Australia retail sales turnover rose 1.9% mom to AUD 35.09B in January, above expectation of 1.6% mom. Compared with January 2022, sales turnover was up 7.5% yoy.
Ben Dorber, ABS head of retail statistics, said: “The rebound in retail turnover in January followed a substantial fall of 4.0 per cent in December and a large rise of 1.7 per cent in November.
“Looking through this volatility shows that turnover is at a similar level to September 2022, and on average, growth has been flat over the past few months.”
Another day, another data miss in the UK.
Retail sales including auto and fuel dropped -1.2% mom in March, well below expectation of -0.6%. Annual rate rose 1.1% yoy, below expectation of 1.9% yoy.
Retail sales excluding auto and fuel dropped -0.5%, below expectation of -0.4%. Annual rate rose 1.1% yoy, below expectation of 1.4% yoy.
Main points from ONS:
Statistician’s comment
Commenting on today’s official retail figures, Rhian Murphy, ONS Senior Statistician said:
GBP dips initially after the release, for so far, there is no follow through selling yet.
UK PMI Construction dropped sharply to 43.1 in June, down from 48.6 and missed expectation of 49.2. It’s also the worst contraction since April 209. Markit noted that business activity declined for second month running. There was sharpest drop in house building for three years. And, new orders shrank as political uncertainty hits client confidence.
Tim Moore, Associate Director at IHS Markit, which compiles the survey:
“The latest survey reveals weakness across the board for the UK construction sector, with house building, commercial work and civil engineering activity all falling sharply in June. Delays to new projects in response to deepening political and economic uncertainty were the main reasons cited by construction companies for the fastest drop in total construction output since April 2009. While the scale of the downturn is in no way comparable that seen during the global financial crisis, the abrupt loss of momentum in 2019 has been the worst experienced across the sector for a decade.
“Greater risk aversion has now spread to the residential building sub-sector, as concerns about the near-term demand outlook contributed to a reduction in housing activity for the first time in 17 months.
“Construction companies reported a continued brake on commercial work from clients opting to postpone spending, with decisions on new projects often pending greater clarity about the path to Brexit. Latest data meanwhile indicated another sharp fall in civil engineering, which also reflected delayed projects and longer wait times for contract awards.
“Worrying signals from the survey’s forward-looking indicators make it almost impossible to sugarcoat the Construction PMI data in June. In particular, new orders dropped to the largest extent for just over 10 years, while demand for construction products and materials fell at the sharpest pace since the start of 2010.
“A continued lack of new work to replace completed projects illustrates the degree of urgency required from policymakers to help restore confidence and support the long-term health of the construction supply chain.”
In the Regional Economic Report, BoJ upgraded assessment on 9 of the 10 regions, except Shikoku which was kept unchanged. The central bank noted, “many regions, while noting that their economy had been in a severe situation due to the impact of the novel coronavirus (COVID-19), reported that it had started to pick up or shown signs of a pick-up, with economic activity resuming gradually.”
“Once the impact of the coronavirus pandemic subsides globally, Japan’s economy is likely to continue improving further as overseas economies resume steady growth,” Governor Haruhiko Kuroda said in the quarterly branch managers’ meeting. “We’ll monitor the impact of COVID-19 and won’t hesitate taking additional easing measures as needed.”
Economy Minister Yasutoshi Nishimura also said the current economic sentiment is becoming really good. The Eco watch current sentiment rose from 43.9 to 49.3 in September.
ECB Executive Board member Fabio Panetta said in a speech that the high inflation in Eurozone is “mostly due to global factors – including the increase in the prices of oil, gas and other commodities – over which monetary policy has little leverage.” And it “does not fundamentally result from an economy that is running above potential”.
Therefore, “asking monetary policy alone to bring down short-term inflation while inflation expectations remain well anchored would be extremely costly”. Monetary tightening would not affected imported energy and food prices, but “massively suppress domestic demand to bring down inflation”.
“And with the current levels of imported inflation, in order to hold headline inflation to 2%, we would need domestic inflation to be deeply negative. In other words, we would induce domestic deflation,” he added.
Panetta suggested that “fiscal policy can help mitigate the challenge of higher inflation by containing the effects of higher energy prices”. On the other hand, “Monetary policy will play its role, adjusting policy in line with the medium-term inflation outlook. ”
Fed should leave all the monetary policy measures unchanged today: Fed funds rate should stay unchanged at 0-0.25% and asset purchases at USD120B per month. The focus of the meeting will be on the adjustment of the forward guidance about the asset purchase program. It will be a qualitative, outcome-based guidance as “most” members favored.
Additionally, the statement will be accompanied by the updated economic projections and median dot plots about the policy rate outlook. For the former, thanks to the vaccine news, the Fed might upgrade GDP growth and inflation forecasts for 2021. We expect the majority of members would project no rate hike until end-2023. Yet, it is possible that more members would anticipate an increase before that, when compared with the last projections.
Some previews here:
Dollar is generally holding inside last week’s range for now, except against Yen. USD/JPY’s break of 103.51 temporary now put focus to 103.17 support. Decisive break there resume the down trend from 111.71 towards 101.18 low. If that happens, we might also see a break of 1.2177 temporary top in EUR/USD, and 90 psychological level in Dollar index.
ISM Non-Manufacturing Index rose to 54.7 in October, up from 52.6, beat expectation of 53.2. Business Activity rose 1.8 to 57.0. New orders rose 1.9 to 55.6. Employment also improved by 3.3 to 53.7. According to the NMI, 13 non-manufacturing industries reported growth. The non-manufacturing sector had an uptick in growth after reflecting a pullback in September. The respondents continue to be concerned about tariffs, labor resources and the geopolitical climate.”
In the hearing of a European Parliament committee, ECB President Christine Lagarde said risks surrounding Eurozone growth outlook over the “medium term” have become “more balanced” owing to better prospects for the global economy and progress in vaccination campaigns. Though, downside risk remain in the “near term”, mainly related to spread of “virus mutations” and implications of ongoing pandemic.
She added that inflation has picked up over recent months mainly on “some transitory factors”, and some volatility is expected through 2021. But the factors are expected to “fade out early next year”. Price pressure would “increase some what this year due to “supply constraints and recovery in domestic demand”. But these pressures will “remain subdued overall”.
On the issue of treasury yields, Lagarde said, “the increase in risk-free market interest rates and sovereign bond yields that we have observed since the start of the year could spur a tightening in the wider set of financing conditions… Therefore, if sizeable and persistent, increases in those market interest rates, when left unchecked, may become inconsistent with countering the downward impact of the pandemic on the projected path of inflation.”
Hence, ECB announced to significantly increase the pace of PEPP purchases over the next quarter. “Purchases will be implemented flexibly according to market conditions and always with a view to preventing a tightening of financing conditions that is inconsistent with countering the downward impact of the pandemic on the projected path of inflation”.
San Francisco Fed President Mary Daly said she’s assuming “a slow grinding recovery persists until we have the virus fully behind us. And that’s “predicated on a vaccine that is widely available and distributed.”
At the same time, monetary policy is “in a good place”. “It is not the time to stimulate the economy aggressively and get people out in the economy because that would be unsafe,” she added.
“We are thinking hard about what does the economy need and … when can we shift gears mentally… from building a bridge to actually trying to stimulate the economy into a strong recovery,” she said. “And we are not there yet.”
Eurozone unemployment rate was unchanged at 8.1% in January, better than expectation of 8.3%. 13.282 million people in the Eurozone were unemployed, up 8000 from December.
EU unemployment rate was also unchanged at 7.4%. 15.663 million people were unemployed, up 29000 from December.
ECB meeting is a major focus for today, but expectations are rather low. No change in monetary policy is expected. Also, updated economic projections will not be released until June.
Even though US yields continued their march higher, European yields have stabilized since the central bank announced to accelerated significantly the pace of PEPP purchases back in mid-march. ECB will likely reiterate that the increase in PEPP purchases will continue until June. The question is whether there would be hints on scaling back the monthly purchases after that.
Here are some previews:
Euro has been relatively firm this month, up against most except Swiss Franc and Kiwi. Yet, upside momentum is disappointing so far. There is follow through buying, even against Yen. Price actions against Sterling Aussie are corrective in a down trend setting. The better performance is seen against Dollar only.
At this point, as long as 1.1941 support holds, we’re still expecting EUR/USD’s rebound from 1.1703 to continue to retest 1.2242/2348 resistance zone. But that would more likely be due to Dollar’s own weakness.
UK PMI Services was finalized at 53.2 in February, down from January’s 53.9. PMI Composite dropped to 53.0, down from 53.3.
Chris Williamson, Chief Business Economist at IHS Markit: “The post-election rebound in service sector growth lost some of its bounce in February, in part due to coronavirus related disruptions to sectors such as travel and tourism, but continued to expand at an encouragingly robust pace. Alongside an improvement in manufacturing and a return to growth in the construction sector, the survey data are consistent with quarterly GDP growth of just over 0.2%, up from stagnation in the fourth quarter of last year.”
European Commissioner Pierre Moscovici said it’s a “good signal” that Italy’s budget trajectory has been revised “because it shows that the Italian authorities are hearing the concerns and remarks from their partners and the European Commission.” However, he also warned that “If it is 2.4 percent, it’s possible that the structural deficit will not be within the bounds of the (EU) stability and growth pact”.
On the other hand, Italian Economy Minister Giovanni Trial said “even with a deficit goal that takes us further away from the structural adjustment requested by Europe, it doesn’t seem to me that it can be said this government is carefree on spending or that it’s going to blow apart public accounts to keep promises.”
SNB maintained its policy rate at 1.75%, aligning with widespread market expectations. This decision comes alongside a notable downgrade in inflation forecasts, which SNB now expects to remain “within the range of price stability” throughout the forecast period.
In terms of specific figures, or 2023, average inflation rate is now projected at 2.1%, a reduction from September’s forecast of 2.2%. 2024 forecast has been adjusted to 1.9%, down from the previous estimate of 2.2%. Additionally, 2025 inflation prediction has been lowered to 1.6% from the earlier 1.9% projection.
The details of the forecast indicate that inflation is expected to peak in Q2 2024, which is lower than previously anticipated peak at 2.2%. Following this, inflation is projected to decline to 1.6% in Q2 of 2025 and maintain this level until Q3 of 2026.
SNB attributes this downward revision primarily to “recent lower-than-expected inflation” readings. In the medium term, the bank anticipates reduced inflationary pressure from international sources and somewhat weaker second-round effects.
On the growth front, SNB foresees a period of weak economic performance in the upcoming quarters. This outlook is influenced by subdued demand from international markets and tighter financing conditions. The bank’s projections for GDP growth are set around 1% for 2023 and between 0.5% and 1% for 2024.
RBA Governor Philip Lowe said today that the economy will likely contract by around -10% in the first half. Most of the decline would take place in Q2 due to the coronavirus pandemic. At the same time, unemployment rate could jump from March’s 5.2% to around 10% by June.
He also sounded cautious regarding the post pandemic recovery. “Whatever the timing of the recovery, when it does come, we should not be expecting that we will return quickly to business as usual,” he said. “Rather, the twin health and economic emergencies that we are experiencing now will cast a shadow over our economy for some time to come.”
Conference Board US Consumer Confidence dropped slightly to 100.9 in October, down from 101.3, missed expectation of 101.9. Present Situation Index rose from 98.9 to 104.6. However, Expectations Index dropped from 102.9 to 98.4.
“Consumer confidence declined slightly in October, following a sharp improvement in September,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Consumers’ assessment of current conditions improved while expectations declined, driven primarily by a softening in the short-term outlook for jobs. There is little to suggest that consumers foresee the economy gaining momentum in the final months of 2020, especially with COVID-19 cases on the rise and unemployment still high.”
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Japan tankan large manufacturing dropped to -34, worst since 2009
BoJ’s Tankan large manufacturing index dropped to -34 in Q2, down from -8, hitting the lowest level since 2009. That’s also worse than expectation of -31. Manufacturing outlook for September dropped to -27. Large non-manufacturing index dropped to -17, slightly better than expectation of -18. Non-manufacturing outlook also dropped to -14, but beat expectation of -15. On the positive side, all large industry capex rose 3.2%, versus expectation of 2.1%.
Full release here.