Fri, Sep 30, 2022 @ 07:25 GMT

Fed Bostic: Economy can slow in a relatively orderly way

    Atlanta Federal Reserve President Raphael Bostic said on CBS’s “Face the Nation” program, “Inflation is high. It is too high. And we need to do all we can to make it come down.”

    He added the US need to have a “slowdown”, but “we are going to do all that we can at the Federal Reserve to avoid deep, deep pain.”

    “We’re still creating lots of jobs on a monthly basis, and so I actually think that there is some ability for the economy to absorb our actions and slow in a relatively orderly way,” he said.

    Canada retail sales down -2.5% mom in Jul

      Canada retail sales dropped -2.5% mom to CAD 61.3B in July, worse than expectation of -2.0% mom. That’s also the first decline in seven months. Sales were down in 9 of 11 subsectors, representing 94.5% of retail trade. The contraction was driven by lower sales at gasoline stations and clothing and clothing accessories stores. Excluding gasoline, and motor vehicle and parts, sales dropped -0.9%.

      Based on advance estimate, sales recovered by rising 0.4% mom in August.

      Full release here.

      UK PMI composite dropped to 48.4, economic woes deepened

        UK PMI manufacturing improved from 47.3 to 48.5 in September. But PMI services dropped from 50.9 to 49.2, a 20-month low. PMI Composite dropped from 49.6 to 48.4, a 20-month low.

        Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:

        “UK economic woes deepened in September as falling business activity indicates that the economy is likely in recession. Companies report that the rising cost of living, linked to the energy crisis, and growing concerns about the outlook are subduing demand and hitting output levels to an extent not seen since 2009, barring the pandemic lockdowns and initial 2016 Brexit referendum shock.

        “Forward-looking indicators meanwhile deteriorated further in September. Both the new orders and future expectations gauges have descended to levels which have rarely been weaker in the past, and are consistent with a deepening downturn as we head into the fourth quarter.

        “Inflationary pressures continue to run higher than at any time in over two decades of survey history prior to the pandemic. Renewed supply constraints, soaring energy prices and rising import costs associated with the weakened pound are adding to cost pressures, meaning the overall rate of inflation signalled will remain of great concern to policymakers at the Bank of England. However, the detrimental impact of tightening policy into a recession is becoming increasingly apparent, with the downturn likely to intensify as we head into winter.”

        Full release here.

        Eurozone PMI composite dropped to 48.2, recession on the cards

          Eurozone PMI manufacturing dropped from 49.6 to 48.5 in September, a 27-month low. PMI services dropped form 49.8 to 48.9, a 19-month low. PMI composite dropped from 48.9 to 48.2, a 20-month low.

          Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: “A eurozone recession is on the cards as companies report worsening business conditions and intensifying price pressures linked to soaring energy costs.

          “The early PMI readings indicate an economic contraction of 0.1% in the third quarter, with the rate of decline having accelerated through the three months to September to signal the worst economic performance since 2013, excluding pandemic lockdown months.”

          Full release here.

          Germany PMI manufacturing dropped to 27-mth low, services to 28-mth low

            Germany PMI Manufacturing dropped from 48.3 to 49.1 in September, a 27-month low. PMI Services dropped from 47.7 to 45.4, a 28-month low. PMI Composite dropped from 46.9 to 45.9, a 28-month low.

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

            “The German economy looks set to contract in the third quarter, and with PMI showing the downturn gathering in September and the survey’s forward-looking indicators also deteriorating, the prospects for the fourth quarter are not looking good either.

            “The deepening decline in business activity in September was led by the service sector, which has seen demand weaken rapidly as customers pull back on spending due tightening budgets and heightened uncertainty about the outlook.

            “Whilst constraints on manufacturing output from material shortages looked to have eased somewhat, resulting in a shallower decline production levels in September, goods producers like their service sector counterparts have nevertheless grown increasingly concerned about activity in the coming months, with the energy crisis stoking recession fears.

            “Just when it looked like underlying inflationary pressures might be easing, a fresh surge in energy prices has seen business input costs rise at a faster rate for the first time in five months, in turn leading to a renewed acceleration in average prices charged for goods and services.”

            Full release here.

            France PMI manufacturing dropped to 28-mth low, services improved

              France PMI Manufacturing dropped from 50.6 to 47.8 in August, a 28-month low. PMI Services improved from 51.2 to 53.0. Overall, PMI Composite rose from 50.4 to 51.2.

              Joe Hayes, Senior Economist at S&P Global Market Intelligence said:

              “The upward movement in the Composite Output PMI should not take away from the clear message seen across the survey as a whole – the French economy is struggling. Weakness is its most striking in the manufacturing sector, where the downturn accelerated in September as overstocked warehouses, rapidly deteriorating demand for goods, heightened economic uncertainty and intense price pressures drove production volumes lower.

              “Another worrying find from the latest survey was the pick-up in inflationary pressures, despite more evidence that supply stress is fading. According to surveyed firms, this reflected higher energy tariffs and wage bills. Energy security is a principal concern of companies as we head into the colder months across Europe.

              “The overall improvement in September was services-driven as a renewed increase in new business supported a slight pick-up in activity growth. Nevertheless, trends in output and new orders on the services side were still subdued by historical standards. Given the large degree of weakness we’re seeing in the manufacturing sector, it’s likely that we’ll see some of this spill over into services, thereby raising the risk of a recession in France.”

              Full release here.

              Australia PMI composite edged up to 50.8, at risk of heading into contraction territory

                Australia PMI Manufacturing ticked up from 53.8 to 53.9 in September. PI Services also rose slightly from 50.2 to 50.4. PMI Composite Output rose from 50.2 to 50.8.

                Laura Denman, Economist at S&P Global Market Intelligence said: “September data indicated that the recent interest rate hikes made by the RBA have begun to have the desired effect in terms of prices…. At the same time, the private sector has remained in expansion territory with the pace of growth even accelerating very slightly…

                “On the negative side, the full effects of recent interest rate hikes will be lagged… Should the RBA continue to increase the base rate further, the private sector economy may be at risk of heading into contraction territory in the future as disposable incomes across the nation tighten and overall demand conditions remain subdued.”

                 

                Full release here.

                UK Gfk consumer confidence dropped to new record low at -49

                  UK Gfk consumer confidence dropped further from -44 to -49 in September, hitting another record low since 1974. Personal financial situation over next 12 months dropped -9 pts to -40. General economic situation over next 12 months dropped -8 pts to -68. Major purchase index was unchanged at -38.

                  “Consumers are buckling under the pressure of the UK’s growing cost-of-living crisis driven by rapidly rising food prices, domestic fuel bills and mortgage payments. They are asking themselves when and how the situation will improve.” Joe Staton, client strategy director at GfK, said.

                  ECB Schnabel: Inflation pressures crept into all parts of economy

                    ECB Executive Board member Isabel Schnabel said yesterday in Luxembourg, “What we are seeing is that the inflationary pressures have become much more broad-based. They have somehow crept into all parts of the economy.”

                    “At the moment, we are not in a situation where the normalization of monetary policy harms the economy,” she said. “It’s more like we have to remove the accommodation that we still have in the system.”

                    US initial jobless claims rose to 213k, below expectation

                      US initial jobless claims rose 5k to 213k in the week ending September 17, below expectation of 220k. Four-week moving average of initial claims dropped -6k to 217k.

                      Continuing claims dropped -22k to 1379k in the week ending September 10. Four-week moving average of continuing claims dropped -8k to 1405k.

                      Full release here.

                      BoE hikes 50bps, 3 members want 75bps, one want 25bps

                        BoE raises Bank rate by 50bps to 2.25% as widely expected. The voting was not unanimous, with five MPC members Andrew Bailey, Ben Broadbent, Jon Cunliffe, Huw Pill, and Silvana Tenreyro, voted for the decisions. Three members, Jonathan Haskel, Catherine L Mann and Dave Ramsden voted for 75bps hike. One member, Swati Dhingra, voted or 25bps hike.

                        The Committee voted unanimous to reduce the stock of purchased government bonds by GBP 80B over the next 12 months, to a total of GBP 758B, as set out in August meeting minutes.

                        BoE also said that the MPC will consider and make decision on the Bank Rate “at each meeting”. The scale, pace and timing of any further changes will reflect the assessment of economic outlook and inflationary pressures. It maintain the pledge to “respond forcefully” if outlook suggests “more persistent inflation pressures”.

                        Full statement here.

                        Yen rebounds as Japan confirmed decisive intervention action taken

                          Yen reverses earlier decline and rebounds strongly, after a top currency diplomat confirmed that the government have intervened in the foreign exchange market for the first time since 1998. Masato Kanda , vice finance minister for international affairs, told reporters, “we have taken decisive action” on in the markets.

                          USD/JPY is hammed down after jumping to 145.89 earlier today, on hawkish Fed. It now seems that Japan could become more active when USD/JPY get close to 1998 high at 147.68.

                          SNB hikes 75bps, signalling possibility of a pause

                            SNB raises policy rate by 75bps to 0.50% as widely expected, to counter “renewed rise in inflation pressure”. It “cannot be ruled out” that further rate hikes will be “necessary”. The reference to the timeframe of “in the foreseeable future” was dropped. The statement suggests that it’s probably a pause for SNB now.

                            SNB expects that inflation is “likely to remain at an elevated level for the time being”. Based on the assumption that policy stays at 0.50% over the entire forecast horizon, inflation will peak at 3.4% in Q3, and stay slowing from Q2 2023 to 1.6% in Q2 2024. Inflation will average 3.0% in 2022, 2.4% in 2023, and then 1.7% in 2024.

                            Regarding the economy, SNB expects GDP growth of around 2% this year, roughly 0.5% lower than the last monetary policy assessment. Uncertainty remains high and the biggest risks are a “a global economic downturn, a worsening of the gas shortage in Europe and a power shortage in Switzerland”.

                            Full statement here.

                            SNB and BoE next, GBP/CHF accelerating down

                              SNB and BoE rate decisions are the remaining focuses of the day. SNB is widely expected to rise interest rate by 75bps to 0.50%, back in positive region. There are some speculations of a larger hike, but it’s unlikely. The central would also repeat that appreciation of the Swiss Franc is welcome for now, as it helps curb imported inflation.

                              Meanwhile, BoE is expected to deliver another 50bps hike to 2.25%. The UK economy is stuck between a rock and a hard place. While inflation appeared to be slowing, “slightly”, it remained close to multi-decade high. On the other hand, weakness has been seen in spending while the economy is already in recession. The voting of today’s decision could contain some surprises.

                              Some previews on SNB and BoE:

                              GBP/CHF broke through pandemic low at 1.1107 earlier this month, and the down trend is still in acceleration mode. Near term outlook will stay bearish as long as 1.1056 resistance holds. Next target is 200% projection of 1.3070 to 1.2134 from 1.2598 at 1.0726.

                              There is risk of further downside acceleration, either on dovish BoE or deterioration in geopolitical risks. In that case, break of 1.0726 could pave the way to 1.0148.

                              BoJ stands part, interest rate to remain at present or lower levels

                                BoJ kept monetary policy unchanged as widely expected. Under the yield curve control framework, short-term policy interest rate is held at -0.10%. BoJ will continue to purchase Japanese government bonds, without setting an upper limit, to keep 10-year JGB yield at around 0%. Also, BoJ will offer to purchase 10-year JGBs at 0.25% every business day through fixed -rate purchase operations, to cap the upside. These decisions were made by unanimous vote.

                                BoJ also pledge to continue with Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control to achieve 2% price target, “as long as it is necessary for maintaining that target in a stable manner”. The bank will not hesitate to take additional easing measures if necessary”. It expects short- and long-term policy interest rates to “remain at their present or lower levels”.

                                Full statement here.

                                DOW to break 30k soon on hawkish Fed

                                  US stocks tumbled broadly after Fed raised interest rate by 75bps overnight, and indicated that rate could reach 4.4% by year end. Chair Jerome Powell reiterated that pledge that “the FOMC is strongly resolved to bring inflation down to 2%, and we will keep at it until the job is done.” Meanwhile, against members’ expectations, “we have seen some supply side healing but inflation has not really come down,” he noted.

                                  DOW’s -1.70% decline indicates that fall from 34281.36 is extending and break of 30k handle would be seen soon. Such fall is seen as part of the whole medium term corrective pattern from 36952.65. Near term outlook will stay bearish as long as 31026.89 resistance holds. Next target is a retest of 29653.29 low. Firm break there will target 100% projection of 36952.65 to 29653.29 from 34281.36 at 26982.00. There’s where the correction would probably end.

                                  EUR/USD downside breakout after Fed rate hike

                                    EUR/USD finally breaks out to the downside after Fed hikes 75bps and projects interest rate to hit 4.4% by year end. For the near term, EUR/USD’s next target is 100% projection of 1.0368 to 0.9863 from 1.0197 at 0.9692, and then 161.8% projection at 0.9380.

                                    For the medium term, next target is 100% projection of 1.3993 to 1.0339 from 1.2348 at 0.8694.

                                    In any case, break of 1.0049 minor resistance is needed to indicate short term bottoming. Or, outlook will stay bearish even in case of recovery.

                                    Fed hikes 75bps, rate to reach 4.4% by year end

                                      Fed raises interest rate by 75bps to 3.00-3.25% as widely expected, by unanimous vote. In the accompanying statement, Fed said job gains have been “robust” with unemployment rate “remained low”. Inflation remains “elevated”. FOMC would be ” prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”

                                      In the new economic projections, Fed projects (median) interest rates to reach 4.4% in 2022, 4.6% in 2023, before falling back to 3.9% in 2024, and then 2.9% in 2025. GDP growth is projected to be at 0.2% in 2022, 1.2% in 2023, 1.7% in 2024, and then 1.8% in 2025. Unemployment rate is projected to be at 3.8% in 2022, 4.4% in 2023, 4.4% in 2024, and then 4.3% in 2025. Core PCE inflation is projected to be at 4.5% in 2022, 3.1% in 2023, 2.3% in 2024, and then 2.1% in 2025.

                                      Full statement here.

                                      Full projection here.

                                      EUR/CHF holding above 0.9530 temp low after selloff

                                        Euro drops broadly today, in particular against Swiss Franc. The selloff came after Russian President Vladimir Putin announced partial military mobilization for the invasion of Ukraine. That’s the first such mobilization since World War II, and would call up 300k reservists. Putin also warned that Russia has “various means of destruction”. “If the territorial integrity of our country is threatened, we will certainly use all the means at our disposal to protect” he said, adding that “this is not a bluff!”.

                                        Last week, Putin had the first face-to-face meeting with Chinese President Xi Jinping since the pandemic, in Uzbekistan. China’s official news agency reported that Xi told Putin China will work with Russia to deepen practical cooperation in trade, agriculture, connectivity and other areas.

                                        For now, EUR/CHF is still holding above 0.9530 temporary low, and down trend resumption is not confirmed yet. On break of 0.9530, EUR/CHF should target 61.8% projection of 1.0512 to 0.9550 from 0.9864 at 0.9269.