Tue, Oct 26, 2021 @ 06:18 GMT

ECB Lagarde: Inflation is largely transitory

    ECB President Christine Lagarde repeated on Saturday that “inflation is largely transitory”. “Monetary policy will continue supporting the economy in order to durably stabilize inflation at our 2% inflation target over the medium term,” she said. “The ECB is committed to preserving favorable financing conditions for all sectors of the economy over the pandemic period.”

    “Once the pandemic emergency comes to an end — which is drawing closer — our forward guidance on rates as well as asset purchases will ensure that monetary policy remains supportive of the timely attainment of our target,” Lagarde said.

    Separately, Governing Council member Klaas Knot also said the current inflation is “mostly temporary”. “It is highly relevant to determine whether this is a temporary phenomenon and goes away or not, and whether this becomes a risk and has secondary effects through higher wages and costs, and that is not the case now,” Knot said. “At this moment, we see it as mostly temporary as our economy is reopening after the corona shock and the supply of products is not keeping up with demand.”

    China GDP growth slowed to 0.2% qoq, 4.9% yoy in Q3

      China GDP grew 4.9% yoy in Q3, below expectation of 5.2% yoy. On a quarterly basis, GDP grew only 0.2% qoq, slowed from Q2’s 1.2% qoq, and missed expectation of 0.5% qoq. In September, retail sales rose 4.4% yoy, above expectation of 3.3% yoy. Industrial production rose 3.1% yoy, below expectation of 4.5% yoy. Fixed asset investment rose 7.3% ytd yoy, below expectation of 7.9%.

      “The overall national economy maintained the recovery momentum in the first three quarters … however, we must note that the current uncertainties in the international environment are mounting and the domestic economic recovery is still unstable and uneven,” said NBS spokesman Fu Linghui.

      New Zealand CPI rose 2.2% qoq, 4.9% in Q3, highest in over a decade

        New Zealand CPI rose 2.2% qoq in Q3, well above expectation of 1.4% qoq. That’s the largest quarterly increase in over a decade since 2010. For the 12-month period, CPI accelerated to 4.9% yoy, up from Q2’s 3.3% yoy, well above expectation of 4.1% yoy too. The annual rise is also the highest since 2011. The strong inflation reading prompted more expectations of more RBNZ rate hikes ahead, following the 25bps increase earlier this month.

        Full release here.

        US retail sales rose 0.7% mom in Sep, ex-auto sales up 0.8% mom

          US retail sales rose 0.7% mom to USD 625.4B in September, much better than expectation of -0.2% mom decline. Ex-auto sales rose 0.8% mom, above expectation of 0.4% mom. Ex-gasoline sales rose 0.6% mom. Ex-auto, ex-gasoline sales rose 0.7% mom.

          Full release here.

          Eurozone exports rose 18.2% yoy in Aug, imports rose 26.6% yoy

            Eurozone exports of goods to the rest of the world rose 18.2% yoy to EUR 184.3B in August. Imports rose 26.6% to EUR 179.5B. Trade surplus came in at EUR 4.8B. Intra-Eurozone trade also rose 21.2% yoy to EUR 155.5B.

            In seasonally adjusted term, Eurozone exports rose 0.3% mom to EUR 200.6B. Imports rose 1.6% mom to EUR 189.4B. Trade surplus narrowed to EUR 11.1B. Intra-Eurozone trade rose from 179.4B to 181.2B.

            Full release here.

            BoJ Amamiya urges vigilance to supply chain disruptions in Asia

              BoJ Deputy Governor Masayoshi Amamiya reiterated that the economy is “picking up as a trend”, which will become clearer as pandemic impact subsides. He added that the price trends remains “solid” and the financial systems is “stable” as a whole.

              But he also acknowledged that consumptions continues to “stagnate”. Exports and outputs are being affected by “supply constraints”. Ad emphasized that the central bank must be vigilant to the impact that of supply chain disruptions in Asia.

              ECB Wunsch: We could afford some second-round effects, but not too much

                ECB Governing Council member Pierre Wunsch told Bloomberg TV that the economy is ” on the right path. But medium term inflation goal is not met yet. “It seems that we are at some kind of inflection point,” Wunsch said. “We are below our objective, so we could afford some second-round effects, but not too much.”

                Wunsch also said the central bank will maintain a “very supportive monetary policy,” even after the end of its emergency bond-buying program in March.

                New Zealand BusinessNZ manufacturing rebounded to 51.4

                  New Zealand BusinessNZ Performance of Manufacturing rebounded strongly from 39.7 to 51.4 in September. Looking at some more details, production rose from 27.2 to 49.9. Employment ticked up from 54.3 to 54.5. New orders rose from 44.1 to 54.3. Finished stocks rose from 45.9 to 50.1. Deliveries also jumped from 33.1 to 47.8.

                  BNZ Senior Economist, Craig Ebert stated that “the rebound the PMI experienced in September was encouraging, although the survey is not without some still‐frayed parts.  Credit where it’s due though, as the NZ PMI traced much less of a contraction, and quicker stabilisation, compared to what it went through during the initial outbreak of COVID‐19.”

                  Full release here.

                  Japan Cabinet Office said exports increasing at a slower pace

                    In the October Monthly Economic Report, Japan’s Cabinet Office downgraded assessment on exports to “increasing at a slower pace”, from “continue to increase moderate”. That’s the first downgrade in seven months.

                    Overall, the economy is “picking up although the pace has weakened in a severe situation due to the Novel Coronavirus.” Private consumption “shows weakness further”. Business investment is “picking up”. Industrial production is “picking up”. Corporate profits are “picking up”. Employment situation “shows steady movements in some components”. Consumer prices show “steady movements”.

                    As the government lifted state emergency, it will “develop a new economic stimulus package” to address the issues of reopening. It expects BoJ to “pay careful attention to the economic impact of the infections and conduct appropriate monetary policy management”.

                    Full report here.

                    BoC Macklem: Inflation probably taking a little longer to come back down

                      BoC Governor Tiff Macklem said yesterday that supply bottlenecks are “not easing as quickly as expected”. Global inflation is “probably going to take a little longer to come back down”.

                      But he also added, the central bank’s job is “to make sure that these one-off price increases don’t become ongoing inflation.” He maintained, “there’s good reasons to believe that these are one-off price increases. They won’t create ongoing inflation.”

                      On the job market, Macklem said returning to the prepandemic employment level “is an important milestone, but it’s not the destination”. He added, “it is still the case though that low-wage workers are well below their prepandemic level, whereas other workers have slowly recovered. So there still is some space there.”

                      Fed Harker not expecting rate hike until late 2022 or early 2023

                        Philadelphia Fed President Patrick Harker said yesterday he’s in the camp that believes it will “soon be time” to start tapering asset purchases “begin slowly and methodically — frankly, boringly”.

                        He added that FOMC can then evaluate interest rates after tapering is complete. “I wouldn’t expect any hikes to interest rates until late next year or early 2023, unless the inflation picture changes dramatically,” he said.

                        Harker expects the economy to grow by 5.5% this year and 3.5% next. Inflation is expected to be around 4% for 2021, “a bit over” 2% in 2022, and “right at” 2% in 2023.

                        US PPI jumped to 8.6% yoy in Sep, highest on record

                          US PPI for final demand rose 0.5% mom in September, matched expectations. For the 12-month, PPI accelerated to 8.6% yoy, up from 8.3% yoy, below expectation of 8.8% yoy. But that’s still the largest 12-month advance on record since 2010. PPI core rose 0.2% mom, 6.8% yoy, versus expectation of 0.4% mom, 7.1% yoy.

                          Full release here.

                          US initial jobless claims dropped to 293k, continuing claims blow 2.6m

                            US initial jobless claims dropped -36k to 293k in the week ending October 9, much better than expectation of 325k. That’s the lowest level since March 14, 2020. Four-week moving average of initial claims dropped -10.5k to 334k, lowest since March 14, 2020.

                            Continuing claims dropped -134k to 2593k, lowest since March 14, 2020. Four-week moving average of continuing claims dropped -30.5k to 2738k, lowest since March 21, 2020.

                            Full release here.

                            ECB Lagarde: No evidence of significant second-round effects of inflation

                              ECB President Christine Lagarde repeated today, “we continue to view this upswing as being largely driven by temporary factors. The impact of these factors should fade out of annual rates of price changes in the course of next year, dampening annual inflation.”

                              “So far, there is no evidence of significant second-round effects through wages and inflation expectations in the euro area remain anchored, but we continue to monitor risks to the inflation outlook carefully,” she added.

                              On the other hand, Governing Council Member Olli Rehn said, “due to persistent production bottlenecks, it is possible that an increase in energy prices has a longer-lasting impact on consumer price. We analyze this development carefully at the Governing Council and at the Bank of Finland.” He noted that medium-term inflation expectations have increased to around 1.9%, which is in line with the European Central Bank’s strategy.

                              BoE Tenreyro: Self-defeating to try to respond to short-lived effects on inflation

                                BoE MPC member Silvana Tenreyro said, “part of increasing inflation we have seen so far is arithmetic base effects compared to a low level of prices last year.” And that in part has seen “driven by global prices in energy and other commodities which push up on inflation”. And, “these effects in general tend to be short-lived.

                                Additionally, there were “temporary supply disruptions caused by the various imbalances in the global economy as it recovers from Covid”, with some countries still in lockdown. Demand was also boosted “far more by fiscal stimulus in some countries than others”, like the US.

                                “So typically, for short-lived effects on inflation, such as the big rises in the prices of semiconductors or energy prices, it would be self-defeating to try to respond to their direct effects,” she said. “By the time interest rates were having a major effect on inflation the effects of energy prices would already be dropping out of the inflation calculation. If some effects were to prove more persistent it would be important to balance the risks from a period of above target inflation with the cost of weaker demand.”

                                CAD/JPY upside breakout, pressing 91.62 long term resistance

                                  CAD/JPY’s rally continues this week and the break of 91.16 resistance should confirm resumption of medium term up trend from 73.80 (2020 low). Current development argues that whole down trend from 106.48 (2014 high) has completed with three waves down to 73.80. That is, rise from 73.80 is developing into the third wave of the pattern from 68.38 (2009). It’s itself a medium to long term up trend that has the prospect of surpassing 106.48 eventually.

                                  Of course, CAD/JPY will have to sustain above 91.62 resistance first, and then accelerate further up through 61.8% projection of 73.80 to 91.16 from 84.65 at 95.37, to give us more confidence on this long term bullish case. By anyway, for now, further rise is expected as long as 88.99 support holds, in case of retreat.

                                  Australia employment dropped -138k in Sep, back below pre-pandemic levels

                                    Australia employment dropped -138k in September, worse than expectation of -120k. Full-time jobs grew 26.7k while part-time jobs lost -164.7. Unemployment rate rose 0.1% to 4.6%, better than expectation of 4.8%. Participation rate dropped sharply by -0.7% to 64.5%.

                                    Bjorn Jarvis, head of labour statistics at the ABS, said: “Extended lockdowns in New South Wales, Victoria and the Australian Capital Territory have seen employment and hours worked both drop back below their pre-pandemic levels.

                                    “There were large falls in employment in Victoria (123,000 people) and New South Wales (25,000 people, following the 173,000 decline in August). This was partly offset by a 31,000 increase in Queensland, as conditions there recovered from the lockdown in early August.”

                                    “The low national unemployment rate continues to reflect reduced participation during the recent lockdowns, rather than strong labour market conditions.”

                                    Full release here.

                                    BoJ Noguchi: Economic recovery will become clearer at the end of year

                                      BoJ board member Asahi Noguchi said the central bank should continue with the currency easing “patiently” because it takes a long time to achieve the 2% inflation target. But he’s optimistic that economic recovery will become clearer at the end of the year and onwards, as vaccinations help to ease the pandemic impacts.

                                      Separately, Governor Haruhiko Kuroda said in a G20 finance meeting that some emerging economies are still facing downward pressure form the pandemic. But the overall impact on the global economy will “gradually subside”.

                                      Fed Bowman: Asset purchases have essentially served their purpose

                                        Fed Governor Michelle Bowman said in a speech yesterday that she’s “mindful that the remaining benefits to the economy from our asset purchases are now likely outweighed by the potential costs.”

                                        “Provided the economy continues to improve as I expect, I am very comfortable at this point with a decision to start to taper our asset purchases before the end of the year and, preferably, as early as at our next meeting in November,” she added.

                                        Bowman also noted that the asset purchases have “essentially served their purpose.” She’s particularly concerned that “asset purchases could now be contributing to valuation pressures, especially in housing and equity markets.” The loose monetary policy could now “pose risks to the stability of longer-term inflation expectations.”

                                        Full speech here.

                                        Gold extends rebound, heading back to 1833 resistance

                                          Gold rises strongly today after Dollar failed to ride on strong consumer inflation data to rally. The break of 1787.02 resistance now argues that pull back from 1833.79 has completed at 1721.46 already. The break above 55 day EMA is also a near term bullish signal.

                                          Further rise is now in favor back to 1833.79 resistance. That’s a key near term level to overcome and firm break there would resume the rise from 1682.60 to 1916.30 resistance. That, if happens, could be a signal of deeper pull back in Dollar. We’ll pay very close attention to the reaction from 1833.79.