Headline CPI dropped -0.1% mom in December versus expectation of -0.3%. Annually, CPI accelerated to 2.0% yoy, up from 1.7% yoy and beat expectation of 1.8% yoy.
Core CPI readings were steady. CPI core-common was unchanged at 1.9% yoy. CPI core-median dropped from 1.9% yoy to 1.8% yoy. CPI core-trimmed was unchanged at 1.9% yoy.
RBNZ raised the Official Cash Rate by 25bps to 0.50% as widely expected, as “it is appropriate to continue reducing the level of monetary stimulus so as to maintain low inflation and support maximum sustainable employment.” It maintains a hawkish bias and said, “further removal of monetary policy stimulus is expected over time, with future moves contingent on the medium-term outlook for inflation and employment.”
In the accompany statement, it’s noted that current COVID-19-related restrictions “have not materially changed the medium-term outlook” for inflation and employment. Capacity pressures “remain evident” and economic data highlighted that the economy “has been performing strongly in aggregate”. Headline CPI is expected to rise above 4% in the near term before returning towards 2% target midpoint over the medium term.
Entering into US session, commodity currencies are generally higher today. Global risk appetite is boosted by optimism regarding US-China trade negotiation. In short, the prolonged three-day meeting in Beijing ended with positive comments from both sides. New Zealand Dollar leads the way, followed by Australian and then Canadian Dollar. On the other hand, Yen is the weakest one followed by Euro and then Swiss Franc.
BoC rate decision will be a major market moving in US session. It’s expected to hold policy rate unchanged at 1.75%. But it’s far from being certain, considering recent rebound in oil prices. Also, the new economic projections might not be more dovish than markets have expected.
In European markets, at the time of writing:
Earlier in Asia:
Australia goods and services exports rose 5% mom in July to AUD 45.94B. The strong rise is exports was based on strong Asian demand for LNG and thermal coal, combined with sharply higher prices for iron ore. Exports to China also rose to record AUD 19.4B. Goods and services imports rose 3% mom to AUD 33.83B, due to sharp increase in parts and accessories for telecommunications equipment.
Trade surplus widened to AUD 12.12B, above expectation of AUD 10.1B., hitting a new record.
Japan’s Ashai newspaper reported that G20 leaders would include “promotion of free trade” in the joint communique to be released as the summit in Osaka ends on June 29. The communique will emphasize free trade as as the core element of global growth, along with technological innovation such as economic digitization .
There are calls from Europe and other countries, for stronger languages against protectionism. However, the group will likely avoid the terms like “resisting protectionism” due to disagreement from US. Instead, Japan is opting for something in the middle as “promotion of free trade”.
Canada GDP grew 0.2% mom in January, a below expectation of 0.4% mom. But that’s still the eight month of increase in a row. Goods-producing industries grew 0.8% mom. Services-producing industries rose 0.0% mom. Overall, 9 of 20 industrial sectors increased in January.
Statistics Canada said advance information indicates an approximate 0.8% expansion in real GDP in February. Notable increases were observed in the manufacturing sector as well as in mining, quarrying, and oil and gas extraction, accommodation and food services, and construction.
BoJ Governor Haruhiko Kuroda reiterated in an online seminar, “Japan’s economy will recover as the impact of COVID-19 wane due to further progress in vaccinations.”
“We expect that inflation rate will steadily go up and eventually reach 2% target, although not before 2023,” he said.
He also pledged, “if necessary, we will further relax our monetary policy”.
New Zealand ANZ business confidence dropped slightly from -41.9 to -42.0 in April. Own activity outlook rose from 3.3 to 8.0. Export intentions rose from 7.9 to 9.5. Investment intentions dropped from 5.2 to 3.1. Employment intentions dropped from 12.3 to 9.4. Cost expectations dropped from 95.9 to 95.5. Inflation expectations rose further from 5.51 to 5.92.
ANZ said: “With plenty of wage and other cost inflation in the pipeline, it’ll be some time before the RBNZ can conclude that they’re getting ahead of the inflation game. We continue to expect another 50bp hike in May, and steady 25bp increases thereafter taking the OCR to a peak of 3.5%.”
WTI crude oil tumbles sharply today on de-escalation in Russia-Ukraine situation. Technically, a short term top should be in place at 95.98. Immediate focus is now on 55 day EMA (now at 91.18). Sustained trading below this level will argue that WTI is already in correction to whole rally from 66.46. In this case, deeper correction would be seen through 88.66 support to 38.2% retracement of 66.46 to 95.98 at 84.70, which is inside 82.42/87.70 support zone, and then be close to 55 day EMA.
Gold of also retreated sharply from 1879.24, after failing to sustain above 1877.05 resistance. The development dampened the immediate bullish case, and some consolidations could be seen first. But further rally will remain in favor as long as 1820.72 support holds. Break of 1879.24 will resume the rise from 1752.12, and that from 1682.60. Next target is 1916.30 resistance, and then 100% projection of 1682.60 to 1877.05 from 1752.12 at 1946.57.
US non-farm payroll employment grew 209k in June, slightly below expectation of 220k. That’s the lowest level since December 2020. That compares to average of 278k per month over the first 6 months of the year.
Unemployment rate dropped from 3.7% to 3.6%, below expectation of being unchanged at 3.7%. Number of unemployed person was little changed at 6m. Labor force participation rate was unchanged at 2.6% for the fourth consecutive month.
Average hourly earnings rose 0.4% mom, above expectation of 0.3% mom. Average workweek edged up by 0.1 hour to 34.4 hours.
Eurozone PPI came in at -2.9% mom, 30.8% yoy in October, versus expectation of -2.0% mom, 31.5% yoy. Industrial producer prices decreased by -6.9% in the energy sector, while prices increased by 0.2% for intermediate goods, by 0.3% for capital goods, by 0.5% for durable consumer goods and by 1.1% for non-durable consumer goods. Prices in total industry excluding energy increased by 0.5%.
EU PPI came in at -2.5% mom, 31.2% yoy. The largest monthly decreases in industrial producer prices were recorded in Ireland (-32.5%), Bulgaria (-8.8%) and Denmark (-5.5%), while the highest increases were observed in Greece (+9.6%), Hungary (+6.2%) and Belgium (+2.8%).
The massacre of cryptocurrencies continues today as Ethereum resumes recent steep fall and hit as low as 2198.70 so far. The fall from 4863.75 is still in progress to 161.8% projection 4863.75 to 3439.00 from 4126.20 at 1820.95, which is below 2000 and above 1715.62 low. Considering deeply oversold condition in daily RSI, some support should be seen below 2000 to bring an overdue rebound. But in any case, break of 2927.20 support turned resistance is needed to indicate bottoming. Otherwise, risk will still stay on the downside.
Bitcoin also drops to as low as 33019 so far. Daily RSI is deeply oversold while BTC is close to 29261 support. There should be signs of bottoming ahead. But still, break of 39636 support turned resistance is needed to indicate bottoming, or risk will stay heavily on the downside. The more bearish scenario is not favored yet, but bitcoin could extend the down trend from 68986 to 100% projection at 25023 if it couldn’t defend 30k handle.
US ISM Services PMI rose from 49.6 to 55.2 in January, well above expectation of 50.4. Looking at some details, business activity/production rose from 53.5 to 60.4. New orders rose sharply from 45.2 to 60.4. Employment ticked up from 49.4 to 50.0. Prices dropped slightly from 68.1 to 67.8.
ISM said: “Ten industries reported growth in January, according to the Services PMI®, which was in expansion territory after a single month of contraction and the prior 30-month period of growth. The composite index has indicated expansion for all but three of the previous 155 months.”
Nieves continues, “Business Survey Committee respondents indicated that capacity and logistics performance continue to improve. Although responses varied by industry and company, the majority of panelists indicated that business is trending in a positive direction. Employment was unchanged for the month. Some companies still find it difficult to fill open positions, while others are facilitating staff reductions.”
“The past relationship between the Services PMI® and the overall economy indicates that the Services PMI® for January (55.2 percent) corresponds to a 1.8-percent increase in real gross domestic product (GDP) on an annualized basis.”
Australia PMI manufacturing dropped from 59.2 to 57.4 in December. PMI Services dropped from 55.7 to 55.1. PMI Composite dropped from 55.7 to 54.9.
Jingyi Pan, Economics Associate Director at IHS Markit, said: “The Australian economy maintained growth at a strong rate in December… Supply issues meanwhile persisted, with lead times continuing to lengthen and reports of shortages persisting. This led to a surge in price pressures for private sector firms and affected business confidence… The climb in employment levels was also a positive sign with private sector firms across both the manufacturing and service sectors hiring at faster rates in December.”
Australia NAB business confidence dropped from 19 to 17 in Q2. Current business condition rose from 20 to 32. Business conditions for the next 3 months rose from 28 to 36. Business conditions for the next 12 months rose from 31 to 33. Capex plans for the next 12 months rose from 34 to 37.
Looking at some more details, trading conditions rose from 26 to 38. Profitability rose from 22 to 32. Employment rose from 13 to 23. Forward orders rose from 14 to 23. Stocks rose from 5 to 11. Exports also improved from -1 to 0.
According to Alan Oster, NAB Group Chief Economist “Business conditions were still in negative territory in Q3 2020, and now, three quarters later, they were at a record high, a testament to how rapid the recovery has been from last year’s recession”.
“A pleasing aspect of the survey is how broad-based the strength in conditions and confidence was – whether you look by industry or by state they are all above average, and in many cases well above.”
BoE Governor Andrew Bailey pointed to “strong evidence” that disinflation process is “working its way” through the UK economy, suggesting that the previous monetary tightening is having the intended effects.
“Our judgement with interest rates is how much do we need to see now to be confident of the process,” Bailey stated at an IMF conference overnight, indicating that BoE is looking for further signs of sustained disinflation before considering any reductions in interest rates.
Bailey also drew distinctions between the inflation dynamics in the UK and those observed in the US. The UK is still navigating the aftermath of “big supply shocks”, including those stemming from the global pandemic and geopolitical tensions, notably the war impacts. He contrasted this with the US, where there is a greater element of “demand-led inflation pressure”.
US initial jobless claims dropped -26k to 900k in the week ending January 16, higher than expectation of 860k. Four-week moving average of initial claims rose 23.5k to 848k.
Continuing claims dropped -127k to 5054k in the week ending January 9. Four-week moving average of continuing claims dropped -67k to 5126k.
Also released, Philly Fed manufacturing conditions rose to 26.5 in January, up from 9.1, above expectation of 12.2. Housing starts rose to 1.67m in December versus expectation of 1.56m. Building permits rose to 1.71m versus expectation of 1.60m.
ISM Manufacturing PMI dropped -1.0 from 50.1 to 49.1, above expectation of 44.3. Looking at some details, new orders plunged -7.6 from 49.8 to 42.2. Production dropped -2.6 from 50.3 to 47.7. Employment dropped -3.1 from 46.9 to 34.8. Supplier deliveries was the main component that kept headline PMI down slightly, up 7.7 from 65.0 to 57.3.
It should be noted that supplier deliveries is the only ISM index that is inversed. That is, a reading of above 50 indicates slower deliveries. The high reading was primarily a production of coronavirus related supply problems.
ISM also said: “Comments from the panel were negative regarding the near-term outlook, with sentiment clearly impacted by the coronavirus (COVID-19) pandemic and energy market volatility… “The coronavirus pandemic and shocks in global energy markets have impacted all manufacturing sectors.”.
Cleveland Fed President Loretta Mester said, “my current view is that it will be necessary to move the fed funds rate up to somewhat above 4 percent by early next year and hold it there; I do not anticipate the Fed cutting the fed funds rate target next year.”
“It would be a mistake to declare victory over the inflation beast too soon. Doing so would put us back in the stop-and-go monetary policy world of the 1970s, which was very costly to households and businesses,” she added.
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Swiss CPI slowed to 2.9% yoy in Mar, core CPI down to 2.2% yoy
Swiss CPI rose 0.2% mom in March, below expectation of 0.4% mom. Core CPI (excluding fresh and seasonal products, energy and fuel) rose 0.2% mom. Domestic products prices dropped -0.1% mom. Imported products prices rose 0.9% mom.
Compared with the same month of the previous year, CPI slowed from 3.4% yoy to 2.9% yoy, below expectation of 3.2% yoy. Core CPI slowed from 2.4% yoy to 2.2% yoy. Domestic products prices slowed from 2.9% yoy to 2.7% yoy. Imported products prices slowed from 4.9% yoy to 3.8% yoy.
Full Swiss CPI release here.