US initial jobless claims dropped -97k to 684k in the week ending March 20. Four-week moving average of initial claims dropped -13k to 736k.
Continuing claims dropped -264k to 3870 in the week ending March 13. Four-week moving average of continuing claims dropped -137k to 4121k.
The minutes of the January FOMC meeting contained little surprises. Fed acknowledged that ” recent inflation readings had continued to significantly exceed the Committee’s longer-run goal and elevated inflation was persisting longer than they had anticipated.” And, ” elevated inflation was a burden on U.S. households, particularly those who were least able to pay higher prices for essential goods and services.”
Most participants noted, “if inflation does not move down as they expect, it would be appropriate for the Committee to remove policy accommodation at a faster pace than they currently anticipate.” But, “the appropriate path of policy would depend on economic and financial developments and their implications for the outlook and the risks around the outlook.”
Fed officials “will be updating their assessments of the appropriate setting for the policy stance at each meeting.”
Meanwhile, ” in light of the current high level of the Federal Reserve’s securities holdings, a significant reduction in the size of the balance sheet would likely be appropriate.”
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.”
Gold accelerated sharply higher last week, propelled in part by the significant decline in US treasury yields on Friday. Technically, the key question now is whether the bounce from 1972.86 signifies the commencement of long-term uptrend resumption, or merely constitutes the second leg of the medium term corrective pattern from 2134.97.
For now, favor is mildly on the latter case. Hence, while further rally is likely through 100% projection of 1972.86 to 2088.24 from 1984.05 at 2099.43, Gold should start to lose upside momentum above there, and top below 2134.97.
Nevertheless, further upside acceleration above 2099.43, or around 2100 in short, would argue that Gold is already ready to resume the long term up trend.
US Commerce Secretary Wilbur Ross indicates today that the country is heading towards more trade protectionism. Another Section 232 national security probe was triggered, as prompted by two U.S. uranium mining companies, Ur-Energy Inc and Energy Fuels Inc. Both companies complained that subsidized foreign competitors have caused them to cut capacity and lay off workers.
Ross said that “the Department of Commerce’s Bureau of Industry and Security will conduct a thorough, fair, and transparent review to determine whether uranium imports threaten to impair national security.”
Australia retail sales dropped -17.7% mom, more than double of March’s pre-lockdown surge of 8.5% mom. “COVID-19 continued to affect retail trade in April with many retail businesses closing their physical stores during April due to restrictions relating to social distancing” said Ben James, Director of Quarterly Economy Wide Surveys. “There were record falls in cafes, restaurants and takeaway food services (-35.4%), and clothing, footwear and personal accessory retailing (-53.6%), as well as a large fall in department stores (-14.9%).”
In April, in seasonally adjusted terms, exports of goods and services dropped -11% mom to AUD 37.5B. Imports of goods and services dropped -10% mom to AUD 28.7B. Trade surplus narrowed by -16% mom to AUD 8.8B.
BoE Chief Economist Huw Pill commented on today’s UK GDP release at an event hosted by MNI Connect, calling the 0% growth in February “somewhat disappointing from an overall point of view.” However, Pill noted that the current data profile is much better than the Monetary Policy Committee’s forecasts from the second half of last year.
Pill also addressed inflation concerns, stating that “recent releases serve as a reminder that the precise path of inflation may be bumpier than we expect.” Despite this, he anticipates a decline in inflation in the second quarter as last year’s significant energy price increases drop out of the annual comparison.
Japan’s corporate goods price index, a key indicator of wholesale inflation, exhibited a significant slowdown in October, underscoring a continued trend of easing price pressures.
The index increased by just 0.8% yoy, falling short of the anticipated 0.9% yoy and marking its first dip below 1% since February 2021. This latest figure also represents the 10th consecutive month of slowing wholesale inflation.
The deceleration in the CGPI can be largely attributed to decreases in the prices of specific commodities. Notably, costs for wood, chemical, and steel products experienced declines, reflecting the broader impact of reduced global commodity prices.
Export price index saw an uptick from 0.5% yoy to 1.0% yoy. Import price index showed a lesser decline, moving from -15.5% yoy to -12.5% yoy.
Australia Wage Price Index rose 3.6% qoq in Q2, but couldn’t reverse the -4.1% fall in Q1. Annually, Wage Price Index rose 2.3% yoy comparing to Q2 2018.
ABS Chief Economist, Bruce Hockman said: “Wage growth continues at a steady rate in the Australian economy on the back of strong public sector growth over the quarter. The most significant contribution to wage growth this quarter came from the public sector component of the health care and social assistance industry, where a number of large increases were recorded in Victoria under a plan to ensure wage parity with other states.”
Germany PMI Manufacturing was finalized at 58.4 in September, down from August’s 62.6. Markit said output and new orders rose at slowest rate in 15 months. Input shortages continued to push up costs, leading to higher output prices. Pace of job creation slowed as growth expectations dipped to 13-month low.
Phil Smith, Associate Economics Director at IHS Markit, said:
“At 58.4, the latest headline PMI reading gives a false impression as to the manufacturing sector’s current performance, with the suppliers’ delivery times component continuing to distort the picture. Trends in output and new orders are weaker than the headline number suggests.
“The unprecedented supply shortages we’ve seen in recent months have been holding back production levels for some time now, and we’re increasingly seeing this disruption feed back up the supply chain and resulting in reduced demand for intermediate goods as orders are either postponed or cancelled. As a result, overall growth in new orders dropped to a 15-month low in September.
“At the same time, supply bottlenecks continue to drive up input costs and, in turn, put pressure on manufacturers to raise prices, which is acting as another headwind to growth. The rate of input price inflation looks like it might have peaked but is still running close to the fastest in the survey’s history, leading to near-record numbers of goods producers raising prices.
“Manufacturers’ optimism towards the outlook is steadily ebbing away, down in September to its lowest for 13 months, with many firms concerned that supply shortages will persist into next year.”
Eurozone CPI rose back to 0.4% yoy in July, up from 0.3% yoy, above expectation of 0.2% yoy. CPI core also jumped to 1.2% yoy, up from 0.8% yoy, above expectation of 0.7% yoy. Look at the main components, food, alcohol & tobacco rose 2.0% yoy. Non-energy industrial goods rose 1.7% yoy. Services rose 0.9% yoy. Energy dropped -8.3% yoy.
ECB left monetary policy unchanged as widely expected. Main refinancing, marginal lending and deposit rates are held at 4.50%, 4.75%, and 4.00% respectively.
In the accompanying statement, ECB noted that incoming information has “broadly confirmed its previous assessment of the medium-term inflation outlook. “Aside from an energy-related upward base effect”, the declining trend in underlying inflation “has continued.
The central bank also maintained that current interest rates, “maintained for a sufficiently long duration”, will make substantial contribution to bringing down inflation to target. Future policy decisions will follow a “data-dependent approach” to determine both the level of duration of monetary restriction.
RBA Governor Philip Lowe said today that “it’s likely we’re going to see interest rates at their current level for years”. “We do face a world where there’ll be a shadow from the virus for quite a few years,” he added”. “People will be more risk-averse, they won’t want to borrow, in Australia we’re going to have lower population dynamics.”
He also said the 7.1% unemployment in Australia was a “misleading indicator” because many people had already given up looking for jobs. Work hours were also lower than they would want. “We just don’t know what constitutes full employment in terms of an unemployment rate,” he said. “We should be seeking to get to full employment however we define that in terms of unemployment, underemployment and hours worked.”
Regarding the Australian Dollar, he’d “like a lower” one, with “lower unemployment and slightly higher inflation”.
US CPI rose 0.3% mom in January, matched expectations. Core CPI rose 0.0% mom, below expectation of 0.2% mom. Annually, headline CPI was unchanged at 1.4% yoy, below expectation of 1.5% yoy. Core CPI slowed to 1.4% yoy, down from 1.6% yoy, missed expectation of 1.6% yoy.
US non-farm payrolls report is the major focus for today. Markets are expecting 500k job growth in September. Unemployment rate is expected to tick down from 5.2% to 5.1%. Average hourly earnings are expected to have risen 0.4% mom.
Looking at related job data, ADP report showed 568k growth in private sector jobs in the month. ISM manufacturing employment ticked up from 49.0 to 50.2. ISM services employment dipped slightly from 53.6 to 53.0. Four-week moving average of initial jobless claims dropped from 355k to 344k. Overall, the data support solid, but not spectacular, job growth in September.
Bond market reactions to NFP today would be worth a watch. 10-year yield closed up 0.047 at 1.571 overnight, close to day high at 1.573. The development also indicates resumption of whole rise from 1.128. Positive reaction in yield to NFP would extend the rally, probably with upside acceleration, towards 1.1765 high. Such development could also lift USD/JPY through 112.07 near term resistance.
US Treasury Secretary Steven Mnuchin indicated yesterday that there was “no side agreements”, “no secret agreements”, regarding the trade deal phase one with China. That is, whether the US will further remove tariffs on Chinese goods “has nothing to do with the election or anything else”. Instead, “these tariffs will stay in place until there’s a phase two. If the president gets a phase two quickly, he’ll consider releasing tariffs as part of phase two.”
Mnuchin also reiterated that President Donald Trump has been very clear with his demand on China. “One was he wanted to reduce the trade deficit, and two — he wanted structural changes particularly around technology and other issues.”
The English version of the agreement is expected to be released today. Mnuchin said “people will be able to see there’s a very detailed dispute resolution process,” and “this is an enforceable agreement just as the president dictated it would be.”
EU chief Brexit negotiator Michel Barnier warned that there are “serious divergences” with the UK, after ending the first week of negotiations on post Brexit relationship. The talks were held in a “constructive spirit” but in a “demanding context”.
In particular, he pointed four areas that are at odds, including competition policy, cooperation in criminal justice matters, control of U.K. fishing waters, and on the way any deal would be structured.
Nevertheless, Barnier remained hopeful as “there are many serious divergences, an agreement is possible — even if difficult.”
New Zealand’s Westpac McDermott Miller Consumer Confidence Index rose slightly by 2.1 points to 77.7 in March, but still remains well below the long-term average of 108.8. The President Conditions Index and the Expected Conditions Index also increased, but are still far below their long-term averages of 106.1 and 100.6, respectively.
Despite the slight uptick in confidence, Westpac notes that households across the country continue to grapple with the increasing costs of living, higher mortgage rates, and a downturn in the housing market. The Expected financial situation has improved, but remains negative at -3.8, while the 1-year economic outlook has only slightly improved to -41.1, and the 5-year economic outlook has dropped to -10.8.
The mounting financial pressures are already affecting household spending, and as they become more pronounced, Westpac expects to see an increasing number of households winding back their spending over the next year. This weakness in consumer confidence could have significant implications for the overall economy, as household spending is a major driver of economic growth.
US retail sales rose 0.3% mom to USD 705.7B in November, better than expectation of -0.1% mom decline. Ex-auto sales rose 0.2% mom to USD 571.2B, above expectation of -0.1% mom. Ex-gasoline sales rose 0.6% mom to USD 651.2B. Ex-auto, gasoline sales rose 0.6% mom to USD 516.7B.
For the 12 months period, retail sales was up 4.1% yoy. Total sales for September through November period were up 3.4% yoy.
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Dollar index staying bearish, FOMC previews
Fed is widely expected to keep monetary policy unchanged today. Despite recent resurgence in coronavirus infections and the economic impact, roll-out of more fiscal stimulus and positive vaccination progress would keep policy makers in a wait-and-see mode. Federal funds rate will be held at 0-0.25% while asset purchase will continue at current pace of USD 120B per month. Chair Jerome Powell would likely re-emphasize that Fed is in no position to even start discussing tapering of quantitative easing yet.
Here are some suggested readings:
Dollar Index is staying in range trading for now, reflecting the consolidation in most Dollar pairs. DXY is held below falling 55 day EMA, as well as 91.01 near term resistance, keeping outlook bearish. The down trend from 102.99 would more likely extend lower than not. Though, downside momentum has been clearly diminishing as seen in daily MACD. Hence, we’d expect strong support from 61.8% projection of 102.99 to 91.74 from 94.74 at 87.88 to contain downside and bring sustainable rebound, even in case of another down move.