Eurozone Sentix investor confidence: Growth forces weakening dangerously quickly and strongly

    Eurozone Sentix Investor Confidence dropped to -3.7 in February, down from -1.5 and missed expectation of -1.1. That’s the sixth decline in a row and the lowest level since November 2014. Current situation index dropped to 10.8, down from 18.0. That’s also the sixth decline in a row and lowest since December 2016. Expectations index, however, improved from -19.3 to -17.3.

    Sentix noted that “the bad news for the economy in Euroland is not abating.” And, “at the current edge the growth forces seem to be weakening dangerously quickly and strongly.” The main reason for the development was likely the approaching Brexit. And, “The economy now has to deal with the contingency plans in view of the unresolved political situation. Many companies exposed to UK-EU trade are currently not aiming for growth; they would probably be satisfied with stable business in the coming months.”

    Full release here.

    German Gfk consumer sentiment rose to 10.8

      Germany Gfk consumer confidence rose 0.4 to 10.8 in February, above expectation of 10.3. Gfk noted that rising income prospects and an increasing propensity to buy mean that the consumer climate is improving once more. This is further reinforced by a decrease in propensity to save in January.

      Rolf Bürkl, GfK Consumer Expert, explains, “For the whole of 2019, GfK is predicting real growth in private consumer spending in Germany of 1.5 percent. The key pillars for the consumer economy will above all be the expected positive trend on the labor market coupled with positive income expectations. However, this is based on there being no significant growth in German consumers’ uncertainty about the economy. For example, if there were an escalation in the trade dispute, putting further strain on export prospects, this would be a bad sign for the export nation of Germany. If this were to again increase workers’ fears of job losses, it would have an adverse impact on the consumer climate, jeopardizing the forecast.”

      Full release here.

      INSEE: France economy to rebound by 19% in Q3 and 3% in Q4

        France INSEE said the country’s economy has likely contracted -17% in Q2 over the quarter, unchanged from June’s forecast. Looking ahead, the economy is expected to rebound by 19% in Q3, and a further 3% in Q4. By December economic activity would be around 1-6% below pre-coronavirus levels.

        For 2020 as a whole, INSEE expected GDP to contract -9%, worst since record began in 1948. Nevertheless, that was already better than the government’s own estimate of -11% contraction.

        Fed Bullard: No doubt the US economy will slow in 2019 and 2020

          St. Louis Fed President James Bullard said “I don’t have any reason to doubt the economy will slow in 2019 and 2020. It would be much tougher for the Fed to continue to raise at this pace in a slowing economy relative to where we have been.”

          He also warned that “the good news won’t last forever, and if potential growth really is at 1.8 percent the economy is going to return to some level more like that.” He added, “the question in my mind is what are we trying to control? We have already been preemptive…We took all this action and it has put us in good shape.”

          And, “if we had not had these surprises to the upside my story would have looked better in retrospect than it does,” Bullard said. “As a baseline most forecasts have the economy slowing down…That is the basic structure we are working with going into 2019.”

          Trump pushes for Japan trade deal very soon, Japan announces new rules to limit foreign investment in tech

            Trump was in a trade summit with Japanese Prime Minister Shinzo Abe today, as part of his four-day trip to Japan. In the post meeting joint press conference, Trump said he hoped to announce a trade deal with Japan very soon. He described trade imbalance with Japan as “unbelievable large”. He added “they are brilliant business people, brilliant negotiatiors and have put us in a tough spot but I think we will have a deal with Japan.” Earlier on before the meeting, Trump said: “Trade-wise, I think we’ll be announcing some things, probably in August, that will be very good for both countries… We’ll get the balance of trade, I think, straightened out rapidly.”

            Abe said the two leaders had agreed to accelerate two-way tarde talks. Earlier today, the Japanese government announced new rules to limit foreign ownership of high-tech corporations, effective August 1. The government said that the rule aims at preventing leakage of technology deemed important for national security or damage to defense output and technological foundation.

            The new rule is believed to be targeted at China, which was widely accused of the IP theft. However, there is no mention of specific countries or companies that will be affected by such foreign ownership restrictions. Thus, based on the principle of reciprocity, if Japanese steel is security risks to the US, American companies could be risks to Japan too. It’s all up to bilateral relationship and interpretations.

            Japan PMI composite rose to 27.8 in May, indicative of -10% annualized GDP contraction

              Japan PMI Services improved to 26.5 in May, up from April’s record low of 21.5. PMI Composite also rose slightly to 27.8, up from April’s record low of 25.8. The data signed “historically unparalleled” decline in output.

              Joe Hayes, Economist at IHS Markit, said: “While the month of May has seen the Japanese government reduce the stringency of its lockdown, latest survey data indicated that economic activity continued to sink at a rate which had previously been unrivalled before the coronavirus crisis began… Looking at May’s survey data in isolation, the reading of the Composite PMI is indicative of GDP falling by around 10% on an annual basis. Taking into consideration the April reading, which was even worse, it is clear that the impact on second quarter GDP is going to be enormous.”

              Full release here.

              Fed Powell: Policymakers discussed the asset purchase program

                In the post meeting press conference, Fed Chair Jerome Powell said “the recent rise in new Covid-19 cases, both here in the United States and abroad, is particularly concerning.” Outlook remains “extraordinarily uncertain”.

                He said that “the fiscal policy actions that have been taken thus far have made a critical difference.” “Even so, the current economic downturn is the most severe in our lifetimes,” he added. “We’ll have a stronger recovery if we can just get at least some more fiscal support, when it’s appropriate and at the size Congress thinks is appropriate.”

                Powell also indicated that FOMC members have discussed the asset purchase program. “We understand the ways in which we can adjust the parameters of it to deliver more accommodation if it turns out to be appropriate,” he said. The minutes could reveal more details about that discussions, which would be interesting.

                Into US session: Sterling up without conviction, positive European data ignored

                  Entering into US session, the forex markets remain rather directionless at this point. Sterling is lifted mildly by talks that EU is going to offer UK a conditional Brexit extension in the summit later this week. With that change in circumstance, Prime Minister Theresa May could bring her deal back to the Commons for another meaningful vote. But still, upside in the Pound is very limited as there is no clear path to what’s next on Brexit.

                  Data from Europe are positive with unemployment rate in UK hitting 44-year low at 3.9%. Wage growth also maintained strongest pace German ZEW Economic Sentiment also showed significant improvement. But the data are largely ignored. WTI crude oil is extending recent rally to 59.80 so far and it’s now sitting inside key resistance zone around 60. Oil price is giving Canadian Dollar a mild lift.

                  In Europe:

                  • FTSE is up 0.52%.
                  • DAX is up 0.89%.
                  • CAC is up 0.46%.
                  • German 10-year yield is up 0.010 at 0.98. It breached 0.1 handle to 0.101 earlier today.

                  Earlier in Asia:

                  • Nikkei dropped -0.08%.
                  • Hong Kong HSI rose 0.19%.
                  • China Shanghai SSE dropped -0.18%
                  • Singapore Strait Times rose 0.25%.
                  • Japan 10-year yield dropped -0.008 to -0.044.

                  Japan Q1 GDP finalized at -0.1% qoq, -0.5% annualized

                    Japan’s GDP was finalized at -0.1% qoq in Q1, better than earlier estimate of -0.3% qoq. In annualized term. GDP contracted -0.5%.

                    Private consumption, which accounts for more than half of the GDP, was revised up to 0.06% qoq rise, from -0.03% decline. Capital expenditure dropped -0.7%, down graded from -0.5%. Exports grow was unchanged at 1.1% while imports rose 3.3%, downgraded from 3.4%.

                    GDP deflator was finalized at -0.5% yoy, revised form -0.4% yoy.

                    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 U of Michigan consumer sentiment surged to 72.6, inflation expectation ticked up

                        US U of Michigan Consumer Sentiment index jumped from 64.4 to 72.6 in July, well above expectation of 65.5, that’s also the highest level since September 2021. Current Economic Conditions rose from 69.0 to 77.5. Consumer Expectations Index also surged from 61.5 to 69.4.

                        “As seen in the chart, sentiment is now about halfway between the all-time historic low of 50 from June 2022 and the February 2020 pre-pandemic reading of 101.”

                        Year-ahead inflation expected inched up from 3.3% to 3.4%. Long-run inflation expectation was virtually unchanged at 3.1%.

                        Full U of Michigan consumer sentiment release here.

                        Carney: BoE assessing economic impacts of coronavirus, considering policy implications

                          BoE Governor Mark Carney told the Parliament that the MPC is “assessing the economic impacts” of the global coronavirus outbreak. And it’s “considering the policy implications of various possible scenarios, including the extent to which supply disruptions have aggregate demand consequences via cash flow, cost and availability of finance, as well as confidence effects.”

                          He noted that BoE’s role is to “help UK businesses and households manage through an economic shock that could prove large but will ultimately be temporary.” The bank will also “take all necessary steps to support the UK economy and financial system consistent with its statutory responsibilities.”

                          BoE survey: 5-year inflation expectation hits decade high

                            The BoE Inflation Attitudes Survey showed the public’s five year inflation expectation jumped sharply to 3.8% in May, hitting the highest level in more than a decade.

                            Looking at the details:

                            • Current inflation rate is seen at 3.1% (median), up from February’s 2.9%.
                            • One year inflation expectation is at 3.0%, up from 2.9%.
                            • 5-year inflation expectation is at 3.8%, up from 3.4%.

                            On interest rates:

                            • 18% said rates should go up, up from 17%.
                            • 19% said rates should go down, up from 17%.
                            • 35% said no change, down from 37%.

                            Full survey report here.

                            ECB de Cos: Further rate hikes could be made in coming quarters

                              ECB Governing Council member Pablo Hernandez de Cos said today, “in the coming quarters, further (rate) increases could be made to reach levels in line with the natural rate of interest if the medium-term inflation outlook remains around our target.”

                              But de Cos also emphasized that the process of policy normalization would be gradual. “For this gradual approach to be adopted, it is essential that inflation expectations remain anchored and that no second-round and indirect effects of a magnitude that could jeopardise this anchoring materialise,” he said.

                              Another Governing Council member Olli Rehn said, “It seems necessary that in our policy rates we move relatively quickly out of negative territory and continue our gradual process of monetary policy normalization.”

                              BoJ Noguchi: Important to maintain monetary easing

                                BoJ board member Asahi Noguchi underlined the necessity of maintaining monetary easing as Japan navigates signs of wage growth.

                                “What’s most important now is for the BOJ to maintain monetary easing and ensure budding signs of wage growth become a sustained, strong trend,” he said.

                                Noguchi predicts that core consumer inflation, which has been running above the bank’s 2% target, will likely drop below this level around September or October. He attributed this anticipated decrease to the fading effects of past increases in raw material costs.

                                However, he noted that the possibility of inflation bouncing back above 2% later on and maintaining that level hinges largely on future wage trends and service prices.

                                Fed Evans agrees to get to the peak funds rate by March

                                  Chicago Federal Reserve President Charles Evans told CNBC, “There are lags in monetary policy and we have moved expeditiously. We have done three 75 basis point increases in a row and there is a talk of more to get to that 4.25% to 4.5% by the end of the year, you’re not leaving much time to sort of look at each monthly release. ”

                                  “I still believe that our consensus, the median forecasts, are to get to the peak funds rate by March — assuming there are no further adverse shocks. And if things get better, we could perhaps do less, but I think we are headed for that peak funds rate,” Evans said.

                                  “That offers a path for employment, you know, stabilizing at something that still is not a recession, but there could be shocks, there could be other difficulties,” he added.

                                  UK PM May repeated her warnings over no-deal Brexit

                                    UK Prime Minister Theresa May repeated her warning that voting down her Brexit agreement in the parliament will put the UK into “uncharted territory”. And she added, “I don’t think anybody can say exactly what will happen in terms of the reaction that we’ll see in Parliament.”

                                    She also reiterated that the Irish backstop “is not intended to be used in the first place, and if it is, it’s only temporary”. And, “ensuring that we actually get the future relationship in place to replace the backstop if it’s used is actually a crucial element of this.”

                                    May also reiterated her opposition to a second referendum as that would “divide our country” and require a delay to Brexit.

                                    Separately, a cross party group of Conservative and Labour MPs are seeking to amend the government’s Finance Bill to ensure the “no deal” provisions in it can only be implemented if Parliament votes to allow it.

                                    Debate on the Brexit agreement will resume this Wednesday, with the vote due in the week beginning January 14.

                                    BoC press conference live stream

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                                      BoE Mann: Robust policy move reduces risk of further inflation further boosted by Sterling depreciation

                                        BoE MPC member Catherine Mann explained in a speech that her for a 50bps last week. She said, ” a more robust policy move, based on both domestic conjuncture and commensurate with the global factor, reduces the risk that domestic inflation already embedded is further boosted by inflation imported via a Sterling depreciation.”

                                        She’s open to a policy rate reversal in the medium term “when the domestic supports to demand fade and when weakness in external sources of demand bite.”

                                        She said, “the domestic conjunctural situation is characterized by very high inflation and various supports to consumer purchasing power relative to real income”. The support factors include “two fiscal packages, strong employment, wide-spread bonuses as well as robust wage growth, strong housing values, accumulated savings, quality trade-down, and borrowing through credit cards among other schemes.”

                                        Globally, tightening by Fed and ECB suggests depreciation pressure on Sterling that could “add to inflation particularly in the near term”.

                                        Full speech here.

                                        WTI oil price drops below 70 as OPEC and Russia consider lifting production

                                          WTI crude oil drops below 70 handle on reports that Saudi Arabia and Russia are going to push for lifting production later in the year. The total of boost in production from OPEC and non-OPEC countries could add up to as high as 1 million barrels a day.

                                          Saudi Arabia a Energy Minister Khalid al-Falih is quoted saying in St. Petersburg that the easing of restriction on production would be gradual, so as to avoid shocking the markets. He also added that “all options are on the table” regarding output cuts.

                                          Meanwhile USD 80 a barrel seems to be a psychological level that the oil producing countries want to avoid.

                                          The decision could be made as soon as during the next OPEC meeting on June 22 in Vienna.