ECB Vice President Luis de Guindos said today, “we can so far dismiss the possibility of stagflation because even in the weakest scenario we are looking at growth of around 2% in 2022.”
De Guindos also said higher energy prices are pushing inflation to record high. However, There is no indication that inflation expectations are becoming “deanchored”.
CAD/JPY’s rally accelerates again today and hits as high as 95.68. Further rise is expected as long as 94.34 minor support holds. Next near term target is 161.8% projection of 87.42 to 92.16 from 89.21 at 96.87 next. Below 93.34 minor support will bring consolidations, but retreat should be contained above 92.16 resistances turned support to bring up trend resumption.
Also, noted that the up trend from 73.80 could either be a leg inside the pattern from 68.38, or the start of a long term up trend. Hence, 106.48 high is the next medium term target.
New Zealand Westpac consumer confidence dropped from 99.1 to 92.1 in Q1, hitting the lowest level since the global financial crisis in 2008. Present conditions index dropped from 94.8 to 90.1. Expected conditions index dropped from 101.9 to 93.5. One-year economic outlook dropped from -11.2 to -22.8. Five-year economic outlook dropped from 10.0 to 0.8.
Westpac said:”Households have reported that their financial position has deteriorated as the economy has been buffeted by a multitude of headwinds. That includes rising consumer prices and higher mortgage rates, both of which are squeezing households’ disposable incomes. The rapid spread of Omicron is also likely to have dampened confidence in recent weeks.
BoJ Governor Haruhiko Kuroda reiterated to the parliament today that it’s still premature to discuss details on stimulus exit. “Given recent price developments, we need to patiently maintain our powerful monetary easing,” he said.
Kuroda said consumer prices are likely to rise. However, he warned that “instead of leading to higher wages and corporate profits, such cost-push inflation will weigh on the economy in the long run by hurting corporate profits and households’ real income.”
US benchmark treasury yield jumped sharply overnight after Fed Chair Jerome Powell gave green light to more aggressive tightening pace. He said, “there is an obvious need to move expeditiously to return the stance of monetary policy to a more neutral level, and then to move to more restrictive levels if that is what is required to restore price stability.”
In particular, he added, “if we conclude that it is appropriate to move more aggressively by raising the federal funds rate by more than 25 basis points at a meeting or meetings, we will do so.”
Fed fund futures are now indicating 61.6% chance of a 50bps hike at May 4 meeting to 0.75-100%, up from 43.9% a day ago.
10-year yield rose 0.167 to close at 2.315. Near term outlook in TNX will stay bullish as long as 2.065 resistance turned support holds. Next target is 100% projection of 0.398 to 1.765 from 1.343 at 2.710.
Atlanta Fed President Raphael Bostic said, “I penciled in six rate hikes for 2022 and two more for 2023,”
“I recognize that I am toward the bottom of the distribution relative to my colleagues, but the elevated levels of uncertainty are front forward in my mind and have tempered my confidence that an extremely aggressive rate path is appropriate today,” he added.
“The risks go both ways,” Bostic said. “Should demand falter in the face of economic uncertainty or removal of monetary policy accommodation, then the appropriate path may be shallower than I currently project. But there are other developments, such as shifts in supply strategies, that could mean higher costs and thus motivate a steeper policy path than I expect.”
In the monthly report, Bundesbank said “significantly weaker recovery expected in the second quarter”. The effects of Russia’s attack on Ukraine are “likely to have a noticeable impact on economic activity in Germany from March”. Supply chain problems are likely to “intensify again”, and energy prices have “risen massively”.
“From today’s perspective, the strong recovery planned for the second quarter is likely to be significantly weaker”. Also, the extent of the effects of war is “very uncertain and depends on how events unfold”.
ECB President Christine Lagarde said that Russia invasion of Ukraine will have “consequences” for growth. However, “even in the bleakest scenario, with second-round effects, with a boycott of gas and petrol and a worsening of the war that goes on for a long time — even in those scenarios we have 2.3% growth.” Hence, “we are not seeing elements of stagflation now,” she said.
Lagarde also reiterated that the US and Eurozone are in “difference universes”, at a “different stage” in the economic cycle, with “different starting points”. “We in the euro area are at negative rates, while the U.S. never went below zero.”
In an interview with Handelsblatt, ECB Vice President Luis de Guindos said Eurozone is not heading towards stagflatoin. “In the most recent projections, even in our most adverse scenario for the current year, we still foresee growth of more than 2%, so no stagflation,” he said. “Inflation, however, is likely to remain higher for a longer period than expected before the war.”
De Guindos also said what matters for the central bank now is the extent to which wages respond. “If wage increases are too high, they can push prices up even more and contribute to persistently higher inflation.” But he added, “We have not seen any signs of that yet”.
He added last week’s statement “delink the potential interest rate hikes from the asset purchase programme”. The timing of rate hike “all depends on the data”. “The price shock in energy and commodities that we’re currently experiencing is making many firms and workers worse off. Fiscal policy should provide temporary, targeted support to help reduce the burden. This would also reduce the danger of a wage-price spiral,” he said.
Germany PPI rose 1.4% mom, 25.9% yoy in February, below expectation of 1.7% mom, 26.1% yoy, comparing to January’s 2.2% mom, 25.0% yoy.
Destatis said, “the recent price development in the context of Russia’s attack on Ukraine are not yet included in the results… Mainly responsible for the increase of producer prices compared to February 2021 still was the price increase of energy.”
Energy prices as a whole rose 68.0% yoy. Price of intermediate goods rose 21.0% yoy. Prices of non-durable consumer goods rose 7.4% yoy. Prices of durable consumer goods rose 6.7% yoy. Capital goods prices rose 5.5% yoy.
WTI crude oil is extends the near term rebound and is back above 108. It’s reported that OPEC+ missed its production target by slightly more than 1m barrels per day in February. At the same time, some Baltic countries are pushing EU for an oil embargo on Russia for its invasion of Ukraine.
WTI is now pressing 38.2% retracement of 131.82 to 93.98 at 108.43. Sustained trading above there will pave the way to 61.8% retracement at 117.36 and above. Such development would also affirm the case that corrective pattern from 131.82 high is a sideway pattern. This is the preferred case given the notable support from 55 day EMA.
Nevertheless, rejection by 108.43, followed by break of 103.01 minor support will likely extend the fall from 131.82 through 93.98, and set up a deep correction instead.
New Zealand goods exports rose 22% yoy to NZD 5.5B in February. Goods imports rose 37% yoy to NZD 5.9B. Trade deficit came in at NZD -385m, smaller than expectation of NZD -808m.
Exports to all top destinations increased, including China (up NZD 80m or 5.4%), Australia (up NZD 119m or 22.0%), US (up NZD 37m or 7.4%), EU (up NZD 62m or 25%), and Japan (up NZD 71m or 34%).
Imports from all top partners also rose, including China (up NZD 490m or 45%), EUR (up NZD 209m or 32%), Australia (up NZD 137m or 26%), US (up NZD 105m or 29%), and Japan (up NZD 167m or 60%).
Fed Governor Christopher Waller told CNBC, “I really favor front-loading our rate hikes, that we need to do more withdrawal of accommodation now if we want to have an impact on inflation later this year and next year.”
“So in that sense, the way to front-load it is to pull some rate hikes forward, which would imply 50 basis points at one or multiple meetings in the near future,” he added.
“The data’s basically screaming at us to go 50, but the geopolitical events were telling you to go forward with caution,” he said. “So those two factors combined pushed me off of advocating for a 50-basis-point hike and supporting the 25-point hike that we enacted.”
Waller also said the quantitative tightening should start “in the next meeting or two.” “We’re in a different place than we were before,” he said. “We have a much bigger balance sheet, the economy’s in a much different position. Inflation is raging. So, we’re in a position where we could actually draw down a large amount of liquidity out of the system without really doing much damage.”
Canada retail sales rose 3.2% mom to CAD 58.9B in January, better than expectation of 2.4% mom. The increase was led by higher sales at motor vehicle and parts dealers (+5.3%), as sales at new car dealers (+5.5%) rebounded.
Sales were up in 9 of 11 subsectors, representing 85.5% of retail trade. Core retail sales—which exclude gasoline stations and motor vehicle and parts dealers—increased 2.9%.
In the advance estimate, retail sales dropped -0.5% mom in February.
In a statement, St. Louis Fed President James Bullard explained by he voted for a 50bps rate hike on March 16 FOMC meeting, instead of 25bps. Additional, in the Summary of Economic Projections, he penciled in more rate hikes to 3% this year.
“The combination of strong real economic performance and unexpectedly high inflation means that the Committee’s policy rate is currently far too low to prudently manage the U.S. macroeconomic situation,” he said. “Moreover, U.S. monetary policy has been unwittingly easing further because inflation has risen sharply while the policy rate has remained very low, pushing short-term real interest rates lower. The Committee will have to move quickly to address this situation or risk losing credibility on its inflation target.”
Bullard also compared to what Fed did back in 1994 and 1995, where FOMC “made a similar discrete adjustment to the policy rate to better align it with the macroeconomic circumstances at that time”. And, the results were excellent”.
Eurozone goods exports rose 18.9% yoy to EUR 199.5B in January. Imports rose 44.3% yoy to EUR 226.7B. Trade deficit reached EUR -27.2B. Intra Eurozone trade rose 24.2% yoy to EUR 192.3B.
In seasonally adjusted terms, exports rose 3.4% mom to EUR 220.3B. Imports rose 2.3% mom to 228.0B. Trade deficit narrowed from EUR -9.7B to EUR -7.7B. Intra-Eurozone trade dropped from EUR 202.0B to EUR 198.7B.
WTI crude oil is back at 106 as rebound from 93.98 extends. Russia is showing no sign of stopping its invasion of Ukraine despite waves of sanctions and rounds of negotiations. Earlier this week, the International Energy Agency warned that 3 million barrels per day of Russia oil and products could be shut in from as early as six months.
Technically, a short term bottom should be formed at 93.98 in WTI. The fall from 131.82, as the first leg of a corrective pattern should have completed. Further rise should be seen to 38.2% retracement of 131.82 to 93.98 at 108.43 first. Firm break there will target 61.8% retracement at 117.36 and above.
Also, with notable support seen from 55 day EMA, the medium term outlook stays bullish. That is, larger up trend is still in favor to extend through 131.82 high. However, it would take a while, most likely with at least one more falling leg, before the corrective pattern from 131.82 completes.
DOW’s strong break of 34179.07 resistance overnight was a clear near term bullish signal. The development suggests that correction from 36952.65 has completed with three waves down to 32272.64. A weekly close above near term falling channel resistance (now at around 34700) will solidify this case, and bring further rally to 35824.28 resistance next week.
At the same time, break of corresponding resistance of 4416.78 in S&P 500, and 13837.58 resistance in NASDQ, will also solidify overall near term bullish reversal in US stock markets.
BoJ kept monetary policy unchanged as widely expected today. Under the yield curve control frame work, short-term policy interest rate is held at -0.10%. As for long-term interest rate, BoJ will continue to purchases JGBs, without upper limit, to maintain 10-year JGB yield at around 0%. The decision was made by 8-1 vote, with Goushi Kataoka dissented again, preferring to strength monetary easing.
In the accompany statement, BoJ said the “economy has picked up as a trend, although some weakness has been seen in part”. Exports and industrial production “have continued to increase as a trend, despite the remaining effects of supply-side constraints.”
Core inflation is “likely to increase clearly in positive territory for the time being due to a significant rise in energy prices, a pass-through of raw material cost increases, and dissipation of the effects of the reduction in mobile phone charges”.
BoJ also said, “there are extremely high uncertainties over how the situation surrounding Ukraine will affect Japan’s economic activity and prices, mainly through developments in global financial and capital markets, commodity prices, and overseas economies.”
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ECB Villeroy: We should not overreact to short-term volatility in energy prices
ECB Governing Council member Villeroy de Galhau said today, “it is indeed time to take our foot off the accelerator, as decided during our last governing council.”
“That said, we should not overreact to short-term volatility in energy prices, and instead focus more on underlying inflation and on the medium term,” he added.