US initial jobless claims rose 11k to 227k in the week ending March 5, above expectation of 205k. Four-week moving average of initial claims rose 500 to 231k.
Continuing claims rose 25k to 1494k in the week ending February 26. Four-week moving average of continuing claims dropped -31k to 157k, lowest since March 28, 1970.
US CPI rose 0.8% mom in February, matched expectations. Over the 12-month period, CPI accelerated from 7.5% yoy to 7.9% yoy, matched expectations. The 12-month increase is the largest since January 1982.
CPI core rose 0.5% mom. For the 12-month period, CPI core accelerated from 6.0% yoy to 6.4% yoy, matched expectations. The 12-month increase was the highest since August 1982.
Energy index rose 25.6% yoy. Food index rose 7.9% yoy, highest since July 1981.
ECB left interest rate unchanged as widely expected. Main refinancing, marginal lending facility and deposit rate are held at 0.00%, 0.25%, and -0.50% respectively. ECB added that “Any adjustments to the key ECB interest rates will take place some time after the end of the Governing Council’s net purchases under the APP and will be gradual.”
The pandemic emergency purchase program (PEPP) will stop net purchases as planned at the end of March. The purchase schedule for the regular asset purchase program (APP) is revised, with monthly net purchase at EUR 40B in April, EUR 30B in May and EUR 20B in June.
ECB added that the calibration for APP net purchases in Q3 will be ” data-dependent and reflect its evolving assessment of the outlook”. If medium term inflation outlook “will not weaken after the end of the net purchases, ECB will conclude net APP purchases in Q3. Also, ECB leaves it open to revise the schedule, size and duration of the purchases.
A tremendous amount of uncertainty was added to ECB outlook from Russia’s invasion of Ukraine. There were expectations that ECB could announce an earlier end to its asset purchase program at today’s meeting, paving the way for a rate hike later this year. But now, it’s more likely for the central bank to keep options open for the moment.
Nevertheless, facing increasing risk of prolonged high inflation, hawks in the councils could push for at least a move to a “neutral” guidance. That could come in form of dropping the reference to a rate cut in the guidance. ECB might also remove the stipulation that rate hike would come “shortly” after end of net asset purchases.
The new economic projections would also be scrutinized while President Christine Lagarde would be asked for her views on risk of stagflation in Eurozone.
Here are some previews for today’s ECB meeting:
Euro is staging a strong rebound since yesterday, while gold and oil prices are in deep retreat. The situation came as markets are exiting the phase of initial shock of Russia invasion. But clearly, the clouds are still there. Today’s ECB announce might give Euro some temporary volatility, but the next move will still very much depend on the development in Ukraine.
Technically, for EUR/CHF, 0.9970 is theoretically a good place to bottom. It’s not unreasonable to say that the down trend from 1.1149 has ended as a five-wave move, just hitting, 100% projection of 1.0936 to 1.0298 from 1.0610 at 0.9972. Parity can also provide additional psychological support. Yet, firm break of 1.0298 support turned resistance is still needed to be the first sign of major bottoming. Otherwise, risk will remain heavily on the downside.
Japan corporate goods price index rose 9.3% yoy in February, above expectation of 8.7% yoy. At 110.7, the index hit the highest level marked since 1985. That’s also the highest rise on record, as led by skyrocketing energy prices. Coal and petroleum prices jumped 34.2% yoy. Electricity, city gas and water prices also surged 27.5% yoy.
Commodity prices also surged with iron and steel up 24.5% yoy. Nonferrous metal rose 24.9% yoy. Lumber and wood products rose 58.0% yoy.
Import prices rose 34.0% yoy while export prices rose 12.7% yoy.
Bitcoin is back at 42k handle over risk sentiment improves. Currently, price action from 33000 are seen as developing into a corrective pattern, probably in form of a triangle. Thus, upside of the current rebound should be limited by 45313 resistance. Eventually, larger decline from 68986 is still expected to resume through 33000 at a later stage. Nevertheless, firm break of 45313 will dampen this view and argue that the trend might be reversing.
Gold dips notably today, after failing to break through 2074.84 record high earlier. With the depth of the retreat, more corrective trading is now likely for the near term. While gold cold gyrate below 2000 handle, downside should be contained by 1960.83 support to bring another rally. Decisive break of 2074.84 will pave to way to next medium term target at 61.8% projection of 1160.17 to 2074.84 from 1682.60 at 2247.86.
However, break of 1960.83 support will delay the bullish case. Gold could then be in correction to rise from 1682.60 (the preferred case), or it’s starting a third leg of the corrective pattern from 2074.84 (less preferred case). But both ways, Gold could have a test on 1877.80 support before setting on the next move.
China PPI slowed from 9.1% yoy to 8.8% yoy in February, above expectation of 0.8% yoy. Senior National Bureau of Statistics statistician Dong Lijuan said, PPI was “affected by the increased commodity prices globally such as crude oil and non-ferrous metals”.
CPI was unchanged at 0.9% yoy, above expectation of 0.8% yoy. affected by the Chinese New Year holiday and the fluctuation of international energy prices, CPI saw a bigger month on month increase,” added Dong after CPI rose by 0.6 per cent month on month.
Australia Westpac consumer sentiment index dropped -4.2% to 96.6 in March, down from 100.8. That’s the worst reading since September 2020, which was also the last time thee index was below the 100-level.
Westpac said: “The latest monthly fall comes as no surprise. The war in Ukraine; the floods in south- east Queensland and Northern NSW; ongoing concerns about inflation and higher interest rates were all likely to impact confidence, although the size of the decline is still notable.”
Westpac maintained the view that the first RBA rate hike in the tightening cycle will start on August 2, following two more inflations reports of Q1 and Q2.
RBA Governor Philip Lowe reiterated in a speech that Australia has the “scope to wait and assess incoming information” before working on interest rates.
He highlighted two issues that policymakers are “paying close attention to”. The first is the “persistence of supply-side price shocks” and the extent of impact from Russia’s invasion of Ukraine. Secondly, that’s “how labor costs in Australia evolve”.
He noted that “given the outlook, though, it is plausible that the cash rate will be increased later this year.” There is both a risk to “waiting too long” and “moving too early”. But Low finished with the point that “it is only possible to achieve a sustained period of low unemployment if inflation remains low and stable”. And, “recent developments in Europe have added to the complexities here.”
Fitch Ratings has downgraded Russia’s Long-Term Foreign Currency Issuer Default Rating (IDR) to ‘C’ from ‘B’. The ‘C’ rating reflects Fitch’s view that a sovereign default is imminent.
The rating agency said developments since March 2, the last downgrade to “B”, “further undermined Russia’s willingness to service government debt.”
It added, “the further ratcheting up of sanctions, and proposals that could limit trade in energy, increase the probability of a policy response by Russia that includes at least selective non-payment of its sovereign debt obligations.
US exports of goods and services dropped USD 3.9B to USD 224.4B in January. Imports rose USD 3.8B to USD 314.1B. Trade deficit widened to USD 89.7B, versus expectation of USD 85.7B.
The January increase in the goods and services deficit reflected an increase in the goods deficit of USD 7.1B to USD 108.9B and a decrease in the services surplus of USD 0.6B to USD 19.2B.
Year-over-year, the goods and services deficit increased USD 24.6 B, or 37.7%, from January 2021. Exports increased USD 29.9 B or 15.4%. Imports increased USD 54.4B or 21.0 %.
Eurozone Q4 GDP growth was finalized at 0.3% qoq while employment grew 0.5% qoq. For 2021 as a whole, GDP grew 5.3%. GDP was 0.2% above pre-pandemic level in Q4 2019.
EU Q4 GDP growth was finalized at 0.4% qoq while employment grew 0.5% qoq. For 2021 as a whole, GDP grew 5.3%. GDP was 0.6% above pre-pandemic level in Q4 2019.
GDP growth by Member State: Slovenia (+5.4%) recorded the highest increase of GDP compared to the previous quarter, followed by Malta (+2.3%), Spain and Hungary (both +2.0%). Decreases were observed in Ireland (-5.4%), Austria (-1.5%), Germany (-0.3%), Croatia, Latvia and Romania (all -0.1%).
BoJ Governor Haruhiko Kuroda told the parliament today that inflation expectations and wages growth in Japan are still low. Even if inflation exceeds the 2% target, “it’s inappropriate to deal with by scaling back stimulus or tightening monetary policy,” he said.
“If crude oil and commodity prices drive up inflation while wage growth remains slow, that would hit households’ real income and corporate profits, and hurt the economy,” he said. “Such conditions won’t lead to sustainable achievement of 2% inflation.”
Regarding global sanctions on Russia, Kuroda said, “the rouble and Russian government bond prices are falling sharply. We can’t rule out the possibility debt payment from Russia could be disrupted. The chance of Russia defaulting on its debt cannot be ruled out”.
Australia NAB business confidence rose from 4 to 13 in February. Business conditions rose from 2 to 9. Looking at some details, trading conditions rose from 8 to 10. Profitability condition rose from 2 to 5. Employment condition rose from -1 to 8.
“Overall, the February survey shows that the economy is quickly getting back on track as the Omicron wave recedes,” said said NAB Group Chief Economist Alan Oster. “The outlook is fairly strong with supply disruptions and cost pressures now the major challenge facing businesses.”
Japan bank lending grew 0.4% yoy in February, below expectation of 0.6% yoy. That’s the slowest rate since May 2012. Lending by major banks dropped -1.3% yoy, biggest decline since August 2021. Regional banks’ lending rose 1.7% yoy, smallest increase in more than a decade.
“We must keep an eye out on how developments in Ukraine could affect corporate funding through rising crude oil prices,” a BOJ official told a briefing.
Also released, labor cash earnings rose 0.9% yoy in January, above expectation of 0.2% yoy. Current account surplus narrowed to JPY 0.19T in January, below expectation of JPY 0.33T.
Eurozone Sentix Investor Confidence dropped sharply from 16.6 to -7.0 in March, well below expectation of 5.1. That;s also the lowest level since November 2020. Current Situation index dropped from 19.3 to 7.8, lowest since May 2021. Expectations index dropped from 14.0 to -20.8, lowest since August 2012.
Sentix said: “The first economic indication after the Russian invasion of Ukraine has it all: The economy in Euroland collapses dramatically in the month of March! The assessment of the economic situation decreased by 11.5 points and the expectations decreased by 34.75 points, which is more than ever before in the history of sentix. Even the Corona pandemic or the banking crisis had not led to such a sharp drop in the future outlook!”
Both Euro and Sterling are under heavy selling pressure today, against commodity currencies.
EUR/CAD dives to as low as 1.3773 so far and there is no sign of bottoming. Current fall from 1.4633 is part of the down trend from 1.5991 and should target 100% projection of 1.5096 to 1.4162 from 1.4633 at 1.3699.
Break of 1.3699, and sustained trading below medium term falling channel support, could prompt further downside acceleration to 161.8% projection at 1.3122, which is close to key long term support at 1.3019 (2015 low). Meanwhile, in any case, outlook will stay bearish as long as 1.4162 support turned resistances holds, in case of recovery.
GBP/AUD also dives to as low as 1.7729 so far as all from 1.9218 accelerates. Near term outlook will stay bearish as long as 1.8385 minor resistance holds. Next target is 1.7412 low.
Also, the corrective three-wave structure of the rise from 1.7412 to 1.9218 suggests that down trend from 2.0840 (2020 high) might be ready to resume. Break of 1.7412 will confirm and target 61.8% projection of 2.0840 to 1.7412 from 1.9218 at 1.7099 first. It’s a bit early to conclude. But firm break of 1.7099 could prompt further downside acceleration to 100% projection at 1.5790, which is close to long term support at 1.5693 (2016 low).
Gold gaps up as the week open and hit as high as 2000.73 so far. The break of 1974.32 resistance confirms resumption of rally from 1682.60. Further rally is expected as long as 1923.09 minor support holds, to retest 2074.84 high.
With current upside acceleration, it’s getting more likely that Gold is resuming long term up trend. Break of 2074.84 will pave the way to 61.8% projection of 1160.17 to 2074.84 from 1682.60 at 2247.86.
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ECB upgrade inflation forecasts significantly, downgrades GDP forecasts
ECB President Christine Lagarde said in the post meeting press conference, inflation has “continued to surprise on the upside because of unexpectedly high energy costs.”, and prices rises became “more broadly based”. GDP growth was revised down for the near term, owing to the war in Ukraine.
Inflation projections were revised up “significantly” to 5.1% in 2022 (up from 2.6%), 2.1% in 2023 (up form 1.8%), and 1.9% in 2024 (up from 1.8%).
Excluding food and energy, inflation is projected to average 2.6% in 2022 (up from 1.9%), 1.8% in 2023 (up from 1.7%), and 1.9% in 2024 (up from 1.8%).
The economy is projected to grow 3.7% in 2022 (down from 4.2%), 2.8% in 2023 (down from 2.9%), and 1.6% in 2024 (unchanged).
Lagarde also said, “the Russia-Ukraine war will have a material impact on economic activity and inflation through higher energy and commodity prices, the disruption of international commerce and weaker confidence. The extent of these effects will depend on how the conflict evolves, on the impact of current sanctions and on possible further measures.”
Full introductory statement here.