ECB Governing Council member Robert Holzmann said, “an increase to the deposit rate to zero by the end of the year would be important for monetary policy because it increases optionality.”
“If, towards the end of the year, we were to find that inflation will remain higher for longer, we would have to tighten monetary policy more and raise interest rates more significantly,” he added.
In a speech, BoJ Deputy Governor Masazumi Wakatabe said “downward pressure” on the economy from the resurgence of COVID-19 is “likely to remain strong for the time being”. But the economy thereafter “will follow an improving trend, albeit only moderately”. The economy would be “supported by a recovery in external demand, accommodative financial conditions, and the government’s economic measures.” Risks are “skewed to the downside” though, and BoJ will “continue to examine developments in domestic and overseas economies carefully.”
Wakatabe added that the “the price stability target of 2 percent and the framework of “QQE with Yield Curve Control” have been working well to date”. There is “no need to change them”. The upcoming policy assessment will be conducted “on the manner of operations and various measures such as asset purchases.”
“In conducting the upcoming assessment, I would like to emphasize that the Bank does not intend to tighten monetary easing,” he added. “It also does not aim at only containing costs of policy measures. Rather, the Bank will consider how to be nimble in conducting effective monetary easing while taking care of costs.”
Released during the weekend, China’s exports, in USD term, surged 60.6% yoy in the period of Jan-Feb, well above expectations of 38.9% yoy. Imports also rose 22.2% yoy, above expectation of 15.0% yoy. Trade surplus came in at USD 103.3B, much wider than expected USD 60.0B.
The impressive data could be distorted by usual volatility for the January to February period. Additionally, the strong growth partly reflected the low base set in 2020. Nevertheless, some analysts still noted the strong rebound in both global and domestic demand.
Stock traders were not too impressed with the data though. Hong Kong HSI quickly reversed initial gains and it’s currently down -1.6%, or -470 pts, at the time of writing. Immediate focus is now on last week’s low at 28513.13. Break there will extend the correction from 31183.35.
Still, key support lies in 38.2% retracement of 21139.26 to 31183.35 at 27346.50. As long as it holds, the up trend from 21139.26 is still in favor to resume at a later stage.
New Zealand unemployment rate jumped to 5.3% in Q3, up from Q2’s 4.0%, but was slightly better than expectation of 5.4%.The 1.3% jump was the biggest quarterly increase on record. Labor force participation rate rose 0.2% to 70.1%. Employment dropped -0.8% over the quarter, matched expectations. 37k more New Zealanders were unemployed, bringing the total to 151k, highest in eight years.
“We are continuing to see the economic effects of COVID-19, and its associated border and business closures,” labour market and household statistics senior manager Sean Broughton said. “Last quarter’s low unemployment rate of 4.0 percent was explained in part by people’s inability to be ‘actively seeking’ and available for work during the national lockdown that was in place for much of the quarter. This quarter’s increase in unemployment reflects a return to more normal job-hunting be ha vi ours.”
Entering into US session, European stocks are trading broadly lower while US futures also point to lower open. Sentiments are hurt as US is stepping up measures to isolate China’s telecom giant Huawei as trade war intensifies. Chipmakers including Intel, Qualcomm, Broadcom indicated that they will stop supply to Huawei. Germany’s Infineon Technologies is also reported to have halted shipments to the Chinese company. But most importantly, Google will also cut up supply of hardware and some software services.
However, the reactions in currency markets are relatively muted. Australian Dollar remains the strongest one, as boosted by election results over the weekend. New Zealand and Canadian Dollars follow. There is no apparent lift on Yen and Swiss Franc despite risk aversion. On the other hand, Dollar, Euro and Yen are the weakest ones for now.
In Europe, currently:
Earlier in Asia:
ISM non-manufacturing composite dropped to 58.8 in March, down from 59.5 slightly below expectation of 59.0. Sub components are mixed with improvements seen in employment, suppliers deliveries prices, backlog of orders and imports. Deteriorations are seen in business activity, new orders, new export orders and inventory sentiment.
Here are some quotes from responents:
UK CBI found in a survey that 51% of firms are expecting to maintain or increase their permanent recruitment in the coming 12 months. At the same time, 46% are planning to either reduce permanent recruitment of not recruit at all. The balance of +5% was sharply lower than +56% in the survey last ear.
Matthew Fell, CBI Chief UK Policy Director, said: “The UK labour market has been under heavy stress since the outset of the Covid-19 crisis and, although the economy has started to re-open, pressure on firms remains acute… We are seeing a two-speed recovery. While some firms are already looking at creating new jobs, most others are in survival mode.”
Swiss KOF Economic Barometer, a key indicator for forecasting the economy’s direction, has shown a slight improvement in November, rising from 95.1 to 96.7. This rise slightly exceeded market expectations, which were set at 96.2.
According to KOF Swiss Economic Institute, since mid-2023, the barometer has stabilized, though it remains at a level below the historical average. This stabilization indicates moderate outlook for the Swiss economy in the near future.
The increase in the KOF Barometer can primarily be attributed to positive developments in manufacturing sector and other services sector.
However, not all sectors are signaling positive trends. Indicators for hospitality industry and finance and insurance sector are showing slightly negative signals.
Trump sounded upbeat on US-China trade negotiation again even though, for now, there is still no more meeting scheduled. He said a the White House, “it’s happening, it’s happening fast and I think things probably are going to happen with China fast because I cannot imagine that they can be thrilled with thousands of companies leaving their shores for other places.”
He also said Huawei is “very dangerous” if “you look at what they’ve done from a security standpoint, from a military standpoint”. But even though it’s that dangerous Trump said “If we made a deal, I could imagine Huawei being possibly included in some form or some part of it”.
But separately, the Commerce Department laid out a proposal in a Federal Register notice yesterday, on punishing currency manipulating countries with tariffs. Commerce Secretary Wilbur Ross said “this change puts foreign exporters on notice that the Department of Commerce can countervail currency subsidies that harm US industries” And, “foreign nations would no longer be able to use currency policies to the disadvantage of American workers and businesses.”
December brought mixed signals from China’s manufacturing sector, as indicated by two key indices: Caixin PMI and official NBS PMI. Caixin PMI Manufacturing slightly increased from 50.7 to 50.8, surpassing expectations of 50.4, suggesting a marginal yet steady expansion in the manufacturing sector. Notably, Caixin highlighted that both output and new orders are rising at faster rates, indicating increased production and demand within the industry.
However, the same period saw a dip in official PMI Manufacturing, which fell from 49.4 to 49.0. This decline suggests contraction in the sector, contrasting with optimism reflected in Caixin PMI data. The difference between these two indices can be attributed to their varied focus groups; Caixin PMI typically surveys small and medium-sized enterprises, while NBS PMI is more reflective of larger, state-owned companies.
Wang Zhe, Senior Economist at Caixin Insight Group, emphasized the improved economic outlook for the manufacturing sector, with expanding supply and demand, and stable price levels. Yet, he also pointed out significant challenge in employment, highlighting businesses’ cautious approach in areas like hiring, raw material purchasing, and inventory management.
On the other hand, NBS PMI Non-Manufacturing showed a slight improvement, rising from 50.2 to 50.4. This marginal increase suggests a modest expansion in China’s services sector.
China’s Caixin PMI Manufacturing rose to 50.7 in May, up from 49.4, back in expansion territory. Markit said that “Supply was generally stronger than demand in the manufacturing sector, as production continued its expansion amid a broader economic rebound while demand had yet to recover.
Wang Zhe, Senior Economist at Caixin Insight Group added: “Sluggish exports remained a big drag on demand as the virus continued spreading overseas. Stabilizing the job market is a top priority on policymakers’ agenda this year, as shown in last month’s government work report. Boosting employment is not an easy task, as the employment subindex in the Caixin manufacturing PMI survey has remained in contractionary territory for five months in a row.”
Released over the weekend, the official China PMI Manufacturing dropped to 50.6 in May, down from 50.8, missed expectation of 51.1. PMI Non-Manufacturing rose to 53.6, up from 53.2, beat expectation of 53.5.
Japan GDP grew 1.3% qoq in Q4, slightly below expectation of 1.4% qoq. In annualized term, GDP grew 5.4%, below expectation of 5.8%.
Private consumption grew 2.7% qoq, accounting for much of the growth. Capital expenditure rose 0.4% qoq. External demand rose 0.2% qoq.
For 2021 as a whole, GDP grew 1.7%, marking the first expansion in three years. The seasonally-adjusted real GDP size at JPY 541T remains slightly below pre-pandemic level of late 2019.
EUR/USD tries to break 1.2443 as ECB turned less dovish in the statement. But no follow through buying seen yet.
Australia NAB business confidence dropped from 20 to 12 in November. Business conditions improved from 10 to 12. Looking at some details, trading conditions rose from 15 to 16. Profitability conditions rose were unchanged at 8. Employment conditions rose from 6 to 11.
“Confidence remains high across states and industries, albeit it has come back to earth a little after the optimism associated with the end of lockdowns,” said NAB Chief Economist Alan Oster.
“Forward indicators are also very strong with a rise in capital expenditure a welcome sign that businesses are beginning to look towards a period of expansion. These results align with the strong rebound in activity that we believe is now underway, as well as a positive outlook for the coming months with vaccination rates now very high.”
Eurozone PMI Manufacturing rose to 47.8 in January, up from 46.3, beat expectation of 46.9. PMI Services, however, dropped to 52.2, down from 52.8, missed expectation of 53.0. PMI Composite was unchanged at 50.9.
Commenting on the flash PMI data, Andrew Harker, Associate Director at IHS Markit said:
“While the year may have changed, the performance of the eurozone economy was a familiar one in January. Output growth was unchanged from the modest pace seen in December, signalling that the economy failed again to record a pick-up in growth momentum.
“The failure of growth to accelerate was in spite of some areas of positivity. The service sector remained in expansion, while the worst of the manufacturing downturn looks to have passed and industry appears to be moving towards stabilisation. France and Germany continued to grow, while business confidence across the single-currency area jumped to a 16-month high.
“On the other hand, weakness was evident outside the ‘big-2’, with new orders unchanged and growth of business activity slowing to near-stagnation.
“Overall, a stable picture for both growth and inflation will likely reassure the European Central Bank that they are safe to keep monetary policy fixed for now while carrying out a strategy review.”
ECB Governing Council member Madis Muller warned today that “inflation is far from our target of almost 2%”. Thus, “that the central bank has to further boost the economy.” He added that the Governing Council will “discuss this at its mid-September meeting”.
His comments were in-line with another Governing Council member Olli Rehn’s. Rehn noted last week that “there is a certain weakening of the economic outlook for Europe in the last couple of months”. And, the backdrop “justifies taking further action in monetary policy, as we intend to do in September.”
Eurozone CPI was finalized at 1.0% yoy in July, core CPI at 0.9%. Headline CPI was just half of ECB’s 2% target. Also, recently ECB has twisted its languages to reflect the symmetric nature of the inflation target. That is, slight overshoot would be allowed to balance out the misses. From this perspective, inflation is really way off target.
EU confirmed today that it received not response from the UK regarding the breach of the Brexit Withdrawal Agreement due to the Internal Market Bill. EU is now considering legal actions.
“We sent a letter of formal notice on 1 October to the UK for breaching its obligations under the Withdrawal Agreement.,” European Commission Spokespersona Daniel Ferrie said. As you know it had until the end of the month to submit its observations to that letter. To date I can confirm that the EU has received no reply from the UK. Therefore we are considering next steps, including issuing a reasoned opinion.”
Ferrie added: “More generally I would recall the EU is fully committed to achieving the full, timely and effective implementation of the Withdrawal Agreement within the remaining time available. That’s why we started the infringement procedure on 1 October. “This dispute will have to be resolved.”
RBA Governor Philip Lowe told a parliamentary economics panel that the board is “expecting progress to be made towards the inflation target and full employment”. But the progress will be “only gradual” with uncertainties. The board “has been discussing” the case of further easing. But considering the balance of pros and cons, RBA decided to keep cash rate unchanged this week.
Lowe added, “if the unemployment rate were to be moving materially in the wrong direction and there was no further progress being made towards the inflation target, the balance of arguments would tilt towards a further easing of monetary policy.”
Additionally, he also said it’s “still too early to tell” about the impact of China’s coronavirus outbreak. But he warned, “the impact is going to be large”. And, “given what we know at the moment”, the hit to Australian economy would be worse than SARS. He added, the outbreak could take 0.2% off the Australia’s growth. But, if the virus “persists for an extended period, the effect on economic activity is likely to be larger than currently projected,”
In the Statement of Monetary Policy, RBA cut 2020 year-average GDP growth forecast from 2.75% to 2.25%. But 2020 year-average GDP growth forecasts was held unchanged at 3.00%. Unemployment rate forecast was lowered from 5.25% to 5.00% by December 2020, and from 5.00% to 4.75% by December 2021. Headline CPI forecasts was unchanged at 1.75% by December 2020 and 2.00% by December 2021.
China Caixin PMI Services recovered to 43.0 in March, up from 26.5. PMI Composite rose from 27.5 to 46.7, second lowest reading in 11 years. Caixin said that business activity and new work both declined at slower rates, but employment fell at quickest pace on record. Output charges also cut at fastest rate since April 2009.
Zhengsheng Zhong, Chairman and Chief Economist at CEBM Group said: “The recovery of economic activity remained limited in March, although the domestic epidemic was contained. In the first two months this year, China’s value-added industrial output and services output dropped 13.5% and 13% year-on-year, respectively.
“Estimates suggest their declines haven’t been as steep in March and the country’s first-quarter GDP is likely to have dropped significantly. Such a situation requires policymakers to cut this year’s GDP growth target and step up countercyclical efforts to support areas like consumption and infrastructure, particularly given the accelerated contraction in the service sector job market.”
ActionForex.com was set up back in 2004 with the aim to provide insightful analysis to forex traders, serving the trading community for over a decade. Empowering the individual traders was, is, and will always be our motto going forward.
Contact us: contact@actionforex.com
© ActionForex.com © 2024 All rights reserved.
Fed Daly: Balance sheet rolloff and interest rate shouldn’t work at cross purposes
San Francisco Fed President Mary Daly said the economy is slowing faster than she expected. And, tighter financial conditions, slower growth abroad, and rising uncertainty are also threatening to slow US growth. Though, she added that “there’s nothing on the radar that says we’re slipping into recession.”
Daly also said interest rates are now within a “hair’s breadth” of neutral. And she support a pause in rate hikes until there are signs of overheating. At the same time, she said Fed should align the balance sheet policy with the “patient” interest rate stance. “Those two are meant to work together and not at cross purposes,” she said.