US exports of goods rose USD 1.1B to USD 149.0B in August. Imports of goods rose USD 1.9B to AUD 236.6B. Goods trade balance deficit widened to USD -87.6B, versus expectation of USD -87.0B. Wholesale inventories rose 1.2% mom to USD 731.0B. Retail inventories rose 0.1% mom to USD 603.3B.
Germany Gfk consumer confidence for October rose to 0.3, up from -1.1. For September, economic expectations rose from 40.8 to 48.5. Income expectations rose from 30.5 to 37.4. Prospensity to buy rose form 10.3 to 13.4.
“At the time of the survey, the incidence increase had noticeably slowed and currently, values are even declining slightly. As a result, consumers are more optimistic that the fourth wave will be less pronounced than many feared. That is why many consumers can once again see scope for restrictions to be eased further” explains Rolf Bürkl, GfK consumer expert.
“Even if the consumer sentiment has almost reached its pre-crisis level, it is still too early for talk of a fundamental trend shift. Instead, we must first see how the infection situation develops in the winter months and if new restrictions become necessary.”
In the minutes of BoJ’s July meeting, a few members said “the timing of a full-fledged recovery in Japan’s economy was likely to be somewhat delayed” comparing with the expectations in April.
Many members warned of the high uncertainty on overseas outlook. In particular, one member noted the deceleration in China’s economy “should be born in mind.” Also, one member warned, “if the rise in U.S. long-term interest rates accelerated, we must be vigilant to the risk of capital outflows from emerging economies.”
Australia retail sales dropped -1.7% mom in August, better than expectation of -2.5% mom. It’s the third consecutive monthly fall after -2.7% in July, and -1.8% in June.
Ben James, Director of Quarterly Economy Wide Surveys, said: “Retail turnover continues to be negatively impacted by lockdown restrictions, with each of the eastern mainland states experiencing falls in line with their respective level of restrictions. In direct contrast, states with no lockdowns performed well with Western Australia and South Australia enjoying strong rises as physical stores were open for trade.”
Fed Governor Lael Brainard said “employment is still a bit short of the mark on what I consider to be substantial further progress.. But if progress continues as I hope, it may soon meet the mark,” for tapering asset purchases.
“The forward guidance on maximum employment and average inflation sets a much higher bar for the liftoff of the policy rate than for slowing the pace of asset purchases,” she added. “I would emphasize that no signal about the timing of liftoff should be taken from any decision to announce a slowing of asset purchases.”
Both Minneapolis Fed President Neel Kashkari and Atlanta Fed President Raphael Bostic appeared to be more concerned with getting the job market back to normal, than the higher transitory inflation.
Kashkari said yesterday, “putting Americans back to work…to me that’s our highest priority.” He also emphasized “we don’t want to overreact to short-term price movements.”
Separately, Bostic said, “without clear data demonstrating that an inflationary problem has arrived and is likely to last, we will allow labor markets to run their course, which can further our pursuit of long-run maximum employment.”
New York Fed President John Williams said, “assuming the economy continues to improve as I anticipate, a moderation in the pace of asset purchases may soon be warranted.”
Williams expected the economy to grow between 5.5% to 6% this year. Inflation will drop back to 2% next year.
“There is still a long way to go before reaching maximum employment,” Williams said. “And over time it should become clearer whether we have reached 2 percent inflation on a sustained basis.”
In a speech, BoE Governor Andrew Bailey said some MPC members put “more emphasis on the continuing shortfall in the level of GDP relative to pre-Covid”. Others “emphasized the continuing direction of travel towards closing that gap and the evidence of cost pressures accompanying the closing”.
However, “all of this group were of the view that the stimulus to monetary policy enacted in response to Covid would need to start to unwind at some point, that unwind should be enacted by an increase in Bank Rate, and if appropriate would not need to wait for the end of the current asset purchase programme.”
US durable goods orders rose 1.8% mom to USD 263.5B in August, well above expectation of 0.6% mom. Ex-transport orders rose 0.2% mom, below expectation of 0.5% mom. Ex-defense orders rose 2.4% mom. Transportation equipment rose 5.5% mom to USD 80.8B.
In a speech, Chicago Fed President Charles Evans said, for the balance sheet, the economy as being close to meeting the “substantial further progress” standard for beginning to taper asset purchases. “If the flow of employment improvements continues, it seems likely that those conditions will be met soon and tapering can commence,” he added.
On inflation, Evans said, “long-run inflation expectations are still likely somewhat below target”, as ” inflation break-even rates in financial markets over the five- to ten-year horizon are still below the levels we saw in 2012 and 2013—a period when they were arguably better aligned with 2 percent PCE inflation.” And, “a ten-year nominal Treasury rate in the range we’ve seen recently simply can’t have a whole lot of expectations of long-run inflation built into it.”
“Taken altogether, I am more uneasy about us not generating enough inflation in 2023 and 2024 than the possibility that we will be living with too much,” he said. “My concern is that when the Covid distress ultimately recedes broadly around the world, we will not have been freed from the downward bias on inflation imparted by the ELB.”
In the hearing of the Committee on Economic and Monetary Affairs of the European Parliament, ECB President Christine Lagarde said, ” it is evident that the economic recovery in the euro area is increasingly advanced”. Policymakers expected “continued strong growth” in H2, “enabling euro area output to exceed its pre-pandemic level by the end of the year”. GDP growth is forecast to reach 5.0% in 2021, then 4.6% in 2022, and 2.21% in 2023. Risks to growth are “broadly balanced”.
Eurozone inflation, at 3% in August, is expected to “rise further this autumn”. But Lagarde reiterated, “we continue to view this upswing as largely temporary”. ECB’s projections foresee annual inflation at 2.2% in 2021, 1.7% in 2022, and 1.5% in 2023. There are factors that could lead to stronger price pressures than expected, inflation shortages of materials and equipment, and higher than anticipated wage demands. She said, “but we are seeing limited signs of this risk so far, which means that our baseline scenario continues to foresee inflation remaining below our target over the medium term.
In the monthly report, Bundesbank said German economy continued recovery at a “faster pace” in summer. economic output is “likely to grow more stronger in the third quarter than in Spring”. But, due to supply-side difficulties, output had not reached pre-pandemic level yet.
Production level “continued to lag behind strong demand” because of supply bottlenecks. In July, demand for industrial productions already exceeded pre-pandemic level by a whopping 18%. But production remained -3.5% below the pre-pandemic levels. Labor market “recovered extraordinarily strongly since June” and unemployment is likely to continue to fall sharply in the next three months.
On inflation, Bundesbank said, “rates between 4 percent and 5 percent are temporarily possible from September until the end of the year”. One reason for this is the base effect of the temporary VAT reduction in the previous year. The economists assume that inflation will decrease noticeably at the beginning of 2022, but will still be over 2 percent by the middle of the year.
BoJ Governor Haruhiko Kuroda admitted, “it’s true Japan’s economy has been held back by the successive waves of COVID-19.” “While corporate funding conditions have improved from a while ago, those of firms offering face-to-face services remain severe,” he added.
“Given high uncertainty over the outlook due to the spread of the Delta variant, the BOJ must continue to focus on responding to the pandemic for the time being,” he said.
Meanwhile, Kuroda is not concerned about the supply shortages that manufacturers are facing. “This will only be transitory, and from a somewhat long-term perspective, exports and production are expected to continue on an increasing trend, partly supported by the restocking of inventories and a recovery in production from the decline brought about by the supply-side constraints,” he said.
Gold’s rebound attempt last week once again faltered after rejection by 4 hour 55 EMA. Yet, it’s still resiliently holding on to 61.8% retracement of 1682.60 to 1833.79 at 1740.35. The price structure of the fall from 1833.79 is slightly favoring the case that it’s just a corrective move.
Firm break of 1787.02 will argue that such pull back has completed and bring stronger rise back to retest 1833.79/97 structural resistance zone. Such development would be in line with the case that whole correction from 2074.84 has completed after drawing support from long term fibonacci level of 38.2% retracement of 1046.27 to 2074.84 at 1681.92. However, sustained trading below 1740.35 would put focus back to this 1681.92 key fibonacci support level.
WTI crude oil extends near term rally in Asians session and breaches 75 handle. Oil price has been lifted since late August, on improving demand as well as supply tightness. On the one hand, demand is set to picking up with easing of pandemic restrictions, and more importantly, border restrictions. Additionally, surging gas prices are also driving oil higher. On the other hand, OPEC+ seems to be lagging behind the demand rebound, due to under-investment during the pandemic as well as maintenance delays. The question is whether WTI could power through 76.38 high made back in July, and that remains to be seen.
Riding on last week’s rally in oil prices and resilient risk appetite, CAD/JPY is also extending the rebound from 84.88. 87.87 resistance is now an immediate focus. Sustained break there will argue that whole correction from 91.16 has completed at 84.65 already. Break of 88.44 resistance will affirm this case and pave the way to retest 91.16 high. More importantly, with 38.2% retracement of 73.80 to 91.16 at 84.52 well defended, the medium term up trend from 73.80 could be ready to resume in this bullish scenario.
Germany Ifo Business Climate dropped from 99.6 to 98.8 in September, below expectation of 100.4. That’s also the third decline in a row. Current Assessment index dropped from 101.4 to 100.4, below expectation of 100.8. Expectations index dropped form 97.5 to 97.3, below expectation of 100.0.
Looking at some more details, manufacturing dropped sharply from 24.2 to 20.0. Services rose from 17.8 to 19.1. Trade ticked lower from 9.0 to 8.9. Construction rose from 8.1 to 10.9.
Ifo said: “Companies were less satisfied with their current business. They were also more skeptical about the coming months. Problems in the procurement of raw materials and intermediate products are putting the brakes on the German economy. Manufacturing is experiencing a bottleneck recession.”
In a CNBC interview, ECB President Christine Lagarde said policy makers try to asses the situation “based on figures, on data, on facts”, rather than on basis of “hearsay, assumption here, price increases there.”
She noted, things have “picked up faster” for growth, inflation and employment, and it’s a “package of good news”. For prices, ECB thought “there will be a return to much more stability in the year to come because many of the causes of higher prices are temporary.”.
Japan’s PMI Manufacturing dropped from 52.7 to 51.2 in September, below expectation of 52.5. PMI Services rose from 42.9 to 47.4. PMI Composite also rose from 45.5 to 47.7.
Usamah Bhatti, economist at IHS Markit said: “The pace of decline was softer than that seen in August, as the larger services sector saw a considerable easing in the rate of contraction… Input prices across the private sector rose at the fastest pace for 13 years, with businesses attributing the rise to higher raw material, freight and staff costs amid supply shortages.”
Also from Japan, CPI core (all items ex fresh food) rose from -0.2% to 0.0% yoy in August, matched expectations. Headline CPI (all items) dropped from -0.3% yoy to -0.4% yoy. CPI core-core (all items ex fresh food and energy) improved from -0.6% yoy to -0.5% yoy.
UK Gfk consumer confidence dropped from -8 to -13 in September, with all measures down. In particular, general economic situation over the next 12 months dropped sharply from -6 to -16.
Joe Staton, Client Strategy Director GfK, comments: “On the back of concerns about rising prices for fuel and food, the growth in headline inflation, tax hikes, empty shelves and the end of the furlough scheme, September sees consumers slamming on the brakes as those already in economic hardship anticipate a potential cost of living crisis.
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ECB Lagarde: Key challenge is not to overreact to transitory supply shocks
In a speech, ECB President Christine Lagarde said, “the key challenge is to ensure that we do not overreact to transitory supply shocks that have no bearing on the medium term, while also nurturing the positive demand forces that could durably lift inflation towards our 2% inflation target.”
And, “once the pandemic emergency comes to an end – which is drawing closer – our forward guidance on rates as well as purchases under the asset purchase programme will ensure that monetary policy remains supportive of the timely attainment of our medium-term 2% target.”
Full speech here.