US initial jobless claims dropped -12k to 375k in the week ending August 7, above expectation of 367k. Four-week moving average of initial claims rose 1.75k to 396k.
Continuing claims dropped -114k to 2866k in the week ending July 31, lowest since March 14, 2020. Four-week moving average of continuing claims dropped -100k to 3101k, lowest since March 21, 2020.
Eurozone industrial production dropped -0.3% mom in June, matched expectations. Production of capital goods fell by -1.5% and energy by -0.6%, while production of durable consumer goods and intermediate goods both rose by 0.1% and non-durable consumer goods by 1.6%.
EU industrial production dropped -0.2% mom. Among Member States for which data are available, the largest decreases were registered in Ireland (-4.4%), Portugal (-2.6%) and Denmark (-2.3%). The highest increases were observed in Malta (+5.2%), the Netherlands (+3.3%) and Estonia (+3.2%).
San Francisco Fed President Mary Daly said in an FT interview that she remained “very optimistic and positive”. She added, ” it’s appropriate to start discussing dialling back the level of accommodation that we’re giving the economy on a regular basis
“The starting point for that is of course asset purchases,” she said. “Talking about potentially tapering those later this year or early next year is where I’m at.”
On the employment markets, she said “we’re really adding enough jobs to see that we’re making progress towards our full employment goal.” While “we’re not there yet… we’re chipping away at the hole that was dug by Covid.”
UK GDP grew 1.0% mom in June, matched expectations. That’s the fifth consecutive month of growth, GDP remained -2.2% below it’s pre-pandemic level in February 2020. Services was the main contributor, growing 1.5% mom. Production, on the other hand, dropped -0.7% mom while contraction also dropped -1.3% mom.
For Q2 as a whole, GDP grew 4.8% qoq, still -4.4% below the pre-pandemic level in Q4, 2019. ONS said, “there were increases in nearly all main components of expenditure apart from “trade”, with the largest contribution from household consumption”.
Fitch affirmed Japan’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘A’ with a “negative” outlook. The ratings “balance the strengths of an advanced and wealthy economy, with correspondingly robust governance standards and public institutions, against weak medium-term growth prospects and very high public debt”. The negative outlook reflected “uncertainty about the medium-term macroeconomic and fiscal outlook from the continuing pandemic”.
The rating agency expects economic growth of 22.5% in 2021 and 3.0% in 2022. But risks are to the downside, as the ongoing fifth Covid-19 wave may further delay recovery. Inflation is likely to “remain subdued”, averaging 0.3% in 2021 and 0.7% in 2022. Fitch also said BoJ is likely to maintain its current monetary policy settings over the “next few years”.
DOW rose to close at new record high at 35484.97 overnight, up 0.62%. The slight moderation in core CPI in the US seemed to be welcome by investors. The development so far affirmed the view of the “transitory” camp in Fed. While it’s still on track for tapering, probably sooner than expected, there is still much room to wait-and-see before eventually raising interest rates, probably late next year.
Technically, the long term up trend in DOW now looks ready to enter into another near term acceleration phase. Outlook will stay bullish as long as this week’s low at 35041 holds. Next target is 61.8% projection of 26143.77 to 35091.56 from 33741.76 at 37159.81. We’ll see if DOW could hit this level within Q3.
Dallas Fed President Robert Kaplan said yesterday that if the economy unfolds between now and the September meeting as he expected, “I would be in favor of announcing a plan at the September meeting and beginning tapering in October.”
“The reason I’m saying we ought to begin the tapering soon is I think these purchases are very well equipped to stimulate demand. But we don’t have a demand problem in the economy,” he told CNBC.
“My thought is I’d rather take the foot off the accelerator soon and reduce the RPMs,” he added. “What I don’t want to do is keeping running at this speed for too long and then we’re going to have to take more aggressive action down the road.”
Kansas City Fed President Esther George said in a speech, “with the recovery underway, a transition from extraordinary monetary policy accommodation to more neutral settings must follow”. She added, “today’s tight economy… does signal that the time has come to dial back the settings” of monetary stimulus.
“While recognizing that special factors account for much of the current spike in inflation, the expectation of continued strong demand, a recovering labor market, and firm inflation expectations are consistent, in my view, with the Committee’s guidance regarding substantial further progress toward its objectives. I support bringing asset purchases to an end under these conditions,” she said.
Richmond Fed President Thomas Barkin said “we’re closing in” and he’s “very support of tapering and moving back toward a normal environment”. However, it’s credible to think “we will get there in the next few months” and he didn’t want to commit to a timetable yet.
“I would like to be at a normal level of participation in the asset markets and a normal level of rates,” Barkin said. But “I also think that as a committee, when you put out forward guidance you think about it carefully and then do your best to live to that.”
“On the employment side you have a hypothesis that you are going to bring a lot more back in. On inflation you have a hypothesis that these things are transitory,” he said. “I need to test both of these.”
US CPI rose 0.5% mom in July, matched expectations. Over the last 12 months, CPI rose 5.4% yoy, unchanged from June’s reading, above expectation of 5.3% yoy.
Core CPI, excluding food and energy, rose 0.3% mom, below expectation of 0.4% mom. Over the past 12 months, CPI core slowed to 4.3% yoy, down from 4.5% yoy, matched expectation.
Australia Westpac-MI consumer sentiment dropped -4.4% to 104.1 in August, down from July’s 108.8. It’s now at the lowest point in a year, but was well above the pandemic trough, and even above the levels over the twelve months prior to the pandemic.
Westpac said: “The virus situation locally is clearly troubling, but consumers appear reasonably confident that it will come back under control, and that once it does, the economy will see a return to robust growth.”
Westpac expects RBA to leave policy unchanged at next meeting on September 7. It added, “given its decision to sit pat in August despite a sharp deterioration to the near-term outlook, the hurdle for RBA action looks to be very high”. It also maintain the forecast that RBA would start raising the case rate in Q1 of 2023.
Chicago Fed President Charles Evans sounded more cautious than some of his FOMC colleagues in the topic of tapering. He acknowledged that the US is “making progress” and “well on our way” to substantial further progress. But, “I’d like to see a few more employment reports,” before making the decision.
“Everybody is wondering about September, November, December, January,” as possible dates to start scaling back asset purchases, Evans said. “I don’t think that one meeting on either side is going to have an important effect.”
“We should not preemptively end a strong improvement in the labor market because somebody is getting nervous about inflation,” he said. “I am going to be very regretful if we sort of claim victory on averaging 2% and then find ourselves in 2023 with about a 1.8% inflation rate … That would be a challenge for our long run framework.”
Germany ZEW Economic Sentiment dropped sharply from 63.3 to 40.4 in August, well below expectation of 57.0. Germany Current Situation rose from 21.9 to 29.3, below expectation of 30.0. Eurozone ZEW Economic Sentiment dropped sharply from 61.2 to 42.7, well below expectation of 72.0. Eurozone Current Situation rose 8.6 pts to 14.6.
“Expectations have declined for the third time in a row. This points to increasing risks for the German economy, such as from a possible fourth COVID-19 wave starting in autumn or a slowdown in growth in China. The clear improvement in the assessment of the economic situation, which has been ongoing for months, shows that expectations are also weakening due to the higher growth already achieved,” comments ZEW President Professor Achim Wambach on current expectations.
Australia NAB business confidence dropped sharply from 11 to -8 in July. Business conditions dropped form 25 to 11. Looking at some details, trading conditions dropped form 32 to 12. Profitability conditions dropped from 25 to 6. Employment conditions dropped from 18 to 10.
NAB said: “The continuing lockdown in NSW and the briefer periods of disruption across a number of other states saw a further deterioration in activity in the business sector in July… Confidence took a big hit in the month with optimism collapsing on the back of ongoing restrictions.”
“It is now widely expected that we will see a negative print for GDP in Q3. However, we know that once restrictions are removed that the economy has tended to rebound relatively quickly. We will continue to track the survey very closely for an indication of just how quickly that happens – particularly forward orders and capacity utilisation as we assess how the disruption has fed into expansion plans as conditions bounce back”
Atlanta Fed President Raphael Bostic said yesterday, “we are well on the road to substantial progress toward our goal”, and July’s 943k job growth was “definitely quite encouraging in that regard.”
“My sense is if we are able to continue this for the next month or two I think we would have made the ‘substantial progress’ toward the goal and should be thinking about what our new policy position should be,” he said.
“Right now I’m thinking in the October-to-December range, but if the number comes back big” as with the last report “or maybe even a little bigger, I’d be open to moving it forward,” Bostic said. “If the number really explodes, I think we would have to consider that.”
Also, he said he favored a “balanced” approach on tapering both the MBS and treasuries purchases at the same fate, and “going relatively fast”. “The economy is in a much different place today” and “I am pretty confident these markets are going to continue to function even with a more rapid withdrawal, and I would be willing to lean into that to try to get us to complete the taper in a shorter period than what we have done in previous rounds.”
Boston Fed President Eric Rosengren said yesterday if the US continues to have job growth like the last two months, with “very substantial payroll employment gains”, then by September meeting, the “substantial further progress” criteria should be met. That would “imply starting to taper sometime this fall”.
“If you continue to purchase assets, the reaction primarily is in pricing, not so much in employment,” he added. “I don’t think asset purchases are having the desired impact on really promoting employment.”
According to the July Survey of Consumer Expectations by the New York Fed, median one-year-ahead inflation expectations were unchanged at record 4.8%. Also, 3-year inflation expectation rose further from 3.6% to 3.7%, hitting the highest level since August 2013.
Eurozone Sentix Economic Sentiment dropped from 29.8 to 22.2 in August, below expectation of 29.0. Current Situation index rose from 29.8 to 30.8, highest since October 2018. However, Expectations index dropped sharply from 29.5 to 15.0, lowest since May 2020 and the third decline in a row.
Sentix said: “Economists traditionally recognise a trend reversal in a threefold decline. Accordingly, this decline should not be dis-missed as a mere loss of momentum, but should be understood as a warning sign. As the “first mover” among the leading indicators, these developments herald significant declines in other leading indicators. The development is therefore likely to contribute to increased market volatility in the coming weeks. In 2006 and 2010, when we went through similar phases, interim stock market corrections of around 10% followed.”
Silver tumbled along with Gold in ultra thin Asian open, and hit as low as 22.36. While it quickly rebounded, near term outlook will stay bearish as long as 25.99 resistance holds. Prior rejection by 55 day EMA also affirmed near term bearishness. Fall from 30.07 is seen as corrective whole up trend from 11.67 low.
There are various interpretations on the price actions. One way to see them is that a head and shoulder top was formed (ls: 29.84; head: 30.07; rs: 28.73). But in any case, firm break of 100% projection of 30.07 to 23.76 from 28.73 at 22.42 will pave the way to 161.8% projection at 18.52. That is close to 61.8% retracement of 11.67 to 30.07 at 18.69. That’s probably the level where Silver would complete the correction.
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US PPI rose 1.0% mom in Jul, accelerated to 7.8% yoy
US PPI for final demand rose 1.0% mom in July, above expectation of 0.6% mom. Over that last 12 months, PPI accelerated to 7.8% yoy, up from 7.3% yoy, above expectation of 7.4% yoy. That’s the largest yoy rate since November 2010.
PPI for final demand less foods, energy and trade services rose 0.9% mom, largest rise since January. Over the last 12 months, PPI for final demand less foods, energy and trade services rose 6.1% yoy, highest since August 2014.
Full release here.