US GDP grew at annual rate of 6.5% in Q2, well below expectation of 8.2%. BEA said: “The increase in real GDP in the second quarter reflected increases in personal consumption expenditures (PCE), nonresidential fixed investment, exports, and state and local government spending that were partly offset by decreases in private inventory investment, residential fixed investment, and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased”.
US initial jobless claims dropped -24k to 400k in the week ending July 24, above expectation of 365k. Four-week moving average of initial claims rose 8k to 394.5k.
Continuing claims rose 7k to 3269k in the week ending July 17. Four-week moving average of continuing claims dropped -54k to 3291k, lowest since March 21, 2020.
Eurozone Economic Sentiment Indicator rose to 119.0 in July, up from 11.79, above expectation of 118.8. That’s the highest level on record since 1985. Employment Expectations Indicator was flat at 111.7, well above pre-pandemic level.
Looking at some more details, Eurozone industrial confidence rose from 12.8 to 14.6, eighth straight month of improvement and an all-time high. Services confidence rose from 17.9 to 19.3, highest since 2007. Consumer confidence dropped from -3.3 to -4.4. Retail trade confidence dropped from 4.7 to 4.6. Construction confidence dropped from 5.2 to 4.0.
EU ESI rose 0.9 pts to 118.0. EEI was unchanged at 111.6. Amongst the largest EU economies, the ESI rose sharply in France (+4.0) and, to a lesser extent, in Italy (+1.7) and Spain (+1.7). Sentiment in Germany (+0.3) and the Netherlands (-0.3) stayed virtually unchanged, while it deteriorated mildly in Poland (-0.7).
Following broad based selloff in Yen, CAD/JPY resumes the rebound from 85.40. The development affirms the case that correction pattern from 91.16 has completed, after depending 85.40 support. Further rise would be seen to 55 day EMA (now at 88.49). Sustained break there will affirm this bullish view and bring stronger rise back to retest 91.16 high.
CAD/JPY is kept well above 81.91 resistance turned support, and keeps the up trend from 73.80 alive. Such up trend is in favor to resume through 91.16 at a later stage.
Gold rebounded notably and reclaimed 1800 handle, following Dollar’s post FOMC selloff. The development suggests that 1791.45 support could have been defended well, keeping the rise from 1750.49 alive. Focus is now back on 1833.91 resistance. Break there will target 61.8% retracement of 1916.30 to 1750.49 at 1852.96 next.
Overall, we’d need to see Gold breaking 1916.30 resistance firmly, to give us more confidence that the corrective pattern from 2074.84 has completed. Otherwise, outlook will stay neutral for now.
New Zealand ANZ business confidence dropped from -0.6 to -3.8 in July. Own activity outlook also dropped from 31.6 to 26.3. Looking at some more details, expect intentions dropped from 13.4 to 7.6. Investment intentions dropped from 25.5 to 17.4. Employment intentions rose from 19.7 to 21.4. Cost expectations rose from 86.2 to 88.2. Pricing intentions dropped slightly from 62.8 to 61.3. Inflation expectations rebounded from 2.41 to 2.70.
ANZ said, “the combination of clear upside for the activity and inflation starting point, but downside risks in the (quite possibly not far off) future, do, on the face of it, present a conundrum for the Reserve Bank… “If they raise rates now, the odds are indeed uncomfortably high that they’ll end up reversing course before long… Inflation pressures provide an excellent reason to raise interest rates now, despite downside risks… inaction comes with risks too. It’s time to start normalising monetary conditions, even if trouble might lie closer ahead than we hope.”
FOMC keeps monetary policy unchanged as widely expected. In the accompany statement it said that “the economy has made progress” toward the the goals of maximum employment and price stability”. It added that the Committee will “continue to assess progress in coming meetings”
Full statement below.
Federal Reserve Issues FOMC Statement
The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.
With progress on vaccinations and strong policy support, indicators of economic activity and employment have continued to strengthen. The sectors most adversely affected by the pandemic have shown improvement but have not fully recovered. Inflation has risen, largely reflecting transitory factors. Overall financial conditions remain accommodative, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.
The path of the economy continues to depend on the course of the virus. Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain.
The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. With inflation having run persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longerterm inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved. The Committee decided to keep the target range for the federal funds rate at 0 to 1/4 percent and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time. Last December, the Committee indicated that it would continue to increase its holdings of Treasury securities by at least $80 billion per month and of agency mortgagebacked securities by at least $40 billion per month until substantial further progress has been made toward its maximum employment and price stability goals. Since then, the economy has made progress toward these goals, and the Committee will continue to assess progress in coming meetings. These asset purchases help foster smooth market functioning and accommodative financial conditions, thereby supporting the flow of credit to households and businesses.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook. The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The Committee’s assessments will take into account a wide range of information, including readings on public health, labor market conditions, inflation pressures and inflation expectations, and financial and international developments.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Thomas I. Barkin; Raphael W. Bostic; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Mary C. Daly; Charles L. Evans; Randal K. Quarles; and Christopher J. Waller.
Canada CPI slowed to 3.1% yoy in June, down from May’s 3.6% yoy, below expectation of 3.5% yoy. Excluding gasoline, CPI rose 2.2% yoy. CPI common dropped to 1.7% yoy, down from 1.8% yoy, below expectation of 1.9% yoy. CPI median was unchanged at 2.4% yoy, above expectation of 2.3% yoy. CPI trimmed slowed to 2.6% yoy, down from 2.7% yoy, matched expectations.
US International goods trade deficit was at USD -91.2B in June, widened from USD -88.2B, larger than expectation of USD -88.0B. Export of goods rose USD 0.5B to USD 145.5B. Import of goods rose USD 3.5B to USD 236.7B. Wholesale inventories rose 0.8% mom to USD 715B.
Germany Gfk consumer sentiment for August was unchanged at -0.3. In July, economic expectations dropped from 58.4 to 54.6. Income expectations dropped from 34.1 to 29.0. Propensity to buy rose from 13.4 to 14.8. .
Rolf Bürkl, a GfK consumer expert commented on this observation: “The phase where the decrease of COVID-19 incidence of infection has come to an end and those figures are again on the rise. In addition, the momentum for vaccination has recently slowed down considerably, despite there being sufficient quantities of the vaccine available. This is currently preventing any further significant increase as it pertains to consumer sentiment.”
FOMC is widely expected to keep monetary policy unchanged today. Without new economic projections, the focus will be on the policy statement and press conference. In particular, Fed Chari Jerome Powell would likely just reiterate that the Committee is in talks of QE tapering. Yet, it is premature to make any conclusion.
Also, more information about policy changes will be revealed at the Jackson Hole symposium in late August, followed by the September meeting. The formal announcement of tapering could indeed be made in December.
Some suggested readings on Fed:
Australia CPI rose 0.8% in Q2, slightly above expectation of 0.7% qoq. Annual rate accelerated to 3.8% yoy, up from 1.1% yoy, matched expectations. RBA trimmed mean CPI came in at 0.5% qoq, 1.6% yoy. RBA weighted mean CPI was at 0.5% qoq, 1.7% yoy.
Head of Prices Statistics at the ABS, Michelle Marquardt said: “Rising fuel prices accounted for much of the increase in the June quarter CPI, with prices surpassing pre-pandemic levels”.
“The annual CPI movement was significantly influenced by COVID-19 related price changes from this time last year… These ‘base effects’ led to a sharp increase in the annual CPI movement”, she added. “In situations such as this, it is useful to consider underlying inflation measures such as the trimmed mean, which are designed to remove large, one-off price impacts”.
In the Summary of Opinions of July 15-16 meeting, BoJ noted that it should “continue to support financing, mainly of firms, and maintain stability in financial markets by conducting monetary easing through the three measures”
Even though core CPI is likely to increase on the back of rise in commodity prices, there is “a long way to go” to achieve target in a stable manner. Hence, it is “important not to tighten monetary policy prematurely”. Also, the “deflationary mindset is strongly entrenched in Japan”.
US Conference Board Consumer Confidence rose to 129.1 in July, up from 128.9, above expectation of 123.9. Present Situation index rose from 159.6 to 160.3. Expectations index ticked lower from 108.5 to 108.4.
Consumer confidence was flat in July but remains at its highest level since February 2020 (132.6),” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Consumers’ appraisal of present-day conditions held steady, suggesting economic growth in Q3 is off to a strong start. Consumers’ optimism about the short-term outlook didn’t waver, and they continued to expect that business conditions, jobs, and personal financial prospects will improve. Short-term inflation expectations eased slightly but remained elevated. Spending intentions picked up in July, with a larger percentage of consumers saying they planned to purchase homes, automobiles, and major appliances in the coming months. Thus, consumer spending should continue to support robust economic growth in the second half of 2021.”
ECB’s Governing Council member Robert Holzmann told CNBC that the central bank’s forward guidance went “a step too far”. The statement released last week noted that interest rates will remain at their present or until it sees inflation in line with the target of 2% “well ahead” of the end of its forecast horizon.
“We would have wished a different guidance, which doesn’t bind us too long in the future, in order to stay agile, and ready in case inflation requires an earlier liftoff,” he said.
“Our mandate breaks any forward guidance, but I think it would have been more honest to the markets to tell ‘Yes, we want to stay accommodative as it is for the time being, but we stand ready to change the rate if it’s necessary’,” Holzmann added.
US durable goods orders rose 0.8% to USD 257.6B in June, below expectation of 2.1%. That’s the thirteen growth in last fourteen months. Ex-transport orders rose 0.3%, below expectation of 0.8%. Ex-defense orders rose 1.0%. Transportation equipment rose 2.1% to USD 77.5B.
CBI said UK retail sales dropped from 25 to 23 in the year July, but continued to grow at a rate “well above the long-run average”. Orders grew at the fastest pace since December 2010 (up fro 30 to 49). Sales are expected to grow at a faster pace (+29%) and orders at a slower pace (+39%) next month.
Ben Jones, Principal Economist at the CBI, said: “Helping people and businesses live safely with the virus is key to maintaining the confidence needed for economic recovery. Businesses will continue to face significant disruption without a more effective system for allowing double-jabbed people who are not infectious to continue to work—both in the coming weeks but, crucially, as we head into the autumn and winter months.”
BoJ Governor Haruhiko Kuroda said in a speech, “waiting until specific guidelines and ideas are fixed will only delay our response to the urgent global issue of climate change”. Instead, “it will be important to adopt a learning-by-doing approach: implement the crucial measures first, then make adjustments when necessary.”
“The Bank will follow appropriately the evolving nature of climate-related issues, exchange dialogue with domestic and foreign stakeholders, including through active participation in international discussions,” he said, “and will constantly review its measures and make adjustments where needed.
The selloff in Hong Kong intensified today with HSI losing a massive -1105 pts or -4.22%. The crush on tech continued with Chinese stocks like Meituan and Alibaba down -12.7% and -5.5% respectively. The Shanghai SSE also dropped -2.49%. Negative sentiment is spreading into European session, with major indexes down around -1% in initial trading.
The HSI is now standing at an important support level around 25000 handle a 61.8% retracement of 21139.26 to 31183.35 at 24976.10. Some support might be seen here on oversold condition. But prospect of a strong rebound is limited. The development this week suggests that whole rise from 21139.26 has completed with three waves up to 31183.35 as a corrective move. Fall from there is at best a leg inside a medium term side way pattern, and at worst a the third of the long term pattern from 33484.07. In the latter case, HSI could target 21139.26 and below. We’ll see how it goes.
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BoJ Noguchi: Commitment has no strong effect in changing inflation expectations
BoJ is clear on its commitment to bring inflation “stably exceeds” 2% target. But board member Asahi Noguchi criticized, “personally, I don’t think this commitment has a strong effect in changing inflation expectations”
“It may take some time, but a more realistic policy would be to maintain the current powerful monetary easing to steadily improve the output gap, so that demand increases enough to prop up wages and inflation”, he added.
He’s also an advocate to push bond yield target to 15- to 20-year bonds. In particular, if a shock event pushes the economy into a serious downturn, BoJ should ease further “without hesitation”. “What’s important is to look at the basic trend of the economy, “he said. “Unless this trend is broken, it’s important to patiently sustain the current very powerful monetary easing.”