Bundesbank President Jens Weidmann said today that the “coming year would not be a crisis year if assumptions about the pandemic are confirmed.” Also, “PEPP must be ended when the emergency is over”.
He explained that the “preconditions” for ending net PEPP purchases are that “all major restrictions are lifted”, and the recovery is “solid”. Immediate measures should then be reduced in both the fiscal and monetary front.
Net PEPP purchases could be reduced “step by step” in advance.
SNB board member Andrea Maechler said that the central bank is “not anywhere close to” normalization as “expansionary monetary policy is absolutely needed”. She added that “the negative rate of minus -0.75% and interventions are needed to relieve pressure on the franc as needed.”
The bank still see inflation “staying below 1%”, labor utilization “below what it can be”, and Franc “continues to be highly valued”, she said.
ECB Executive Board member Fabio Panetta said in a speech, “the likelihood that demand in the euro area will be strong enough to test the supply constraints of the economy – beyond short-term bottlenecks – does not look as high as in the United States.”.
Eurozone inflation “will rise this year” he added, “but this will be a temporary increase”. Policymakers do not see ” convincing signs that this upward movement will translate into a sustained inflationary process.” Also, “the risk of second-round effects remains limited, as the conditions for them to emerge are not yet in place.”
Boston Fed President Eric Rosengren said in an FT interview that “it’s very important for us to get back to our 2% inflation target but the goal is for that to be sustainable.” And for that to be sustainable, “we can’t have a boom and bust cycle in something like real estate.”
“You don’t want too much exuberance in the housing market,” he added. But “it’s worth paying close attention to what is happening in the housing market.”. While he’s not saying that there will be a bust, “such cycles have occurred multiple times, a source of financial stability concerns.
Gold weakens mildly today but quickly recovered. Overall it’s staying in very tight range below 1796.64 minor resistance, and 1800 handle. Fall from 1916.38 is still in favor to continue. Such decline is seen as another falling leg of the whole corrective pattern from 2074.84. Break of 1760.71 temporary low will target 1676.65 support. We’d expect strong support from there to bring rebound, at least on first attempt. On the upside, break of 1796.63 will bring stronger rebound back to 55 day EMA (now at 1822.94).
The next move in Gold would be use to double confirm the next direction in Dollar elsewhere.
In the summary of opinions of BoJ’s June 17-18 meeting, it’s reiterated that the economy has “picked up as a trend” although it remains in a “severe situation”. A “virtuous cycle” has “started to operate”, partly owing to the progress with vaccinations. The economy is “likely to recover” with impact of COVID-19 “waning gradually”.
Also, as vaccinations have been “progressing rapidly of late”, the economy is expected to “to a certain extent in the short run, mainly due to an expansion in pent-up demand for consumption of face-to-face services”.
Also, members noted that “until it becomes certain that the impact of COVID-19 has subsided, it is important to steadily continue with policy responses”. Financing of firms is “likely to remain under stress”. Face-to-face services consumption will be “constrained” and there remains a risk that “concern over financing will emerge”. Hence, it’s desirable to extend the duration of the Special financing program by six months.
US personal income dropped -2.0% mom, or USD 414.3B in May matched expectations. The fall in personal income primarily reflected a decrease in government social benefits. Spending dropped -0.4% mom, also matched expectations. Headline PCE price index accelerated to 3.9% yoy, up from 3.6% yoy, below expectation of 4.0% yoy. Core PCE price index accelerated to 3.4% yoy, up from 3.1% yoy, missed expectation of 3.5% yoy.
Germany Gfk consumer sentiment for July improved to -0.3, up from -6.9. That’s the best level since August 2020. For June, economic expectations rose from 41.1 to 58.4, highest since February 2011. Income expectations rose from 19.5 to 34.1, highest since February 2020. Propensity to buy rose from 10.0 to 13.4.
Rolf Bürkl, GfK consumer expert comments on the subject: “We are leaving the lockdown behind more and more. Sharply declining incidence rates, as well as significant progress in vaccination, allow increasingly extensive relaxations or openings. In addition, vacation travel is now possible again. This leads to increased optimism, which is also reflected in improved consumer confidence. As a result, we are forecasting a value of -0.3 points in consumer sentiment for July 2021, the highest value since the summer of last year. A higher value was last measured in August 2020, at -0.2 points.”
UK Gfk consumer confidence was unchanged at -9 in June, below expectation of -7. Joe Staton, Client Strategy Director GfK, says: “While the shifting sands of an end to lockdown might be the closest most of us get to a summer beach holiday, consumer confidence remains stable at -9 after 16 months of a COVID-induced roller-coaster. A repetition of last month’s score doesn’t mean confidence is about to nose-dive. The upwards trajectory for the Index since the dark days at the start of the pandemic is currently still on track.”
New Zealand goods exports rose NZD 461m, or 8.5% yoy, to NZD 5.9B in May. Goods imports rose NZD 1.3B, or 31% yoy, to NZD 5.4B. Trade surplus came in at NZD 469m, up from NZD 414m.
Imports from all top trading partners were up, including China (+9.4% yoy), EU (+28% yoy), Australia (+23% yoy), USA (+34% yoy), and Japan (+103% yoy. Exports to all top trading partners were up expect Australia, including China (+25% yoy), Australia (-13% yoy), USA (+11% yoy), EU (+22% yoy), and Japan (+3.5% yoy).
Richmond Fed President Thomas Barkin said yesterday that “we are in the middle of a temporary adjustment cycle during which workers will return to the workplace and schools open and fiscal payments expire and suppliers catch up with demand.” Near-term inflation pressure is expected to “ease as we go into the fourth quarter,”
“I think the last 30 years of relative price stability has got to outweigh a few months of pressure, but one can never be too careful,” Barkin added. “That is why the Fed has started the process of discussing normalization” of its policy stance.”
Philadelphia Fed President Patrick Harker said in a speech that US economy is “by and large” in good shape overall. GDP has come “roaring back”, consumption, housing, and manufacturing are “extremely healthy”, while workers’ incomes are rising.
However, “even as GDP has almost entirely recouped its losses from last year, employment remains down significantly,” he added. “We still have nearly 7.6 million fewer people working than we did before the pandemic. And if you assume we would have maintained our prepandemic job growth of around 200,000 jobs a month had COVID-19 never arrived, we’re really down around 10.6 million jobs.”
US durable goods orders rose 2.3% mom to USD 253.3B in May, below expectation of 2.9% mom. Ex-transport orders rose 0.3% mom, below expectation of 0.8% mom. Ex-defense orders rose 1.7% mom. Transportation equipment rose USD 5.2B or 7.6% mom to USD 74.2B.
US initial jobless claims dropped -7k to 411k in the week ending June 18, above expectation of 380k. Four-week moving average of initial claims rose 1.5k to 398k.
Continuing claims dropped -144k to 3390k in the week ending June 12, lowest since March 21, 2020. Four-week moving average of continuing claims dropped -55k to 3553k.
Sterling drops notably on the lack of hawkish surprise from BoE rate decision. While it sounded upbeat on the outlook, the MPC, except chief economist Andy Haldane, would prefer to wait until August to take any policy actions.
GBP/USD’s decline argues that it’s rejected by 4 hour 55 EMA. Focus is now back on 1.3859 minor support. Break will suggest that rebound from 1.3785 has completed at 1.4000, and the decline from 1.4248 is ready to resume through 1.3785 low.
EUR/GBP’s focus is also back on 0.8600 minor resistance. Break there will argue that choppy fall from 0.8718 has completed at 0.8529. Stronger rise would than be seen back to 0.8670 resistance for confirmation.
BoE left Bank Rate unchanged at 0.10% by unanimous vote. Though, it voted 8-1 to keep asset purchases target at GBP 895B. Chief economist Andrew Haldane voted to again to lower the target to GBP 845B. BoE said that the “existing stance of monetary policy remained appropriate” to meet the 2% inflation target and to sustain growth and employment.
Bank staff have “revised up” Q2 GDP growth expectation by 1.50% since the May MPR, as restrictions on economic activity have eased. June output is expected to be around -2.50% below pre-Covid 2019 Q4 level. Labor market slack remained “higher than implied” by the 4.7% unemployment rate in the three months to April.
CPI inflation is expected to “pick up further above the target” and is “likely to exceed 3% for a temporary period”. The “central expectation” is that after a strong period, “growth and inflation will fall back”. But there are “two-sided risks around this central path”. “Inflation expectations remain well anchored”.
The Committee will continue to monitor the situation closely and will have the opportunity to assess the economic outlook “more fully” in the August MPR and projections.
Germany Ifo business climate rose to 101.8 in June, up from 99.2, above expectation of 100.4. That’s also the highest level since end of 2018. Current assessment index rose to 99.6, up from 95.7, above expectation of 97.8. Expectations index rose to 104.0, up from 102.9, above expectation of 103.5.
Looking at some more details, manufacturing index rose from 25.7 to 28.5, highest since April 2018. Services sector index rose from 13.7 to 22.4. Trade index rose from 8.5 to 17.8. Construction index rose from 3.0 to 4.2.
Ifo said: “Companies assessed their current business situation as much better. Optimism regarding the second half of the year also grew. The German economy is shaking off the coronavirus crisis.”
BoE is widely expected to keep monetary policy unchanged today, with Bank Rate held at 0.10% and asset purchase target at GBP 895B. The overall tone on recovery should be upbeat given strong economy data flow. Yet, uncertainty remains high, in spite of high vaccination rate, regarding the third wave of the coronavirus pandemic that delayed restrictions easing. Headline inflation came in above BoE’s target in May. But the MPC would continue to view the movements as temporary and transitory.
Overall, BoE would wait until August meeting to decide on tapering. By then, new economic projections would be released with the Monetary Policy Report. Also, the situation regarding infections and reopening should be way clearer.
Here are some previews:
Sterling is currently the slightly better performer among European majors. There is prospect of further rally if BoE delivers some hawkish votings. In particular, GBP/CHF’s rebound from 1.2579 resumed by breaking 1.2817 resistance this week. The development also argues that correction from 1.3070 has completed after struggling around 55 day EMA.
Further rise is now in favor as long as 1.2749 minor support holds. Sustained trading above 61.8% retracement of 1.3070 to 1.2579 at 1.2882 will pave the way to retest 1.3070 high, and possibly resume whole up trend from 1.1107.
Dallas Fed President Robert Kaplan told Bloomberg News, “”As we make substantial further progress, which I think will happen sooner than people expect — sooner rather than later”.
“We’re weathering the pandemic, I think we’d be far better off, from a risk-management point of view, beginning to adjust these purchases of Treasuries and mortgage-backed securities,” he added.
“I’d rather start tapering, assuming we meet our conditions, sooner rather than later so that we have more flexibility in deciding what we want to do on rates down the road.”
“I think it’s a good thing for the Fed to emphasize that we’re vigilant and we’re committed to anchoring inflation at an average of 2% and that we’re committed to anchoring inflation expectations in a manner that’s consistent with 2% inflation,” Kaplan said. “I think just emphasizing that is probably a healthy thing.”
Kaplan expected one rate hike in 2022, without indicating his expectations for 2023.
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Fed Quarles: We’re not behind the curve on inflation
Fed Vice Chair Randal Quarles said that the current high inflation was transitory, due to supply chain imbalances and higher demand. He said, “if a year from now we were not to see inflation settling back down to something that’s closer to our 2% target… we have the tools at the Fed to then begin – as we traditionally would – to increase interest rates, to change our monetary policy in a way that would address that inflation.” He noted that “we’re not behind the curve”.
Separately, Richmond Fed President Thomas Barkin said, “it’s pretty clear to me we have had substantial further progress against our inflation goal”. “I’m pretty optimistic about the labor market. … If the labor market opens as I suggested it might, then I think we’re going to get there in relatively short order.”
“I kind of think let’s look at it next year and see what happens and if the numbers hit, great, if they don’t, we’ve got time because it will show there’s still more time for the economy to grow,” Barkin said.