Fed Kaplan: Probably take more fiscal action to grind down unemployment

    Dallas Fed President Robert Kaplan told CNBC that the US would probably need more fiscal action “whether it’s aid to governments or other fiscal action as we go through this.”

    “The problem is we’re going to have an unemployment rate that peaks at around 20%, which we’re going to reach very soon,” he added. “We’re going to end the year with an unemployment rate as high as 10%, and we’re going to need to grind that down, and it’s probably going to take more fiscal action to help grind that down.”

    “The Fed has done a lot to help stabilize the markets and make sure that small companies, mid-size companies, bigger companies have access to capital,” Kaplan said. “But again, these are loans. We’re the lender of last resort and this is intended to be a bridge to when we are going to recover.”

    DOW feels heavy around 24000, Euro gains upside momentum

      DOW opened notably higher today and breached 24000 handle to 24044.39. But it quickly lost momentum. For the moment, it’s feeling heavy from 24000. Current fall from 25449.15 is seen as resuming the decline from 26616.71 to 23360.29. Ideally, if our view is current, any interim recovery should be brief and there should be near them downside acceleration through 23360.29 support. And, break of 24453.14 resistance is needed to indicate bottoming. Otherwise, DOW will more likely have a take on 23360.29 than not.

      In the currency markets, after some strong momentum in early US session, Euro is now trading as the strongest one for today, overtaking NZD.

      In particular, EUR/USD’s breach of 1.2445 resistance is now setting up the pair for a test on 1.2555 high.

      EUR/AUD has met upside target of 61.8% projection of 1.5130 to 1.5976 from 1.5621 at 1.6130 first. With current solid momentum, it should be on track to 100% projection at 1.6444.

      US PPI and core PPI slowed in September, missed expectations

        Both US PPI and core PPI slowed in September and missed expectations. PPI dropped came in at -0.3% mom, 1.4% yoy, versus expectation of 0.1% mom, 1.7% yoy. PPI core was at -0.3% mom, 2.0% yoy, versus expectation of 0.2% mom, 2.2% yoy.

        Full release here.

        BoE Pill: Truss’s gas plan could lower headline inflation

          BoE Chief Economist Huw Pill said plans by new Prime Minister Liz Truss on energy costs could help slowing inflation. He told the Parliament’s Treasury Committee today, “one of the things that does seem to be under consideration … is a change to the relationship between gas prices and retail gas prices in a direction that will lower headline inflation, relative to what we were forecasting,”

          Governor Andrew Bailey said, “It’s not for us to comment on what fiscal policy will be and we will wait and see what it is … but I do very much welcome the fact that there will be, as I understand it, announcements this week because I think that will help to, in a sense, frame policy and that’s important.”

          MPC member Silvana Tenreyro favors a more tentative approach on tightening. She said, “When close to the equilibrium rate, gradual rate rises allow us to react before we tighten too far into contractionary territory, as we observe the lagged impact of policy and demand on the labor market. They also do not preclude voting for more forceful rate increases in future, should adverse wage-price dynamics take hold.”

          On the other hand Catherine Mann reiterated her stance that “a more forceful set of moves in Bank Rate earlier on opens the potential for a policy hold, or even reversal, later depending on the evolution of both inflation and demand relative to supply.”

           

          WH Kudlow: Communications with China picked up a notch

            White House top economic advisor Larry Kudlow said yesterday that communications with Beijing had “picked up a notch”. He also confirmed that Treasury Secretary Steven Mnuchin had sent an invitation letter to senior Chinese officials to restart trade talks. Also, “there’s some discussions and information that we’ve received that the top of the Chinese government wishes to pursue talks.”

            Kudlow also added that “most of us think it’s better to talk than not to talk, and I think the Chinese government is willing to talk.” And, if they come to the table in a serious way to generate some positive results, yes, of course. That’s what we’ve been asking for months and months.”

            But he also cautioned that “I guarantee nothing.”

            Ethereum tumbling, bitcoin follows

              Ethereum plummets further today and the post “merge surge” decline extends. Deeper fall is expected as long as 1474.00 minor resistance holds. Next near term target is 100% projection of 2028.90 to 1418.47 from 1787.45 at 1177.02. Firm break there could bring downside acceleration through 878.5 to 161.8% projection at 799.77.

              Bitcoin’s development is even worse. Deeper decline is expected as long as 20167 resistance holds, for 17575 low. Break there will target 100% projection of 25198 to 18518 from 22764 at 16084.

              Eurozone unemployment rate dropped to 6.6% in Jul, EU down to 6.0%

                Eurozone unemployment dropped from 6.7 to 6.6% in July, matched expectations. EU unemployment dropped from 6.1% to 6.0%.

                Eurostat estimates that 12.959 million men and women in the EU, of whom 10.983 million in the euro area, were unemployed in July 2022. Compared with June 2022, the number of persons unemployed decreased by 113 000 in the EU and by 77 000 in the euro area. Compared with July 2021, unemployment decreased by 1.854 million in the EU and by 1.576 million in the euro area.

                Full release here.

                Germany economy ministry cut 2022 GDP growth forecast sharply to 2.2%

                  Germany’s economy ministry cuts 2022 GDP growth forecast to 2.2%, down from January’s projection of 3.6%. Nevertheless, 2023 GDP growth forecast is upgraded slightly from 2.3% to 2.5%. It expects Russia’s invasion of Ukraine, resulted sanctions and higher energy prices will weigh on output.

                  Inflation is forecast to be at 6.1% in 2022 and 2.8% in 2023, on rising energy prices and consumer prices.

                  US CPI slowed to 1.8%, core CPI to 2.0%, but Dollar shrugs

                    US CPI rose 0.1% mom in May while core CPI rose 0.1% mom. Annually, headline CPI slowed to 1.8% yoy, down from 2.0% yoy and missed expectation of 1.9% yoy. Core CPI slowed to 2.0% yoy, down from 2.1% yoy and missed expectation of 2.1% yoy.

                    Full release here.

                    EUR/USD spikes higher after the release but is quickly under pressure again. Deeper fall could be seen towards 1.1251 minor support. But for now, there is no confirmation of short term topping yet with 1.1251 support intact. Rise from 1.1107 could still extend higher through 1.1347.

                    US GDP dropped -1.4% annualized in Q1, first contraction since Q2 2020

                      US GDP unexpectedly contracted -1.4% annualized in Q1, much worse than expectation of 1.1% growth. That’s also the first contraction reading since Q2 2020.

                      The decrease in real GDP reflected decreases in private inventory investment, exports, federal government spending, and state and local government spending, while imports, which are a subtraction in the calculation of GDP, increased. Personal consumption expenditures (PCE), nonresidential fixed investment, and residential fixed investment increased.

                      Full release here.

                      Bundesbank Weidmann: OIl price and growth expectation could temporarily influence inflation

                        More from Bundesbank President Jens Weidmann, he said that ECB should looks through short term fluctuations in inflation caused by oil prices to temporary slowdown. He emphasized that ECB’s “price stability target is medium term, so we should look through these fluctuations”.

                        Also, “it is clear that short-term fluctuations in oil prices — like the sharp decline at the end of 2018 — but also corrections in growth expectations for 2019, could temporarily influence the inflation outlook.”

                        ECB Villeroy: There is no point in putting predetermined threshold or duration on inflation overshoot

                          ECB Governing Council member Francois Villeroy de Galhau said the new 2% symmetric inflation target is a “significant change”. But, “there is no point putting in rules with such-and-such predetermined threshold or duration” on inflation overshoot.

                          “In the hypothesis that we stop net purchases under the pandemic emergency purchases program next March, our monetary policy will remain very accommodative for as long as necessary, thanks to our quartet of unconventional tools. There is no doubt about that,” Villeroy added.

                          Yannis Stournaras said that the new strategy will leave ECB better prepared for further crisis. Ignazio Visco noted ECB is not adopting average inflation target like that Fed, which suggests a period of catch-up in inflation.

                          Canadian dollar jumps as core CPI accelerated in March

                            Canadian Dollar rises in early US session as core inflation came in higher than expected. Headline CPI rose 1.9% yoy in March, accelerated from 1.5% yoy but matched expectation. CPI core common was unchanged at 1.8% yoy, matched expectations. However, CPI core median accelerated to 2.0% yoy, up from 1.8% yoy and beat expectation os 1.8% yoy. CPI core trim rose to 2.1% yoy, up from 1.9% yoy and beat expectation of 1.8% yoy.

                            Also from released, Canada trade surplus was smaller than expected at CAD 2.9B in February. US trade deficit narrowed to USD -49.4B in February.

                            USD/CAD dips through 1.3284 support after the releases. But it’s staying above 1.3250 support. There is no change in the view that it’s in consolidation pattern from 1.3467. Rise from 1.3068 is expected to resume sooner or later.

                            Fed Clarida: Prospects have brightened and downside risks diminished

                              Fed Vice Chair Richard Clarida said in a speech, there have been some weaker than expected data in recent months. Services spending remained “well below pre-pandemic levels”. Improvement tin labor markets has “slowed notably”, with “true unemployment rate” closer to 10% level. Core PCE inflation was just running at 1.5%.

                              There were also some encouraging data as retail sales “stepped up considerably” in January. Housing sector has “more than fully recovered from the down turn”. Business investment and manufacturing production have “rebounded robustly”.

                              Overall, vaccine developments, and the new fiscal relief measures indicated that “the prospects for the economy in 2021 and beyond have brightened and the downside risk to the outlook has diminished.”

                              Full speech here.

                              New Zealand ANZ business confidence dropped to -51.8, a challenging year in 2022

                                New Zealand ANZ business confidence dropped to -51.8 in February, down from December’s -23.2. Own activity outlook dropped from 11.8 to -2.2. Export intentions dropped from 8.8 to 0.9. Investment intentions dropped from 11.4 to 4.5. Employment intentions dropped from 10.5 to 2.3. Cost expectations rose from 88.2 to 92.0. Profit expectations dropped from -13.1 to -32.7. Pricing intentions rose from 63.6 to 74.1. Inflation expectations rose from 4.42 to 5.29.

                                ANZ said, “All up, 2022 is shaping up to be a challenging year economically, and getting on top of super-charged inflation without an outright recession is looking increasingly difficult. But with CPI inflation heading well over 6% the RBNZ has no choice but keep right on hiking. And now global geopolitical developments threaten yet more imported inflation via energy markets. Buckle up.”

                                Full release here.

                                ECB Vasiliauskas doesn’t prefer shooting out stimulus with a machine gun

                                  ECB Governing Council member Vitas Vasiliauskas said he has reservation about the new easing package, which could provide too much extra stimulus for the economy. Though, he considered the decision good and positive yesterday. He added, “my position was that we need to shoot selectively rather than with a machine gun, without care.”

                                  Another Governing Council member Robert Holzman said the PEPP limit “can be used up but the expectation is that it will not be fully used.”. He emphasized, “PEPP limit is a backstop, we do not want to pump more into the market than necessary.”

                                  UK CPI eased to 7.9% in Jun, core CPI down to 6.9%, both below expectations

                                    UK CPI slowed from 8.7% yoy to 7.9% yoy in June, below expectation of 8.2% yoy. Core CPI (excluding energy, food, alcohol and tobacco) slowed from 7.1% yoy to 6.9% yoy, below expectation of staying unchanged at 7.1% yoy.

                                    CPI goods slowed from 9.7% yoy to 8.5% yoy. CPI services also eased from 7.4% yoy to 7.2% yoy.

                                    On a monthly basis, CPI rose just 0.1% mom, down from May’s 0.7% mom. Falling prices for motor fuel led to the largest downward contribution to the monthly change.

                                    Full UK CPI release here.

                                    Australia CPI rose 0.9% qoq in Q4, driven by tobacco and childcare

                                      Australia CPI rose 0.9% qoq in Q4, above expectation of 0.7% qoq. Annually, CPI accelerated from 0.7% yoy to 0.9% yoy, above expectation of 0.7% yoy. RBA trimmed mean CPI came in at 0.4% qoq, 1.2% yoy. Weighted mean CPI was at 0.5% qoq, 1.4% yoy.

                                      Head of Prices Statistics at the ABS, Michelle Marquardt said: “The December quarter CPI was primarily impacted by an increase in tobacco excise and the introduction, continuation and conclusion of a number of government schemes, including childcare fee subsidies and home building grants.”

                                      Full release here.

                                      ECB Villeroy: Rate hikes are over, but that doesn’t mean a quick cut

                                        ECB Governing Council member Francois Villeroy de Galhau, in an Ecorama radio interview, stated, “Barring shocks or surprises, rate hikes are over. However, he emphasized that “doesn’t mean a quick rate cut.” He further clarified, “We are not guided by a calendar, we are guided by data,” and called for “confidence and patience.”

                                        Villeroy also commented on the pace of disinflation, noting it is occurring “a little quicker than expected,” largely due to the faster-than-anticipated transmission of monetary policy. He concluded, “In other words, monetary policy is effective.”

                                        Madis Muller, another ECB Governing Council member, expressed the view that markets might be “a bit optimistic” about the prospects of early rate cuts. This sentiment was echoed by Robert Holzmann, who stated that there were no discussions about rate cuts among policymakers. Holzmann also mentioned that a majority of the Council members perceive upside risks to inflation.

                                        US 10-year yield tumbled on delta concerns

                                          US benchmark treasury yields dropped sharply overnight on concern of the spread of delta variant in the country. According to latest CDC data, There were more than 72k new COVID cases a day on average in the US in the last seven days. That’s a level not seen since February. The fall in treasury yield lifted Yen generally higher, in particular against Dollar.

                                          10-year yield dropped -0.065 to close at 1.174, after dipping to as low as 1.151. The development suggests that corrective fall from 1.765 is probably resume to resume through 1.128 low. Still, we’d continue to expect strong support between 0.985/1.134 (50% and 61.8% retracement of 0.504 to 1.765) to contain downside to finish off the correction eventually.