Canada employment grew 259k or 1.5% in February, well above expectation of 98k. Part-time jobs increased 171k while full-time jobs rose 88k. Unemployment rate dropped -1.2% to 8.2%, well below expectation of 9.2%. That’s also the lowest level since March 2020. Labor force participation ware was unchanged at 64.7%.
Eurozone industrial production rose 0.8% mom in January, well above expectation of 0.2% mom. Production of durable consumer goods rose by 0.8% mom, non-durable consumer goods by 0.6% mom, energy and capital goods by 0.4% mom and intermediate goods by 0.3% mom.
EU industrial production rose 0.7% mom. Among Member States for which data are available, the highest increases were registered in Luxembourg (+3.8% mom), Greece and France (both +3.4% mom) and Belgium (+3.1% mom). The largest decreases were observed in Estonia and Latvia (both -1.5% mom), Portugal (-1.3%) and Spain (-0.7% mom).
UK GDP contracted -2.90% mom in January, better than expectation of -4.9% mom. Services was the main drag, due to restrictions, and dropped -3.5% mom. Production sector dropped -1.5% mom, following eight consecutive month of growth. Construction saw 0.9% mom growth.
Overall GDP was -9% below the pre-pandemic level seen in February 2020. Services was down -10.2% from that level, production down -5.0%, manufacturing down -4.7%, construction down -2.6%.
According to the Ministry of Finance’s latest survey, business conditions in Japan deteriorated drastically in Q1. The Large manufacturing business survey index (BSI) tumbled from 21.6 to 1.6. Large non-manufacturing BSI turned negative from 6.7 to -7.4. Large all industries BSI also turned negative from 11.6 to -4.5.
Outlook is for Q2 is not expected to improve much, with large manufacturing, large non-manufacturing and large all industries at 2.5. Some improvements could be seen in Q3, with large manufacturing outlook at 9.3, but still way off Q4’s number. Large non-manufacturing Q3 outlook rose to 6.0. Large all industries Q3 outlook rose to 7.1.
New Zealand BusinessNZ Performance of Manufacturing dropped sharply to 53.4 in February, down -4.6 pts from 58.0. Looking at some details, production dropped from 59.3 to 57.3. Employment dropped from 56.1 to 49.8. New orders tumbled from 62.8 to 56.2.
“Despite the PMI remaining in expansion, the proportion of those outlining negative comments stood at 54%, compared with 46% in January. Given the second recent partial lockdown, it remains to be seen what impact this will have on the sector over the next few months,” said BusinessNZ’s executive director for manufacturing Catherine Beard.
BNZ Senior Economist, Craig Ebert said that “supply issues were to the fore from respondents’ comments to February’s PMI survey. Of those citing negative factors, supply rather than demand problems dominated, with frequent references to supply chains, shipping, freight, costs, and difficulties in finding suitable staff.”
In the post meeting press conference, ECB President Christine Lagarde acknowledged that ” market interest rates have increased since the start of the year, which poses a risk to wider financing conditions.”
“Banks use risk-free interest rates and sovereign bond yields as key references for determining credit conditions,” she explained. “If sizeable and persistent, increases in these market interest rates, when left unchecked, could translate into a premature tightening of financing conditions for all sectors of the economy”.
“This is undesirable at a time when preserving favourable financing conditions still remains necessary to reduce uncertainty and bolster confidence, thereby underpinning economic activity and safeguarding medium-term price stability.”
In the baseline scenario of the new economic projections, Eurozone GDP growth is expected to be at 4.0% in 2021, 4.1% in 2022, and 2.1% in 2023. Outlook is “broadly unchanged” comparing to December projections. Risks over medium term “have become more balanced” even though downside risks remains in the near term.
Annual inflation is projected to be at 1.5% in 2021, 1.2% in 2022, and 1.4% in 2023. The outlook for 2021 and 2022 was revised up, “largely due to temporary factors and higher energy price inflation.
US initial jobless claims dropped -42k to 712k in the week ending March 6, better than expectation of 725k. Four-week moving average of initial claims dropped -34k to 759k.
Continuing claims dropped -193k to 4144k in the week ending February 27. Four-week moving average of continuing claims dropped 103.5k to 4355.
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ECB said it expected the purchases under the pandemic emergency purchase programme (PEPP) to be conducted at a “significantly higher pace” over the next quarter. Though, the total envelop will be left unchanged at EUR 1850B, and the program will continue until at least end of March 2022.
The Governing Council will purchase flexibly according to market conditions and with a view to “preventing a tightening of financing conditions”. The total envelop can be “recalibrated if required”, to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation.
Main refinancing rate is kept at 0.00%. Marginal lending rate and deposit rate are held at 0.25% and -0.50% respectively. Interest are expected to “remain at their present or lower levels” until inflation outlook robustly converges to target within its horizon.
Swiss Federal Government’s Expert Group said the country’s GDP is set to decrease in Q1. But following the easing of coronavirus measures, the economy should have a “rapid recovery” subsequently. Nevertheless, “uncertainty remains extremely high”.
The Expert Group kept 2021 GDP growth expectation unchanged at 3.0%, adjusted for sporting events. That would be “above-average rate by historical standards”. Pre-crisis GDP level would be exceeded “by late 2021”. Unemployment rate is expected to fall gradually and reach an annual average of 3.3% for 2021, also unchanged.
For 2022, the Expect Group predicts 3.3% GDP growth (revised up from 3.1%), with unemployment rate averaging 3.0%.
ECB is a major focus for today and no change in monetary policy is expected. In the updated economic projections, growth forecast will likely be revised lower, reflecting weaker than expected Q1 activities due to lock downs. On the other hand, inflation forecasts could be revised up to reflect recent rise in inflation expectations, commodity and energy prices.
Reflation trades have sent global yields since February. While this phenomenon is more remarkable in US Treasury, European yields have also increased a lot. The development prompted some cautious comments from officials. But there appears no consensus on the way to handle the issue yet. The markets would be eager to see President Christine Lagarde shedding some likes on whether ECB would recalibrate the instruments again, in response to surge in yields.
Here are some suggested previews:
EUR/GBP would be one to watch in reaction to the event. Recovery from 0.8537 was limited well below the falling 55 day EMA, keeping near term outlook bearish. Break of 0.8537 will extend the whole pattern from 0.9499 towards 0.8276 key long term support level.
Canadian Dollar stays firm in general after BoC left monetary policy unchanged yesterday, and delivered and slightly more upbeat outlook. While interest rate will remain on hold until into 2023, the central bank is ready to taper asset purchases if board members “gain confidence in the strength of the recovery”.
Suggested readings on BoC:
EUR/CAD turned into consolidation after hitting as low as 1.4984 earlier this week. Some sideway trading could be seen but upside of recovery should be limited below 1.5208 support turned resistance to bring down trend resumption. Current down trend should target 161.8% projection of 1.5978 to 1.5313 from 1.5783 at 1.4707 on next fall.
DOW hit near record high overnight, with help from retreat in bond yields, as well as passage of the USD 1.9T economic stimulus package. The bill was parted in the House by 220 to 221, after going through the Senate with 50.49 on Saturday. The bill will now head to the White House for signature of President Joe Biden.
DOW closed up 1.46% or 464.28 pts at 32297.02. The bullish outlook was retained after drawing support form 55 day EMA earlier. It’s also staying well inside near term rising channel. The up trend is on course to 61.8% projection of 18213.65 to 29199.35 from 26143.77 at 32932.93.
As there is no clear sign of upside acceleration for now, we’d be cautious from strong resistance from this projection level. But still, break of 30547.53 support is needed to indicate topping. Or outlook will remain bullish.
The closely watched US treasury bond auction overnight was soft, but enough to temporarily ease investors’ worry of an avalanche collapse in demand. USD 38B in 10 year treasuries were sold, with bid-to-cover ratio of 2.38, just slightly below one-year average of 2.42. Focus will now turn to 30-year auction today.
10-year yield closed down -0.026 at 1.520, after hitting as low at 1.506. TNX would likely settle in range of 1.4/1.6, with S&P dividend at around 1.5 in the middle. Such developments should provide a floor for overall market sentiments.
BoC kept overnight rate unchanged at effective lower bound of 0.25% as widely expected. Bank rate and deposit rate are kept at 0.50% and 0.25% respectively. It doesn’t expect to raise interest rate until into 2023. The QE program will also continues with current pace of CAD 4B per week. Pace of purchases will be adjusted required.
The economy is “proving to be more resilient than anticipated” in the second wave of pandemic. Q1 GDP is now “expected to be positive, rather than the contraction forecast in January”. Despite the “stronger near term outlook”, there is still “considerable economic slack and a great deal of uncertainty” both the virus and the economy. Labor market is “a long way from recovery”. CPI would move “temporarily” to top of the 1-3% band in the next few months. But it’s expected to “moderate as base-year effects dissipates”.
US CPI rose 0.4% mom in February, matched expectations. CPI core rose 0.1% mom, below expectation of 0.2% mom. Annually, CPI accelerated to 1.7% yoy, up from 1.4% yoy, matched expectations. CPI core slowed to 1.3% yoy, down from 1.4% yoy, missed expectation of 1.4% yoy.
France industrial output rose 3.3% mom in January, well above expectation of 0.5% mom. Manufacturing output also rose 3.3% mom. Comparing to February 2020, the last month before first pandemic lockdown, manufacturing output was still -2.6% low, while whole industrial output was -1.7% lower.
Looking at some details, output increased in all industrial activities, except in transport equipment. Machinery and equipment goods rose 8.4% mom. Mining and quarrying, energy, water supply rose 2.9%. Food products and beverages rose 1.6% mom. Coke and refined petroleum rose 7.2% mom. Transport equipment dropped -2.9% mom.
BoC is generally expected to keep monetary policy unchanged today. Overnight rate will be held at effective lower bound of 0.25%. The size of asset purchases will also stay unchanged at CAD4B per week. There will be no press conference and updated economic projections will not be released until April. So, today’s announce is more likely a non-event than not.
Nevertheless, the central bank should acknowledge the better-than-expected developments since the January meeting. There have been increasing speculations that the central bank will reduce the size to CAD3B per week at the April meeting. We will see if there will be hints of such as move in the policy statement.
Some BoC previews:
Canadian Dollar is currently trading as the strongest for the month, partly helped by strong rally in oil price. CAD/JPY retreated mildly after hitting 86.35 earlier this week. Some consolidations would likely be seen first but overall outlook will stay bullish as long as 83.59 support holds. We’d expect the up trend form 73.80 to extend to 161.8% projection of 74.76 to 81.91 from 77.91 at 89.47 down the road.
RBNZ announced to remove some of the temporary liquidity facilities put in place during the COVID-19 pandemic. Measures include term auction and corporate open market operation (COMO) facilities, which allowed banks to borrow money in exchange for eligible corporate and asset-backed securities.
Head of Financial Markets Vanessa Rayner says, “Financial market conditions have improved significantly since March 2020 when these facilities were introduced and the usage of these special facilities has been very low in the last six months. In addition, the Large Scale Asset Purchase, Term Lending Facility, and Funding for Lending programmes have resulted in a significant increase in system liquidity and a lower cost of funding for banks.”
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US PPI jumped to 2.8% yoy, highest since 2018
US PPI rose 0.5% mom in February, above expectation of 0.3% mom. Annually, PPI jumped to 2.8% yoy, up from 1.7% yoy, above expectation of 2.7% yoy. It’s also the largest increase since October 2018.
PPI ex foods, energy and trade services rose 0.2% mom, matched expectations. Annually, PPI ex foods, energy and trade services rose 2.2%, highest since May 2019.
Full release here.