US initial jobless claims rose 4k to 230k in the week ending December 3, below expectation of 245k. Four-week moving average of initial claims rose 1k to 230k.
Continuing claims rose 62k to 1671k in the week ending November 26. Four-week moving average of continuing claims rose 43k to 1582k.
Thomas Barkin delivered his first speech as Richmond Fed President overnight and expressed his support for more rate hikes ahead. But he declined to comment on how many hikes this year he expects.
He noted that “monetary policy is still pretty accommodative”. And, “when unemployment is low and inflation is effectively at our target, we probably ought to go to neutral in that environment.” Also, “the economy’s performance as we sit here today is remarkably strong: above trend growth, low unemployment, inflation at target.”
But Barkin also warned on the risks from the trade tensions between US and other countries. He said it’s “not clear what’s going to be implemented in the end” regarding tariffs. But “there is an issue on business confidence and the business people that I talk to who were almost euphoric in January are now nervous. And they’re nervous about where the macroeconomy is going.”
Canada CPI accelerated to 4.7% yoy in October, up from September’s 4.4% yoy, matched expectations. That’s the highest reading since February 2003. Excluding energy, CPI rose 3.3% yoy, unchanged from September’s reading. On a monthly basis CPI rose 0.7% mom, largest gains since June 2020.
CPI common was unchanged at 1.8% yoy, below expectation of 1.9% yoy. CPI median rose to 2.9% yoy, up from 2.8% yoy, matched expectations. CPI trimmed slowed to 3.3% yoy, down from 3.4% yoy, below expectation of 3.4% yoy.
In an interview with franceinfo radio, ECB Governing Council member Francois Villeroy de Galhau affirmed that the current interest rates, pegged at a historical high of 4% after ten consecutive hikes, are positioned at a “good level”. Furthermore, Villeroy added that the prevailing economic climate doesn’t warrant additional rate hikes.
However, Villeroy didn’t mince words when expressing his apprehensions about the escalating oil prices. The surge in prices this week can be attributed to potential disruptions in supply, catalyzed by the military confrontations between Israel Palestinian Islamist group Hamas. Such geopolitical tensions have historically influenced global oil prices. A notable instance from the past is the 1973 Yom Kippur War, which had a significant bearing on oil price dynamics.
Addressing this historical context, Villeroy remarked, “I don’t think that we are today in a similar situation (as the Kippur War) but we must of course remain very vigilant.” He went on to underscore that such events amplify the existing economic uncertainty.
Canada’s retail sales rose 0.7% mom to CAD 66.9B in October, below expectation of 0.8% mom. Core retail sales—which exclude gasoline stations and fuel rose 1.2% mom.
Sales were up in seven of nine subsectors and were led by increases at motor vehicle and parts dealers (+1.1%).
Advance estimates suggest that sales were relatively unchanged in November.
Euroarea (EA19) Q4 GDP: 0.6% qoq, 2.7% yoy, 2.3% over 2017
EU28 Q4 GDP growth: 0.6% qoq, 2.6% yoy, 2.4% over 2017
In Q4, Estonia ranked top at +2.2%, followed by Slovenia at +2.0% and Lithuania at +1.4%
Greece and Croatia were both at bottom at +0.1%, followed by Italy and Latvia at +0.3%
Regarding the components:
Entering into US session, Yen remains the strongest one for today even though it has already pared back much of the “flash crash gains”. Risk aversion intensifies in European session and Swiss Franc is now the second strongest, followed by Euro and then Dollar. Sterling overtook Aussie’s place as the weakest one. Australian Dollar stays the second weakest after paring some of the spike losses, followed by Kiwi.
Risk aversion will likely stay, at least at the beginning of risk aversion. After Apple’s sales outlook downgrade, DOW future is now trading down over -300 pts. But 10 year yield is back at 2.65, up from premarket low at 2.626. Stocks will be facing multiple tests in job data and ISM manufacturing in US session.
In Europe, at the time of writing:
Earlier in Asia, selloff was not to serious:
In March, Japan observed a subtle cooling in core inflation, though levels persistently exceed BoJ’s target.
Core CPI, which excludes food prices, slowed from 2.8% yoy to 2.6% yoy, slightly under the expectation of 2.7% yoy, marking a continued stretch above BoJ’s 2% target for two full years.
Further detail is seen in the core-core CPI, excluding both food and energy, which decreased from 3.2% yoy to 2.9% yoy. This marks the seventh consecutive month of deceleration and brings this measure below 3% level for the first time since November 2022.
Meanwhile, headline CPI dipped slightly from 2.8% year-on-year to 2.7%, aligning with analysts’ forecasts.
An unnamed EU official quoted saying that there will be a transition Brexit deal next week. But that would be provisional. He’s quoted:
It’s reported earlier that UK Brexit Secretary David Davis is targeting to complete the legal text of the transition deal at the two-day summit from March 22.
However, it’s unlikely for a resolution on soft Irish border to be reached.
Intensive talk is now planned between March 26 and April 18 on the issue.
So, yes, the best transition deal will be provisional.
BoJ board member Toyoaki Nakamura said, “recent price rises aren’t accompanied by wage increases yet”. He added that Japan is far from the situation where wage inflation spiral becomes a concern. The central bank needs to continue with ultra-loose monetary policy for the time being.
“Tightening monetary policy at a time when demand continues to remain lower than supply would put huge pressure on corporate and household activity,” he warned.
He expects inflation to slow next year as energy and food price rises fade.
ECB Governing council member Robert Holzmann said he would like to have 50bps rates hikes in all of the March, May, June and July meetings.
“I expect it to take a very long time for inflation to come down,” the Austrian central bank Governor told Handelsblatt. “My hope is that within the next 12 months we will have reached the peak of interest rates.”
“If we want to get inflation back to two percent in the foreseeable future, we have to be restrictive,” Holzmann said, arguing that only a 4% deposit rate will start restricting growth.
The minutes of RBA’s meeting on March 7 indicate that the central bank is considering a more cautious approach in tightening monetary policy, as uncertainty surrounding the economic outlook persists. The RBA members observed that “further tightening of monetary policy would likely be required to ensure that inflation returns to target.” However, they also noted the restrictive nature of current monetary policy and the economic uncertainty, stating that “it would be appropriate at some point to hold the cash rate steady.”
During the meeting, RBA members agreed to “reconsider the case for a pause at the following meeting, recognizing that pausing would allow additional time to reassess the outlook for the economy.” The decision on when to pause will be determined by incoming data and the board’s assessment of the economic situation.
The RBA acknowledges that “the outlook for consumption remained a key source of uncertainty.” The central bank will closely monitor upcoming data releases on employment, inflation, retail trade, and business surveys, as well as developments in the global economy, to inform their decision-making.
In an IMF report on UK, the organization expect growth to remain “moderate in the near term”, averaging around 1.5% in 2018 and 2019. However, it wanted that ” A more disruptive departure from the EU could lead to a significantly worse outcome, especially if it were to occur without an implementation period. “. On the other hand, “an agreement featuring fewer impediments to trade than currently expected could buoy business and consumer confidence, leading to faster growth.”.
IMF Managing Director Christine Lagarde also said, “compared with today’s smooth single market, all the likely Brexit scenarios will have costs for the economy and to a lesser extent as well for the EU.” And she warned that “The larger the impediments to trade in the new relationship, the costlier it will be. This should be fairly obvious, but it seems that sometimes it is not.”
In addition to Brexit, UK also faces a range of other economic challenges. These include “persistently lackluster productivity growth, large public debt, and the wide current account deficit.” Nonetheless, UK’s “sound macroeconomic framework, regulatory environment, and deep capital and flexible labor markets will be advantages in implementing reforms to address them.”
UK Chancellor of Exchequer Philip Hammond urged the government to listen to the “clear warnings” of the IMF of no-deal Brexit. Though, he also noted that no-deal outcome is unlikely even though it’s not impossible.
UK Gfk consumer confidence dropped from -41 to -44 in August, hitting another record low. Personal financial situation over the next 12 months dropped from -26 to -31. General economic situation over the next 12 months dropped from -57 to -60, setting a new record low.
Joe Staton, Client Strategy Director, GfK says: “The Overall Index Score dropped three points in August to -44, the lowest since records began in 1974. All measures fell, reflecting acute concerns as the cost-of-living soars. A sense of exasperation about the UK’s economy is the biggest driver of these findings.”
ECB Executive Board member Isabel Schnabel said in a speech that despite decline in headline inflation, largely due to unwinding of previous supply-side shocks, “underlying price pressures remain stubbornly high,” with domestic factors now becoming the main drivers of inflation.
Given this backdrop, Schnabel emphasized the necessity of maintaining “sufficiently restrictive monetary policy” to steer inflation back to target. She advocated for a data-dependent approach, stating that the bank will continually assess whether current policy is effective in ensuring “a sustained and timely return of inflation to our 2% target.”
To guide this assessment, Schnabel pointed to the need for a comprehensive risk analysis that looks beyond baseline inflation forecasts. This approach accounts for an “exceptionally large degree of uncertainty” in medium-term inflation projections, with risks on both the upside and downside.
Upside risks include stronger-than-expected growth in unit labor costs, firmer corporate pricing power, and the potential for new adverse supply-side shocks. Conversely, downside risks include possibility that impact of current monetary policy may become more pronounced over the medium term.
Notably, Schnabel also raised the issue of real risk-free rates, which have declined recently as investors reassess their expectations for economic growth and inflation. She warned that this decline could potentially “counteract” the ECB’s efforts to control inflation effectively.
UK unemployment rate was unchanged at 3.8% in the three months to October, below expectation of 3.9%. Estimated unemployment rate was 4.0% for men and 3.5% for women, the latter at a record low. An estimated 1.28m people were unemployment, 93k fewer than a year ago.
Wages growth slowed quite notably. Average earnings including bonus dropped to 3.2% 3moy, down from 3.7% and missed expectation of 3.4%. Average earnings excluding bonus dropped to 3.5% 3moy, down from 3.6%, but beat expectation of 3.4%.
Without knowing the details, Trump questioned if the Brexit deal with EU with hamper trade with the US. But UK PM May’s office quickly clarified and corrected Trump’s claim.
Trump said to reporters outside the White House that “I think we have to take a look seriously whether or not the UK is allowed to trade.” And, he added, “because right now if you look at the deal, they may not be able to trade with us.”
May’s office then said “the political declaration we have agreed with the EU is very clear we will have an independent trade policy so that the UK can sign trade deals with countries around the world — including with the US.” And, “we have already been laying the groundwork for an ambitious agreement with the US through our joint working groups, which have met five times so far.”
ECB Executive Board member Isabel Schnabel said policymakers are “very worried about what is currently happening with respect to the spread of the coronavirus.” “We know that this is really raising uncertainty to a large degree, for the global growth outlook but of course also for the outlook for the euro area.”
“But what we really need to understand when we are doing monetary policy is what are the potential medium-term implications, and at the moment this is unclear”, she added.
Australia retail sales dropped -1.7% mom in August, better than expectation of -2.5% mom. It’s the third consecutive monthly fall after -2.7% in July, and -1.8% in June.
Ben James, Director of Quarterly Economy Wide Surveys, said: “Retail turnover continues to be negatively impacted by lockdown restrictions, with each of the eastern mainland states experiencing falls in line with their respective level of restrictions. In direct contrast, states with no lockdowns performed well with Western Australia and South Australia enjoying strong rises as physical stores were open for trade.”
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RBNZ inflation expectations dropped, solidifying case for another rate cut
In RBNZ’s quarterly Survey of Expectations report, inflation expectation for one year ahead dropped from 1.71% to 1.66%. Expectations for two years ahead also dropped from 1.86% to 1.80%. Mean expectation for the end of quarter OCR dropped from 1.32% to 0.79%. One year expectations also dropped form 1.13 to 0.61%.
The release solidify the case for another RBNZ rate cut to 0.75% tomorrow. The key now is whether RBNZ would give any indication of easing bias, even after the cut. In particular, traders would look for phrase like “there is scope for further fiscal and monetary easing if necessary.”
Full release here.