Sun, Aug 07, 2022 @ 21:30 GMT

Fed Clarida: US economy in a good place right now

    Fed Vice Chair Richard Clarida attended a Dallas Fed event on Global Perspectives, with Dallas Fed President Robert Kaplan. There Clarida said that “the U.S. economy is in a good place right now….It’s a good situation to be in, and we really want to do whatever we can to help support and maintain the economy.”

    Clarida also noted that slowdown in Asia and Europe are “definitely a relevant factor” to Fed policy. Since other central banks are still having interest rates stuck in crisis-fighting mode, “that obviously, on balance, makes the global economy more fragile.” He also tried to talk down the implication of yield curve inversion. He said “you can’t be handcuffed” to financial market signals . There are factors like global demand for US treasuries that pushes yields down at the long end.

    Kaplan indicated that “you want to run maybe a little hotter, but you don’t want to go too far.” And, since “inflation is not running away from us”, Fed “might have the luxury of trying to do more to get more people into this workforce on a sustainable basis …”

    Eurozone CPI jumped to 1.3% yoy in Mar, but core CPI slowed to 0.9% yoy

      Eurozone CPI jumped to 1.3% yoy in March, up from 0.9% yoy, above expectation of 0.9% yoy. However, CPI core dropped to 0.9% yoy, down from 1.1% yoy, missed expectation of 1.1% yoy.

      Energy is expected to have the highest annual rate in March (4.3%, compared with -1.7% in February), followed by services (1.3%, compared with 1.2% in February), food, alcohol & tobacco (1.1%, compared with 1.3% in February) and non-energy industrial goods (0.3%, compared with 1.0% in February).

      Full release here.

      Trump said to delay decision on EU auto tariffs by six months

        Reuters reported that US President Donald Trump could announce this week to delay the decision on Section 232 national security tariffs on EU autos by another six months. An unnamed EU official was quoted, “We have a solid indication from the administration that there will not be tariffs on us this week”.

        The news is in-line with recent comments from US Commerce Secretary Wilbur Ross, who indicated that such tariffs might not be necessary after “good conversations”. It’s also believed that US Trade Representative Robert Lighthizer and EU Trade Commissioner Cecilia Malmstrom have spoken often in recent weeks, with “positive” tone.

        ECB Lagarde: Growth, inflation and employment have picked up faster

          In a CNBC interview, ECB President Christine Lagarde said policy makers try to asses the situation “based on figures, on data, on facts”, rather than on basis of “hearsay, assumption here, price increases there.”

          She noted, things have “picked up faster” for growth, inflation and employment, and it’s a “package of good news”. For prices, ECB thought “there will be a return to much more stability in the year to come because many of the causes of higher prices are temporary.”.

          Full interview here.

          Eurozone PMI Manufacturing finalized at 63.1, unprecedented growth in also 24 years of history

            Eurozone PMI Manufacturing was finalized at 63.1 in May, up from April’s 62.9. Rises in output and new orders were slightly softer, but growth rates remained considerable. Record deterioration in vendor delivery times drove intensification of inflationary pressures.

            Looking at some member states, the Netherlands (69.4), Austria (66.4), Ireland (64.1) and Italy (62.3) were at record highs. Germany dropped to 64.4, but stayed strong. France hit 248-month high at 59.4. Spain rose to 276-month high at 59.4. Greece rose to 253-month high at 58.0.

            Chris Williamson, Chief Business Economist at IHS Markit said: “Eurozone manufacturing continues to grow at a rate unprecedented in almost 24 years of survey history, the PMI breaking new records for a third month in a row. Surging output growth adds to signs that the economy is rebounding strongly in the second quarter.

            “However, May also saw record supply delays, which are constraining output growth and leaving firms unable to meet demand to a degree not previously witnessed by the survey.

            “High sales volumes are consequently depleting warehouse stocks and backlogs of uncompleted work have soared at a record pace. While these forward-looking indicators bode well for production and employment gains to persist into coming months as firms seek to catch up with demand, the flip-side is higher prices. The combination of strong demand and deteriorating supply is pushing up prices to a degree unparalleled over the past 24 years.

            “The survey data therefore indicate that the economy looks set for strong growth over the summer but will likely also see a sharp rise in inflation. However, we expect price pressures to moderate as the disruptive effects of the pandemic ease further in coming months and global supply chains improve. We should also see demand shift from goods to services as economies continue to reopen, taking some pressure off prices but helping to sustain a solid pace of economic recovery.”

            Full release here.

            BoJ Minutes: Firm domestic demand offset drag from overseas slowdown

              Minutes of the March 14/15 BoJ meeting noted that members “concurred” that the economy will continue to its “moderate expansion”. “domestic demand was likely to follow an uptrend”, including fixed investment and private consumption. That should offset weakness in exports and product as dragged down by overseas slowdown.

              On prices, members reiterated that CPI ‘continued to show relatively weak developments compared to the economic expansion and the labor market tightening.” But CPI is still “likely to increase gradually” toward 2% target.

              On monetary policy, members agreed that it was “appropriate” to persistently continue with the powerful monetary easing under the current guideline. On member warned of the “side effects” of maintaining current easing. One member warned that if downside risks were materializing, BoJ should be prepared to make policy responses. One member also noted the importance to “preemptive policy responses” in case of phase shift in developments.

              Full minutes here.

              BoJ: All nine regions expanding or recovering, but uncertainties heightened

                In the quarterly Regional Economic Report, BoJ kept assessment of all nine regions unchanged. All nine regions reported that their economy had been “either expanding or recovering”. Domestic demand had “continued on an uptrend”, with a virtuous cycle from income to spending operating in both the corporate and household sectors. But, exports and production had been affected by the “slowdown in overseas economies”.

                Also, while the assessments were overall unchanged, “a somewhat increasing number of firms were pointing to heightening uncertainties over the outlook for overseas economies and their impacts, reflecting, for example, the U.S.-China trade friction.”

                Full report here.

                UK GDP dropped -0.1% in February, no growth before coronavirus outbreak

                  UK GDP contracted -0.1% mom in February, below expectation of 0.1% mom. Index of services rose 0.0% mom. Index of production rose 0.1% mom. Manufacturing rose 0.5% mom. Construction dropped -1.7% mom. Agriculture dropped -0.1% mom.

                  For the three months to February, GDP grew just 0.1% 3mo3m. Index of services rose 0.2% 3mo3m, the only positive contribution to GDP growth, by 0.15%. Index of production dropped -0.6% 3mo3m, contributed to -0.08% GDP growth. Construction dropped -0.2% 3mo3m, contributed to -0.01% GDP growth.

                  Rob Kent-Smith, Head of GDP, Office for National Statistics: “Today’s figures show that in the three months to February, which was before the full effects of Coronavirus took hold, the economy continued to show little to no growth. Most elements of the services sector grew, though manufacturing continued to decline. Construction saw a notable fall in February, as wet weather and flooding hampered housebuilding. The underlying trade balance moved into surplus in the latest 3-months, the first seen since comparable records began over 20 years ago. This surplus was caused by a large fall in goods imported from EU countries.”

                  Full release here.

                  Also from the UK, industrial production came in at 0.1% mom, -2.8% yoy in February, versus expectation of 0.3% mom, -2.8% yoy. manufacturing production came in at 0.5% mom, -3.9% yoy, versus expectation of 0.3% mom, -3.9% yoy. Goods trade deficit widened sharply to GBP-11.5B, versus expectation of GBP -6.0B.

                  US retails rose 1.9% in Sep, ex-auto sales up 1.5%

                    US retail sales rose 1.9% mom to USD 549.3B in September, much better than expectation of 0.5% mom. Ex-auto sales also rose 1.5% mom, above expectation of 0.5% mom. Ex-gasoline sales 1.9% mom. Ex-auto and gasoline sales rose 1.5% mom.

                    Full release here.

                    UK PMI services dropped to 50.2, all surveys point to -0.1% GDP contraction in Q2

                      UK PMI Services dropped to 50.2 in June, down from 51.0 and missed expectation of 51.0. That’s a also a three-month low, just above 50 no-change mark. All Sector PMI dropped to 49.2, down from 50.7, signalling a reduction in overall private sector business activity for the first time in 35 months.

                      Chris Williamson, Chief Business Economist at IHS Markit, which compiles the survey:

                      “The near-stagnation of the services sector in June is one of the worst performances seen over the past decade and comes on the heels of steep declines in both manufacturing and construction. Collectively, the PMI surveys indicate that the economy has slipped into contraction for the first time since July 2016, suffering the second-steepest fall in output since the global financial crisis in April 2009.

                      “The June reading rounds off a second quarter for which the surveys point to a 0.1% contraction of GDP.

                      “The latest downturn has followed a gradual deterioration in demand over the past year as Brexit-related uncertainty has increasingly exacerbated the impact of a broader global economic slowdown. Risks also remain skewed to the downside as sentiment about the year ahead is worryingly subdued, suggesting the third quarter could see businesses continue to struggle.

                      “One ray of hope came from a further rise in employment as firms continued to hire new staff despite the drop in output, but the resulting decline in productivity signalled was the largest in the survey’s 20-year history.

                      “Average selling prices for goods and services meanwhile rose at one of the slowest rates seen over the past three years, despite steeply rising costs, boding ill for corporate profits.

                      “The worsening picture will put further pressure on the Bank of England to add stimulus. For policymakers to not loosen policy with the all sector PMI at its current level would be unprecedented in the survey’s two-decade history.”

                      Full release here.

                      Japan PMI manufacturing dropped to 49.6, re-escalation of US-China trade frictions heightened concern

                        Japan PMI manufacturing dropped to 49.6 in May, down from 50.2 and missed expectation of 50.5. The reading is also back in contraction territory. Markit noted that output and new orders decrease for fifth successive month. Businesses cast pessimistic outlook towards the coming year for the first time in six-and-a-half year.

                        Commenting on the Japanese Manufacturing PMI survey data, Joe Hayes, Economist at IHS Markit, which compiles the survey, said:

                        “Following some tentative signs that the downturn in Japan’s manufacturing sector had softened in April, flash data for May revealed these were short-lived, as output and export orders fell at stronger rates. The re-escalation of US-China trade frictions has heightened concern among Japanese goods producers. Underlying growth weakness across much of Asia led to struggling exports, which fell at the sharpest rate in four months. Difficulties on the international front merely add to uncertainties domestically, with upcoming upper house elections in July, and the impending sales tax hike later this year. Subsequently, sentiment turned negative in May for the first time in six-and-a-half years.”

                        Full release here.

                        Eurozone industrial production dropped -0.9% mom in Dec

                          Eurozone industrial production contracted -0.9% mom in December, much worse than expectation of -0.4% mom. Over the year, IP dropped -4.2% yoy. Looking at the industrial groupings, production of both capital goods and non-durable consumer goods fell by -1.5% and energy by -0.4%, while production of intermediate goods remained unchanged and durable consumer goods rose by 0.7%. For EU 28, industrial productions dropped -0.5% mom, -2.7% yoy.

                          Full release here.

                          Eurozone retail PMI rose to 52.3 in Feb, up from Jan’s 50.8

                            Eurozone retail PMI rose to 52.3 in Feb, up from Jan’s 50.8.

                            Key points from release

                            • Headline Retail PMI rises to 52.3 from 50.8 in January
                            • Sales broadly unchanged on annual basis
                            • Gross margins remain under pressure


                            “The latest data highlight another positive month for the eurozone retail sector, with sales up at a quicker pace on a monthly basis. In turn, this contributed to a renewed bout of optimism, with the survey’s measure of business confidence among the highest over the last year. Further expansions in purchasing activity and employment underscore retailers’ positive outlook. Nevertheless, gross margins continued to be squeezed, suggesting business conditions remain challenging.”

                            Full release here.

                            German ZEW: Sentiments improved but current situation deteriorated considerably

                              German ZEW Economic Sentiment improved to 3.1 in April, up from -3.6 and beat expectation of 0.5. Current Situation index, however, dropped to 5.5, down from 11.1 and missed expectation of 8.5. Eurozone ZEW Economic Sentiment Rose to 4.5, up from -2.5. Eurozone Current Situation index dropped -6.6 pts to 13.2.

                              ZEW President Professor Achim Wambach: “The slight improvement recorded by the ZEW Indicator of Economic Sentiment is largely based on the hope that the global economic environment will develop less poorly than previously assumed. The postponement of the Brexit deadline may also have contributed to buoy the economic outlook. By contrast, the latest figures regarding incoming orders and industrial production in the German industry point to a rather weak economic development.”

                              Full release here.

                              EUR/USD weakens after the release.

                              Position trading update: Entered AUD/JPY short

                                This is an update to our position trading strategy as mentioned in the weekly report. We’d sold AUD/JPY at 78.40 with today’s strong rebound. The rebound off 77.51 support was as expected even though the strength is a bit surprising, mainly thanks to return of risk appetite.

                                At this point, there is no overwhelming strength in Aussie elsewhere. AUD/USD is just in corrective recovery. EUR/AUD is held well above 1.5721 support. GBP/AUD also held well above 1.7868 support. AUD/CAD is in very tight range around 0.94. On the other hand, EUR/JPY stays below 125.95 resistance. GBP/JPY is well below 144.84 resistance. CAD/JPY is also below 83.98 high too.

                                Thus, for now, there is no change in the view AUD/JPY’s rebound from 77.44 is a corrective rise. And we maintain the view that whole rise from 70.27 has completed at 79.84, on bearish divergence condition in 4 hour MACD, after failing to sustain above 55 day EMA.

                                While current rebound form 77.44 might extend, we don’t expect a break of 79.84 resistance. A break of 78.33 minor support will suggest that the recovery is completed and add some credence to our bearish case.

                                We’ll hold short in AUD/JPY (sold at 78.40). Stop is kept at 79.84. As we don’t expect a break of 70.27 with the next fall, our target will be put at 61.8% retracement of 70.27 to 79.84 at 73.92.


                                China PMI manufacturing rose to 49.6 in May, services rose to 47.8

                                  The official China PMI manufacturing rose from 47.4 to 49.6 in May, matched expectations. PMI Services rose from 41.9 to 47.8, above expectation of 45.2. PMI Composite also rose from 42.7 to 48.4.

                                  “This showed manufacturing production and demand have recovered to varying degrees, but the recovery momentum needs to be strengthened,” said Zhao Qinghe, senior statistician at the NBS.

                                  US consumer confidence dropped to 84.8, consumer spending to cool in months ahead

                                    Conference Board US Consumer Confidence dropped to 84.8 in August, down from 91.7, missed expectation of 93.2. Present Situation Index dropped sharply from 95.9 to 84.2. Expectations INdex also dropped from 88.9 to 85.2.

                                    “Consumer Confidence declined in August for the second consecutive month,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The Present Situation Index decreased sharply, with consumers stating that both business and employment conditions had deteriorated over the past month. Consumers’ optimism about the short-term outlook, and their financial prospects, also declined and continues on a downward path. Consumer spending has rebounded in recent months but increasing concerns amongst consumers about the economic outlook and their financial well-being will likely cause spending to cool in the months ahead.”

                                    Full release here.

                                    RBNZ Orr: Pleasing how resilient New Zealand economy has been

                                      RBNZ Governor Adrian Orr told the Finance and Expenditure Committee today that it’s “pleasing how resilient the New Zealand economy has been”, during a “period of weakening global growth and heightened global uncertainty”. He added that monetary policy is “in a good position”, with inflation at the “mid-point of our inflation target”. Employment is also “at, or slightly above” maximum sustainable employment.

                                      Orr also said, RBNZ is “well advanced on understanding how we would meet our monetary policy mandate should we approach zero interest rates.” The central bank will publish work on these alternative monetary policy approaches in the coming weeks, “even if we don’t expect to be using them”.

                                      RBNZ Orr’s full remarks here.

                                      Sterling rebounds as UK Supreme Court rules Johnson’s parliament suspension unlawful

                                        Sterling rebounds notably after UK’s Supreme Court ruled that Prime Minister Boris Johnson’s move to shut down the parliament was unlawful. And Supreme Court President Brenda Hale said both houses should return as soon as possible. The ruling gave MPs a boost to continue with their work to block no-deal Brexit on October 31.

                                        Hale said, “The decision to advise Her Majesty to prorogue parliament was unlawful because it had the effect of frustrating or preventing the ability of parliament to carry out its constitutional functions without reasonable justification.” “Parliament has not been prorogued. This is the unanimous judgment of all 11 justices,” she added. “It is for parliament, and in particular the speaker and the Lords speaker, to decide what to do next.”

                                        Speaker of the House of Commons John Bercow called for Parliament to reconvene. “As the embodiment of our Parliamentary democracy, the House of Commons must convene without delay,” Bercow said in a statement. ” To this end, I will now consult the party leaders as a matter of urgency.”

                                        US ISM manufacturing dropped to 55.4, concern about Asian partners’ ability to deliver reliably

                                          US ISM Manufacturing PMI dropped from 57.1 to 55.4 in April, below expectation of 57.5. Looking at some details, new orders dropped from 53.8 to 53.5. Production dropped from 54.5 to 53.6. Employment dropped quite notably from 56.3 to 50.9. Supplier deliveries rose further from 65.4 to 67.2. Prices also dropped from 87.2 to 84.6.

                                          ISM said: “Manufacturing performed well for the 23rd straight month, with demand registering slower month-over-month growth (likely due to extended lead times and decades-high material price increases) and consumption softening (due to labor force constraints). Overseas partners are experiencing COVID-19 impacts, creating a near-term headwind for the U.S. manufacturing community. Fifteen percent of panelists’ general comments expressed concern about their Asian partners’ ability to deliver reliably in the summer months, up from 5 percent in March.”

                                          “The past relationship between the Manufacturing PMI® and the overall economy indicates that the Manufacturing PMI® for April (55.4 percent) corresponds to a 2.3-percent increase in real gross domestic product (GDP) on an annualized basis.”

                                          Full release here.