Tue, Oct 26, 2021 @ 04:50 GMT

Eurozone CPI finalized at 0.9% yoy in Feb, EU at 1.3% yoy

    Eurozone CPI was finalized at 0.9% yoy in February, unchanged from January’s figure. Core CPI was finalized at 1.1% yoy, down from January’s 1.4% yoy. The highest contribution to the annual euro area inflation rate came from services (+0.55 percentage points, pp), followed by food, alcohol & tobacco (+0.29 pp), non-energy industrial goods (+0.26 pp) and energy (-0.15 pp).

    EU CPI was finalized at 1.3% yoy, up from January’s 1.2% yoy. The lowest annual rates were registered in Greece (-1.9%), Slovenia (-1.1%) and Cyprus (-0.9%). The highest annual rates were recorded in Poland (3.6%), Hungary (3.3%) and Romania (2.5%). Compared with January, annual inflation fell in ten Member States, remained stable in three and rose in fourteen.

    Full release here.

    Fed maintains forecast of three hikes in 2018, expects one extra in 2019

      Fed delivered the 25bps rate hike and lifted the federal funds rate to 1.50-1.75% as widely expected. But Dollar bulls are clearly dissatisfied with the updated economic projections. The accompanying statement is nearly a carbon copy of the prior one with balanced changes. It added that “recent data suggest that growth rates of household spending and business fixed investment have moderated from their strong fourth-quarter readings.” But at the same time, “economic outlook has strengthened in recent months.” The interest rate decision was made with unanimous 8-0 vote.

      Going into the projections:

      Real GDP forecast for 2018 is raised to 2.7% (up from 2.5%), for 2019 raised to 2.4% (up from 2.1%), for 2020 unchanged at 2.0%.

      • Implication is that Fed is expecting slight boost from tax cuts in 2018 and 2019. But the impact won’t be long lasting and would fade into 2020.

      Unemployment rate forecast for 2018 is lowered to 3.8% (down from 3.9%), for 2019 lowered to 3.6% (down from 3.9%), for 2020 lowered to 3.6% (down from 4.0%).

      • The employment market is expected to improve further, with the help of tax cuts and expansive fiscal policy. And the impact would sustain.

      PCE inflation forecast for 2018 unchanged at 1.9%, for 2019 unchanged at 2.0%, for 2020 raised to 2.1% (up from 2.0%)

      Core PCE inflation forecast for 2018 unchanged at 1.9%, for 2019 raised to 2.1% (up fro 2.0%), for 2020 raised to 2.1% (up from 2.0%).

      • While unemployment rate would continue to drop, GDP growth to stay solid, inflation will pressure will remain contained. Fed is seeing the current pattern to continue.

      Federal funds rate projection for 2018 unchanged at 2.1%, 2019 raised to 2.9% (up from 2.7%), 2020 raised to 3.4% (up from 3.1%).

      • This is possibly what disappointed dollar bulls most. It implies Fed will stick with the course of only three rate hike this year. There might be one more hike in 2019 to three in total, thanks to the GDP growth in both 2018 and 2019, as well as the steep improvement in labour market. And, Fed is more confident that there will be another two rate hikes in 2020.

      Sterling jumps as UK Q1 GDP revised up to 0.2%

        Sterling jumps notably after GDP upward revision. Q1 GDP growth is finalized at 0.2% qoq, revised up from 0.1% qoq. Services made the largest contribution by growing 0.2%. The 0.1% growth in production was offset by the -0.1% contraction in construction.

        Among services, business and finance services jumped 0.6%, government and other services rose 0.3%. Distribution, hotels and restaurants increased by 0.1%. Transport, storage and communication increased by 0.1%

        Full release here.

        Also from the UK, mortgage approvals rose to 64.5k in May. M4 dropped -0.4% mom in May. Index of services rose 0.2% 3mo3m in April. Current account deficit narrowed to GBP -17.7B in Q1.

        Eurozone PMI composite finalized at 50.6, suggests just 0.1% GDP growth in Q4

          Eurozone PMI Services was finalized at 51.9 in November, down from October’s 52.2. PMI Composite was finalized at 50.6, unchanged from last month’s reading. Looking at some member states, Germany PMI Composite was finalized at 49.4, hitting a 2-month high but stayed below 50. Italy PMI Composite dropped to 49.6, 7-month low. France PMI Composite dipped to 2-month low of 52.1 but stayed comfortably above 50.

          Chris Williamson, Chief Business Economist at IHS Markit said:

          “The final eurozone PMI for November came in slightly ahead of the earlier flash estimate but still indicates a near-stagnant economy. The survey data are indicating GDP growth of just 0.1% in the fourth quarter, with manufacturing continuing to act as a major drag. Worryingly, the service sector is also on course for its weakest quarterly expansion for five years, hinting strongly that the slowdown continues to spread.

          “New orders have not shown any growth since August, underscoring the recent weakness of demand, with sharply declining orders for manufactured goods accompanied by substantially weaker gains of new business into the service sector. Expectations are also among the lowest since the tail end of the sovereign debt crisis in 2013, as firms worry about trade wars, Brexit and slowing economic growth both at home and globally.

          “The near-stalling of the economy has been accompanied by some of the weakest price pressures we’ve seen in recent years, which threatens to keep inflation well below the ECB’s target in coming months and adds to the likelihood of further policy stimulus early next year.”

          Full release here.

          Into US session: Sterling strongest as buying emerge, AUD and NZD weakest

            Entering into US session, Sterling is trading as the strongest one as supported by slightly stronger than expected wage growth. There could be some buying on expectation for the parliament to take over control on Brexit at a later stage, thus avoiding no-deal scenario. Technically, EUR/GBP’s break of 0.8728 minor support, which signals completion of rebound form 0.8617, also helps the pound elsewhere.

            Swiss and Dollar follow as the second and third strongest as risk markets turn mixed. Eyes will be on US-China trade negotiations which will resume today. Ministerial meetings will start Thursday, working towards a trade MOU. On the other hand, New Zealand and Australian Dollar are the weakest ones today. Aussie is additionally weighed down by RBA minutes which showed much concerns on housing slump. Euro is the third weakest as German ZEW suggests there is no turnaround in the economy in first half at least.

            In Europe, currently:

            • FTSE is down -0.73%.
            • DAX is down -0.22%.
            • CAC is down -0.44%.
            • German 10-year yield is down -0.011 at 0.105.

            Earlier in Asia:

            • Nikkei rose 0.10%.
            • Hong Kong HSI dropped -0.42%.
            • China Shanghai SSE rose 0.05%.
            • Singapore Strait Times dropped -0.19%.
            • Japan 10-year JGB yield dropped -0.0104 to 0.031.

            UK May pledged change in Brexit approaches, oppose to second referendum

              UK Prime Minister Theresa May’s statement on Brexit plan B yesterday was rather uninspiring. In short, she finally acknowledged the need to have in change in her approach and laid out three areas. Those include, being “more flexible, open and inclusive” in engaging the parliament, embedding the “the strongest possible protections on workers’ rights and the environment”. And finally, ensuring the “commitment to no hard border in Northern Ireland and Ireland”. They’re hardly anything new.

              Meanwhile, she continued to oppose to a second referendum as that would “damage social cohesion by undermining faith in our democracy.” And she doesn’t believe there is a majority for a second referendum. On Article 50 extension, she claimed that EU would not approve it unless UK had a plan for approving a deal. And the only way to avoid a no-deal Brexit would be to revoke Article 50.

              May will continue cross-party talks and provide further update next Tuesday.

              Non-farm payrolls preview: Solid but uninspiring numbers expected

                US Non-Farm Payrolls report will be the major focus for today. Markets are expected 175k job growth is March, a solid rebound from February’s terrible number of 20k. Unemployment rate is expected to be unchanged at 3.8%. Average hourly earnings growth is expected to slow to 0.2% mom.

                Looking at other employment related data, the employment component of ISM manufacturing rose notably from 52.3 to 57.5. That of ISM non-manufacturing also increased from 55.2 to 55.9. However, ADP employment was rather disappointing, at 129k versus expectation of 184k. Four-week moving average of initial jobless claims dropped to 213.5k. However, Conference Board consumer confidence dropped from 131.4 to 124.1.

                All in all, other data suggest that February’s disaster won’t extend into March, even though there might still be downside surprise. Meanwhile, there is prospect of upside surprise in upward revision in February’s number. Overall, the set of data is likely to be solid by uninspiring.

                Reactions could now be rather tricky. Stock investors might like to see a set of numbers that’s not strong enough to push Fed for a rate hike this year. And such relief could also lift treasury yields and then Dollar. Another set of weak number will highlight the underlying vulnerability in the economy. Even though that might add to the case of a Fed cut, the worries could overwhelm and send stocks, yields and Dollar lower.

                Here are some suggested readings on NFP:

                Sterling recovers as PM May set to announce new Brexit deal at 1500GMT

                  Sterling recovers notably on short covering as UK Prime Minister Theresa May is scheduled to announce her new Brexit deal at 1500GMT.

                  Her spokesman said that “Cabinet discussed the new deal which the government will put before parliament in order to seek to secure the UK’s exit from the European Union.

                  The discussions included alternative arrangements, workers’ rights, environmental protections and further assurances on protecting the integrity of the UK in the unlikely event that the backstop is required.

                  The prime minister said that “the withdrawal agreement bill is the vehicle that gets the UK out of the European Union and it is vital to find a way to get it over the line.”

                  And the prime minister will be setting out further details on the way forward in a speech this afternoon.”

                  Next phase of US-China trade war ready, as public comments end today

                    It’s still a bit early, but the next phase of US-China trade war is approaching. The public comment period for the 25% tariffs on USD 200B in Chinese imports will end today. Trump could be ready to start imposition of such tariffs any time. And ahead of that Trump said yesterday that “right now we just can’t make that deal” with China. And, “in the meantime, we’re taking in billions of dollars of taxes coming in from China, with the potential of billions and billions of dollars more taxes coming in.”

                    On the other hand, Chinese Commerce Ministry Spokesman Gao Feng said in a regular press conference that “if the United States, regardless of opposition, adopts any new tariff measures, China will be forced to roll out necessary retaliatory measures.” Both sides have already slapped tit-for-tat tariffs on $US50 billion of each other’s goods. That came after US steel and aluminium tariffs and China’s own retaliation. For the upcoming ones, China already announced counter measures of tariffs on USD 60B of US goods ranging from liquefied natural gas to certain types of aircraft.

                    Australia GDP contracted -0.3% in Q1, started first recession in 29 years

                      Australia GDP contracted -0.3% qoq in Q1, matched expectations. That’s the first contraction in 9 years. Also, the recession should have started in Q1, for the first time in 29 years. Annually, growth slowed to 1.4% yoy, lowest since September 2009 when Australia was in the midst of the global financial crisis.

                      Treasurer Josh Frydenberg confirmed that the economy is in recession and “that is on the basis of the advice that I have from the Treasury department about where the June quarter is expected to be.” “Based on what we know from Treasury, we’re going to see a contraction in the June quarter, which is going to be a lot more substantial than what we have seen in the March quarter,” he added.

                      Though, Frydenberg also said “in the face of a one-in-100-year global pandemic, the Australian economy has been remarkably resilient.” “This strength gave us the fiscal firepower to respond as we have done; Around $260 billion in economic support, or the equivalent of more than 13 per cent of GDP.”

                      Also from Australia, AiG Performance of Construction Index rose to 24.9 in May, up from 21.6. Building permits dropped -1.8% mom in April, better than expectation of -15.0% mom.

                      CBRT announced measures on Turkish Lira and FX liquidity management

                        Full statement below.

                        Press Release on Financial Markets

                        To support financial stability and sustain the effective functioning of markets, the following measures have been introduced:

                        I. Turkish lira liquidity management:

                        1) In the framework of intraday and overnight standing facilities, the Central Bank will provide all the liquidity the banks need.

                        2) Discount rates for collaterals against Turkish lira transactions will be revised based on type and maturity, thus providing banks with flexibility in their collateral management. Through this regulation, the discounted value of banks’ current unencumbered collaterals is projected to increase by approximately 3,8 billion Turkish liras.

                        3) Collateral FX deposit limits for Turkish lira transactions of banks have been raised to 20 billion euros from 7,2 billion euros.

                        4) As cited in the Monetary and Exchange Rate Policy Text for 2018, when deemed necessary, in addition to one-week repo auctions, which are the main funding instrument of the Central Bank, traditional repo auctions or deposit selling auctions may be held with maturities no longer than 91 days.

                        5) For the days with relatively higher funding need, more than one repo auction may be conducted with maturities between 6 and 10 days.

                        6) To provide flexibility in banks’ collateral management, upon the request of banks, a portion of or the entire amount of the winning bids in one-week repo auctions will be allowed to be used in deposit transactions instead of repo transactions at the Central Bank Interbank Money Market with the same interest rate and maturity.

                        II. FX liquidity management:

                        1) Banks will be able to borrow FX deposits in one-month maturity in addition to one-week maturity.

                        2) The Central Bank will resume its intermediary function at the FX deposit market. Accordingly, through the intermediation of the Central Bank, banks will be able to borrow from and lend to each other at the FX deposit market as per the rules set by the Implementation Instructions on the Foreign Exchange and Banknotes Markets.

                        3) Banks’ current foreign exchange deposit limits of around 50 billion US dollars may be increased and utilization conditions may be improved if deemed necessary.

                        4) Banks will continue to purchase foreign banknotes from the Central Bank via foreign exchange transactions within their pre-determined limits at the Foreign Exchange and Banknotes Markets.

                        The Central Bank will closely monitor the market depth and price formations, and take all necessary measures to maintain financial stability, if deemed necessary.

                        UK GDP grew 0.5% qoq in Q1, but March contracted -0.1% mom

                          UK GDP grew 0.5% qoq in Q1, up from Q4’s 0.2% qoq and matched expectations. Annually, GDP grew 1.8% yoy, up from Q4’s 1.4%.

                          Looking at the details, production had a noticeable pickup by 1.4. But services growth slowed to just 0.3%. Construction growth increased to 1.0%. Output of agriculture, forestry and fishing sector fell by 1.8%.

                          In March GDP contracted -0.1% mom, below expectation of 0.0% mom. Index of services dropped -0.1% mom. Index of production rose 0.7% mom. Manufacturing rose 0.9% mom. Construction dropped -1.9% mom. Agriculture dropped -0.1% mom.

                          In March, UK industrial production rose 0.7% mom, 1.3% yoy, versus expectation of 0.1% mom, 0.4% yoy. Manufacturing production rose 0.9% mom, 2.6% yoy, versus expectation of 0.0% mom, 1.1% yoy. Visible trade deficit narrowed to GBP -13.65B, slightly smaller than expectation of -13.7B. Construction output dropped -1.9% mom, versus expectation of -0.9% mom.

                          China Caixin PMI manufacturing rose to 50.7, sluggish exports remained a big drag on demand

                            China’s Caixin PMI Manufacturing rose to 50.7 in May, up from 49.4, back in expansion territory. Markit said that “Supply was generally stronger than demand in the manufacturing sector, as production continued its expansion amid a broader economic rebound while demand had yet to recover.

                            Wang Zhe, Senior Economist at Caixin Insight Group added: “Sluggish exports remained a big drag on demand as the virus continued spreading overseas. Stabilizing the job market is a top priority on policymakers’ agenda this year, as shown in last month’s government work report. Boosting employment is not an easy task, as the employment subindex in the Caixin manufacturing PMI survey has remained in contractionary territory for five months in a row.”

                            Released over the weekend, the official China PMI Manufacturing dropped to 50.6 in May, down from 50.8, missed expectation of 51.1. PMI Non-Manufacturing rose to 53.6, up from 53.2, beat expectation of 53.5.

                            Germany, France and Britain seek US sanction exemptions in Iran

                              Reuters reported that Germany, France and Britain sent a letter to US Treasury Secretary and Secretary of State on June 4, requesting US sanction exemptions in EU companies in Iran.

                              The letter state that “as close allies, we expect that the extraterritorial effects of U.S. secondary sanctions will not be enforced on EU entities and individuals, and the United States will thus respect our political decisions.”

                              EU expected exemptions on pharmaceuticals, healthcare, energy, automotive, civil aviation, infrastructure and banking companies.

                              EU ministers also warned that “An Iranian withdrawal from the (nuclear agreement) would further unsettle a region where additional conflicts would be disastrous.” And they emphasized that the 2015 JCoPA was “the best basis on which to engage Iran and address those concerns”.

                              German PMI composite at 48-month low, reduced optimism, lack of momentum into new year

                                Germany PMI manufacturing dropped to 51.5, down from 51.8, missed expectation of 51.7. It’s a 33-month low. PMI services dropped to 52.5, down from 53.3, missed expectation of 53.5. It’s the lowest in 7 months. PMI composite dropped to 52.2, down from 52.3, a 48-month low.

                                Commenting on the flash PMI data, Phil Smith, Principal Economist at IHS Markit said:

                                “The PMI data disappointed again in December, indicating the continuation of only a modest rate of underlying growth across Germany’s private sector. Furthermore, with new orders close to stalling in December and firms reporting reduced optimism towards the outlook, there’s a lack of momentum heading into the New Year.

                                “It’s a stark contrast from the situation this time last year. Reports of an economy close to overheating have been supplanted by concerns about an increasingly uncertain political backdrop, trade wars and a struggling autos industry.

                                “The survey’s measures of output and new orders diverged further from that of employment as December saw another solid – and slightly accelerated – round of job creation across both manufacturing and services. With firms now eating into backlogs of work at a faster rate, the indication is that a renewed slowdown in hiring is increasing likely.”

                                Full release here.

                                Fed Bullard: Taper will get going this year

                                  In an FT interview, St Louis Fed President James Bullard maintained the view that “the big picture is that the taper will get going this year and will end sometime by the first half of next year.”

                                  The weak August NFP report didn’t alter his view on job market recovery. “There is plenty of demand for workers and there are more job openings than there are unemployed workers”, he said. “If we can get the workers matched up and bring the pandemic under better control, it certainly looks like we’ll have a very strong labour market going into next year.”

                                  He also said there is “also a case” that inflation wont moderate into 2022, and may go higher, due to ” additional supply constraints coming from international sources now because of the Delta variant.”

                                  PBoC pledges ample liquidity and targeted support

                                    China’s PBoC insisted that economy goals for 2020 can still be achieved in spite of the coronavirus outbreak, and pledged to have measures to ensure ample liquidity. Liu Guoqiang, Vice Governor of PBoC said “We’ll further release the long-term liquidity via multiple open market operations. And make targeted RRR cuts in appropriate time for banks that meet the requirement of releasing inclusive loans and serve the smaller firms.”

                                    Xiao Yuanqi, the chief risk officer of the China’s Banking and Insurance Regulatory Commission emphasized “Support policies are mainly for smaller firms facing difficulties because of the virus outbreak, not those in difficult situations before. We’ll prevent non-performing companies from getting a free ride from the push, and prevent related moral hazard.”

                                    US goods trade deficit widened to USD 87.6B in Aug

                                      US exports of goods rose USD 1.1B to USD 149.0B in August. Imports of goods rose USD 1.9B to AUD 236.6B. Goods trade balance deficit widened to USD -87.6B, versus expectation of USD -87.0B. Wholesale inventories rose 1.2% mom to USD 731.0B. Retail inventories rose 0.1% mom to USD 603.3B.

                                      Full release here.

                                      UK PMI composite dropped to 54.1, heading towards a bout of stagflation

                                        UK PMI Manufacturing dropped from 60.3 to 56.3 in September, below expectation of 59.0, a 7-month low. PMI Services dropped from 55.0 to 54.6, below expectation of 55.0, a 7-month low. PMI Composite dropped from 54.8 to 54.1, also a 7-month low.

                                        Chris Williamson, Chief Business Economist at IHS Markit, said:

                                        “The September PMI data will add to worries that the UK economy is heading towards a bout of ‘stagflation’, with growth continuing to trend lower while prices surge ever higher.

                                        “While there are clear signs that demand is cooling since peaking in the second quarter, the survey also points to business activity being increasingly constrained by shortages of materials and labour, most notably in the manufacturing sector but also in some services firms. …

                                        “Shortages are meanwhile driving up prices at unprecedented rates as firms pass on higher supplier charges and increases in staff pay…

                                        “Business expectations for the year ahead are meanwhile down to their lowest since January, with concerns over both supply and demand amid the ongoing pandemic casting a shadow over prospects for the economy as we move into the autumn.”

                                        Full release here.

                                        BoJ Kuroda: Mindful of banks’ engagement in excessive risk taking

                                          BoJ Governor Haruhiko Kuroda noted in a speech that amid a persistent low interest rate environment, “possible changes in the risk appetite and risk profile of banks … is an issue” that BOJ is “highly attentive to”. And, in the short term, “as downward pressure on banks’ profits continues, we need to be mindful of the possible consequences of banks’ engagement in excessive risk taking.”

                                          For banks with “abundant capital bases”, risk taking “provides financial support to firms’ production activities, thereby contributing to economic expansion”. However, without appropriate risk management measures, continued decline in profits would lead to to “insufficient capital bases”, and sharply higher credit costs. The stability of the financial system “could be threatened” in the event of a “large exogenous shock”. Based on October’s Financial System Report, the system has been maintaining stability on the whole.

                                          On monetary, Kuroda repeated the same rhetoric that BoJ will continue with the current loose monetary policy. And, he’s confident that BoJ inflation will eventually move back to target.