ECB Lagarde: Key challenge is not to overreact to transitory supply shocks

    In a speech, ECB President Christine Lagarde said, “the key challenge is to ensure that we do not overreact to transitory supply shocks that have no bearing on the medium term, while also nurturing the positive demand forces that could durably lift inflation towards our 2% inflation target.”

    And, “once the pandemic emergency comes to an end – which is drawing closer – our forward guidance on rates as well as purchases under the asset purchase programme will ensure that monetary policy remains supportive of the timely attainment of our medium-term 2% target.”

    Full speech here.

    China CPI down -0.3% yoy, first negative since 2021

      China’s CPI for July registered a drop of -0.3% yoy, marking its first decline since February 2021. Although this result is slightly better than the market’s expectation of a -0.4% drop, it underscores the economic headwinds faced.

      Core inflation measure, which excludes the often erratic food and energy costs, showed a rise to 0.8% yoy from a mere 0.4% yoy. This points to some underlying demand within the economy, albeit muted.

      A deeper dive into CPI reveals that food prices have seen a -1% fall yoy, a sharp contrast to the 2.3% yoy rise observed in the previous month. On the other hand, non-food prices climbed 0.5% yoy last month, bouncing back from a -0.6% yoy.

      Dong Lijuan, chief statistician at the NBS, commented, “With the impact of a high base from last year gradually fading, the CPI is likely to rebound gradually.”

      On the PPI front, situation remains challenging. PPI improved from -5.4% yoy to -4.4% yoy in July. This figure not only missed market expectations, which stood at -3.8% yoy, but also marked the tenth straight month of negative readings.

      SNB keeps rate at -0.75%, upgrade inflation forecasts

        SNB keeps sight deposit rate unchanged at -0.75% as widely expected. It reiterated that is is “willing to intervene in the foreign exchange market as necessary, in order to counter upward pressure on the Swiss franc”. The Swiss franc remains “highly valued”.

        SNB said, “the war in Ukraine has had an effect on the Swiss economy above all via the strong increase in commodity prices”, and are likely to “weigh on consumption and increase companies’ production costs”. Trade is likely to be affected by “albeit not severely given Switzerland’s limited direct economic ties to Ukraine and Russia”. Supply bottlenecks “could deteriorate further” and uncertainty could have an “adverse impact on investment activity.”. 2022 growth forecasts was revised lower to around 2.5%.

        The inflation forecast, conditioned on policy rate at -0.75%, was raised in general. But inflation is projected to peak at 2.2% in Q2 2022, then slow gradually to 0.7% in Q2 2023, then climb back to 1.1% in Q1. For the year as a whole, inflation is projected to be 2.1% in 2022 (upgraded from 1.0%), 0.9% in 2023 (up graded from 0.6%), and then 0.9% in 2024 (new).

        Full statement here.

        Eurozone exports rose 20.1% yoy in Jun, imports rose 43.5% yoy

          Eurozone exports of goods to the rest of the world rose 20.1% yoy to EUR 252.2B in June. Imports rose 43.5% yoy to EUR 276.8B. Trade balance came in at EUR -24.6B deficit. Intra-eurozone trade rose 24.2% yoy to EUR 236.4B.

          In seasonally adjusted term, exports dropped -0.1% mom to EUR 241.8B. Imports rose 1.3% mom to EUR 272.7B. Trade deficit widened from EUR -27.2B to EUR -30.8B, versus expectation of EUR -20.0B. Intra-eurozone trade was unchanged at EUR 224.1B.

          Full release here.

          Japan PM Abe: G7 should play a role in free and fair global economic development

            Japan Prime Minister Shinzo Abe warned today that “no country benefits from retaliatory trade restrictions.” And, ahead of the G7 leaders summit on June 8-9, Abe said “my message is G7 should play a role in free and fair global economic development.”

            Separately, Abe said that ahead of the Kim-Trump summit in Singapore on June 12, he will meet Trump to “coordinate in order to advance progress on the nuclear issue, missiles and – most importantly – the abductees issue.” A sticky point is that upon declaring peace in the Korean peninsula, UK could eventually have to reduce military forces in South Korea. And Japan’s constitution, diplomatic policies and national security policies all will have to be totally reviewed for the completely new situation.

            China exempts 15 categories of US imports from tariffs

              Sentiments are lifted after China announced to exempt range of US imports from the 25% tariffs imposed last year. The exemptions cover 16 categories of products, ranging from fish food to pesticides, and will be effective from Sept. 17 to Sept. 16 2020. Negotiations between the teams are continuing, in preparation for top level meeting to be held in Washington next month.

              Additionally, China also announced yesterday to abolish the investment quota restriction for Qualified Foreign Institutional Investors (QFII) and Renminbi Qualified Foreign Institutional Investors (RQFII) to boost financial reforms and opening-up.

              UK unemployment unchanged at 4.2%, Sterling ignores wage growth miss

                UK claimant count dropped -7.7k in May, better than expectation of 11.3k rise.

                Unemployment rate was unchanged at 4.2% 3 months to April, met expectation.

                Average weekly earnings, including bonus, slowed to 2.5% 3moy in April, below expectation of 2.6% 3moy. Prior month’s reading at 2.6% 3moy.

                Average weekly earnings including bonus slowed to 2.8% 3moy, below expectation of 2.9% 3moy. Prior month’s reading at 2.9% 3moy.

                At the time of writing, Sterling shrugs off the weaker than expected wage growth and strengthens against Dollar and Yen.

                Australia retail sales rose 0.9% mom in Apr, driven by higher food prices

                  Australia retail sales rose 0.9% mom in April, slightly below expectation of 1.0% mom. For the 12-month period, sales rose 9.6% yoy.

                  New South Wales was the only state or territory to record a fall, down -0.3%. Queensland had the largest rise in retail turnover, up 1.6%. Turnover also rose in Victoria (1.1%), Western Australia (2.2 %), South Australia (1.4%), Tasmania (2.0%), the Australian Capital Territory (0.5%) and the Northern Territory (0.7%).

                  ABS said: “The strength in retail turnover is being driven by spending across the food industries. High food prices have combined with increased household spending over the April holiday period as more people are travelling, dining out and holding family gatherings.

                  Full release here.

                  BoC stands pat, keeps hawkish bias

                    As anticipated, BoC keeps its overnight rate unchanged at 5.00%, alongside the Bank Rate at 5.25% and the deposit rate at 5.00%. Despite the steady rates, the tone of the announcement underscored ongoing concerns about inflation, coupled with a softer outlook on economic growth.

                    BoC explicitly stated that it remains “concerned about the persistence of underlying inflationary pressures,” signaling a continued tightening bias. In its words, the central bank is “prepared to increase the policy interest rate further if needed,” highlighting its willingness to act if inflation doesn’t abate.

                    Full BoC statement here.

                    ECB Lagarde and Panetta discussed climate-related monetary policy

                      ECB President Christine Lagarde said the central bank was creating a team of around 10 staff, reporting directly to her, to set the agenda on climate-related topics. “Climate change can create short-term volatility in output and inflation through extreme weather events, and if left unaddressed can have long-lasting effects on growth and inflation,” Lagarde noted.

                      Executive Board member Fabio Panetta also said, ECB has already taken steps on contributing to environmental policies in the implementation of monetary policy. For example, “sustainable finance instruments – the sustainability-linked bonds – among the collateral that can be used in refinancing operations” were included.

                      Additionally, “the ECB has to protect its balance sheet from the financial risks caused by climate change that are not correctly priced by the markets,” Panetta added. “By performing its own analysis of these risks on the basis of rigorous methodologies, the ECB can contribute to the accurate valuation of these climate-related risks and promote awareness among investors, thereby helping to combat climate change. These issues are currently being considered as part of our monetary policy strategy review.

                      BoE’s Bailey sees strong evidence of disinflation progress in UK

                        BoE Governor Andrew Bailey pointed to “strong evidence” that disinflation process is “working its way” through the UK economy, suggesting that the previous monetary tightening is having the intended effects.

                        “Our judgement with interest rates is how much do we need to see now to be confident of the process,” Bailey stated at an IMF conference overnight, indicating that BoE is looking for further signs of sustained disinflation before considering any reductions in interest rates.

                        Bailey also drew distinctions between the inflation dynamics in the UK and those observed in the US. The UK is still navigating the aftermath of “big supply shocks”, including those stemming from the global pandemic and geopolitical tensions, notably the war impacts. He contrasted this with the US, where there is a greater element of “demand-led inflation pressure”.

                        ECB Rehn: There are grounds for significant increases in interest rates

                          ECB Governing Council member Olli Rehn said “there are grounds for significant increases” in the key interest rate in the winter and early spring.

                          Rehn declined to estimate the terminal rate. “It’s certain that the rate hikes that we’ve already made and the forward guidance on upcoming hikes have the effect that markets are pricing in a lot of it into the Euribor rates,” he said.

                          Trump will take China on whether it’s good or bad short term

                            US President Donald Trump continued his hardline stance on China with strongly worded comments. He told reporters in the White House that “Somebody had to take China on… This is something that had to be done. The only difference is I am doing it.”

                            Trump repeated that “China has been ripping this country off for 25 years”. He added that whether his trade policy is “good or bad short term is irrelevant”, as “I am doing this whether this is good or bad.” Instead, “long term, it’s imperative somebody does this.”

                            There were growing concerns that trade war with China could trigger a possible US recessions. But Trump emphasized “we’re very far from a recession”. Though, he admitted that “we really need a Fed rate cut” as there cannot be a large “disparity” between rates in the US and elsewhere in the developed world. “We have to at least keep up to an extent.”

                            Sterling clueless on Brexit chaos

                              Sterling recovers broadly today after knee-jerk reactions to new Brexit chaos overnight. But overall, the Pound is probably as clueless as the UK government on what’s next. Commons Speaker John Bercow invoked a rule to forbid Prime Minister Theresa May to bring back the same Brexit deal for another meaningful vote, unless there are substantial changes in the proposition. The 415-year-old Parliamentary convention is for “sensible use of the House’s time and proper respect for the decisions that it takes”. Without being forewarned, the government just said: “We note the speaker’s statement. This is something that requires proper consideration”, without further elaboration.

                              Now, it’s near impossible for a Brexit deal to be passed this week and hence, Article 50 extensions won’t be a short one. The Sun newspaper reported that May is drafting a letter to European Council President Donald Tusk to request a delay of 9 to 12 months. Some suggested one way to bring back the Brexit deal for another vote is having EU granting another Brexit date than March 29, thus, making the proposition substantially different. Another way is to end the current parliamentary session early without dissolving it, and start a new session. The same deal could then be voted for in “another” session.

                              But then, the fundamental question is not solved. That is, is there enough votes to the current Brexit deal through?

                              Here is Bercow’s statement.

                              Eurozone retail sales dropped -1.2% mom in Jun, EU down -1.3% mom

                                Eurozone retail sales dropped -1.2% mom in June versus expectation of 0.1% mom rise. The volume of retail trade decreased by -2.6% mom for non-food products, by -1.1% for automotive fuels mom and by -0.4% mom for food, drinks and tobacco.

                                EU retail sales dropped -1.3% mom. Among Member States for which data are available, the largest monthly decreases in the total retail trade volume were registered in Denmark (-3.8%), the Netherlands (-3.4%) and Estonia (-2.4%). Increases were observed in Ireland and Malta (both +0.5%), Finland (+0.3%) and Austria (+0.2%).

                                Full release here.

                                US initial jobless claims dropped to 217k

                                  US initial jobless claims dropped -1k to 217k in the week ending October 29, slightly above expectation of 215k. Four-week moving average of initial claims dropped -500 to 219k.

                                  Continuing claims rose 47k to 1485k in the week ending October 22. Four-week moving average of continuing claims rose 30k to 1418k.

                                  Full release here.

                                  ECB Villeroy said rates nearing a high plateau

                                    Speaking at a conference in Aix-en-Provence, France, ECB Governing Council member Francois Villeroy de Galhau stated that Eurozone was nearing the “high point” of interest rates, a level expected to be sustained to allow full transmission of monetary policy effects.

                                    Villeroy added, “But when I say high point this isn’t a peak, rather it will be a high plateau, on which we will have to remain for a sufficiently long time to fully transmit all the effects of monetary policy.”

                                    Joining him on the panel was fellow Governing Council member Mario Centeno, who underlined ECB’s focus on headline inflation, noting its more rapid than anticipated decrease. However, he also highlighted the importance of core inflation, which he acknowledged was not dropping as swiftly.

                                    Centeno stressed, “We target headline inflation, that’s very important. And headline inflation is coming down, actually it’s coming down faster than the way up.”

                                    Centeno went on to add, “Core inflation stands out as a very important indicator. It’s not coming down as fast as headline inflation, but we also need to remember that in the way up it played exactly the same trajectory. So we need to remain confident too in the way we are fighting inflation.”

                                    UK retail sales dropped -1.4% mom in Mar, led by non-store retailing

                                      UK retail sales dropped -1.4% mom in March, much worse than expectation of -0.3% mom. The largest contribution to the fall came from non-store retailing in which sales volumes fell by -7.9% mom. Food store sales volumes fell by -1.1% mom. Automotive fuel sales volumes fell by -3.8% mom.

                                      Overall, sales volumes were still 2.2% above their pre-coronavirus level in February 2020.

                                      Full release here.

                                      Swiss KOF dropped to 94.4, economy developing rather sluggishly

                                        Swiss KOF Economic Barometer dropped to 94.4 in May, down from 96.2 and missed expectation of 96.2. The reading dived further below its long-term average. KOF noted “Swiss economy is developing rather sluggishly.” And, majority of sets of indicators are tending downwards.

                                        The indicators for banking and insurance, consumption and foreign demand have developed negatively. The prospects for accommodation and food service activities and the other service providers have become gloomier. In the manufacturing sector, the outlook hardly changed compared to the previous month. For the construction sector, the outlook has improved.

                                        Full release here.

                                        US initial jobless claims dropped to 192k, better than expectations

                                          US initial jobless claims dropped -3k to 192k in the week ending February 18, better than expectation of 200k. Four-week moving average of initial claims rose 1.5k to 191k.

                                          Continuing claims dropped -37k to 1654k in the week ending February 11. Four-week moving average of continuing claims dropped -3k to 1669k.

                                          Full release here.