Australian manufacturing PMI dropped to 58.3, expansion to continue into 2019

    Australia AiG Performance of Manufacturing index dropped to 58.3, seasonally adjusted, in October, down from 59.0. The Australian Industry Group noted in the release that the PMI now indicated twenty-five months of uninterrupted recovery and expansion, “longest run of recovery or expansion in this data series since 2005”. The broad based expansion was led by the wood and paper and the food & beverages sectors. And, the details suggested that manufacturing will “continue to expand for the rest of 2018 and into 2019.”

     

    Full release here.

    Also from Australia, trade surplus widened to AUD 3.02B in September.

    Fed Mester: Another hike needed as timing crucial in taming inflation

      Cleveland Fed President Loretta Mester indicated her support for another rate hike, albeit with flexibility on its exact timing. “It doesn’t necessarily have to be September, but I think this year,” she commented on Saturday.

      Mester’s focus was clear: Fed needs to bring inflation down to 2% target by the end of 2025. “The longer we let inflation remain above 2%, we’re building in a higher and higher price level,” she stressed, adding, “that’s why timely matters to me.”

      Mester acknowledged that her stance in June favored rate cuts in the latter half of 2024. However, this could be subject to revision at the upcoming September rate-setting meeting, in light of the current inflation dynamics.

      “I’m going to have to reassess that because, again, it’s going to be, how quickly do you think inflation is moving down?” she mused. “I do not want to be in a position of prematurely loosening policy.”

      BoE Bailey: Minutes don’t imply the possibility of negative interest rate

        In the MPC meeting minutes released last week, BoE indicated that it’s looking at how it would implement negative interest rates effectively when necessary. But Governor Andrew Bailey said in an online talk today, “it doesn’t imply anything about the possibility of us using negative instruments.”

        “We have looked hard at the question of what scope is to cut interest rates further and particularly negative interest rates,” he added. He also noted the the experience of negative rates elsewhere was “mixed” only. The effective depends on the structure of the banking system and the timing of the move.

        Also, Bailey acknowledged the resurgence of coronavirus infections in UK was “very unfortunate” and “does reinforce the downside risks”.

        DOW hits new record, 33000 as next major target

          DOW opens sharply higher today and extends gains to new record high at 30525.56 (so far). 38.2% projection of 18213.65 to 29199.35 from 26143.77 at 30340.30 is a strong sign of solid underlying buying. If DOW could close above this level today, we’re likely see some more upside acceleration in the near term. Next major target is 61.8% projection at 32932.93.

          RBA minutes: Case for a smaller 25bps hike stronger

            Minutes of RBA October 4 meeting revealed that members “carefully considered two options” of 50bps and 25bps rate hike. The arguments for a 25bps hike “rested on the risks to global and domestic growth, and the potential for inflation to subside quickly”.

            Wages growth had “not reached levels that would be inconsistent with the inflation target”. External inflation pressures “might ease quickly given that the global outlook had deteriorated”. There was also an argument to slow for a time to “assess the effects of the significant increases in interest rates to date”.

            RBA said the arguments for both options were “finely balanced”, with the case of 25bps hike stronger. “A smaller increase than that agreed at preceding meetings was warranted given that the cash rate had been increased substantially in a short period of time and the full effect of that increase lay ahead.”

            At the meeting, RBA raised the cash rate target by 25bps to 2.60%.

            Full minutes here.

            China said to have agreed plan to reverse tariffs with US

              Market sentiments are once again lifted by upbeat news regarding US-China trade negotiations, as China said they’ve agreed with the US on a plan to reverse the tariffs imposed.

              China Ministry of Commerce spokesman Gao Feng said, at a regular press briefing, “in the past two weeks, top negotiators had serious, constructive discussions and agreed to remove the additional tariffs in phases as progress is made on the agreement,” spokesman Gao Feng said Thursday..

              “If China, U.S. reach a phase-one deal, both sides should roll back existing additional tariffs in the same proportion simultaneously based on the content of the agreement, which is an important condition for reaching the agreement.”

               

              ECB Cœuré: No recession, no turnaround in policy, no need to resume asset purchases

                In an interview on March 7, published today, ECB Executive Board Member BenoĂ®t CĹ“urĂ© said the economy slowdown “didn’t come as a surprise” even though it has been “stronger than expected and started sooner”. ECB’s decision last week “don’t represent a turnaround in our policy” but just “carefully calibrated to this diagnosis”. And ECB was just :adjusting to the new reality rather than reversing our course”.

                Coeure added “we don’t see signs of a recession at present” and “we don’t see the need” to resume asset purchases. Economic growth is “robust” although it’s “less strong than before”. And it will “take longer for inflation to reach our objective, but it will get there”.

                Coeure also said Italy is “in a difficult juncture” and it’s the “only euro area country that is experience a technical recession”. There was no improvement in the labor market and in the long term, Italy’s problem is well known and it’s “productivity growth”. But “I don’t believe that any of this has to do with the euro, otherwise it would be a general problem across the euro area.”

                Full interview here.

                BoJ Kuroda: Inappropriate to tighten policy or diminish monetary support

                  BoJ Governor Haruhiko Kuroda held his inaugural press confidence today. Here are some comments:

                  • “I think the process of any shift (from easy policy) would be cautious and gradual, as with U.S. and European central banks,”
                  • “The economy and prices are doing quite well now but there’s some distance to achieving 2 percent inflation,”
                  • “It’s inappropriate to tighten policy or diminish monetary support to create policy room to cope with a future downturn”

                  The comments are basically the same as what we heard from Kuroda repeatedly.

                  From Powell’s Q&A: Yield at long end indicates neutral rates, protectionist countries have done worse

                    Fed Chair Jerome Powell’s Q&A in the Congressional Testimony was composed and balanced, while being upbeat as expected. Regarding the “hot” topic of flattening yield curve and recession, he didn’t reply directly. Instead, he acknowledged the there are a lot of discussions. But what matters is the yield at the long end as an indication of the so called neutral rate. Right now, 30 year yield is at around 2.96 after hitting as high as 3.247 earlier this year. 10 year yield is at around 2.85 after hitting as high as 3.115. So, 2.75-3.00% is probably the neutral rate to Powell, rather than 2.50-2.75%.

                    Regarding US trade policy, Powell didn’t comment directly as expected too. It should be reminded that Powell has already made his stance clear before. He doesn’t comment on policies he doesn’t make. And to guard the line of independence of Fed, he has to refrain from commenting on the administration’s policies too. Instead, he takes them as given.

                    Though, he was willing to talk about trade from “principles” perspective. And to him, countries that embraced free trade and low tariffs used to have better results and higher productivity. Countries that have been more protectionist “have done worse”.

                    Mexico and US in final hours of bilateral NAFTA talks

                      The bilateral US-Mexico NAFTA talk is still dragging on. But Mexican Economy Minister Ildefonso Guajardo said on Sunday that “we’re practically in the final hours of this negotiation.” Nonetheless, at a lunch break of the meeting, Guajardo said he cannot declare victory yet.

                      Trump also expressed optimism as he tweeted that “A big Trade Agreement with Mexico could be happening soon!” And, “Our relationship with Mexico is getting closer by the hour. Some really good people within both the new and old government, and all working closely together”.

                      Canada is expected to return to the supposed trilateral talks after the US and Mexico complete their negotiations. The three way talks will run well into September and possibly beyond. The US Congress needs 90 days notice to vote on a new NAFTA. The final approval of the deal on Mexico side will be on Lopez Obrador’s hands, as he’s due to take office on December 1.

                      ECB Knot: we only have one problem on our plate – inflation

                        ECB governing council member Klaas Knot told Dutch radio BNR today, “We expect inflation to keep rising in the coming months, so that means we only have one problem on our plate: inflation. And that will mean that we will have to slow economic growth at least a bit to reduce inflation”.

                        Another Governing Council member Peter Kazimir said , “Inflation remains unacceptably high. The priority now is to vigorously continue the normalization of monetary policy.” While not commenting on the terminal rate of the current cycle, he said that ECB was still “quite far” from neutral rate.

                        Francois Villeroy de Galhau said, the central bank must be “orderly and determined” with rate hike. He expects inflation to stay high next year and come back to 2% target by 2024.

                        Canada CPI rose to 2.4%, beat expectations

                          Canada CPI accelerated to 2.4% yoy in January, up from 2.2% yoy, beat expectation of 2.2% yoy. CPI common slowed to 1.8% yoy, down from 2.0% yoy, missed expectation of 2.0% yoy. CPI median was unchanged at 2.2% yoy, matched expectations. CPI trimmed was unchanged at 2.1% yoy, missed expectation of 2.2% yoy.

                          Full release here.

                          China Caixin PMI manufacturing contracts in Apr, demand softens and prices plunge

                            China’s Caixin PMI Manufacturing dropped to 49.5 in April, down from 50.0 and below the expected 50.8, marking the first contraction reading in three months. According to Caixin, output expanded only marginally due to softening demand conditions. Input costs and selling prices fell at the quickest pace in over seven years.

                            Wang Zhe, Senior Economist at Caixin Insight Group said: “In a nutshell, manufacturing activity weakened in April. Manufacturing supply saw a marginal slowdown of expansion, demand dipped month-on-month, the labor market worsened further, logistics was relatively smooth, inventories remained stable, and prices plunged. Despite all these factors, businesses maintained high confidence in the economic outlook.”

                            Full China Caixin PMI Manufacturing release here.

                            ECB survey indicates modest adjustments to growth and inflation forecasts

                              ECB’s latest Survey of Professional Forecasters for Q4 presents marginal adjustments to economic outlook for the 2023-2025 period. Also, headline inflation expectations underwent minimal changes for these years.

                              Regarding the HICP, inflation forecast for 2023 has been adjusted upwards to 5.6% from its earlier 5.5% estimation. The projections for 2024 remain steady at 2.7%, whereas for 2025, it was slightly dialed back to 2.1% from the prior 2.2% prediction.

                              On the core inflation front, 2023 remains unchanged at 5.1%. However, the following years see a minor downard revision, with 2024 expectations set at 2.9% (down from earlier 3.1%) and 2025 set at 2.2% (down from 2.3%).

                              Turning to Real GDP growth, 2023 projections are adjusted downwards to 0.5% an prior 0.6%. 2024 now stands at 0.9%, a reduction from 1.1% previously forecasted. Growth projection for 2025 remains steady at 1.5%.

                              Full ECB SPF results here.

                              Canada employment rose 62k in Nov, well above expectations

                                Canada employment rose 62k in November, well above expectation of 22.0k. Unemployment rate dropped to 8.5%, down from 8.9%, much better than expectation of 8.9%.

                                Full release here.

                                The week ahead: BoJ and BoE to meet, along with something important for almost every major currencies

                                   

                                  Two central banks will meet this week, BoJ and BoE. Both are expected to keep monetary policies unchanged. At the same time, focuses will be on new economic projections from both central banks.

                                  On the data front, there are at least something important for almost every major currencies. US will release PCE, ISM and NFP. Eurozone will release GDP, CPI and unemployment rate. UK will release PMI. Swiss will release KOF and CPI; Canada will release GDP and employment. Australia will release CPI and trade balance. China will release PMIs. So, be prepared for a very busy week.

                                  Here are some highlights:

                                  • Monday: Japan retail sales; UK mortgage approvals, M4 money supply, CBI realized sales; US personal income and spending, PCE inflation
                                  • Tuesday: Japan unemployment rate; Australia building approvals; France GDP; German CPI, unemployment; Italy GDP; Eurozone GDP; Swiss KOF economic barometer; US S&P Case-Shiller house price, consumer confidence
                                  • Wednesday: New Zealand building permits; Japan industrial production, consumer confidence, housing starts, BoJ rate decision; Australia CPI; China PMIs; UK BRC shop price, Gfk consumer confidence; German retail sales; Eurozone CPI, unemployment rate; US ADP employment , employment cost index Chicago PMI; Canada GDP, IPPI and RMPI
                                  • Thursday: Australia trade balance, import price; China Caxin PMI manufacturing; Swiss SECO consumer climate, CPI, manufacturing PMI; BoE rate decision and inflation report, UK PMI manufacturing; US non-farm productivity, jobless claims; ISM manufacturing, construction spending
                                  • Friday: New Zealand ANZ business confidence; Australia retail sales, PPI; German import prices; Eurozone PMI manufacturing final; Swiss retail sales; UK construction PMI; Canada employment, trade balance; US non-farm payrolls, trade balance, factory orders

                                  Eurozone CPI surged to 4.1% yoy in Oct, highest since 2008

                                    Eurozone CPI surged to 4.1% yoy in October, up from 3.4% yoy, above expectation of 3.7% yoy. That’s also the fastest pace since July 2008. CPI core rose to 2.1% yoy, up from 1.9% yoy, above expectation of 1.9% yoy.

                                    Looking at the main components, energy is expected to have the highest annual rate in October (23.5%, compared with 17.6% in September), followed by services (2.1%, compared with 1.7% in September), non-energy industrial goods (2.0%, compared with 2.1% in September) and food, alcohol & tobacco (2.0%, stable compared with September).

                                    Full release here.

                                    UK Gfk Consumer Confidence rose to -7 in March, All five measures improved

                                      UK Gfk consumer confidence rose to -7 in March, up from -10 and above expectation of -10. All five of the constituent measures recorded higher values. Personal financial situation over the past 12 months rose 3 pts to 3. Personal financial situation over next 12 months rose 5 pts to 10. General economic situation over the last 12 month rose 3 pts to -26. General economic situation over next 12 months rose 4 pts to -22. Major purchase index rose 2 pts to 2. Saving index rose 1 pt to 13.

                                      Quote from the release:

                                      “Despite the Beast from the East leaving the nation shivering under a blanket of snow, stoic UK consumers turned faintly bullish this March with a three-point uptick in the Overall Index Score to -7. Spring is in the air with increases across the board on personal finances, the general economy – over the last year and next year – and on current major purchase intentions. The prospect of wage rises finally outstripping declining inflation, high levels of employment with low-level interest rates, and finally some movement on the Brexit front appear to have boosted our spirits. It’s still a little early to be talking about green-shoots, and the core score is of course still negative, but this is definitely a movement in the right direction. Consumers are feeling a tiny spring in their step – let’s see next month if April showers dampen the mood.”

                                      Full release here.

                                      US durable goods orders rises 5.4% in Nov, ex-transport up 0.5%

                                        US durable goods orders rose 5.4% mom to USD 295.4B in November, above expectation of 2.7% mom. Ex-transport orders rose 0.5% mom to 187.6B, above expectation of 0.2% mom. Ex-defense orders rose 6.5% mom to USD 279.6B. Transportation equipment rose 15.3% mom to USD 107.8B.

                                        Full US durable goods orders release here.

                                        US crude oil inventories dropped -1.7m barrels, WTI breaches 55

                                          US commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) dropped -1.7m barrels in the week ending October 18, versus expectation of 2.5m barrels increase. At 433.m barrels, crude oil inventories are at the five year average for this time of year.

                                          WTI crude oil’s recovery from 50.86 extends higher after the realize. The support from 4 hour 55 EMA is a bullish sign. But structure of the price actions from 50.86 remains corrective look. Hence, it’s still seen as in a corrective face for now. That is, another fall could be seen to test 50 psychological level before bottoming. Meanwhile, break of 54.71 will indicate near term reversal and target 63.04 resistance.