Australia AiG manufacturing rose to 53.2, edged back into expansion

    Australia AiG Performance of Manufacturing Index rose 4.8 pts to 53.2 in February. Production rose 2.7 to 54.6. Employment dropped -1.9 to 43.5. Average wages rose 1.4 to 64.9. Input prices dropped -6.7 to 75.6. But selling prices rose 1.4 to 64.9.

    Innes Willox, Chief Executive of Ai Group said: “Australia’s manufacturing sector edged back into expansion during February following the sharp labour and supply chain disruptions of the December-January period. Price and wage pressures continued in February with some easing in the pace of increase in input prices. At the same time, selling prices accelerated suggesting further recovery of earlier cost increases.”

    Full release here.

    German Ifo dropped to 95.7, economy is navigating troubled waters

      German Ifo Business Climate dropped to 95.7 in July, down from 97.5 and missed expectation of 97.0. Expectations Index dropped to 92.2, down from 94.0, missed expectation of 94.0. Current Assessment Index dropped to 99.4, down from 101.1, missed expectation of 100.4.

      Clemens Fuest, President of the ifo Institute, said “the mood in German C suites is growing uneasy… Companies were less satisfied with their current business situation and are also looking ahead with increased skepticism. The German economy is navigating troubled waters.”

      Manufacturing index was in “freefall” and dropped from 1.3 to -4.3. “Such a major decline was last seen in February 2009” and, “no improvement is expected in the short term, as businesses are looking ahead to the next six months with more pessimism.” Services Sector index dropped from 20.3 to 17.7, with expectations slightly pessimistic for the first time since July 2009. Trade index “slid sharply” from 7.9 to 1.4. “Companies are assessing their current situation as considerably less positive, and their outlook for the coming months is markedly more skeptical.” Construction Index dropped rose from 23.0 to 23.3.

      Full release here.

      BoE Carney: House price could fall 25-35% on no-deal Brexit

        BoE Governor Mark Carney gave some “chilling” warnings in Prime Minister Theresa May’s cabinet meeting on no-deal Brexit preparation yesterday. There he compared a disorderly effort to 2008 financial prices. And more importantly, BoE wouldn’t be able to avert the crisis by cutting interest rates. Inflation and unemployment are expected to surge according to Carney’s expectation. And, in the worst case scenario, house price could fall be 25-35% over three years. On the other hand, Carney noted that if a deal is struck based on May’s Chequers plan, the economy could overshoot current forecasts as it’s an outcome that’s better than BoE assumed.

        However, it should be noted that Carney has been constantly accused by Brexiteers as being part of the “Remain” camp, together with Chancellor of Exchequer Philip Hammond. And, both have been inaccurate in prediction Brexit economic consequences. Leader of the Brexit camp European Research Group Jacob Rees-Mogg called Carney “the high priest of Project Fear” last month.

        Japan PMI manufacturing finalized at 48.9, slipped further into contraction

          Japan PMI Manufacturing was finalized at 48.9 in December, down from November’s 49.0. That’s the lowest level since October 2020. S&P Global noted there were strong reductions in output volumes and order books. Input buying was cut at strongest rate since September 2020. Supply pressures were the least widespread since February 2021.

          Laura Den man, Economist at S&P Global Market Intelligence, said: “December PMI data saw the Japanese manufacturing sector slip further into contraction territory in the final month of 2022. The downturn was largely centred around the current demand environment which is weak both internationally and domestically….

          “At the same time, forward looking indicators are increasingly painting a gloomier picture for Japan’s manufacturing sector in the future. Companies have cut back input buying sharply, and business sentiment waned to a seven-month low.”

          Full release here.

          UK retail sales volume dropped -1.6% mom in Aug, sales value also down -1.7% mom

            UK retail sales volume dropped -1.6% mom, -5.4% yoy in August, worst than expectation of -0.6% mom, -4.2% yoy. Ex-fuel sales volume dropped -1.6% mom, -5.0% yoy, versus expectation of -0.7% mom, -3.4% yoy.

            Retail sales value also dropped -1.7% mom while ex-fuel sales value dropped -1.4% mom. On a year earlier, headline sales value rose 5.4% yoy while ex-fuel sales value rose 3.7% yoy.

            Full release here.

            ECB Kazaks: The size of PEPP package is not an absolute truth

              ECB Governing Council member Martins Kazaks said that “flexibility is at the very core of PEPP”, referring to the central bank’s Pandemic Emergency Purchase Program. “If financial conditions remain favorable, in June we can decide to buy less.”

              He added that there is not reason to believe that PEPP program will extend beyond the March 2022. ECB might even complete the program without using up the entire envelop of EUR 1.85T, depending on economic developments. “The size of the package is not an absolute truth,” he said. “If the economy performs nicely, it’s quite likely that we will not need to spend everything.”

              Still,he emphasized that it’s “premature” to talk about stimulus exit due to high uncertainty. “If the inflation outlook remains like the current forecast when PEPP ends, I think we would certainly discuss increasing APP,” Kazaks said.” Monetary policy will remain very accommodative. If necessary we can also devise new instruments.”

              European businesses increasingly desensitized to China Xi Jinping’s constant repetition of empty promises

                The European Chamber of Commerce in China blasted Chinese President Xi Jinping’s speech regarding opening up the markets yesterday. In the keynote speech at the China International Import Expo (CIIE), Xi introduced five initiatives, including stimulating potential for imports, broadening market access for foreign investment, creating a world-class business environment, exploring new horizons of opening up, and promote international cooperation multilaterally and bilaterally.

                The Chamber criticized that much of the content delivered by Xi just “echoed” what was previously announced at Boao in April. And, this was just “constant repetition”, without “sufficient concrete measures or times lines”. And Xi has left the European business community “increasingly desensitized” to these kinds of promises.

                Here is the full statement of the Chamber.

                 

                Dollar mixed after FOMC minutes, no more follow through selling

                  Dollar is mixed after FOMC minutes revealed nothing new, nothing special. The greenback was Sold off after Fed Chair Jerome Powell’s comment that interest rate is “just below” neutral. However, there was no follow through selling since then.

                  Dollar is still trading up against Yen, Sterling and Canadian for the week. And technically, EUR/USD is in range of 1.1267/1472. USD/CHF is in range of 0.9908/1.0006. GBP/USD is in range of 1.2725/2927. Even the strong AUD/USD couldn’t get ride of 0.7314 resistance cleanly. Traders might want to wait for the result of Trump-Xi meeting before taking further commitment.

                  The FOMC minutes for the November revealed that the members still considered a rate hike in December is appropriate. Yet, they debated on the change in forward guidance regarding the pledge on “further gradual increases” in the policy rate. Some judged that the policy rate is near to the neutral level, while some suggested stressing the importance of incoming data on monetary policy decision. The members in general were upbeat on the economic developments. Yet, they were concerned about the negative impacts of Trump’s imposition of trade tariff on the economy, as well as the “volatility in equity markets was accompanied by a rise in risk spreads on corporate debt”. More in FOMC Minutes Signals Rate Hike “Fairly Soon”, Policy Outlook Masked by Tariff and Debts.

                  More suggested reading on FOMC.

                  BoE’s Bailey dismisses rate cut speculations again

                    BoE Governor Andrew Bailey, in an interview, emphasized, “Two percent is our (inflation) target and we will do what it takes to get there.”

                    Bailey also addressed the speculation around interest rate cuts, categorically stating, “We are not in a place now where we can discuss cutting interest rates – that is not happening.”

                    He noted, “We need to see how the final part of the journey down to 2% inflation plays out; we have not seen enough of that journey yet to be confident.”

                    He acknowledged the ongoing economic challenges, including some weakening in economic activity. However, he described this observation as a “realist view” rather than an “ultra-pessimist” outlook, as some critics have suggested.

                    US durable goods orders rose 2.1%, ex-transport orders dropped -0.4%

                      US durable goods orders rose 2.1% in July well above expectations of 1.0%. total new orders for manufactured durable goods rose USD 5B to USD 250.4B. However, ex-transport orders dropped -0.4%, below expectation of 0.0%. Ex-defense orders, though, rose 1.4%. Transport equipment rose 7.0%.

                      Full release here.

                      US PPI accelerated to new record of 7.3% yoy

                        US PPI for final demand rose 1.0% mom in June, above expectation of 0.5% mom. For the 12 month period, PPI accelerated to 7.3% yoy, up from 6.6% yoy, above expectation of 7.1% yoy. That’s the largest annual rise since 12-month data were first calculated in November 2021. PPI core came in at 1.0% mom, 5.6% yoy, above expectation of 0.4% mom, 5.3% yoy.

                        Full release here.

                         

                        Japan PM Abe and BoJ Kuroda defend monetary policy in parliament

                          Japan Prime Minister Shinzo Abe told the parliament today that the government accepted BoJ’s explanation on failing to meet the 2% inflation target. Abe went further and hailed that “what’s most important is what is happening to the economy as a result of the BOJ’s target, which is that more jobs were created.”

                          BoJ Governor Haruhiko Kuroda defended the central bank’s monetary policy to the parliament. He said “expanding base money alone won’t immediately have an effect on the economy”. And, “with huge expansion of base money, central banks can push down real interest rates and bank lending rates, which in turn would stimulate the economy.” He emphasized “this is what happened in the past six years.”

                          EU Katainen: US auto tariffs probe very difficult to understand

                            European Commission Vice President Jyrki Katainen respond to the Trump’s intention to impose new tariffs on automobile imports. Katainen criticized that would be “against the WTO” and “it’s very difficult to imagine it to create any sort of threat to national security. He reiterated that “it’s very difficult to understand”.

                            But he also noted that “we have now just heard what has been said and there is a long journey to the practice … We don’t expect this to further complicate the issue. We just have to find a solution that is fair.”

                            RBNZ ketp OCR unchanged at 1.75%, can move up or down after considerable period

                              RBNZ kept the Official Cash Rate unchanged at 1.75% at widely expected.It reiterated to “ensure the OCR is at an expansionary level for a considerable period.” Bias is neutral as it’s “well positioned to manage change in either direction – up or down – as necessary.”

                              NZD/USD stays pressured after the release, partly also due to Dollar strength. NZD/USD is preassure 0.6779 key support level and there is no sign of bottoming so far.

                              Full statement below.

                              Statement by Reserve Bank Governor Adrian Orr:

                              Tena koutou katoa, welcome all.

                              The Official Cash Rate (OCR) will remain at 1.75 percent for now. However, we are well positioned to manage change in either direction – up or down – as necessary.

                              Our outlook for the New Zealand economy, as detailed in the May Monetary Policy Statement, remains intact. Employment is around its sustainable level and consumer price inflation remains below the 2 percent mid-point of our target, necessitating continued supportive monetary policy for some time to come.

                              Global economic growth is expected to support demand for our products and services. Global inflationary pressure is also expected to be higher but remain modest. This outlook has been tempered slightly by trade tensions in some major economies. Ongoing volatility in some emerging market economies continues.

                              Domestically, ongoing spending and investment, by both households and government, is expected to support growth. However, the recent weaker GDP outturn implies marginally more spare capacity in the economy than we anticipated. The Government’s projected spending impulse is also slightly lower and later than anticipated.

                              CPI inflation is likely to increase in the near term due to higher fuel prices. Beyond that, inflation is expected to gradually rise to our 2 percent annual target, resulting from capacity pressures.

                              The best contribution we can make to maximising sustainable employment, and maintaining low and stable inflation, is to ensure the OCR is at an expansionary level for a considerable period.

                              Meitaki, thanks.

                              New Zealand ANZ business confidence dropped to 7, overshoot in demand dissipating

                                New Zealand ANZ Business Confidence dropped to 7.0 in February, down from December’s 9.4, and preliminary reading of 11.8. Confidence was highest in retails at at 15.6, followed by construction at 12.9, services at 10.8 and manufacturing at 3.6. Agriculture confidence was at -38.1.

                                Own Activity Outlook rose to 21.3, up from 21.7, vs prelim. 22.3. Activity was highest in construction at 41.9, followed by services at 24.7, retail at 13.3, manufacturing at 10.7 and agriculture at 0.

                                ANZ said, “overshoot in demand resulting from the disruptions of 2020 is beginning to dissipate, and we expect the economy to go broadly sideways for a while as it digests the national income hit from the decimated tourism industry and as the housing market cools to something more sustainable.”

                                Full release here.

                                BoE Bailey: Second-ground effects are our concerns

                                  BoE Governor Andrew Bailey said in an interview published over the weekend that the risks to the UK economy are “two-sided” at the moment. He said that “activity in the economy is slowing”. Also, “he proximate cause of many of these inflation issues is on the supply side, and monetary policy isn’t going to solve these directly”.

                                  However, “the concern for us is what they classically call ‘second-round effects’, particularly in wage bargaining and the labour market,” he added. “If the economy evolves in the way the forecasts and reports suggest, we’ll have to raise rates. Which, by the way, is entirely consistent with what I said in October.”

                                  US initial jobless claims dropped to 709k, continuing claims dropped to 6.8m

                                    US initial jobless claims dropped -48k to 709 in the week ending November 7, better than expectation of 745k. Four-week moving average of initial claims dropped -33k to 755k.

                                    Continuing claims dropped -436k to 6786k in the week ending October 31. Four-week moving average of continuing claims dropped -653k to 7576k.

                                    Full release here.

                                    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.

                                      EU Malmström willing to scrap auto tariffs if US does the same

                                        EU Trade Commissioner for Trade Cecilia Malmström told the European Parliament’s trade committee that they are willing to scrap auto tariffs in the negotiation with the US. She noted “we said that we are ready from the EU side to go to zero tariffs on all industrial goods, of course if the U.S. does the same, so it would be on a reciprocal basis.”

                                        And, “we are willing to bring down even our car tariffs down to zero … if the U.S. does the same,” she said, adding that “it would be good for us economically, and for them.”

                                        But she also emphasized that it’s not about “restarting TTIP” but aiming for “a more limited trade agreement.” And more importantly, “agriculture would not be in the agreement, nor public procurement as it looks to today.”

                                        US Empire State manufacturing rose to 4.8

                                          US Empire State Manufacturing general business conditions rose to 4.8 in January, up from 3.5, beat expectation of 4.1. Twenty-eight percent of respondents reported that conditions had improved over the month, while 23 percent reported that conditions had worsened. Business activity “edged somewhat higher”.

                                          PPI rose 0.1% mom, 1.3% yoy in December, versus expectation of 0.2% mom, 1.2% yoy. PPI core rose 0.1% mom, 1.1% yoy, versus expectation of 0.2% mom, 1.4% yoy.