US initial jobless claims dropped -10k to 203k in the week ending November 30, below expectation of 215k. Four-week moving average dropped -2k to 217.75k.
Continuing claims rose 51k to 1.693m in the week ending November 23. Four-week moving average of continuing claims was unchanged at 1.681m.
US trade deficit dropped -7.6% mom to USD -47.2B in October, smaller than expectation of USD -48.7B. Imports dropped -1.7% mom to USD 254.3B. Exports dropped -0.2% to USD -207.1B.
The partial US government shutdown is now in its second week. Democrats, who will take control over House with 36-seat majority, plan to vote on a two-part package on Thursday, intending to break the deadlock. One part of the package include a bundle of six measures worth USD 265B for funding non homeland security agencies through September 30. The second part include funding for the Department of Homeland Security through February 8, and provide $1.3 billion for border fencing and $300 million for other border security items including technology and cameras. But there won’t be funding for the border wall that Trump demanded and shut down the government for.
Democrat leaders Nancy Pelosi and Chuck Schumer said in a joint statement that “While President Trump drags the nation into Week Two of the Trump Shutdown and sits in the White House and tweets, without offering any plan that can pass both chambers of Congress, Democrats are taking action to lead our country out of this mess.”
The fate of the Democrats’ package is rather uncertain in the Republican controlled Senate. spokesman for Senate Republican leader Mitch McConnell already said “It’s simple: The Senate is not going to send something to the president that he won’t sign.”
But Trump himself hinted that he might want to make a deal.
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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.
Finance Minister Bruno Le Maire urged that “each side, the Europeans and the Americans, must find something in these discussions”, and, “any trade deal must be based on reciprocity”. He also emphasized that agriculture must be excluded from the trade negotiations. To him, Europe could not ease its food safety and environmental norms. Also, he seems to prefer more focus in the negotiation and said “we don’t want to enter into a negotiation a wide-ranging deal.”
German Foreign Minister Heiko Maas welcomed the results even though “this is not yet the result we are aiming for”. He acknowledged that “it has made a positive result in the whole discussion…on free trade or protectionism more likely than before.” Economy Minister Peter Altmaier also expressed his optimism that ” we can get a good result in the coming weeks and months.”
Department for International Trade said in statement that “we welcome the agreement by the U.S. and the EU to work together to reduce barriers to trade and to further increase trade and investment.” And, “we look forward to progress towards the removal of steel and aluminum tariffs and de-escalation of the tit-for-tat action that could harm businesses and jobs on both sides of the Atlantic.”
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”.
US initial jobless claims rose 9k to 224k in the week ending January 27, above expectation of 211k. Four-week moving average of initial claims rose 5k to 208k.
Continuing claims rose 70k to 1898k in the week ending January 20. Four-week moving average of continuing claims rose 7.5k to 1841k.
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%.
In a speech today, ECB President Christine Lagarde emphasized two key reasons for the need of effective communications by central banks: “high inflation and high levels of attention on inflation.”
According to Lagarde, “While inflation is now falling, effective communication is likely to remain of paramount importance even after the current inflation spike is over,” she said.
Lagarde also highlighted the critical role that central banks play in anchoring inflation expectations. As various economic factors, such as relative price changes, come into play, it becomes even more important for central banks to maintain public confidence in their ability to ensure price stability.
The focus on inflation presents both an opportunity and a risk for central banks, Lagarde pointed out. On the one hand, the heightened public awareness around inflation could lead to unstable inflation expectations, posing a significant challenge for policy-makers. On the other hand, this increased attention gives central banks a valuable opportunity to communicate their commitment to price stability and to anchor public 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%.
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.
Fed raises federal funds rate by 25bps to 4.50-4.75% as widely expected by unanimous vote.
Tightening bias is maintained as “the Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time”.
Regarding the economy, FOMC said, “Recent indicators point to modest growth in spending and production. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation has eased somewhat but remains elevated.”
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.
US initial jobless claims dropped -3k to 183k in the week ending January 28, below expectation of 196. Four-week moving average of initial claims dropped -6k to 192k.
Continuing claims dropped -11k to 1655k in the week ending January 21. Four-week moving average of continuing claims dropped -11k to 1652k.
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).
The Chinese government is apparently furious at US move to sanction its telecom giant Huawei. Tensions of the two sides is set to escalate further while there is no set timing for resuming the collapsed trade talks. While Trump might want to meet Xi to clear out the outstanding issues to seal a trade deal at the upcoming G20 summit, the two sides are actually moving farther apart.
Trump’s administration hit Huawei on two heavy measures yesterday. Firstly, the U.S. Commerce Department is adding Huawei and 70 affiliates to its “entity List” that bans them from buying US technologies without government approval. Secondly, Trump signed an executive order banning US companies from using telecom equipment made by companies deemed to pose a national security risk. As Commerce Secretary Wilbur Ross put, the decision was to “prevent American technology from being used by foreign-owned entities in ways that potentially undermine U.S. national security or foreign policy interests.”
Chinese commerce ministry spokesman Gao Feng said today “China has emphasized many times that the concept of national security should not be abused, and that it should not be used as a tool for trade protectionism… China will take all the necessary measures to resolutely safeguard the legitimate rights of Chinese firms.”
On trade Gao warned “the tariff hike by the United States will only bring greater difficulties to the consultations… “We urge the United States to cancel the wrong practices as early as possible, avoiding greater losses to Chinese and American companies and consumers, and causing a ‘recession-like’ impact on the world economy.”
Gao also also clarified the three concerns on China. Firstly, all tariffs must be removed in order to reach a deal. Secondly, additional purchase of US goods is an issue to be resolved. Thirdly, the text of the agreement must be balanced, respecting each other’s sovereignty. Gao emphasized, “to reach any agreement, China’s three core concerns must be properly resolved,”
Separately, Foreign ministry spokesman Lu Kang, said “negotiations and consultations, to have meaning, must be sincere… First, there must be mutual respect, equality and mutual benefit. Second, one’s word must be kept, and not be capricious.”
Australia NAB Business Confidence fell rose from -8 to -1 in December. However, Business Conditions fell from 9 to 7. The decline was observed across several key areas: Trading conditions dropped from 13 to 10, while Employment conditions also decreased slightly from 8 to 7. Profitability conditions remained steady at 6.
NAB Chief Economist Alan Oster noted that “confidence and conditions are softest in manufacturing, retail and wholesale,” attributing this to consumers cutting back on spending over time. Although there was a pickup in confidence within the retail sector in December, Oster expressed caution, stating that “it remains to be seen if this will be maintained.”
Another significant development was the sharp decline in price and cost growth. Labor cost growth eased to 1.8% in quarterly equivalent terms, down from 2.3%. Purchase cost growth also declined from 2.5% to 1.6%. Overall price growth slowed from 1.2% to 0.9%, with notable decrease in retail price growth from 1.8% to 0.6%.
Oster highlighted the significance of this decline in retail price growth, attributing it in part to the sales periods around Black Friday and Christmas. He remarked, “The marked fall in retail price growth in December… is nonetheless an encouraging sign that inflation may have eased at the end of the quarter.”
Australia goods and services exports rose 3% mom to AUD 39.8B in April. Imports dropped -3% to AUD 31.7B. Trade surplus rose from AUD 2.2B to AUD 8.0B, matched expectations. Retail sales rose 1.1% mom, unchanged from preliminary results.
AiG Performance of Construction Index dropped -0.8 pts to 58.3, “largely maintaining the strong pace of post-2020 recovery following on from a record high in March”.
Canada employment grew 53.7k in September, above expectation of 40.2k. For whole of Q3, employment rose 111k, or 0.6%, similar to 0.7% in Q2. Unemployment rate dropped to 5.5%, down from 5.7% and beat expectation of 5.7%.
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.
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BoE Tenreyro expects rate to be steady at 3% over 2023
BoE MPC member Silvana Tenreyro said, “I would expect that Bank Rate held at 3% over 2023 would reduce output further below potential, given the effects of lower real incomes and the lagged impact of the tightening to date.”
“Policy would then have to loosen, perhaps in 2024, to try to prevent inflation falling below target,” she added.
“Monetary policy has tightened significantly this year, but most of its effects on demand have yet to occur,” she said. “Too high a path for Bank Rate therefore risks over-steering inflation below target in the medium term.”
Tenreyro is a known dove, who voted for just a 25bps hike at last meeting, while the majority voted for a 75bps hike.