BoJ Deputy Governor Masayoshi Amamiya said, “the BOJ will continue to support the economy with monetary easing to achieve its inflation target in a sustained, stable manner accompanied by wage rises.”
Amamiya also said the economy is picking up as a trend, but it’s facing “extremely high” uncertainty”. “Against this background, we must closely watch the impact financial and currency market moves could have on Japan’s economy and price,” he added.
New Zealand BusinessNZ Performance of Manufacturing Index rose to 54.0 in September, up from 41.0. Looking at some details, production rose from 51.6 to 56.5. Employment turned back to expansion, rose from 49.2 to 51.6. New orders surged sharply from 54.2 to 58.1.
BNZ Senior Economist, Doug Steel said that “although the September PMI pushed above its long-term average of 53.0, it should not be confused with above average activity levels. Rather, it indicates growth off the low base set earlier in the year. Growth has not yet been enough to recoup previous loses, but some progress is being made”.
Gold pushed higher this week as markets continued to recalibrate toward a December Fed rate cut. The move come in tandem with notable falling 10-year yield, which provide some tailwinds to the precious metal too. More upside is expected in Gold in the near term, even though a new record is still expected next year, rather than this.
The Fed’s internal balance has moved noticeably toward the dovish camp. Mary Daly, in her WSJ interview, argued that labor-market fragility now poses a greater risk than inflation and said she supports easing next month. While not a vote, her comments—combined with John Williams’ earlier pivot—validates that the center of the Fed’s spectrum has shifted meaningfully towards easing. That has driven expectations for a December cut to around 80%.
Technically, 10-year yield’s break of 4.056 support suggests that corrective rebound from 3.947 has completed at 4.162, after hitting falling channel resistance that started at 4.629 (May high). Further decline would now be seen towards 3.947 low.
Gold’s breakout above 4,132.77 indicates that pullback from 4,244.86 bottomed at 3,997.73. The rally from 3,886.41, as the second leg of the broader corrective pattern from 4,381.22, remains in progress. Further rise is expected to 4,244.86 and higher, as support by weakness in yield. But strong resistance should emerge from 4,381.22 high to cap upside to bring the third leg of the pattern.
Australia PMI Manufacturing ticked up from 55.7 to 55.8 in June. PMI Services, on the other hand, dropped from 53.2 to 52.6. PMI Composite dropped from 52.9 to 52.6, a 5-month low.
Laura Denman, Economist at S&P Global Market Intelligence said:
“Expansion across Australia’s private sector economy continued in June, according to the S&P Global Flash Australia Composite PMI. The easing of COVID-19 policies and opening of international borders has encouraged growth in demand, especially overseas. Stronger demand conditions have had a positive influence on other areas of the economy, with employment levels continuing to rise at a solid rate.
“That said, firms have taken advantage of rising demand levels and passed through higher costs to their selling prices at a substantial pace. With interest rates rising to contain rapid price pressures, as well as a fading boost to economic activity post-lockdown, downside risks to the Australian economy have increased.”
ECB Chief Economist Philip Lane provided insight into the central bank’s inflation expectations in a speech today. In the near term, headline inflation is anticipated to fluctuate, with a temporary dip in September followed by a rebound later this year.
But more significantly, ECB projects a “rapid decline” in inflation over the next two years, from 2.6% in Q4 2024 to 2.0% in Q4 2025. Core inflation, which is primarily driven by services, is expected to follow a “even sharper” drop, falling from 2.9% at the end of this year to 2.1% by the same period in 2025.
The projections align with weaker economic growth and declining wage pressures, both of which are expected to accelerate the disinflationary process throughout 2025. Lane noted that this slowdown in wage growth is consistent with the recent data, reflecting the end of the “catch-up” dynamics seen in recent years. Additionally, the disinflation process will be supported by well-anchored forward-looking inflation expectations, with reduced price-price and price-wage dynamics compared to the higher inflation environment of 2023.
Looking forward, Lane emphasized that a “gradual approach” in reducing policy restrictiveness will be appropriate, provided the data aligns with ECB’s baseline projection. However, he cautioned that the central bank will “retain optionality” about the pace of adjustment, indicating flexibility depending on future economic developments.
US ISM Manufacturing PMI dropped from 53.0 to 52.8 in July, above expectation of 52.0. Looking at some details, new orders dropped -1.2 to 48.0. Production dropped -1.4 to 53.5. Employment rose 2.6 to 49.9. Prices dropped sharply by -18.5 to 60.0.
ISM said: “”The U.S. manufacturing sector continues expanding — though slightly less so in July — as new order rates continue to contract, supplier deliveries improve and prices soften to acceptable levels.”
“The past relationship between the Manufacturing PMI and the overall economy indicates that the Manufacturing PMI® for July (52.8 percent) corresponds to a 1.4-percent increase in real gross domestic product (GDP) on an annualized basis.”
Eurozone CPI accelerated to 2.2% yoy in October, up from 2.1% yoy and matched expectations. Core CPI accelerated to 1.1% yoy, up from 0.9% yoy and beat expectation of 1.0% yoy. Among the components, energy jumped 10.6% yoy (accelerated from 9.5%). Food, alcohol & tobacco rose 2.2% yoy (slowed from 2.6%). Services rose 1.5% yoy (accelerated from 1.3%). Non-energy industrial goods rose 0.3% yoy (up from 0.3%).
Eurozone (EA19) unemployment rate was unchanged at 8.1% in September, matched expectations, staying as the lowest since November 2008. EU28 unemployment rate was unchanged at 6.7%, lowest since January 2000. Among EU member states, lowest unemployment rate is found in Czechia at 2.3%, then Germany and Poland at 3.4%. Highest unemployment rate is observed in Greece at 19.0%, then Spain at 14.9% and then Italy at 10.1%.
EUR/USD breached 1.1335 temporary low a hour ago. While there is no follow through selling yet, bias is tentatively on the downside for 1.1300 key support.
In March, US PMI manufacturing dropped to 52.5, down from 53.0 and missed expectation of 53.6. That’s the lowest level in 21 months. PMI services dropped to 54.8, down from 56.0 and missed expectation of 55.8. PMI composite dropped to 54.3, down from 55.5. That’s a 6-month low too.
Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:
“US businesses reported a softer end to the first quarter, with output growth easing to the second lowest recorded over the last year. The PMI survey data nevertheless remain encouragingly resilient, indicative of the economy growing at an annualised rate in excess of 2% in the first quarter, suggesting some potential upside to many current growth forecasts.
“A gap has opened up between the manufacturing and service sectors, however, with goods-producers and exporters struggling amid a deteriorating external environment and concerns regarding the impact of trade wars. The survey is consistent with the official measure of manufacturing production falling at an increased rate in March and hence acting as a drag on the economy in the first quarter.
“At the moment, the service sector appears to be holding up relatively well. But the worry is that manufacturing woes are spreading to service providers, via reduced demand for services such as transport and storage as well as deteriorating business optimism about the outlook – which fell to the lowest for nearly three years in March – and a cooling of the labour market. The survey showed hiring across both manufacturing and services hit the weakest for just under two years in March.
“Price pressures have meanwhile cooled alongside the slowdown. Input prices – a key leading indicator of inflation trends – rose at the slowest rate for two years.”
Minneapolis Fed President Neel Kashkari reiterated Fed’s cautious stance overnight, emphasizing that policymakers remain in “wait and see mode” as they monitor the economic fallout from tariff policy. He noted that while officials are hesitant to make any “dramatic changes” to the policy outlook just yet, their priority is to gain clarity on how tariffs will impact inflation and broader growth dynamics.
Kashkari struck a generally optimistic tone on the domestic economy, saying the fundamentals remain “quite strong” and that inflation appears to be trending back toward the 2% target. He pointed to recent data suggesting underlying inflation is running near 2.5%, which—while still above target—is showing a welcome moderation.
However, the lingering uncertainty around tariffs continues to cloud the outlook. Kashkari warned that “nervousness” around trade is leading some firms to pause investment and may amplify inflation risks. While ongoing negotiations offer a path forward, he made clear that “ultimately we need to see what actually happens and then adjust our analysis of the economy.”
BoJ Governor Kazuo Ueda reiterated that Japan has not yet achieved sustainable 2% inflation. “I don’t think we are there yet,” he said after G20 finance ministers’ meeting.
A significant focus for BoJ in the near term will be the outcome of upcoming annual wage negotiations between companies and unions. Ueda pointed out the importance of these negotiations in determining the potential for a positive wage-inflation cycle in Japan.
“We need to confirm whether a positive wage-inflation cycle would kick off and strengthen,” he noted, acknowledging the rising demands from unions for pay increases exceeding last year’s and the apparent willingness among many firms to comply.
However, Ueda also stressed the need for a comprehensive review of the collective results of these wage negotiations, alongside other economic data, to gauge whether wages and inflation will sustainably rise in tandem.
Eurozone CPI slowed from 8.6% yoy to 8.5% yoy in February, above expectation of 8.2% yoy. CPI core all items ex energy, food, alcohol and tobacco) rose from 5.3% yoy to 5.6% yoy, above expectation of 5.3% yoy.
Looking at the main components, food, alcohol & tobacco is expected to have the highest annual rate in February (15.0%, compared with 14.1% in January), followed by energy (13.7%, compared with 18.9% in January), non-energy industrial goods (6.8%, compared with 6.7% in January) and services (4.8%, compared with 4.4% in January).
Australia NAB Business Confidence dropped from -2 to -11 in Q1. Current Business Conditions dropped from 6 to -3. Conditions for the next 3 months dropped from 8 to -4. Conditions for the next 12 months dropped from 16 to 7.
Alan Oster, NAB Group Chief Economist: “While the bulk of the survey was collected prior to the introduction of the more significant containment measures, the spread of the coronavirus and international developments has clearly impacted confidence. Business conditions were also weaker – and this was before activity saw a significant disruption”.
“Unsurprisingly, the forward indicators point to ongoing weakness in the business sector. While there was clearly a large amount of uncertainty at the time of the survey, it was clear that looming lockdowns and an escalation in social distancing measures would materially impact economic activity”.
Entering into US session, Sterling is trading as the strongest one for today, reversing much last last week’s losses. It’s followed by Euro and then Dollar. On the other hand, commodity currencies are generally lower, as led by Australian Dollar. There were a lot of comments on Brexit from UK and EU, but there were just nothing more than words. UK Prime Minister Theresa May’s cabinet will meet on Brexit today and the result out the there would be watched.
Meanwhile, new round of US-China tariffs are set to kick in today. Ahead of that, China’s State Council released a 36k white paper on its position, criticizing US “bullying” and pledged to defend it’s own interests. It doesn’t matter much on how much truth the white paper tells, as what China says is always doubtful. Most important thing is that China is not going to back down from trade war. That’s a factor weighing down Aussie and Kiwi.
In other markets, European stocks are generally lower today. FTSE is down -0.24% at the time of writing, DAX down -0.38%, CAC down -0.21%. China and Japan are on holiday. Hong Kong HSI closed down -1.62%, Singapore Strait Times closed up 0.05%. WTI crude oil was lifted by OPEC decision to stick with its production plan and is up 1.65% at 71.95. Gold is hovering around 1200.
Australia AiG Performance of Construction rose 4.3 pts to 57.6 in October. Looking at some details, activity rose 15.4 to 65.2. Employment dropped -0.2 to 56.8. New orders dropped -0.2 to 58.7. Supplier deliveries dropped -1.3 to 41.3. Input prices dropped -1.2 to 97.2. Selling prices dropped -0.5 to 78.3. Average wages dropped -1.5 to 75.1.
Ai Group Head of Policy, Peter Burn, said: “The healthy leap in activity levels across the Australian construction sector in October is a taste of what is expected to be a strong rebound for the broader economy over the next few months as New South Wales, Victoria and the ACT, liberated from COVID restrictions, catch up with the rest of the country and as barriers to the movement of people within Australia are removed.”
Richmond Fed President Tom Barkin said in a speech, while inflation has run below the 2% target it is “not that far-off target”. “With rounding, you could even call it on target.” The new framework allows “only a moderate” overshoot in inflation. “That moderation limits the risk of de-anchoring while sending a positive signal on inflation.”
He added that recent pick up in inflation is “just a natural rebound from a deflationary second quarter.”. While it’s possible that inflation could escalate in the near future, “I have to say I’m less worried about that possibility.” And, should inflation emerge, the Fed has the tools and the will to address it.”
In this Swiss State Secretariat for Economic Affairs report published today, the government painted a brighter picture of the economy. Growth forecasts for 2018 and 2019 were both revised up. Also, 2018 inflation forecast was revised notably higher. The report titled Economy continues dynamic recovery noted that “the economy to continue its dynamic recovery and anticipates strong GDP growth of 2.4% in 2018. The buoyant international economy is supporting foreign trade, while a favourable investment climate is stimulating domestic demand.”
Here are the latest projections
The tone of the report was very upbeat as it said “Switzerland’s economy has not looked this healthy since the minimum euro exchange rate was discontinued in early 2015. The upturn gathered increasing momentum and became more broad-based in the second half of 2017.”
Also, “the healthy global economy is boosting international demand for Swiss products and therefore driving foreign trade.” And, “the Expert Group predicts that foreign trade will provide a significant boost to growth in 2018 especially but also in 2019.” Regarding the job market, the reported noted that unemployment has been in ” gradual decline since mid-2016, while employment also stepped up in the second half of 2017.”
Regarding economic risks, SECO saw short-term positive and negative risks are “balanced”. Upturn in global economy could help depreciate the Swiss Franc further and “give the Swiss economy a further boost”. But warned that “protectionist measures recently announced in the US pose negative risks for the global economy.” And, “any escalation to a trade war between the major economic zones would have a considerable dampening effect in the medium-term.”
Besides, the report pointed to recent Italian election as “a certain political uncertainty remains on the international stage.” Unclear Brexit terms and uncertainties in Switzerland’s relationship with the EU are other risks mentioned. Domestically, there is risk of sharp correction in construction sector.
UK Prime Minister May is working on an alternative Brexit deal to bring back to the EU. EU chief Brexit negotiator Michel Barnier said if UK wants a “more ambitious relationship, we are open”. But he doesn’t expect anything better than the current agreement.
Also, he said “if there is no deal, there will be contingency measures”. But, he also emphasized “that will be very difficult and will not be done in a climate of confidence. The best guarantee is reaching an agreement.”
China Caixin PMI Manufacturing rose to 51.2 in June, up from 50.7, beat expectation of 50.5. Markit said output expands again as sector continues to recover from the coronavirus crisis. Total new work increases for the first time since January, but external demand remains subdued.
Wang Zhe, Senior Economist at Caixin Insight Group said: “Around mid-June, the epidemic flared back up in some parts of China, but its impact on the overall economy was limited. The gauge for future output expectations continued to rise in June, reflecting manufacturers’ confidence that there would be a further relaxation of epidemic controls and a normalization of economic activities.”
In BoE Quarterly Inflation Report, the overall economic projections are rather dovish with downgrade in growth and inflation forecasts. Unemployment rate projections were revised higher. Meanwhile, the projected Bank rate was also revised lower across the forecast horizon. It’s now suggested that BoE may only hike once, within the forecast horizon, possibly in 2020.
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France household consumption dropped -8.3% mom in Apr
France household consumption expenditure dropped -8.3% mom in April. The decline was mainly due to manufactured goods purchases (–18.9%), during the third lockdown. Energy expenditure dropped slightly by -0.6%. Food consumption dropped -0.2%. Spending was -9.5% below its average level in Q4, 2019.
Also released, CPI came in at 0.3% mom, 1.8% yoy in May, matched expectations. GDP dropped slightly by -0.1% qoq in Q1. It stood -4.7% below prepandemic level in Q4 2019.