US PPI for final demand rose 0.2% mom in March, below expectation of 0.3% mom. PPI final demand services rose 0.3% mom while final demand goods fell -0.1% mom.
For the 12-month period, PPI jumped from 1.6% yoy to 2.1% yoy, below expectation of 2.3% yoy. But that was still the highest reading since April 2023.
PPI for final demand less goods, energy, and trade services rose 0.2% mom. For the 12-month period, PPI for final demand less foods, energy and trade services rose 2.8% yoy.
US initial jobless claims fell -11k to 211k in the week ending April 6, below expectation of 215k. Four week moving average of initial claims fell -250 to 214k.
Continuing claims rose 28k to 1817k in the week ending March 30. Four-week moving average of continuing claims rose 3.5k to 1803k.
ECB maintained its interest rates as widely expected, holding main refinancing rate and deposit rate at 4.50% and 4.00%. Most importantly, for the first time, the central bank explicitly indicated the possibility for future interest rate cuts, which would be seen as a conditional guidance for a June adjustment.
“If the Governing Council’s updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission were to further increase its confidence that inflation is converging to the target in a sustained manner, it would be appropriate to reduce the current level of monetary policy restriction,” ECB said. Nevertheless, the decision will still be data depended, and meeting-by meeting.
Current observations have “broadly confirmed” ECB’s medium-term inflation outlook, with continued decline in inflation rates primarily driven by decreases in food and goods price inflation. Most measures of underlying inflation are showing signs of easing, and there is a gradual moderation in wage growth. Additionally, firms seem to be accommodating some of the labor cost increases within their profit margins, which is a positive development for inflationary pressures.
Meanwhile, financing conditions remain restrictive and previous interest rate hikes are still impacting demand, contributing to the downward pressure on inflation. Yet, the persistence of strong domestic price pressures, particularly in the services sector, indicates that services price inflation remains elevated.
In an opinion piece in FT, BoE MPC member Megan Greene explicitly urges market participants to “stop comparing” the monetary policies of the UK and US.
Greene’s commentary comes in the wake of the US March CPI inflation report released yesterday, which surpassed market expectations that “the Bank of England will cut rates earlier and by more than the Federal Reserve this year”.
“The markets are moving rate cut bets in the wrong direction,” Greene asserts, emphasizing that, contrary to market speculation, “rate cuts in the UK should still be a way off as well.”
Highlighting the unique challenges faced by the UK economy, Greene notes the “double whammy” of a tight labor market coupled with a more substantial impact from energy price shocks, which has made “inflation persistence” a more pressing issue for the UK compared to the US and other advanced economies.
China’s CPI slowed significantly from 0.7% yoy to 0.1% yoy in March, coming in below expectation of 0.4% yoy. Core CPI, which strips out food and energy prices, also decelerated from 1.2% yoy to 0.6% yoy. This shift was largely influenced by a notable -2.7% decrease in food prices, while non-food prices edged up rose 0.7%. Month-on-month, CPI declined -1.0% mom.
NBS attributed this March dip in CPI to a “seasonal decline in consumer demand following the holidays and the overall sufficient market supply.”
In parallel, PPI, a measure of factory-gate prices, edged down further to -2.8% yoy from February’s -2.7% yoy, aligning with market expectations. This continuation of downward trend for the 18th consecutive month emphasizes persistent deflationary pressures within the manufacturing sector. On a month-on-month basis, PPI contracted by -0.1%.
Japanese Yen’s steep decline through 152 mark against Dollar overnight has put attention on potential currency intervention. However, responses from key officials today suggest a more measured approach is being considered at this point. In particular, Finance Minister Shunichi Suzuki acknowledged the mixed implications of a weakening Yen, with pros and cons. Its looks like Japan is not gearing up for direct intervention at the current level.
Suzuki highlighted the government is looking at the currency markets “with a high sense of urgency”. But he also emphasized that Japan is “not just looking at levels” such as 152 or 153, but also the underlying factors driving Yen’s depreciation.
Suzuki reiterated the government’s preference for currency stability, emphasizing that exchange rates should reflect economic fundamentals rather than short-term volatilities.
Masato Kanda, Japan’s top currency diplomat, echoed this sentiment by highlighting the recent pace of Yen’s movements as “rapid.” While not dismissing interventions, Kanda pointed out the absence of a fixed level that would trigger such actions. “I don’t have any particular level in mind,” he noted.
Bets on a Fed rate cut in June receded sharply following yesterday’s stronger than expected US CPI report. The drastic shift in sentiment led to steep decline in DOW and strong rally in Dollar index. FOMC minutes further cemented this outlook, revealing Fed’s cautious stance on interest policy easing and its desire for more evidence of disinflation progress before considering rate cuts.
The March FOMC minutes highlighted a consensus among members regarding the “uncertainty” surrounding the “persistence of high inflation”. Recent economic data did little to assuage these concerns, failing to increase the Committee’s confidence that inflation was on a steady decline toward 2% target.
The minutes further detailed concerns over the “relatively broad based” nature of recent inflation increases, cautioning against dismissing these trends as mere statistical outliers. This characteristic led to a consensus that these developments should not be hastily dismissed as “merely statistical aberrations.”
Fed fund futures are now pricing in just 18% chance of a Fed rate cut in June, comparing to 58% a day ago.
DOW closed down -422 pts or -1.09% at 38461.51. Technically, the break of 38483.25 support and 55 D EMA suggest that rise from 32327.20 has completed at 39899.05, on bearish divergence conditions in D MACD. Deeper correction is in favor to 38.2% retracement of 32327.20 to 39899.05 at 37000.42.
Dollar Index surged sharply to close at 105.24. Break of 150.10 resistance indicates resumption of whole rally from 100.61. Also, the strong support from 55 D EMA is a clear near term bullish sign. Further rally is now expected as long as 103.93 support holds. Next target is 100% projection of 100.61 to 104.97 from 102.35 at 106.71.
BoC maintains overnight rate at 5.00% as widely expected. The central bank’s statement highlighted that both the CPI and core inflation have “eased further” in recent months, though they remain at elevated levels. BoC emphasized its intention to monitor whether the observed “downward momentum is sustained”. But there is no explicit hint on rate cuts.
In its latest economic projections, BoC forecasts GDP growth of 1.5% for 2024, an uptick from previously projected 0.8%. The outlook for the subsequent years also remains optimistic, with growth expected at 2.2% in 2025 (down from previous 2.5%) and 1.9% in 2026.
On the inflation front, BoC projects CPI to hover close to 3% during the first half of this year, with a downward trend anticipated in the latter half to below 2.5%, and reach 2% inflation target in 2025.
US CPI rises 0.4% mom in March, above expectation of 0.3% mom. CPI core (all items less food and energy) rises 0.4% mom, also above expectation of 0.3% mom. Energy index rose 1.1% mom. Food index rose 0.1% mom.
For the 12 months period, CPI accelerated from 3.2% yoy to 3.5% yoy, above expectation of 3.4% yoy. CPI core was unchanged at 3.8% yoy, above expectation of 3.7% yoy. Energy index was up 2.1% yoy while food index was up 2.2% yoy.
BoC is widely expected to keep interest rate unchanged at 5.00% today and the main focus is whether Governor Tiff Macklem would start to change the tune to lay down the groundwork for a June rate cut. With new economic projections on the table, this meeting presents an opportune moment for such indications.
A recent Reuters poll revealed a consensus among economists, with 27 out of 38 forecasting a 25 bps cut by BoC in June. Meanwhile, 7 expected the cut in July and 4 in September. By the year’s end, the expectation is for a 100 bps cumulative reduction, bringing the rate down to 4.00%.
Despite these anticipations, a noteworthy portion of economists — 13 out of 16 — who responded to an additional query, suggested that the timing of the first rate cut is more likely to be delayed than they expected. Moreover, 11 of them believe there’s a heightened risk of fewer rate cuts than initially forecasted.
While USD/CAD’s rebound from 1.3176 has persisted in the last few months, momentum is clearly lacking as seen in both the structure of the rise, as well as in D MACD. Break of 1.3477 support the first signal that such rebound has completed as a corrective move. Nevertheless, firm break of the upper channel line will likely prompt upside acceleration towards 1.3897 resistance. Today’s BoC decision is poised to significantly influence the currency’s next move.
New Zealand Dollar is steady after RBNZ left interest rate unchanged and drops not clue on the timing of interest rate cuts. NZD/JPY’s focus is staying on 92.18 resistance. Decisive break there will argue that corrective pull back from 93.42 has completed with three waves down to 90.08. larger rise from 80.42 would then be ready to resume through 93.42 high.
However, rejection by 92.18, followed by break of 90.79 support, will turn bias back to the downside for 90.08 support. Further break there will argue that NZD/JPY is possibly in larger scale correction.
RBNZ maintained Official Cash Rate unchanged at 5.50%, aligning with market expectations. This decision comes with reiterated commitment to “restrictive monetary policy stance,” deemed necessary to alleviate capacity pressures and guide inflation back within the target range of 1 to 3 percent within “this calendar year”.
During the recent meeting, members concurred that there has been “no material change in economic outlook” since their February Statement. There remains a “limited tolerance” for prolonging the timeframe to meet the inflation target, especially with inflation expectations and pricing intentions continuing to “remain elevated”.
The “persistence of services inflation” and “elevated” goods price inflation were identified as continuous risks, with expected near-term increases in local government rates, insurance, and utility costs potentially decelerating the reduction in headline inflation.
On the flip side, RBNZ acknowledges potential downside risks to the inflation outlook, notably the impact of continued restrictive monetary policy amid weak global growth. This environment could precipitate a quicker than anticipated reduction in inflation. Weak business and consumer confidence, coupled with potential increases in unemployment and financial stress, are areas of concern. Additionally, structural economic challenges in China are highlighted as significant, given its critical role in the global economy and as a major trading partner for New Zealand.
In today’s parliamentary address, BoJ Governor Kazuo Ueda reaffirmed the Bank of Japan’s stance on continuing its accommodative monetary policy, underscoring the short-term interest rate as the “primary policy tool.”
A key focus for BoJ, as Ueda noted, is the scrutiny of trend inflation’s progress towards 2% target in judging “appropriate degree of monetary support.”
Meanwhile, Ueda clarified that BoJ would not alter its monetary policy solely in response to FX fluctuations. However, he acknowledged that significant FX movements, if they lead to an unexpected increase in import prices and thereby risk elevating trend inflation beyond projections, could necessitate a reassessment of monetary policy.
Atlanta Fed President Raphael Bostic recently highlighted the possibility that rate cuts May have “to move further out” given that the US eocnomy economy has been “so robust, and so strong, and so resilient”.
Further elaborating on his perspective in a Yahoo Finance interview, Bostic referred to his previous dot-plot submission, where he initially projected two rate cuts for the year, influenced by the rapid inflation decline in the latter half of 2023.
However, “What happened for me is that it slowed down and the pace went back to the pace that I had expected initially, which had me at one cut,” Bostic explained.
SNB Vice Chairman Martin Schlegel defended the central bank’s use of foreign exchange interventions, highlighting their effectiveness in maintaining price stability within Switzerland.
“Have foreign exchange interventions contributed to achieving price stability? Yes, they have,” he said at an event in Geneva overnight.
He further elaborated that without utilizing foreign currency sales, SNB would have faced the necessity to escalate the policy rate significantly higher.
Schlegel also noted a modest average of 0.3% over the last fifteen years. He argued that, in the absence of foreign exchange purchases, inflation rates would have dipped considerably lower, potentially entering deflationary territory.
“Estimates suggest that it would have been significantly below zero without the purchases; we would thus not have fulfilled our mandate,” Schlegel pointed out.
Speaking to the parliament today, BoJ Governor Kazuo Ueda highlighted the possibility of future reduction in monetary stimulus, contingent on the alignment of economic and price conditions with current projections.
“If economic and price conditions move in line with our current projections, trend inflation will gradually accelerate. If so, we must consider reducing the degree of stimulus,” he explained.
A significant point of consideration as outlined by Governor Ueda revolves around the outcomes of annual wage negotiations and their subsequent reflection in actual data. “We’ll also check at each policy meeting whether rising wages will be reflected in services prices, he added.
Australia NAB Business Confidence rose from 0 to 1 in March. Business Conditions fell from 10 to 9. Trading Conditions and employment conditions held steady at 15 and 6 respectively. But profitability conditions decline notably from 10 to 6.
Alan Oster, NAB’s Chief Economist, pointed out the unusual situation where business conditions have been “a little above average” and confidence “a little below average” for an extended period. This, according to Oster, reflects a cautious outlook among firms regarding the future, even as the economy shows signs of resilience.
Further details from the report indicate a softening in cost pressures. Labor cost growth decelerated to 1.6% on quarterly equivalent basis, down from 2.0%. Purchase cost growth slowed to 1.4% from 1.8%. Additionally, there was a moderation in product price growth to 0.7% from 1.2%, with retail price growth slightly reducing to 1.3% from 1.4%. Despite these easing pressures, cost concerns remain high, with retail price growth still elevated.
Oster interprets these figures as being aligned with expectations that the journey towards inflation normalization will be “gradual”. Q1 PI result later in April is expected to further reinforced this view.
Australia Westpac Consumer Sentiment Index marked a decrease of -2.4% mom to 82.4 in April. This downturn extends the index’s streak below the neutral threshold of 100 to nearly two years, underscoring a prolonged period of consumer pessimism.
Westpac’s analysis attributes the lack of recovery in consumer sentiment primarily to the ongoing inflationary pressures that have gripped Australia. Over the past three years, consumer prices have risen significantly, outpacing wage growth by six percentage points. This inflationary trend, coupled with the notable rise in interest rates and increased tax burdens, has significantly strained household incomes, subjecting them to prolonged financial duress.
As attention turns to RBA’s next meeting in May, Westpac anticipates no change to the official cash rate. This forecast hinges significantly on the upcoming March quarter CPI update, due on April 24, which is expected to play a crucial role in shaping the RBA’s stance.
In Q1, New Zealand’s business community signaled a stark downturn in confidence, with NZIER business confidence index plunging from -9.9 to -23.7 . This dramatic drop is accompanied by reversal in firms’ trading activity expectations for the coming quarterly, from 6.6 to -11.5, as well as retrospective decline in past three months’ trading activity from 6.7 to -23.2.
NZIER attributes this downturn to the effect of heightened interest rates, which appear to be fulfilling their role in tempering demand to alleviate inflationary pressures. Moreover, the looming uncertainty surrounding the new Government’s fiscal strategies, particularly in terms of spending adjustments and cutbacks in the public sector, is exacerbating business caution.
Detailed further illuminates the current economic challenges, with a net 11% of firms having reduced their workforce in the March quarter, albeit with slightly positive hiring intentions moving forward. Investment intentions are also on the downturn, with a net 14% of businesses intending to cut back on plant and machinery investment, and a net 8% planning to curtail investment in buildings over the next year.
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Fed’s Williams: Fed to stay data-dependent as outlook ahead is uncertain
New York Fed President John Williams suggested that, should the economy evolve as anticipated, it would be prudent to “dial back the policy restraint gradually over time, starting this year.”
However, he was quick to stress the inherent uncertainty in the economic outlook, underscoring the need for Fed to maintain a data-dependent approach.
“The outlook ahead is uncertain, and we will need to remain data-dependent,” he said in a speech, adding “I will remain focused on the data, the economic outlook, and the risks as we evaluate the appropriate path for monetary policy to best achieve our goals.”
Williams also touched upon inflation, projecting a continued but gradual decline towards Fed’s 2% target. He cautioned, however, that this trajectory might not be smooth, referencing “bumps along the way” evidenced by some recent inflation data.