US retail sales dropped -1.3% mom to USD 620.2B in May, worse than expectation of -0.4% mom. Ex-auto sales dropped -0.7% mom, worse than expectation of 0.5% mom rise. Ex-gasoline sales dropped -1.5% mom. Ex-auto, ex-gasoline sales dropped -0.8% mom.
Total sales for March through May period were up 36.2% from the same period a year ago.
Japanese Prime Minister Shinzo Abe’s ruling coalition kept a solid majority in the upper house election. He said today that “based on a stable political basis, the Abe cabinet will take more aggressive and bold economic measures than ever.”
Abe said “uncertainty remains over the global economic outlook such as trade frictions and Britain’s exit from the European Union… We’ll respond to downside risks without hesitation and take flexible and all possible steps.”
The Japanese government has designated JPY 2T in stimulus measures to offset the impact of the planned sales tax hike, from 8% to 10% in October. Abe also noted “we will underpin domestic consumption which accounts for the bulk of the economy by taking sufficient measures.”
S&P 500 and NASDAQ closed at records overnight amid upbeat economic data and easing coronavirus fears. DOW is also close to hitting a new record soon. Near term bullish is maintained with 38.2% retracement of 25743.46 to 29373.62 at 27986.89 defended. Break of 29373.62 will target 61.8% projection of 25474.46 to 29373.63 from 28169.53 at 30412.96 next.
ECB Vice President Luis de Guindos assured yesterday that “There is no doubt headline inflation will continue to ease”. However, he added a note of caution, “But there are more doubts about underlying inflation.”
De Guindos expressed particular concern about the inflation trend in service prices, a sector showing increased momentum due to rising demand and accelerating salary increases. “What worries me the most in the underlying inflation trend is the trend in service prices,” he revealed. “Momentum in services… is rising. There’s demand and that’s because salary increases are accelerating.”
When discussing future interest rate hikes, de Guindos stated, “There could be more interest rate hikes, but their size will depend on upcoming data and the effect tighter credit will have on economic activity.”
Market expectations lean towards a 25bps increase at the June meeting, with a potential additional hike by summer’s end, followed by rate cuts in early next year. However, de Guindos urged caution in predicting these outcomes. “Don’t believe anybody who tells you what the terminal rate is going to be,” he said. “I don’t feel comfortable or uncomfortable but markets can be wrong about this.”
US President Donald Trump said in a Fox Business Network interview today that it’s “a great time to have a strong dollar”. “Right now it’s good to have a strong dollar. Right now having a strong dollar is a great thing” he added. Dollar’s strength “could live both ways” as he noted. From a “trade standpoint, it’s tougher”. However, from a “country” and “inflation standpoint”, “you don’t have inflation, you don’t have problems.”
Regarding the trade deal phase one with China, Trump reiterated that “we’re not going to renegotiate”. And, “right now, I don’t want to speak to him (Chinese President Xi Jinping), I don’t want to speak to him”. He also cautioned that “we could cut off the whole relationship. If we did, what would happen? You’d save $500 billion.” (apparently referring to the trade between US and China).
Germany PMI Services was finalized to 52.7 in November, up from October’s 52.4. PMI Composite was finalized at 52.2, up slightly from October’s 52.0. Markit said new business fell as fourth COVID wave took hold. Firms’ expectation slipped to 12-month low. Rate of input cost and output price accelerated to new highs.
Phil Smith, Economics Associate Director at IHS Markit:
“Germany’s service sector was able to eke out further modest growth in November, but the survey’s forward-looking indicators gave reason for concern. Inflows of new work and business confidence were already in decline in November thanks to the fourth wave of coronavirus, and now the Omicron variant brings added uncertainty and a risk of tighter virus containment measures.
“Given what we’ve seen in the survey data so far and the potential new risks posed by the Omicron variant, the economy is, at best, set for a notable slowdown in growth in the final quarter.
“The survey data showed a further intensification of inflationary pressures in November driven by a surge in energy costs, with service providers joining manufacturers in recording an unprecedented rise in prices. This was despite signs of inflation already easing across consumer-facing sectors.
“Another strong round of hiring across the service sector in November maintained the labour market’s solid pace of recovery. However, with recruitment tending to lag movements in activity and underlying demand, we can reasonably expect the pace of job creation to slow in line with weaker economic growth and lower business confidence.”
Copper soars to the highest levels in over a year this year, driven by renewed optimism regarding global economic growth and expectations of monetary easing from the world’s major central banks. This surge reflects growing confidence among investors that the downturn in manufacturing, including even China, may have past its worst. The prospect of interest rate cuts this year further fuels this positive mood for commodities like copper.
Technically, Copper’s rally from 3.5021 resumed this week and it’s now on track to 161.8% projection of 3.5021 to 3.9346 from 3.6324 at 4.3322, which is close to 4.3556 (2023 high). In any case, outlook will stay bullish as long as 3.9380 support holds. The bigger question is whether Copper is indeed resuming the rise from 3.1314 (2022 low) too. Let’s see.
Canada manufacturing sales rose 1.2% mom to CAD 72.9B in May, above expectation of 0.8%mom. The rise was mainly driven by higher sales of chemical products (+4.8%), motor vehicles (+4.8%) and machinery (+4.2%). Sales in primary metal manufacturing decreased the most (-6.9%).
New Zealand BusinessNZ Performance of Manufacturing Index rose from 60.9 to 62.6 in July. That’s the second highest reading after March’s 63.6. Looking at some details, production rose from 64.4 to 66.0.. Employment rose from 56.7 to 58.3, a new record. New orders rose from 63.6 to 65.0. Finished stocks dropped from 57.4 to 56.9. Deliveries rose from 55.2 to 57.9.
However, the position of negative comments (51.4%) still remained higher than positive ones (48.6%). Increased domestic and overseas orders was the common factor for positive comments. In contrast, tight labor market, supply chain issues and raw material costs were the negatives.
BNZ Senior Economist, Craig Ebert stated that “while New Zealand’s PMI is doing exceptionally well, we are also conscious of the headwinds happening for global manufacturing.  This is on account of the resurgence of COVID19 in its delta strain.”
China’s Caixin PMI Services rose to 44.4 in April, up from March’s 43.0. PMI Composite rose to 47.6, up from 46.7. Both stayed in contraction region.
Zhengsheng Zhong, Chairman and Chief Economist at CEBM Group said, “domestic services activity remained under notable pressure amid the coronavirus pandemic”. New export orders shrank at a steeper rate in April than in February, “indicating that the March rebound in exports was not sustainable”. “The second shockwave for China’s economy brought about by shrinking overseas demand should not be underestimated in the second quarter”
Also from China, in April, in USD terms, exports rose 3.5% yoy while imports dropped -14.2% yoy. Trade surplus widened to USD 45.3B.
New Zealand’s ANZ Business Confidence for October showcased a significant rise, moving from 1.5 to a robust 23.4. This upbeat sentiment was mirrored in the Own Activity outlook, which climbed from 10.9 to 23.1.
A broader analysis of the report’s details reveals positive shifts across multiple components: Export intentions rose from -0.4 to 6.1, Investment intentions moved from a negative -4.1 to a positive 3.8, and Employment intentions took a jump from 1.2 to 5.6.
However, while these figures indicate growing optimism in business activities and prospects, inflation front remains a concern. Cost expectations reduced slightly from 78.6 to 76.0. Similarly, Pricing intentions saw a minor drop, moving from 47.1 to 46.3. Inflation expectations also experienced a negligible downtick, adjusting from 4.95% to 4.94%.
Reacting to these numbers, ANZ remarked, “Just as we thought that the rebound in activity indicators in the ANZ Business Outlook survey might be running out of steam, we’ve seen a marked jump across most.”
The bank also cautioned against hasty conclusions based on the current data, especially considering the potential disruptions from the election, suggesting a wait-and-watch approach: “we’ll see whether the newfound (relative) optimism persists over the next few months.”
On the inflation front, ANZ noted that, “inflation pressures are gradually waning in the big picture.” Despite this, the bank emphasized that significant progress in curbing inflation has been missing over recent months. The journey back to the inflation target remains substantial. “We continue to expect it’ll take at least one more OCR hike to get us there.”
November saw Japan’s Manufacturing PMI finalized at 48.3, a slight decline from October’s 48.7. This figure, reported by S&P Global, indicates a continued contraction in the manufacturing sector, with more pronounced decreases in output and new order inflows. The PMI reaching its lowest since February signals a challenging phase for the sector, primarily due to weakened demand both domestically and internationally.
Usamah Bhatti of S&P Global Market Intelligence commented on the sector’s performance, noting, “The headline PMI slipped deeper into contraction territory, largely due to quicker deteriorations in output and new order inflows.” He identified weak customer demand across both domestic and international markets as key factors behind this downturn.
On the inflation front, although inflationary pressures remained high, there was a noticeable easing. Input cost inflation slowed down to a three-month low, and selling price inflation reduced to its softest since July 2021. This easing in inflation suggests some relief in cost pressures for manufacturers.
Despite the current contraction, Japanese manufacturers are holding onto a sense of optimism for the future. Bhatti emphasized this positive outlook, stating, “Manufacturers remained optimistic that muted demand and production conditions would lift over the coming year.” This confidence is underpinned by expectations of a boost in demand, spurred by new product launches, particularly in the semiconductor sector.
Australia’s monthly CPI for July registered a deeper than expected slowdown, easing from 5.4% yoy to 4.9% yoy. Analysts had forecasted a milder decline to 5.2% yoy. The underlying inflation measures also indicated a deceleration. CPI excluding volatile items such as holiday travel came in at 5.8% yoy, down from 6.1% yoy. The trimmed mean CPI, which is often regarded as a more accurate reflection of inflationary pressures, slowed from 6.0% yoy to 5.6% yoy.
A closer look at the inflation contributors reveals a mixed picture. Housing costs remained a significant upward pressure, climbing 7.3% on an annual basis. Food and non-alcoholic beverages followed closely, rising by 5.6% yoy. However, this was offset by substantial price falls in other areas. Automotive fuel costs dropped by -7.6%, while fruit and vegetable prices declined by -5.4%, thus tempering the overall July increase.
The latest CPI data comes on the heels of yesterday’s hawkish comments from incoming RBA Governor Michele Bullock, who emphasized that her first priority is still to maintain a focus on bringing inflation back down to target. Today’s lower-than-expected inflation figures might lend some flexibility to RBA’s policy approach, but with sectors like housing and food still exhibiting strong price pressures, the central bank’s task appears far from straightforward.
Germany PMI manufacturing rose to 44.5 in April, up from 44.1 but missed expectation of 45.2. It’s staying deep in contraction below 50. PMI services rose to 55.6, up from 55.4, beat expectation of 55.0. PMI composite rose to 52.1, up from 51.4.
Commenting on the flash PMI data, Phil Smith, Principal Economist at IHS Markit said:
“The overall picture for Germany’s private sector has changed very little according to April’s flash data, with strong growth across the services economy continuing to counteract the export-led weakness in manufacturing. Though the PMI has ticked up from March’s 69-month low, it’s merely signalling the same modest rate of underlying growth as seen on average over the opening quarter of the year.
“Slight upticks in the manufacturing indices for output, new orders and employment saw the headline Manufacturing PMI post its first rise in nine months, albeit with the latest reading nonetheless the second-lowest since mid-2012. Amid reports of a declining car industry, strong competition across Europe and generally subdued global demand, the data showed another steep drop in German goods exports and the lowest confidence among manufacturers for six-and-a-half years.
“The survey continues to highlight strong job creation across the service sector, which is in turn supporting wage growth and means we should see consumer demand continue to rise during the second quarter.”
Japan headline CPI was unchanged at 3.0% yoy in September, below expectation of 3.1% yoy. CPI core (all items ex-fresh food) accelerated from 2.8% yoy to 3.0% yoy, matched expectations. CPI core-core (all items ex-fresh food and energy) accelerated from 1.6% to 1.8% yoy, below expectation of 2.0% yoy.
CPI core has now exceeded BoJ’s target for the 6th straight months, and hit the highest level since 1991 (excluding the effect of the 2014 sales tax hike). CPI core-core was also at the highest level since 2015. Yet, BoJ is seeing inflation as mostly driven by imports rather than domestic price pressures. This could be reflected in the 5.6% yoy rise in goods prices, and the sluggish 0.2% yoy rise in services prices.
Japan’s PMI Manufacturing rose fractionally from 47.9 to 48.0 in January, below expectation of 48.2. Manufacturing remained in contraction for the eighth consecutive months. PMI Services rose from 5.15 to 52.7. PMI Composite rose from 50.0 to 51.1.
Usamah Bhatti, Economist at S&P Global Market Intelligence, noted that while “modest” the private sector is having the strongest growth since September. However, there was disparity between the sectors, with services reaching a four-month high, while manufacturing marked its eighth consecutive month of contraction.
Regarding inflation, Bhatti said input price inflation “remains high historically”. But output inflation eased to its “lowest since February 2022”. This indicates that while input costs are still elevated, businesses are not passing these costs fully onto consumers.
ECB Governing Council member Gediminas Simkus said, “it’s clear that 50 basis points is a must” for December meeting. He added, “because we still see very strong inflation pressures and we need to dampen them as soon as possible to prevent a de-anchoring of inflation expectations.” Yet, “75 is also possible.”
ECB will also discussing shrinking the assets purchased with the stimulus program, also known as quantitative tightening. “The sooner we start quantitative tightening, the better,” he said. “But in smaller steps, so that it can run somewhere in the background.”
The Summary of Opinions from BoJ’s meeting on January 22-23 signaled the central bank’s intensified focus on initiating its first rate hike since 2007 and moving away from its long-standing negative interest rate policy. The deliberations, however, stopped short of providing a clear timeline for these policy shifts.
A notable hawkish sentiment within BoJ pointed to the “growing possibility” of significant wage revisions in the upcoming spring, at “relatively higher levels” than in the past. This perspective is underpinned by the recognition of “improving trend” in both economic activities and price. Such developments suggest that the necessary conditions for revising monetary policy, including ending the negative interest rate regime, are increasingly “being met”.
Concurrently, the impact of Noto Peninsula Earthquake on is a key factor under close observation. One opinion suggested that, after a thorough assessment of the earthquake’s effects over “the next one or two months”, BoJ is “highly likely to reach a point where it can normalize monetary policy”.
On the other side of the spectrum, a more cautious stance was also expressed. While acknowledging that the probability of achieving the BoJ’s 2 percent price stability target is becoming “more realistic”, it was noted that certainty in reaching this goal is not yet fully established. However, this view also supports the initiation of discussions regarding the exit from the current monetary policy stance.
Chinese Ambassador to the US Cui Tiankai said in an article in the official Xinhua news agency that “forty years of diplomatic ties and cooperation have served the interests of both countries quite well.” And, “in addition to all the bilateral benefits we have gained from this relationship, we have also seen its positive impact on the broader region of the Asia-Pacific and the world.”
He urged that “if we have a more positive and cooperative mindset, we could see clearly the emerging trends in the world, seize new opportunities, and turn challenges into opportunities.” And he emphasized that China is “against any trade war” and believes “any dispute should be worked out through dialogue and consultation.” But Cui also warned that if US insists on a trade war, China will retaliate.
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Eurozone CPI finalized at 5.3% in Jul, core CPI at 5.5%
Eurozone CPI was finalized at 5.3% yoy in July, down from June’s 5.5% yoy. Core CPI (ex energy, food, alcohol & tobacco) was finalized at 5.5%, unchanged from June’s reading. The highest contribution came from services (+2.47%), followed by food, alcohol & tobacco (+2.20%),), non-energy industrial goods (+1.26%),) and energy (-0.62%),).
EU CPI was finalized at 6.1% yoy, down from prior month’s 6.4% yoy. The lowest annual rates were registered in Belgium (1.7%), Luxembourg (2.0%) and Spain (2.1%). The highest annual rates were recorded in Hungary (17.5%), Slovakia and Poland (both 10.3%). Compared with June, annual inflation fell in nineteen Member States, remained stable in one and rose in seven.
Full Eurozone CPI final release here.