Tue, Jan 31, 2023 @ 16:58 GMT

RBA Lowe: Any increase in interest rates, they’re some time away

    RBA Governor Philip Lowe delivered a speech titled “Productivity, Wages and Prosperity” today. There he pointed out that “over the past couple of years, output growth has been subdued, but employment growth has been strong.” And, it’s productivity that’s holding the economy back. Low pointed to strong employment growth in household services, but output per hour worked was only 4% higher than it was in 2010. In contrast, the output per hour worked was up 13% to 16% in other industry groups.

    He urged “strong ongoing focus on training, education and the accumulation of human capital” to bring up the overall productivity. And he emphasized that “our national comparative advantage will increasingly be built on the quality of our ideas and our human capital.”

    Regarding monetary policy, Lowe said the economy is “moving in the right direction” and the next move in interest rate will be “up, not down”. But, “the environment in which interest rates are increasing is also likely to be one in which people’s incomes are growing more quickly than they are now.”And, “any increase in interest rates, however, still looks to be some time away.”

    Japan Defence Minister Onodera: Military drills vital to East Asia security

      Japan Defence Minister Itsunori Onodera emphasized that “the drills and the US military stationed in South Korea play a vital role in East Asia’s security.” And he hoped to “share this recognition between Japan and the US, or among Japan, US and South Korea.”

      Onodera also said there is no change in Japan’s policy after the Kim-Trump summit, of “putting pressure” on North Korea. And, Japan would stick to plans to bolster its defences against a possible ballistic missile strike from North Korea.

      Separately, Chief Cabinet Secretary Yoshihide Suga said that Japan could shoulder some of the costs of North Korea’s denuclearization, on the condition that International Atomic Energy Agency (IAEA) restarts inspections.

      Trump wants to stop war games for negotiation in good faith with North Korea

        US President Donald Trump confirmed his intention to stop military exercise with South Korea while the negotiation with North Korea is in progress. He said in a Fox News interview in Singapore that “we’re not going to be doing the war games as long as we’re negotiating in good faith.” “So that’s good for a number of reasons, in addition to which we save a tremendous amount of money”. And, “you know, those things, they cost. I hate to appear a businessman, but I kept saying, what’s it costing?”

        It’s unknown how Trump himself interpret the meaning of “negotiating in good faith”. Or he’s having different application of the words to different people. By the same logic, Trump should have stopped the threats of steel and aluminum tariffs to EU, Mexico and Canada, and refrain from raising the stakes with auto tariffs. Then, these parties can “negotiate in good faith”.

        Republican Senator Lindsey Graham blasted the idea of cost cutting as ridiculous as “it’s not a burden onto the American taxpayer to have a forward deployed force in South Korea.” He added that “It brings stability. It’s a warning to China that you can’t just take over the whole region. So I reject that analysis that it costs too much, but I do accept the proposition, let’s stand down (on military exercises) and see if we can find a better way here.”

        Eurosceptic Savona: I never asked to leave indispensable Euro

          The known Eurosceptic Italian Minister for European Affairs Paolo Savona said he fully backed the Euro as it’s “indispensable” even though the currency union needs to be “perfected” in regards to its system of governance. He urged that the ECB should be given a “new statute” similar to Federal Reserve. And, it’s “fundamental that the ECB should be able to act on exchange rates.” A so called “Plan B” was laid out in his book, written just before becoming minister, for an orderly exit from Euro if necessary. Savona emphasized that was written as a “analyst”. He said “there is no plan B and I never asked to leave.”

          Savona, who has been highly critical on Germany, said that it’s a “great country from many points of view, culturally, economically and politically.” But he pointed out a major difference between him and many German economists. He noted that “they tend to see stability as a necessary condition for growth, while I am part of a group who sees growth as a necessary condition for stability.”

          Italy was nearly in another political an constitutional crisis after President Sergio Mattarella vetoed Savona as economy minister. The anti-establiahment coalition of 5-Star Movement and the League quitted forming the government. But then, they came back with Giovanni Tria as Economy Minister and kept Savona in the cabinet as Minister for European Affairs

          US CPI jumped to 6 year high, but Dollar shrugs

            US headline CPI accelerated to 2.8% yoy in May, up from 2.5% yoy and beat expectation of 2.6% yoy. The headline number is the fastest in six years since 2012. Core CPI also accelerated to 2.2% yoy, up from 2.1% yoy and met expectations.

            Nonetheless, reaction in the US Dollar is rather muted. It’s continuing to trade mixed for the day.

            In the currency markets, Swiss Franc are the strongest one, followed by New Zealand Dollar and then Euro. Yen is the weakest, followed by Canadian Dollar and Sterling. It’s a typical day with direction.

            OECD: German robust expansion sets to continue

              OECD Secretary-General Angel Gurría said in presenting a report in Berlin that “Germany’s recent economic performance is remarkable, and the robust expansion appears set to continue.” Also, “unemployment is at record low levels and Germany is providing jobs, and better lives, to hundreds of thousands of immigrants.” However, he also urged that “More must be done now to ensure that today’s strong economic and social results are sustained and extended to all.”

              Gurría’s speech.

              In the latest economic projections, Germany economic growth is expected to slow after a great year in 2017 but remains robust ahead. Unemployment rate is also projected to drop further as the economy improves. The more important part is that core inflation is expected to surge from 1.3% in 2018 to 2.0% in 2019.

              OECD projects German economic growth to slow from 2.5% in 2017 to 2.1% in 2018 and maintain the same pace in 2019. Exports growth is expected to slow from 5.3% in 2017 to 4.5% in 2018 and 4.5% in 2019. CPI is projected to be unchanged at 1.7% in 2018 and climb further to 2.0% in 2019. Core CPI is also expected to be unchanged at 1.3% in 2018 and rose to 2.0% in 2019. Unemployment rate is projected to drop from 3.7% in 2017 to 3.4% in 2018 and then 3.3% in 2019.

              The presentation.

              German ZEW dropped to -16.1. Trade war, Italy and data weighed

                German ZEW economic sentiment dropped to -16.1 in June, down from -8.2, below expectation of -14.6. Current situation index dropped to 80.6, down from 87.4, below expectation of 85.0.

                Eurozone ZEW economic sentiment dropped to -12.6, down from 2.4, below expectation of 0.1. Current situation index dropped -16.2 to 39.9.

                Quote from the release:

                “The recent escalation in the trade dispute with the United States as well as fears over the new Italian government pursuing a policy which potentially destabilises the financial markets have left their mark on the economic outlook for Germany. On top of this, German industry has been reporting worse than expected figures for exports, production and incoming orders for April. As a result, the economic outlook for the next six months has worsened considerably,” comments ZEW President Professor Achim Wambach.

                Full release here.

                UK unemployment unchanged at 4.2%, Sterling ignores wage growth miss

                  UK claimant count dropped -7.7k in May, better than expectation of 11.3k rise.

                  Unemployment rate was unchanged at 4.2% 3 months to April, met expectation.

                  Average weekly earnings, including bonus, slowed to 2.5% 3moy in April, below expectation of 2.6% 3moy. Prior month’s reading at 2.6% 3moy.

                  Average weekly earnings including bonus slowed to 2.8% 3moy, below expectation of 2.9% 3moy. Prior month’s reading at 2.9% 3moy.

                  At the time of writing, Sterling shrugs off the weaker than expected wage growth and strengthens against Dollar and Yen.

                  Full text of Kim and Trump comprehensive document

                    Here are some of the texts:

                    “President Trump committed to provide security guarantees to the DPRK, and Chairman Kim Jong Un reaffirmed his firm and unwavering commitment to complete denuclearization of the Korean Peninsula.”

                    1. The United States and the DPRK commit to establish new US-DPRK relations in accordance with the desire of the peoples of the two countries for peace and prosperity.

                    2. The United States and the DPRK will join their efforts to build a lasting and stable peace regime on the Korean Peninsula.

                    3. Reaffirming the April 27, 2018 Panmunjom Declaration, the DPRK commits to work toward complete denuclearization of the Korean Peninsula.

                    4. The United States and the DPRK commit to recovering POW/MIA remains, including the immediate repatriation of those already identified.

                    The United States and the DPRK commit to hold follow-on negotiations, led by the US Secretary of State, Mike Pompeo, and a relevant high-level DPRK official, at the earliest possible date, to implement the outcomes of the US-DPRK summit.

                    President Donald J Trump of the United States of America & Chairman Kim Jong Un of the State Affairs Commission of the Democratic People’s Republic of Korea have committed to cooperate for the development of new US-DPRK relations and for the promotion of peace, prosperity, and security of the Korean Peninsula and of the world.

                    Full text:

                    The signing:

                    Smart, talented Kim scored outstanding diplomatic win

                      North Korea leader Kim Jong-un signed a “comprehensive letter” today, following the high profile, Singaporean paid, summit. Kim scored an outstanding diplomatic win as he’s now turned from a friendless dictator to a “very smart”, “talented” man who loves his country very much.

                      Kim said that the two leaders had a historical meeting and “decided to leave the past behind”. Kim promised “the world will see a major change”. Trump said he had formed a “very special bond” with Kim. And, Trump expected the denuclearization process to start “very, very quickly”. Trump also hailed Kim as a “very smart” and a “very worthy, very hard negotiator”and added, “I learned he’s a very talented man. I also learned that he loves his country very much.” He also said the summit had gone “better than anybody could have expected”.

                      In the document they signed, it’s delcared that North Korea would work toward the “complete denuclearization of the Korean peninsula” and committing to a “lasting and stable peace.” In exchange, the US promised to provide unspecified “security guarantees” to Kim. Also, they agreed to establish new relations “in accordance with the desire of the peoples of the two countries for peace and prosperity” and said they would work on recovering “POW/MIA remains.”

                      Kim: It’s a good prelude for peace

                        Some more comments from Kim and Trump on the summit. Kim said “We overcame all kinds of scepticism and speculations about this summit and I believe that this is good for the peace.” He added, “I believe this is a good prelude for peace.”

                        Trump said “Very good. Very, very good. Good relationship.”

                        IMF Lagarde and WTO Azevedo defend multilateralism

                          IMF managing director Christine Lagarde said yesterday that “the clouds on the horizon that we have signaled about six months ago are getting darker by the day, and I was going to say by the weekend”, referring to what Trump did to the G7. She added that the biggest and darkest cloud that we see is the deterioration in confidence that is prompted by (an) attempt to challenge the way in which trade has been conducted, in which relationships have been handled and in which multilateral organizations have been operating.”

                          WTO Director-General Roberto Azevedo also criticized the that “the US has been focusing much more on bilateral — unilateral even sometimes — measures, which is not something that is support of the rules-based trading system.” And, “they have been complaining about the system, they say that they want to improve the system, but we would expect a more constructive approach on their part.”

                          Canada united against Trump administration’s disparaging ad hominem statements

                            Canada House of Commons displayed rare political unity an passed a unanimous motion standing by the government on retaliation against US steel tariffs, and reject personal attack on Prime Minister Justin Trudeau.

                            The motion is introduced by NDP’s Tracey Ramsey. The House “strongly opposes the illegitimate tariffs imposed by the United States government against Canadian steel and aluminum works”. And it “stands united in solidarity with the Government of Canada in its decision to impose retaliatory tariffs”. And it “rejects disparaging ad hominem statements by the US administration which do a disservice to bilateral relations and will fail to resolve this trade dispute”.

                            Australia NAB Business confidence dropped to 6, no RBA hike till May 2019

                              Australia NAB business condition dropped -6 pts to 15 in My. Business confidence dropped -5 pts to 6. Both reversed the improves from March to April.

                              Alan Oster, chief economist at the NAB.

                              “Despite the easing in the business conditions index, conditions remain robust in the business sector. Conditions remain well above average across most states and industries.”

                              “Confidence is highest in trend terms in Tasmania and Western Australia.” “Queensland and South Australia are slightly above the National average while New South Wales and Victoria continue to lag the other states at below average levels.”

                              “Both business conditions and leading indicators continue to suggest a pick-up in economic growth and that, over time, jobs growth should see the unemployment rate fall towards 5%,”

                              “The outlook for the labour market and evidence of a pick-up in wage growth remain key for monetary policy. Evidence of a genuine pick-up in wages growth and a flow-through to inflation more broadly will provide a launch pad for the RBA to begin lifting rates from current record lows.”

                              “We don’t expect this to occur until May 2019, as while the survey continues to point to a growing economy, strength in employment and a decline in the unemployment rate, these factors are yet to materialise in a significant pick-up in wages,”

                              Kim meets Trump: 1-on-1 finished, it’s now team play

                                The one-on-one meeting between Kim Jong-un and Donald Trump in Singapore has ended after 41 mins of talks. It’s now entered into wider meeting with officials from both sides. After the one-on-one meeting, Kim said there will be challenges but will work with Trump. And Trump urged Kim to work together.

                                Just as they met for the first time earlier today, with handshake, Kim said “the road to this place wasn’t an easy road”. He added “”for us, there is a past that had ensnared our feet and wrong prejudices that sometimes covered our eyes and ears, but we have overcome them all and arrived here.”

                                German retaliation to US steel tariffs coul take effect by July 1

                                  German Chancellor’s spokesman Steffen Seibert said EU is ready to take action against the US steel and aluminum tariffs, which are illegal under WTO rules. Germany’s countermeasures can take effect on July 1. And it stands by resolving the standoff through international forums.

                                  Germany Economy Minister Peter Altmaier told broadcaster Deutschlandfunk that a “win-win situation is still possible” on trade talk between the EU and the US.

                                  However, he added that at the moment, “it seems that no solution is in sight, at least not in the short term.” He pointed to the G7 summit and said “we have not made any progress in the last few days, but rather, as we saw with the rejection of the summit declaration, we have gone backwards.”

                                  NIESR: UK growth slowed materially with risks weighed to the downside

                                    NIESR said UK GDP is estimated to have grown 0.2% in the three months ending May, following 0.1% grow in the three months ending April.

                                    Amit Kara, Head of UK macroeconomic forecasting, said:

                                    “Economic growth has slowed materially since the start of this year and it continues to remain weak.”

                                    “One reason for sluggish growth is the disruption caused by severe weather in March, particularly to the construction sector.:

                                    “The latest data also shows a notable slowdown in manufacturing sector output that appears to be driven by both domestic and external conditions.”

                                    “By contrast, the retail sector and the dominant services sector may be recovering.”

                                    “Looking ahead, we expect the economy to strengthen from here mainly because monetary policy in the UK and elsewhere continue to remain accommodative.”

                                    “The risks to that outlook are, however, weighed to the downside. The most important of these remains Brexit but there are others, most notably an escalation of tensions in international trade and a potential flare-up in uncertainty in the Euro Area because of political developments in Italy.”

                                    Sterling dips as trade balance and production missed

                                      Sterling dips notably lower after a batch of weaker than expected data.

                                      Visible trade deficit widened to GBP -14.0B in April, from GBP -12.0B, missed expectation of -11.5B.

                                      Industrial production at -0.8% mom 1.8% yoy in April , versus expectation of 0.1% mom 2.7yoy and prior 0.1% mom 2.9% yoy

                                      Manufacturing production at -1.4% mom 1.4% yoy, versus expectation of 0.3% mom 2.9% yoy, and prior -0.1% mom 2.9% yoy.

                                      Construction output rose 0.5% mom in April versus expectation of 2.4% mom and prior -2.3% mom.

                                      The pound will face more tests in CPI, employment and retail sales later in the week.

                                      Mexican Guajardo to engage strongly in July on NAFTA

                                        Mexican Economy Minister Ildefonso Guajardo said Mexico, Canada and the US will be “engaging strongly” later in July to work on a NAFTA agreement that ‘s “feasible, workable and benefits the three nations involved.”

                                        He added that “the only way we will find that solution is if countries involved have sufficient flexibility to be able to find that narrow strip where we have to land.”

                                        And he warned that “an agreement that does not give us certainty, does not give us rules that have to be obeyed and mechanisms to settle disputes will not be of help for the business community.”

                                        New Zealand Parker: None of us can beat globalization

                                          New Zealand Trade Minister David Parker urged the world to stand up to defend rules-based trade system. And he added that “none of us can beat globalization”

                                          He noted that “what’s happening in the world worries me. But the world is already developing alternatives like CPTPP”.

                                          The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), also known as TPP-11, was an advanced version of the Trans-Pacific Partnership (TPP) that was signed in March. The US was originally in the TPP but Trump pulled out of it immediately after taking office.