US consumer confidence fell to 102.6, third month of decline

    Conference Board’s Consumer Confidence Index in the US recorded a dip in October 2023, falling from 104.3 to 102.6, though it managed to beat the anticipated 100.4. This decline marks the third consecutive month where consumer confidence has waned. Breaking it down further, Present Situation Index saw a decrease from 146.2 to 143.1, while Expectations Index also experienced a slight drop, moving from 76.4 to 75.6.

    Dana Peterson, Chief Economist at Conference Board, highlighted, “Consumer confidence fell again in October 2023, marking three consecutive months of decline.” This drop in confidence reflects concerns in both the present economic conditions and future expectations.

    One of the primary worries for consumers remains the rising prices, particularly noticeable in groceries and gasoline. These increasing costs continue to be a major concern, influencing overall consumer sentiment.

    In addition to economic factors, political uncertainty and escalating interest rates have also contributed to the decline in confidence. Furthermore, increasing tensions and unrest in the Middle East have heightened worries around war and conflicts, adding another layer of apprehension among consumers.

    Full US consumer confidence release here.

    Gold dives on strong Dollar, 1805 support in focus

      Gold dropped sharply overnight following broad based Dollar strength. The development now raises the chance that rebound from 1752.32 has completed with three waves up to 1853.70 Immediate focus is now on 1805.59 support. Firm break there should add more credence to this bearish case and send Gold through 1782.48 to 1752.32 support.

      More importantly, rejection by medium term trend line resistance, together with the corrective structure of the rise from 1752.32 to 1853.70, suggests that medium term sideway pattern is extending with another falling leg. Break of 1782.48 support will open up the case for deeper decline to 100% projection of 1877.05 to 1752.32 from 1853.70 at 1728.97 eventually.

      RBNZ Silk warns against premature rate cut expectations

        RBNZ Assistant Governor Karen Silk advised caution against pricing in rate cuts too prematurely. In her comments, Silk stressed that RBNZ has reached a juncture where it can “take a pause and watch how this evolves,” ensuring that “you don’t overdo things.”

        However, Silk emphasized that it’s core inflation that the central bank is focused on bringing down, and this will require maintaining the current rate levels for an extended period. “We’ve said we need to hold for an extended period of time to ensure core inflation comes down; it’s core inflation that we need to get down,” she stated.

        She explained the bank’s holistic approach to assessing economic conditions, saying, “We look at economic data, but we also look at transmission,” Silk explained. “If at a wholesale level and most importantly at a retail level we start to see those things come off faster, then that’s one of the things we take into account when we think about where we set the OCR.”

        In terms of the inflationary impact of Cyclone Gabrielle, Silk indicated that its effect has been less severe than initially anticipated. RBNZ had initially projected the storm would add 0.3% to inflation in both the first and second quarters. Still, it has since revised this down to just 0.1%, citing that while the storm led to increased food costs, it didn’t inflate the prices of other goods such as used cars.

        Australia AiG manufacturing rose to 61.7, no adverse effect from strong Australian Dollar

          Australia AiG Performance of Manufacturing Index rose 1.8 pts to 61.7 in April. that’s the seventh straight month of rise, and the strongest reading since March 2018. All six manufacturing sectors expanded, as did all seven activity indicators.

          Ai Group Chief Executive Innes Willox said: “Australia’s manufacturing industry showed no signs of slowing in the month following the end of the JobKeeper wage subsidy…. There was a large lift in manufacturing production, sales and exports and employment continued to grow solidly – although not at the very rapid pace seen in March. To date the sector as a whole has not been adversely affected by the stronger Australian dollar although a number of businesses are keeping a close eye on where the currency goes from here.”

          Full release here.

          GBP recovers as UK PMI construction rose to 5 month high, beat expectations

            UK PMI construction rose to 52.5 in April, up fro 47.0 and beat expectation of 50.5. That’s also the highest reading in 5 months. GBP responds positive to the upside surprise and is attempting to rebound.

            Comments from Tim Moore, Associate Director at IHS Markit:

            “A rebound in construction activity was pretty well inevitable after snowfall resulted in severe disruptions on site during March. House building led the way, with growth in April among the strongest seen over the past two-and-a-half years. However, the picture was less positive in other areas of construction, with commercial building and civil engineering work rising only marginally.

            “While temporary factors make it difficult to gauge underlying momentum, the recovery from March’s low point is somewhat underwhelming and provides an indication that the construction sector has been treading water at the very best in recent months.

            “A consistent theme so far this year has been fragile demand conditions and subdued volumes of incoming new work. Survey respondents noted that heightened economic uncertainty continued to hold back construction growth in April, with risk aversion among clients leading to delays with spending decisions on new projects.”

            Full release here.

            Into US session: Europeans higher, commodities lower, Dollar mixed ahead of FOMC

              Entering into US session, Dollar remains mixed as traders await FOMC statement. The markets were generally quiet today with many centers on holiday. Much stronger than expected ADP job report couldn’t provide any support to the greenback. Instead, the key for Dollar is whether Fed Chair Jerome Powell would dismiss talks of rate cut as premature. Or he’ll sound concerned with sluggish inflation and indicate openness on lowering interest rates.

              At the time of writing, Swiss Franc is the strongest one for today, followed by Sterling. Pound shrugs off decline in PMI manufacturing in April. It’s extending this week’s rebound, in particular against Dollar, Euro and Yen. Euro is the third strongest. Meanwhile, New Zealand Dollar is the weakest one after poor job data, followed by Aussie and then Canadian.

              Some suggested readings on FOMC:

              In other markets:

              • DOW open slightly higher, up around 50 pts at initial trading.
              • FTSE is down -0.07%.
              • German, France, Singapore, Hong Kong, Japan, China markets were all closed

              Germany in position to counter economic crisis with many, many billions of euros

                Finance Minister Olaf Scholz told the Bundestag lower house of parliament that “it will be very important for us as the largest economy in the middle of the European Union, whether we are actually able to counteract a negative economic trend”.

                And, “with the solid financial foundations we have today, we are in a position to counter an economic crisis with many, many billions of euros if one actually breaks out in Germany and Europe.”

                He added, “we’ll really do it then, it’s Keynesian economics, if you want to put it that way, it’s an active policy against the crisis.”

                SNB: Real external value of Swiss franc still at a high level

                  SNB commented on exchange rate in its latest Quarterly Bulletin. Here are the quotes from section 5.4.

                  Swiss franc gains against US dollar

                  Since the monetary policy assessment in December 2017, the Swiss franc has gained in value against the US dollar by around 4% (cf. chart 5.4). This appreciation occurred against a backdrop of general US dollar weakness, which became more pronounced at the end of January following statements by the US Treasury Secretary about the advantages of a weak US dollar for the American economy. At times, the USD/CHF exchange rate declined to its lowest level since mid-2015. 

                  Fluctuations in Swiss franc exchange rate to euro

                  Initially, the Swiss franc depreciated somewhat against the euro. At times in mid-January, the price of the euro was CHF 1.18, the highest value since the discontinuation of the minimum exchange rate. Thereafter, however, the Swiss franc strengthened again. This appreciation occurred against a backdrop of growing market uncertainty, which was also reflected in share price performance. In mid-March, one euro cost CHF 1.17, which was practically the same level as at the time of the monetary policy assessment in December.

                  Slight increase in Swiss franc’s trade-weighted external value

                  On a nominal trade-weighted basis, the Swiss franc has increased by more than 1% since mid-December (cf. chart 5.5). This was mainly due to its marked appreciation against the US dollar.

                  Real external value of Swiss franc still at a high level

                  Since autumn 2017, the real trade-weighted exchange rate index calculated by the SNB has been at roughly the same level as before the discontinuation of the minimum exchange rate. It thereby remains above its long-term average. The same is true for the indices calculated by the Bank for International Settlements (BIS) and the International Monetary Fund (IMF) (cf. chart 5.6).

                  Full report here

                  Basically, there is no indication for a change of SNB’s stance on exchange rate. Swiss Franc remains overvalued. And it will stand ready to intervenue if needed.

                   

                  German retail sales dropped -0.6% mom in May, 10-year bund yield hits new record low

                    German retail sales dropped -0.6% mom in May, well below expectation of 0.5% mom. Compared with 2018, for the first fives months of the year, retail sales rose 2.8% in real terms. The weak data dampened hope that domestic demand could offset the drag from global trade on the export-led economy. Euro is steady after the release. But German 10-year bund yield is extending recent record run, hitting as low as -0.362 so far today.

                    Full release here.

                    Bundesbank: German inflation to cool post Sep, but core to stay high

                      Bundesbank, in its monthly report, anticipates a dip in Germany’s inflation rate starting from September. One-off effects, such as the temporary introduction of the “tank discount” and nine-euro ticket, are expected to fade, easing the inflationary pressure.

                      The Bundesbank also envisions that the recent decrease in prices for primary products will progressively reflect in consumer costs, adding to the deflationary forces.

                      Contrarily, core inflation rat is projected to remain substantially high over the summer months. The summer season typically witnesses elevated prices for holidays packages, and this year is expected to be no different.

                      Full release here.

                      UK PMI services finalized at 55.2, strong growth so far in Q2

                        UK PMI Services was finalized at 55.2 in May, down slightly from April’s 55.9. S&P Global said there were robust rises in output and incoming new work. Staffing numbers increased for the fifth month running. Wage pressures pushed up cost inflation to a new three-month high. PMI Composite was finalized at 54.0, down from prior month’s 54.9.

                        Tim Moore, Economics Director at S&P Global Market Intelligence: “Service sector businesses have experienced strong growth so far in the second quarter of 2023… Rising export sales were also reported… Job creation was maintained… Intense wage pressures continued across the service economy… Average prices charged by service sector companies nonetheless increased at the second-weakest pace since August 2021.”

                        Full UK PMI Services release here.

                        Eurozone M3 rose 5.2%, solid growth in lending to households and businesses

                          Eurozone M3 money supply growth accelerated to 5.2% yoy in July, up from 4.5% yoy and beat expectation of 4.7% yoy. M3 growth averaged 4.8% in the three months to July.

                          Meanwhile, household lending growth accelerated to 3.4% yoy, up from 3.3% yoy, hitting a post-crisis high. Corporate lending growth was unchanged at 3.9% yoy, staying at the highest level this year.

                          The overall set of data is seen as indication of future activities. And, robust growth in money supply and lending argues that even though the economy is cooling, there is no imminent risk of recession yet.

                          Full release here.

                          BoJ Ueda foresees core inflation slowing, reiterates commitment to ultra-loose monetary policy

                            BoJ Governor Kazuo Ueda, who recently attended the G20 finance leaders’ meeting in Washington, expects core consumer inflation in Japan, currently around 3%, to slow below 2% by the latter half of this fiscal year. Ueda emphasized the central bank’s commitment to maintaining ultra-loose monetary policy in order to achieve its 2% inflation target in a stable and sustainable manner.

                            Ueda believes that “as our base scenario is for global growth to pick up after a period of slowdown, Japan’s wages will likely keep rising.” He added that the BoJ’s forecasts already factor in the possibility of a global economic slowdown, but a severe global recession is not considered in the baseline projection.

                            As for the upcoming April policy meeting, Ueda said, “It’s been just a week since I took office and now I am on a business trip. I’ll think about it closely once I’m back.” Market participants are closely watching the BoJ’s first policy meeting under Ueda’s leadership on April 27-28, where the board will release fresh quarterly growth and inflation forecasts extending through fiscal 2025.

                            Japan machine orders rose 17.1% mom in Oct, largest monthly jump since 2005

                              Japan machine orders rose 17.1% mom in October, well above expectation of 2.8% mom. That’s also the largest month-on-month rise on record since 2005. By sectors, manufacturing orders rose 11.4% mom while non-manufacturing rose 13.4% mom.

                              The data affirmed the improving trend in capital expenditure. Investments could be further boosted ahead by the government’s Fresh JPY 40T stimulus. Yet, the volatile series is up for revision while the exporters might continue to struggle to gain momentum due to global weakness.

                              New Zealand Treasury: Consumption and business confidence pose downside risks to growth

                                New Zealand Treasury’s Monthly Economic Data report noted that the 0.5% real GDP growth in Q1 was below the forecast set in the Budget Economic and Fiscal Update (BEFU). Terms of trade fell by -6.7% due to  a slight fall in export prices and an increase in import prices, contributing to -0.4% decline in nominal GDP.

                                Consumption indicators were soft. Business confidence deteriorated further in June, hitting post-election lows. Combined they suggest “there is a little less momentum in the economy and poses some downside risk to our BEFU GDP forecast in the near-term.”

                                The report also warned that “risks around trade continue to escalate with tariffs affecting a range of trade between the US and China, and a growing number of other countries.”

                                Full report here.

                                BoJ opinions: Undesirable to make premature changes to monetary policy

                                  In the Summary of Opinions at BoJ’s October 27-28 meeting, it’s noted that it’s wages increase in a “sustainable and stable manner” to achieve the inflation target. Inflation could “deviate upward” form the baseline scenario but it’s still “uncertain” whether the rises in prices will be “sustainable”. It is “undesirable” to “make premature changes” to monetary policy for the “risk of disrupting the formation of a virtuous cycle between prices and wages.”

                                  Nevertheless, on member noted, “it is necessary to examine the impact of high prices on household behavior and wages humbly and without any preconceptions while paying attention to the side effects of monetary easing.

                                  Another member noted, “it is also important to continue to examine how future exit strategies will affect the market and whether market participants will be well prepared for them.”

                                  Full Summary of Opinions here.

                                  UK PM Johnson: Don’t forget the extra lubricaiton of GBP 39B in no-deal Brexit

                                    Boris Johnson is formally appointed by Queen Elizabeth II as UK Prime Minister today. In the remarks outside 10 Downing Street, he said to “fulfil the repeated promises of parliament to the people and come out of the EU on October 31, no ifs or buts.”

                                    On the possibility of no-deal Brexit, he emphasized “don’t forget that in the event of a no-deal outcome we will have that extra lubrication of the 39 billion pounds.”

                                    UK Hammond on Brexit negotiation: Positive process, challenging substance

                                      Chancellor of the Exchequer Philip Hammond said that there are still big issues to resolve in Brexit negotiation. He said “what has happened over the last week, ten days, is that there has been a measurable change in pace.” However, “that shouldn’t conceal the fact that we still have some big differences left to resolve. So process is a lot more positive this week – substance still very challenging.”

                                      Separately, it’s reported that Prime Minister Theresa May is going to make a public statement saying UK “will not agree to be trapped permanently in a customs union in any circumstances”.

                                      China Caixin PMI services dropped to 55.1, composite dropped to 53.8

                                        China Caixin PMI Services dropped to 55.1 in May, down from 56.3, below expectation of 56.2. PMI Composite dropped to 53.8, down from 54.7.

                                        Wang Zhe, Senior Economist at Caixin Insight Group said: “To sum up, the expansion in manufacturing and services maintained its momentum as both supply and demand expanded. Overseas demand was generally good, but service exports were affected by the pandemic. The job market continued to improve. In May, services recovered faster than manufacturing. Entrepreneurs were confident about the economic outlook. Inflation remained a crucial concern as the price gauges in manufacturing and services both rose last month.

                                        Full release here.

                                        US ISM services dropped to 57.1 in Apr, prices at all-time high

                                          US ISM Services PMI dropped from 58.3 to 57.1 in April, below expectation of 59.0. Looking at some details, business activity/production rose from 55.5 to 59.1. New orders dropped from 60.1 to 54.6. Employment dropped from 54.0 to 49.5. Prices rose from 83.8 to 84.6, an all-time high.

                                          ISM said: “There was a pullback in the composite index, mostly due to the restricted labor pool (impacting the Employment Index) and the slowing of new orders growth. Business activity remains strong; however, high inflation, capacity constraints and logistical challenges are impediments, and the Russia-Ukraine war continues to affect material costs, most notably of fuel and chemicals.”

                                          Full release here.