ECB Vice President Luis de Guindos told a Spanish newspaper, “the economy is performing better in 2021 than we expected, and this will be reflected in the projections that will be published in the coming days.”
“If inflation and the economy recover, then there will logically be a gradual normalization of monetary policy, and of fiscal policy too,” he added.
France PMI Manufacturing dropped notably from 50.5 to 47.9 in February. PMI Services, on the other hand, rose from 49.4 to 52.8. PMI Composite rose from 49.1 to 51.6, hitting a 7-month high.
Joe Hayes, Senior Economist at S&P Global Market Intelligence said:
“At face value, the February ‘flash’ PMI survey results for France are positive, showing the economy was in growth territory for the first time since October 2022. More encouragement could be taken from the underlying sector data, which showed the expansion was driven by services, a sector which has been under pressure due to the negative demand impact of eroding real incomes.
“However, it’s difficult to say for certain if we’re at an inflexion point and the French economy is now on its path to recovery. The manufacturing sector downturn intensified in February, and demand conditions within this sector are clearly still fragile. Factory export orders fell at the sharpest rate since May 2020, providing a downbeat assessment of broader global economic conditions.
“The likelihood of further increases in interest rates also remains, and this poses a risk to demand and activity. Inflation remained stubborn in the service sector, with rates of input cost and output price inflation holding close to their peaks. How much needs to be done by monetary policymakers to push this lower is uncertain, although sustained resilience in the labour market suggests more needs to be done to take heat out of the French economy.”
New Zealand ANZ Business Confidence rose to -34.4 in June, up from May’s -41.8, but down from preliminary reading of -33.0. Activity Outlook index rose to -25.9, up from May’s -38.7 and preliminary reading of -29.1.
ANZ said “New Zealand is the envy of the world, with no social distancing measures imposed upon us and restaurants, bars, sporting events, all able to carry on as normal. But the fact remains, New Zealand with a closed border is a significantly smaller economy, at least in the near term, and the recession is just starting to make itself felt.”
UK Cabinet Office Minister Michael Gove told LBC radio today that Prime Minister Boris Johnson is “not on a ventilator no” in ICU. Nevertheless, “the prime minister has received some oxygen support and he is kept under, of course, close supervision” for coronavirus treatment.
Meanwhile, Foreign Secretary Dominic Raab to deputise for Johnson. Raab said, “The government’s business will continue. The focus of the government will continue to be on making sure that the prime minister’s direction, all the plans for making sure that we can defeat coronavirus and can pull the country through this challenge, will be taken forward.”
BoE Governor Andrew Bailey said in a speech, “I would caution against suggesting either that we are done with increasing Bank Rate, or that we will inevitably need to do more”.
“Some further increase in Bank Rate may turn out to be appropriate, but nothing is decided. The incoming data will add to the overall picture of the economy and the outlook for inflation, and that will inform our policy decisions.,” he added.
Regarding the economy, he said that data since February meeting, is that the economy is “evolving much as we expected it to”.
“Inflation has been slightly weaker, and activity and wages slightly stronger, though I would emphasise ‘slightly’ in both cases,” he said. “A further set of data will be coming in before our next monetary policy decision later this month.”
ECB President Christine Lagarde said in an emergency statement that “the coronavirus outbreak is a fast developing situation, which creates risks for the economic outlook and the functioning of financial markets.”
“The ECB is closely monitoring developments and their implications for the economy, medium-term inflation and the transmission of our monetary policy. We stand ready to take appropriate and targeted measures, as necessary and commensurate with the underlying risks.”
UK Parliament is set to vote on no-deal Brexit today at 1900GMT, which will likely be rejected. Then there will be another vote tomorrow for seeking Article 50 extensions. Responses from the EU so far are not very positive regarding an extension.
The European Parliament’s lead Brexit spokesman Guy Verhofstadt warned that he would oppose to even 24-hour extension. He said ” I am against every extension, whether an extension of one day, one week, even 24 hours, if it is not based on a clear opinion of the House of Commons for something, that we know what they want.” Verhofstadt also warned that “An extension, where we go beyond the European elections, and the European elections will be hijacked by the Brexiters, and by the whole Brexit issues. We will talk only about that, and not about the real problems, and the real reforms we need in the European Union.”
EU chief Brexit negotiator repeated his question that “extend this negotiation — what for?” And he reiterated that “if the UK still wants to leave the EU in an orderly manner, this treaty is — and will remain — the only treaty possible”. Barnier also told the European parliament that “We are at a critical point. The risk of no-deal has never been higher. That is the risk of an exit – even by accident – by the UK from the EU in a disorderly fashion. I urge you please not to under-estimate the risk or its consequences.”
RBNZ jointly announced the policy target agreements with Ministry of Finance today. Employment is now formally added to its mandate. The statement retained price stability as a target. RBNZ should target to keep annual CPI inflation between 1-3% over medium term. And focus is to keep inflation near to the 2% mid-point. Additionally, the with stable general price level maintained, the monetary would “contribute to supporting maximum sustainable employment within the economy.”
Overall, the announce is widely expected as a result of the new government’s RBNZ review. And, there wouldn’t be any change to the neutral to slightly dovish bias of RBNZ as Adrian Orr just take over as the governor.
Here is the full announcement:
Policy Targets Agreement 2018
The Government’s economic objective is to improve the wellbeing and living standards of New Zealanders through a sustainable, productive and inclusive economy. Our priority is to move towards a low carbon economy, with a strong diversified export base, that delivers decent jobs with higher wages and reduces inequality and poverty.
Monetary policy plays an important role in supporting the Government’s economic objective. The Government expects monetary policy to be directed at achieving and maintaining stability in the general level of prices over the medium term and supporting maximum sustainable employment.
This agreement between the Minister of Finance and the Governor of the Reserve Bank of New Zealand (the Bank) is made under section 9 of the Reserve Bank of New Zealand Act 1989 (the Act). The Minister and the Governor agree as follows:
a) Under Section 8 of the Act the Reserve Bank is required to conduct monetary policy with the goal of maintaining a stable general level of prices.
b) The conduct of monetary policy will maintain a stable general level of prices, and contribute to supporting maximum sustainable employment within the economy.
a) The price stability target will be defined in terms of the All Groups Consumers Price Index (CPI), as published by Statistics New Zealand.
b) For the purpose of this agreement, the policy target shall be to keep future annual CPI inflation between 1 and 3 percent over the medium-term, with a focus on keeping future inflation near the 2 percent mid-point.
c) The Bank will implement a flexible inflation targeting regime. In particular the Bank shall, in pursuing the policy target:
a) The Bank shall implement monetary policy in a transparent manner. In addition to the requirements of section 15 of the Act the Bank shall in its Monetary Policy Statement (MPS):
b) The Bank shall be fully accountable for its judgements and actions in implementing monetary policy.
Hon Grant Robertson
Minister of Finance
Adrian Orr
Governor Designate
Reserve Bank of New Zealand
In an interview with La Tribune Dimanche, fielding the topic of a possible recession risk in Europe, ECB President Christine Lagarde didn’t offer a direct response but instead focused on the preparations and countermeasures Europe has adopted. She highlighted, “This allows us to look towards the coming winter, if not calmly, then at least with a lot more confidence,” emphasizing the role of the Next Generation EU program, structural reforms, and the replenishment of over 90% of gas reserves.
Germany, a powerhouse of the European economy, was also discussed. Lagarde candidly noted that Germany’s previously successful economic model, which leveraged cheap energy supplies and significant export opportunities, especially to China, is undergoing transformation. She admitted that Germany is “one of the factors that is indeed weighing on the outlook for European growth.”
In addressing concerns about whether the ECB harbors a pessimistic view on the short-term economic horizon for Europe, Lagarde was clear, stating, “There are three reasons why we are not pessimistic.” She pointed to an expected rise in growth figures next year, a significant reduction in inflation, and a historically high employment rate in Europe that seems to be holding steady.
However, one of the challenges the European businesses face revolves around salary negotiations and wage structures. Lagarde posed, “The big question right now concerns businesses. Will they accept absorbing part of the salary increases that will be negotiated this year and next in their margins – which didn’t change much in 2022?”
RBA left cash rate unchanged at 1.50% as widely expected. There is no dovish shift in the statement yet. The central bank continues to sound non-committal and noted “the Board will continue to monitor developments and set monetary policy to support sustainable growth in the economy and achieve the inflation target over time.”
There are little changes in substances in the statement too. RBA noted that GDP data paint a “softer picture” of the economy than job data. It acknowledged the mere 0.2% growth in Q4 and 2.3% over 2018. It also noted that “growth in household consumption is being affected by the protracted period of weakness in real household disposable income and the adjustment in housing markets.”
Employment and inflation outlook are unchanged. RBA expects “continued improvement in the labour market is expected to see some further lift in wages growth over time”, gradually. Inflation is expected to pick up gradually over the next couple of years. The central scenario is unchanged for inflation to hit 2% in 2019 and 2.25% in 2020.
Here is the full statement:
Statement by Philip Lowe, Governor: Monetary Policy Decision
At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.
The outlook for the global economy remains reasonable, although growth has slowed and downside risks have increased. Growth in international trade has declined and investment intentions have softened in a number of countries. In China, the authorities have taken steps to ease financing conditions, partly in response to slower growth in the economy. Globally, headline inflation rates have moved lower following the earlier decline in oil prices, although core inflation has picked up in a number of economies. In most advanced economies, unemployment rates are low and wages growth has picked up.
Global financial conditions remain accommodative and have eased recently. Long-term bond yields have declined further, consistent with the subdued outlook for inflation and lower expectations for future policy rates in a number of advanced economies. Across a range of markets, risk premiums remain low. Equity markets have also risen and are being supported by growth in corporate earnings. In Australia, long-term bond yields have fallen to historically low levels and short-term bank funding costs have moderated further. The Australian dollar has remained within its narrow range of recent times. While the terms of trade have increased over the past couple of years, they are expected to decline over time.
The Australian labour market remains strong. There has been a significant increase in employment and the unemployment rate is at 4.9 per cent. The vacancy rate remains high and there are reports of skills shortages in some areas. The stronger labour market has led to some pick-up in wages growth, which is a welcome development. Continued improvement in the labour market is expected to see some further lift in wages growth over time, although this is still expected to be a gradual process.
The GDP data paint a softer picture of the economy than do the labour market data. GDP rose by just 0.2 per cent in the December quarter to be 2.3 per cent higher over 2018. Growth in household consumption is being affected by the protracted period of weakness in real household disposable income and the adjustment in housing markets. The drought in parts of the country has also affected farm output. Offsetting these factors, higher levels of spending on public infrastructure and an upswing in private investment are supporting the growth outlook, as is the steady growth in employment.
The adjustment in established housing markets is continuing, after the earlier large run-up in prices in some cities. Conditions remain soft and rent inflation remains low. Credit conditions for some borrowers have tightened a little further over the past year or so. At the same time, the demand for credit by investors in the housing market has slowed noticeably as the dynamics of the housing market have changed. Growth in credit extended to owner-occupiers has eased. Mortgage rates remain low and there is strong competition for borrowers of high credit quality.
Inflation remains low and stable. Underlying inflation is expected to pick up gradually over the next couple of years, although this has been taking a little longer than earlier expected. The central scenario is for underlying inflation to be 2 per cent this year and 2¼ per cent in 2020. In the near term, headline inflation is expected to decline because of lower petrol prices earlier in the year, while underlying inflation is expected to remain broadly stable.
The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual. Taking account of the available information, the Board judged that it was appropriate to hold the stance of policy unchanged at this meeting. The Board will continue to monitor developments and set monetary policy to support sustainable growth in the economy and achieve the inflation target over time.
France PMI manufacturing dropped to 49.6 in April, down from 49.7 and missed expectation of 50.0. That’s the lowest level in 32 months. PMI services, on the other hand, improved to 50.5, up from 49.1 and beat expectation of 49.8. PMI composite rose to 50.0, up from 48.9.
Commenting on the Flash PMI data, Eliot Kerr, Economist at IHS Markit said:
“The stabilisation of output in April is further evidence of the dwindling economic impact of the ‘gilets jaunes’ demonstrations. Protestor numbers have fallen to approximately 10% of their peak and the remaining disruption has been limited.
“However, protests aside, an underlying slowdown in demand remains evident in the French PMI data. New orders fell for the fifth month in a row during April, partly driven by a sixth consecutive contraction in exports. Although the rate of deterioration in new business eased, many panellists mentioned a decline in activity at their clients.
“More positively, firms were able to brush aside recruitment difficulties and increase staff numbers at a faster pace than in March. Although a mismatch between skills and open vacancies remains apparent, businesses continue to demonstrate the ability to overcome the adverse conditions.”
New Austrian National Bank Governor and ECB Governing Council member Robert Holzmann set out his hawkish line over the weekend. He told broadcaster ORF that He’d “probably express more criticism toward proposals for future deepening of the monetary footprint.” He noted that “Cheap money has its charms but also its limits, especially when it lasts for a long time.”
Holzmann also said the “probability of further effects” of monetary stimulus was “very slightly”. On the other hand, the short- or long-term risks associated “have risen to a great extent because low rates per se carry the risk of misallocation of resources and misallocation of price discovery.
He added: “You see this in real estate prices, in gold prices and in erratic stock prices. The long-term effects could be very negative for Europe and the world.”
ECB Governing Council member Pablo Hernandez De Cos said yesterday, “we plan to continue increasing interest rates significantly in the next meetings.” Also, tightening will continue “until reaching sufficiently restrictive levels to ensure that the inflation returns to the 2% target over the medium term.”
“Keeping interest rates at tight levels will reduce inflation by dampening demand and will also protect against the risk of a persistent upward shift in inflation expectations”, he explained.
De Cos also noted that Since last meeting, markets have raised the expected terminal rate by 30bps to 3.4%. However, market rates incorporated a positive premium, and “the market’s genuine expectation of what the maximum level of the deposit facility rate would be is somewhat below that figure.”
FOMC minutes noted that “all participants viewed the near-term U.S. economic outlook as having deteriorated sharply in recent weeks and as having become profoundly uncertain.” Hence, “almost all members agreed to lower the target range for the federal funds rate to 0 to 1/4 percent.”
“With regard to monetary policy beyond this meeting, these participants judged that it would be appropriate to maintain the target range for the federal funds rate at 0 to ¼ percent until policymakers were confident that the economy had weathered recent events and was on track to achieve the Committee’s maximum employment and price stability goals”, the minutes added.
Separately, Dallas Fed President Robert Kaplan said because of the coronavirus pandemic shock, consumer behavior could be more cautious. “It’s not just the safety concerns… it’s also financial and potentially job insecurity which might cause them to save more and spend less.”
Chicago Fed President Charles Evans warned of a potentially fragile recovery at least until a vaccine is available. Continuing pandemic would risk a “deep and prolonged” downturn. Richmond Fed President Thomas Barkin said “businesses will have to find a way to convince consumers to shop, or eat out, to travel, or go to a concert or a game,” after reopening up.
Swiss KOF Economic Barometer rose to 96.4 in December, up from 92.6, beat expectation of 94.5. The indicator has now fully recovered the decline this year, back to the closing level in 2018. Nevertheless it’s still below it’s long run average. And KOF said “the outlook for the Swiss economy at the beginning of 2020 is brightening somewhat, but remains subdued.
KOF added: “The distinct increase is primarily due to bundles of indicators from the manufacturing sector. Positive signals also result from indicators covering other services and foreign demand. Indicators concerning private consumption as well as hotel and catering activities show a moderate increase.”
Philadelphia Fed President Patrick Harker said “we’re planning to keep the federal funds rate low for long.” He added, “but it may be time to at least think about thinking about tapering our $120 billion in monthly Treasury bond and mortgage-backed securities purchases.”
“We have to be careful in removing accommodation so that we don’t create any kind of ‘taper tantrum,'” he emphasized. “And that’s why we need to communicate very early, very often what we’re going to do.”
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Summary of Opinions of BoJ’s September 21-22 meeting reiterated the general stance that ultra-loose monetary policy remains necessary for now. Yet, there was an undercurrent of optimism, with some members seeing achieve of price target “in sight”.
The collective view reinforced that the “sustainable and stable achievement of the price stability target, accompanied by wage increases, has not yet come in sight.” Given this scenario, the summary stressed the necessity to “patiently continue with monetary easing under yield curve control.”
Underpinning the continued focus on wages, one member stated it is “necessary” to uphold the “momentum for wage hikes through continuation of monetary easing.” Also, in order to achieve inflation target of 2 percent in a sustainable manner, it is necessary that “wage increases take root.”
However, amid the cautious tones, rays of optimism emerged. One member opined that “Japan’s economy is getting closer to achieving the price stability target, although there is somewhat of a distance to go.” Providing a potential timeline for evaluating the price stability objective, focus is now on “the second half of fiscal 2023” especially considering the wage growth prospects for 2024.
Furthering this optimism, another viewpoint conveyed confidence, indicating that “Achievement of 2 percent inflation in a sustainable and stable manner seems to have clearly come in sight.” This perspective also hinted at a clearer outcome by “January to March of next year.”
China’s GDP grew 5.3% yoy in Q1, above expectation of 5.0% yoy. Comparing to Q4, GDP grew 1.6% yoy. By sector, primary industry was up 3.3% yoy, secondary industry rose 6.0% yoy, tertiary industry rose 5.0% yoy.
In March, retail sales rose 3.1% yoy, below expectation of 5.1% yoy. Industrial production rose 4.5% yoy, below expectation of 6.0% yoy. Fixed asset investment rose 4.5% ytd yoy, above expectation of 4.3%.
USD/CNH is steady after the release with focus on 7.2815 resistance. firm break there will resume whole rebound from 7.0870 and target 100% projection of 7.0870 to 7.2318 from 7.1715 at 7.3163. For now, outlook will stay bullish as long as 7.2354 support holds, in case of retreat.
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New Zealand’s goods export rises 14% yoy in Jul, imports up 8.5% yoy
New Zealand’s goods exports saw a robust increase of 14% yoy in July, reaching NZD 6.1B. Goods imports also rose by 8.5% yoy to NZD 7.1B, leading to a trade deficit of NZD -963m, a stark contrast to the expected surplus of NZD 331m.
Breaking down the export data, the strongest growth came from Australia, with total exports up by 19% (NZD 135m), followed by the EU, where exports surged by 30% (NZD 114m). Exports to China increased by 8.5% (NZD 107m), while exports to the US and Japan rose by 4.7% (NZD 35m) and 5.3% (NZD 17m), respectively.
On the import side, the largest increase was from South Korea, where imports more than doubled, rising by 103% (NZD 480m). Imports from China also saw significant growth, up 18% (NZD 233m). In contrast, imports from the US and the EU declined sharply, with drops of -30% (NZD -255m) and -14% (NZD -147m), respectively. Imports from Australia showed a modest increase of 0.82% (NZD 6.3m).
Full NZ trade balance release here.