Fri, Jun 02, 2023 @ 21:54 GMT

ECB de Guindos: July rate hike is possible but not likely

    In an interview published on Sunday, ECB Vice President Luis de Guindos reiterated that ECB decided to end asset purchases in Q3. “In my opinion, there’s no reason why this shouldn’t happen in July,” he said.

    As for rate hike, “it could be months, weeks or days” after ending the asset purchases. “July is possible, but that’s not to say it’s likely,” he added.

    After the first hike, “we are driven by data, not by markets. Markets can sometimes be wrong. Within the Governing Council we haven’t discussed any predetermined path for rate rises.”

    Full interview here.

    China export plunged -9.9% yoy in Dec, imports dropped -7.5% yoy

      China exports plunged -9.9% yoy in December in USD terms, worst drop since February 2020, but slightly better than expectation of -10.0% yoy. Imports fell -7.5% yoy, better than expectation of -9.8% yoy. Trade surplus widened from USD 69.8B to USD 78.0B, slightly above expectation of USD 77.9B.

      In CNY term, exports declined -0.5% yoy while imports rose 2.2% yoy. Trade surplus widened from CNY 494B to CNY 550B, above expectation of USD 533B.

      For 2022 as a whole, in US term, exports rose 7.2%, much worse than 2021’s 29.6%. Imports rose 1.1%, down sharply from 2021’xs 30.0%.

      USD/CNH extended the decline from 7.3745 this week on Dollar’s broad based selloff. Nevertheless, it’s sitting close to an important support zone around 6.7159 (61.8% retracement of 6.3057 to 7.3745 at 6.7140). Considering oversold condition in daily RSI, a rebound should be due. Break of 6.7989 resistance will indicate short term bottoming, and bring rebound. But considering that the falling 55 day is now at around 6.9768, there is little prospect for the rebound to break through 7 handle for now.

      Japan industrial production dropped -1.3% mom in Jan, retail sales rose 1.6% yoy

        Japan industrial production dropped -1.3% mom in January, worse than expectation of -0.7% mom. Output declined for the second month, after the -1.0% mom contraction in December. Production of cars and other motor parts slumped -17.2% mom, falling for the first time in four months.

        Nevertheless according to survey by the Ministry of Economy, Trade and Industry (METI), output is expected to bounce back by 5.7% mom in February and 0.1% mom in March. But the forecasts were taken before Russia’s invasion of Ukraine, which impact is still unknown.

        Retail sales rose 1.6% yoy, above expectation of 1.1% yoy, fourth consecutive month of expansion.

        RBA SoMP reiterates no urgency for rate hike, economic projections largely unchanged

          The RBA Statement on Monetary Policy revealed nothing new give then Governor Philip Lowe had delivered an update in a speech earlier this week. In the SoMP, RBA, reiterated that “higher interest rates are likely to be appropriate at some point, if the economy continues to evolve as expected.” That is, the next move is “up not down”. But, Given the gradual nature of the improvement, however, the Board does not see a strong case to adjust the cash rate in the near term.

          RBA’s new economic forecasts appear to be largely unchanged from the May SoMP.

          • Four-quarter GDP growth is projected to be at 3.25% in Q4 2018, 3.25% in Q2 2019 (revised down from 3.50%), 3.25% in Q4 2019, 3.00% in Q2 2020 and 3.00% in Q4 2020 (new).
          • Unemployment rate is projected to be at 5.5% in Q4 2018, 5.25% in Q2 2019, 5.25% in Q4 2019, 5.25% in Q2 2020 and 5.00% in Q4 2020 (new).
          • Headline CPI is projected to be at 1.75% in Q4 2018 (revised down from 2.25%), 2.0% in Q2 2019 (revised down from 2.25%), 2.25% in Q4 2019, 2.25% in Q2 2020 and 2.25% in Q4 2020 (new).
          • Underlying inflation is projected to be at 1.75% in Q4 2018 (revised down from 2.00%), 2.00% in Q2 2019, 2.00% in Q4 2019, 2.25% in Q2 2020, 2.25% in Q2 2020 (new).

          These are the latest forecasts.

          Full RBA Statement on Monetary Policy here.

          US exports rose 1.1% in Apr, imports dropped -1.4%

            US goods and services exports rose 1.1% mom to USD 205.0B in April. Imports dropped -1.4% mom to USD 273.9B. Trade deficit narrowed to USD 68.9B, from March’s USD 75.0B, matched expectations.

            Trade deficit dropped USD 7.1B to USD 32.4B, while exports rose USD 1B and imports dropped USD 6B. Deficit with EU dropped USD 1B to USD 16.1B, while exports rose USD 2B and imports rose USD 1B.

            Full release here.

            Canada retail sales dropped -0.5% mom in Sep, down -1.0% qoq in Q3

              Canada retail sales dropped -0.5% mom to CAD 61.1B in September. Sales declined in 7 of 11 subsectors, led by sales at gasoline stations (-2.4%) and food and beverage stores (-1.3%). Excluding gasoline and auto, sales contracted -0.4%mom. IN volume terms retail sales also declined -0.1% mom.

              For Q3, sales were down -1.0% qoq, the first quarterly decline since Q2 of 2020. In volume terms, sales were down -1.4% qoq in Q3.

              According to advance estimate, sales rose 1.5% mom in October.

              Full release here.

              Fed Powell: We will provide advance notice before adjusting asset purchases

                In a testimony to Congress, Fed Chair Jerome Powell said, at the June FOMC meeting, “while reaching the standard of ‘substantial further progress’ is still a ways off, participants expect that progress will continue.” These discussions will continue in coming meetings. He pledged, “we will provide advance notice before announcing any decision to make changes to our purchases.”

                Full speech here.

                UK Hammond to China: We’re a firm supporter of trade liberalization and your long-term trusted partner

                  UK Chancellor of Exchequer Philip Hammond wrote in an article in China’s financial magazine Caixin, saying the the globalized UK is China’s long term partner. Hammond is visiting Beijing this week and he pledges to “convey a message to the outside world – as a firm supporter of trade liberalization and a free market, the United Kingdom is China’s long-term trusted partner.”

                  Also, he wrote “Britain is committed to promoting free and open trade, and as Britain and its European cooperation partners form a new relationship, we will deepen our relations with other regions around the world.” And, there was “enormous development space” with cooperation with Chinese financial services businesses. Hammond also hailed that UK is an “ideal cooperation partner” to the Belt and Road initiative, and they would likely to ” grasp the unlimited opportunities” and “take a lead in its financing work.”

                  This is Hammond’s article in simplified Chinese (gated). We’ve yet to find the English version.

                  BoJ Nakamura: Inflation not accompanied by wage increases yet

                    BoJ board member Toyoaki Nakamura said, “recent price rises aren’t accompanied by wage increases yet”. He added that Japan is far from the situation where wage inflation spiral becomes a concern. The central bank needs to continue with ultra-loose monetary policy for the time being.

                    “Tightening monetary policy at a time when demand continues to remain lower than supply would put huge pressure on corporate and household activity,” he warned.

                    He expects inflation to slow next year as energy and food price rises fade.

                    New Zealand Treasury: Any RBNZ tightening remains some time away

                      New Zealand Treasury released July’s Monthly Economic Indicators report today. The key points are

                      • Mixed messages for growth as labour income continued to grow strongly but retail card spending weakened
                      • Risks to our growth forecasts are rising as the housing market cools, business confidence weakens, and international trade tensions rise
                      • Inflation remained subdued, but pressures appear to be gradually increasing
                      • Strong growth in the US, offset by a weaker outlook for the rest of the world

                      The report also noted that inflation “remained subdued” and “any monetary policy tightening remains some time away”. It pointed out market pricing “currently implies no OCR increase for at least 12 months”. And, the Treasury expected ” outlook for inflation to remain stable for the rest of the year as the drivers in either direction remain largely in balance.”

                      Also, it noted that “possibly the most significant risk to the world growth outlook is escalating trade protectionism”. The report said that “the direct effects of tariff measures announced by the US and China to date are expected to be minor”. However, “the Australian and New Zealand economies are likely to be significantly impacted should there be a more generalised downturn in commodity prices”.

                      Full Monthly Economic Indicator Report here.

                      BoJ Nakagawa: laid out three reasons for continuing powerful monetary easing

                        BoJ board member Junko Nakagawa said in a speech that it’s “necessary for the Bank of Japan to persistently continue with the current powerful monetary easing,” and she laid out three reasons for that.

                        Firstly, Japan is “still on its way to recovery” from the pandemic. “As demand remains insufficient compared with supply capacity, a shift in the direction of monetary policy toward tightening would likely drag down the economy and put significant downward pressure on the economic activity of firms and households.”

                        Secondly, current inflation in Japan “differ considerably in terms of degree and the number of items” comparing to those in the US and Europe. The difference is “likely due to the disparity in wage inflation”.

                        Thirdly, the 2% inflation target “needs to be achieved in a sustainable and stable manner”. “Even if the higher price of some items pushes up the overall price level to 2 percent, unless household disposable income increases, spending on products and services will decline due to budget constraints.” Japan is only “halfway to achieve the price stability target.


                        Full speech here.

                        Japan CPI core down sharply to 3.1%, but core-core rose to 40-yr high

                          Japan’s headline CPI in February experienced a sharp slowdown from 4.3% yoy to 3.3% yoy, falling below the expected 4.1% yoy. CPI core (all items excluding food) dropped from 4.2% yoy to 3.1% yoy, meeting expectations. Meanwhile, CPI core-core (all items excluding food and energy) rose from 3.2% yoy to 3.5% yoy, surpassing the anticipated 3.4% yoy.

                          Despite the steep decline in CPI core from a 41-year high of 4.2% to 3.1%, the figure remains well above the Bank of Japan’s (BoJ) 2% target. The core-core reading, closely monitored by the BoJ as an indicator of domestic demand, reached its highest rate since January 1982.

                          The data suggests that incoming BoJ Governor Kazuo Ueda may need to address a shift from cost-push inflation to demand-driven inflation, which could prove more sustainable.

                          Tusk: EU to decide on Brexit extension in the coming days

                            European Commission President Jean-Claude Juncker complained that “in truth it has pained me to spend so much of this mandate dealing with Brexit when I have thought of nothing less than how this union could better do for its citizens – waste of time and waste of energy,”

                            He added, “we need now to watch events in Westminster very closely, but it’s not possible, not imaginable that this parliament would ratify the agreement before Westminster has ratified the agreement. First London, then Brussels and Strasbourg”.

                            European Council President Donald Tusk said today that he was already discussion UK’s Brexit extension request with E27 leaders. And decision would be made “in the coming days”. He added that “a no-deal Brexit will never be our decision.”

                            Australia Westpac consumer sentiment dropped to 83.7, RBA averted a much bigger fall

                              Australia Westpac Consumer Sentiment Index dropped -0.9% mom to 83.7 in October. Westpac said the index remains in “deeply pessimistic territory”, at a level comparable to the lows “briefly reached during the pandemic”, and during the Global Financial Crisis.

                              It added RBA’s smaller than expected 25bps rate hike “averted a much bigger fall” in sentiment. Sentiment amongst those sampled before the RBA decision showed a “depressing” 77.4 index read. But the post RBA “relief rebound” is “unlikely to be repeated in future months”.

                              Westpac expects four more consecutive 25bps rate hikes at RBA’s November, December, February and March meetings.

                              Full release here.

                              US retail sales rose 0.2%, ex-auto sales rose 0.1%

                                US retail sales rose 0.2% mom to USD 528.0B in November, below expectation of 0.4% mom Ex-auto sales rose 0.1% mom, below expectation of 0.4% mom. Ex-gasoline sales rose 0.1% mom. Import price index rose 0.2% mom, matched expectations.

                                Full retail sales release here.

                                New Zealand CPI rose 0.8% qoq, 1.5% yoy in Q1

                                  New Zealand CPI rose 0.8% qoq in Q1, matched expectations. Annually, CPI accelerated to 1.5% yoy, up from 1.4% yoy. Looking at some details, the rises in prices were led by transport, which rose 3.9% qoq, biggest quarterly rise in over a decade. Rent prices rose 1.0% qoq, biggest quarterly rise in a year.

                                  Full release here.

                                  Eurozone economic sentiment dropped to 93.7, EU down to 106.4

                                    Eurozone Economic Sentiment Indicator dropped from 97.3 to 93.7 in September. Employment Expectation Indicator dropped from 107.9 to 106.7. Economic Uncertainty Indicator rose from 25.4 to 29.3.

                                    Eurozone Industrial confidence dropped from 1.0 to -0.4. Services confidence dropped from 8.1 to 4.9. Consumer confidence dropped from -25.0 to -28.8. Retail trade confidence dropped from -6.5 to -8.4. Construction confidence dropped from 3.4 to 1.6.

                                    EU ESI dropped from 96.1 to 92.6. Amongst the largest EU economies, the ESI fell markedly in Germany (-4.8), the Netherlands (-3.7), Italy (-3.7), France (-3.2), Poland (-2.4) and, to a lesser extent, Spain (-1.0).

                                    Full release here.

                                    Japan PMI manufacturing finalized at 48.9, slipped further into contraction

                                      Japan PMI Manufacturing was finalized at 48.9 in December, down from November’s 49.0. That’s the lowest level since October 2020. S&P Global noted there were strong reductions in output volumes and order books. Input buying was cut at strongest rate since September 2020. Supply pressures were the least widespread since February 2021.

                                      Laura Den man, Economist at S&P Global Market Intelligence, said: “December PMI data saw the Japanese manufacturing sector slip further into contraction territory in the final month of 2022. The downturn was largely centred around the current demand environment which is weak both internationally and domestically….

                                      “At the same time, forward looking indicators are increasingly painting a gloomier picture for Japan’s manufacturing sector in the future. Companies have cut back input buying sharply, and business sentiment waned to a seven-month low.”

                                      Full release here.

                                      UK PM Johnson tested positive for coronavirus, in self-isolation

                                        UK Prime Minister Boris Johnson confirmed that he had tested positive for coronavirus, a day after he appeared at the weekly Q&A session in the House of Commons chamber.

                                        “Over the last 24 hours I have developed mild symptoms and tested positive for coronavirus,” Johnson said. “I am now self-isolating, but I will continue to lead the government’s response via video-conference as we fight this virus.”

                                        Earlier this week, Prince Charles, he 71-year-old heir to the British throne, tested positive for coronavirus. So far, he’s in good health and in self-isolation in Scotland, with mild symptoms. Total coronavirus infections in the UK now stands at 11,658, with 578 deaths.