ECB de Cos: Further rate hikes could be made in coming quarters

    ECB Governing Council member Pablo Hernandez de Cos said today, “in the coming quarters, further (rate) increases could be made to reach levels in line with the natural rate of interest if the medium-term inflation outlook remains around our target.”

    But de Cos also emphasized that the process of policy normalization would be gradual. “For this gradual approach to be adopted, it is essential that inflation expectations remain anchored and that no second-round and indirect effects of a magnitude that could jeopardise this anchoring materialise,” he said.

    Another Governing Council member Olli Rehn said, “It seems necessary that in our policy rates we move relatively quickly out of negative territory and continue our gradual process of monetary policy normalization.”

    DOW loses 300pts as selloff accelerates, 24247 support in focus

      DOW is dropping more than -300 pts, or -1.2% as selloff accelerates. 24247.84 key near term support is now in focus. As noted previously, the corrective rise from 23344.52 should have completed at 25402.83. It should be in form of an ascending triangle. Sustained break of 24247.84 should confirm this view and target a test on 23344.52.

      In addition, that will also affirm our view that fall from 25402.83 is the third leg of the corrective pattern from 26616.71. And we should at least see a test on 38.2% retracement of 15450.56 to 26616.71 at 22351.24 before completing the correction. Let’s see how it plays out.

      China MOFCOM: Some Chinese firms willing to continue to buy US farm products

        Chinese Ministry of Commerce spokesman Geo Feng confirmed that next round of US-China trade negotiation will happen in Shanghai for two days on July 30-31.

        It’s reported that China has already agreed on unspecified purchases of US agricultural production. Gao said in a regular press conference that “Some Chinese firms are willing to continue to buy some U.S. agricultural goods, and they have asked for prices from their U.S. suppliers and will sign commercial contracts soon.”

        But Gao also clarified that the purchases will be decided by companies themselves according to market functioning. Such purchases bear no direct relationship to restart of trade talks.

        Ireland Coveney: Not close to Brexit deal even mood music has improved

          Irish Foreign Minister Simon Coveney told BBC radio that “the mood music has improved” for Brexit. And, “”We all want a deal, we all know that a no-deal will be a lose, lose, lose for everybody, but particularly for Ireland and Britain.”

          However, he added that “But I think we need to be honest with people and say that we’re not close to that deal right now. But there is an intent I think by all sides to try and find a landing zone that everybody can live with here.”

          Earlier, Sterling was lifted by European Commission President Jean-Claude Juncker’s comment as believed that a Brexit deal can be reached by October 31. Though, the Pound quickly pared back earlier gains on Coveney.

          Fed Bullard: No need to do more on monetary policy normalization

            St. Louis Fed President James Bullard said “with respect to the (monetary policy) normalization, we have already reached a point when policy rates are in a good position.” And he suggested that Fed policymakers “don’t need to do much more to normalize policy.”

            Separately, he also welcomed the USMCA North America trade agreement. He said “this is very good news, because it shows that despite the ups and down of negotiations, you can reach a conclusion …on trade relations.” And he hope the US “can get deals like this elsewhere and we might get the uncertainty down on this issue.”

            Stopping war games could weaken US rationale to ask South Korea to pay more

              The Yonhap news agency reported that South Korea and the US would announce suspension of large scale joint military exercises this week, amid the negotiations with North Korea on denuclearization. A “snapback” clause, though, would be included if North Korea fails to deliver its promises.

              Yonhap also reported that suspension of the exercises could “weaken Washington’s rationale for an increase in Seoul’s share of the cost for the upkeep of 28,500 U.S. troops in the country.” And the US has been demanding the South to pay more. There will be a fourth round of so-called burden sharing costs negotiations in Seoul later this month.

              Meanwhile, Trump also made clear it’s his request to stop the “war games” as they are “very expensive”.

              Twitter

              By loading the tweet, you agree to Twitter’s privacy policy.
              Learn more

              Load tweet

               

              ISM non-manufacturing jumped to 61.6, all time high since 2008

                ISM non-manufacturing composite rose to 61.6 in September, up from 58.5 and beat expectation of 58.3. That’s also an all-time high since inception of the composite index in 2008. Employment index jumped notably by 5.7 to 62.4. ISM also noted in the release that “17 non-manufacturing industries reported growth” and, “respondents remain positive about business conditions and the current and future economy.”

                Full release here.

                BoC Macklem: Goods reasons to believe inflation is temporary

                  BoC Governor Tiff Macklem said yesterday that there’s “a bit more persistence” in inflation than policy makers previously thought. But he added, ” I think there are good reasons to believe that they are temporary,”

                  “Our job as a central bank is to make sure that one-off increase in prices doesn’t become ongoing inflation… What we’re really looking for is to see any signs of spreading,” he added, noting that medium- to longer-term measures of expected inflation had not risen.

                  He also pointed to the “frictions” in the labor market, which took longer to work through. “We’ve never reopened an economy before. And I think what we’re seeing is reopening an economy is a lot more complicated than closing one,” he said.

                  ECB dissenter Wunsch not comfortable taking a commitment for five or six years

                    ECB Governing Council member Pierre Wunsch confirmed to CNBC that he voted against the central bank’s new forward guidance. But he urged that “my dissent shouldn’t be dramatized,” as “we all agree we want to be supportive in this phase of the recovery, we all actually want to go to 2%”.

                    “The most important conclusion of the retreat actually, and our new strategy, is what I would call a ‘no regret’ conclusion, in that we all agree that what we have been doing in the last few years was necessary and proportional,” Wunsch said.

                    “The question is whether this proportionality test that we are going to have to make in the future — whether we can remain proportional in what we do and take commitments over a long period of time, like five or six years in the future.”

                    “We might be faced with issues of fiscal dominance, issues of financial dominance, and I just, at the end of the day, did not feel comfortable taking a commitment for five or six years.”

                     

                    Fed Harker: I’d like to start tapering soon to buy ourselves option

                      Philadelphia Fed President Patrick Harker said in a Nikkei interview that he’d like to start tapering asset purchases. He sees “elevated risk” of inflation running higher.

                      He said, “my baseline forecast is still to have inflation around 4% this year, ending this year, and then starting to fall back to 2% over the years 2022 and 2023. However, I do see elevated risk that inflation could run higher”.

                      “I’d like to start the taper process soon, so that we can finish the tapering process, so if we need to increase the policy rate, we have the room to do that. And I think we need to buy ourselves that option,” he added.

                      ECB Knot: Rise in inflation largely temporary

                        ECB Governing Council member Klaas Knot said “I still expect the rise in inflation to be largely temporary, but we have to take other scenarios with structurally higher inflation and higher interest rates into account. Because if we don’t, it could lead to shock price falls in the future.”

                        “The effect of energy prices on inflation is temporary by nature, as they need to keep rising to keep pushing up inflation”, Knot said. “But inflation is also pushed higher by global supply restraints, which might be less temporary. They could be caused by a readjustment in international trade, as supply chains are spread less across the globe.”

                        US CPI slowed to 1.5% in Feb, core CPI dropped to 2.1%

                          US headline CPI slowed to 1.5% yoy in February, down from 1.6% yoy and missed expectation of 1.6% yoy. Core CPI also slowed to 2.1% yoy, down from 2.2% yoy and missed expectation of 2.2%. yoy.

                          Full release here.

                          BoK Lee: Growth trend likely to be stronger than projected

                            Bank of Korea Governor Lee Ju-yeol said “the trend of growth is likely to be stronger than previously projected.” Nevertheless, “because real economic activity hasn’t returned to its potential level, and as the economy isn’t fully back on its feet from the shocks of COVID-19, our assessment is that the situation doesn’t warrant adjustments in policy stance.”

                            “It would be an important task to prepare in advance how we should normalize easing measures taken until now in an orderly fashion, if growth and inflation conditions improve,” Lee said.

                            New Zealand employment grew 0.6% in Q1, unemployment rate dropped to 4.7%

                              New Zealand employment grew 0.6% in Q1, above expectation of 0.3% qoq. Unemployment rate dropped to 4.7%, down from 4.9%, better than expectation of 4.9%. Labor force participation rate rose 0.1% to 70.4%. Labor cost index rose 0.4% qoq, above expectation of 0.3% qoq.

                              “There have been some gains in labour market outcomes, especially for women, over the past two quarters. However, annual changes indicate the labour market still hasn’t returned to pre-COVID-19 levels for men or women,” work, wealth, and wellbeing statistics senior manager Sean Broughton said.

                              Full release here.

                              BoE Tenreyo: Boosts from vaccines only come when they’re rolled out widely

                                BoE MPC member Silvana Tenreyo welcome the news regarding coronavirus vaccine development. however, the economic boosts would not come until vaccines are actually rolled out widely. Households could still delay spending until the vaccines due to health risks.

                                Also she noted that the progress on job markets remain one of the bigger downside risks to BoE’s medium term economic outlook. Her vote for more QE at last meeting was for guarding against market dysfunctioning.

                                US Q3 GDP growth revised up to 33.4% annualized

                                  According to the third estimate, US GDP grew at an annualized rate of 33.4% in Q3, revised up from 33.1%. The upward revision primarily reflected larger increases in personal consumption expenditures (PCE) and nonresidential fixed investment.

                                  Full release here.

                                  EU: No-deal Brexit is not our preferred option, but current deal is best possible

                                    A European Commission spokesperson said today that the bloc was still hoping to avoid no-deal Brexit. But EU is prepared for such an outcome. She noted that “a no-deal scenario is not our preferred option,” but reiterated that the current withdrawal agreement was the “best possible” one. And, “our no-deal preparedness protects the EU 27 and the interests in the case of a no-deal Brexit,”

                                    She also noted that the Commission does remain available over the coming weeks should the United Kingdom wish to hold talks and clarify its position in more detail, whether by phone or in person.”

                                    Earlier, The Guardian reported that no-deal Brexit is now UK government’s central scenario. An unnamed EU official was quoted saying the UK has ““no intention to negotiate, which would require a plan”.

                                    Fed Bostic wants rate at 4.25% to 4.5% by year end

                                      Atlanta President Fed Raphael Bostic said yesterday, “the lack of progress thus far has me thinking much more now that we have to get to a moderately restrictive stance. And for me, that is in the 4.25% to 4.5% range for our policy. My preference is that we get there by year end.”

                                      Bostic said that his expects another 75bps rate hike in November, followed by 50bps in December. But he added that “I don’t think it’ll be appropriate for us to continue to tighten and increase your rates until inflation gets to 2%. That will be guaranteeing that we’ve gone too far and we’ll take the economy into a negative space.”

                                      “I’m still in the place of not really thinking that a recession is a foregone conclusion as we battle this,” he said. “So we can have some weakening, but I don’t think it, at this point, will take us to the historical recessionary experience.”

                                       

                                      NZ GDP down -0.1% qoq in Q1, driven by inventory rundown and services exports

                                        New Zealand GDP contracted -0.1% qoq in Q1 as expected. Primary industries fell -0.5%. Service industries fell -0.6%. Goods producing industries fell -0.4%.

                                        StatsNZ noted, “The expenditure measure of GDP fell 0.2 percent this quarter. This decline was driven by run downs in inventories held by businesses, and a fall in exports of services.”

                                        “A 2.4 percent increase in household consumption expenditure and 2.0 percent growth in investment in fixed assets partially offset the falls.”

                                        Full NZ GDP release here.

                                        Sterling lifted mildly as domestic data gave Carney some confidence

                                          BoE Governor Mark Carney delivers a speech titled “From Protectionism to Prosperity” where he also talked about monetary policy. He noted that the current path the economy is going is “consistent with the MPC’s current projection”, with the assumption of a relatively smooth Brexit.

                                          Since the May meeting “international data have been mixed” with robust growth in the US and fading momentum in Eurozone. And there were marked loss of momentum in some merging markets. However, domestically, Carney said “the incoming data have given me greater confidence that the softness of UK activity in the first quarter was largely due to the weather, not the economic climate.”

                                          He pointed to some “number of indicators of household spending and sentiment have bounced back strongly” erratic Q1. Labor market has “remained strong” and there is “widespread evidence that slack is largely used up.” Pay and domestic cost growth have “continued to firm up broadly. And headline inflation is still “expected to rise in the short term” due to energy prices.

                                          The overall impressions from Carney is that he’s rather confidence that economy developed as expected. And that would add to the case for an August rate hike.

                                          Sterling is limited mildly against Dollar and Yen after the speech.

                                          Full speech here.