Sun, Apr 02, 2023 @ 06:07 GMT

US ISM services rose to 66.7 in Oct, corresponds to 6.1% annualized GDP growth

    US ISM Services PMI rose to 66.7 in October, up from 61.9, well above expectation of 62.0. Business activity/production rose from 62.3 to 69.8. New orders rose from 63.5 to 69.7. Employment dropped from 53.0 to 51.6. Supplier delivers rose from 68.8 to 75.5. Prices rose from 77.5 to 82.9.

    ISM said: “The past relationship between the Services PMI and the overall economy indicates that the Services PMI for October (66.7 percent) corresponds to a 6.1-percent increase in real gross domestic product (GDP) on an annualized basis.”

    Full release here.

    Fed Mester: Makes sense that we can slow down a bit

      Cleveland Fed President Loretta Mester said yesterday, “we’re at a point where we’re going to enter a restrictive stance of policy. At that point, I think it makes sense that we can slow down a bit the … pace of increases.”

      “We’re still going to raise the funds rate, but we’re at a reasonable point now where we can be very deliberate in setting monetary policy,” she added.

      “I think we can slow down from the 75 at the next meeting. I don’t have a problem with that, I do think that’s very appropriate,” Mester said. “But I do think we’re going to have to let the economy tell us going forward what pace we have to be at.”

      “Right now my forecast is that we’re going to see some real, good progress on inflation next year,” Mester said. “We won’t be back to 2%, but we’ll see some meaningful progress next year. But if we don’t see that, then we’re going to have to make sure our policy really reacts to the incoming information. So I can’t tell you today what the path going forward will be.”

      Sterling dips after poor December UK retail sales

        Sterling weakens notably after rather poor December UK retail sales data.

        • Retail sales including auto fuel dropped -0.9% mom versus expectation of -0.7%.
        • Retail sales excluding auto fuel dropped -1.3% mom versus expectation of -0.5% mom.

        Also, for the three months to December, compared with the previous three months:

        • Retail sales including auto fuel dropped -0.2%
        • Retail sales excluding auto fuel dropped -0.4%

        Full release here.

        BoE hikes 50bps, known hawk consents, two doves dissent again

          BoE raises Bank Rate by 50bps to 4.00% as widely expected. The decision was made by 7-2 votes. Swati Dhingra and Silvana Tenreyro voted for no change again, as in December. Known hawk Catherine Mann consented this time.

          In the accompanying statement, BoE noted that “domestic inflationary pressures have been firmer than expected”. Still the bank expects that rate hike since December 2021 to have an “increasing impact on the economy in the coming quarters”.

          In the new economic forecasts, annual CPI inflation is expected fall from current 10.5% to around 4% towards the end of the year. Also, conditioned on interest at around 4.50% in mid 2023 and falls back to 3.25% in three years time, CPI will decline to below 2% target in the medium term.

          Also, the economy is expected to have a “much shallower” recession than prior expected. Calender -year GFP growth is expected to be at -0.50% in 2023 and -0.25% in 2024 only.


          Full statement

          Full monetary policy report here.

          Trump postpones some tariffs on China as they celebrates anniversary

            As a gesture of exchange of good will, US President Donald Trump announced yesterday to delay the next batch of tariffs on China by half a month. The imposition of additional 5 tariffs on USD 250B in Chinese imports will be postponed from October 1 to October 15.

            Trump tweeted: “At the request of the Vice Premier of China, Liu He, and due to the fact that the People’s Republic of China will be celebrating their 70th Anniversary on October 1st, we have agreed, as a gesture of good will, to move the increased Tariffs on 250 Billion Dollars worth of goods (25% to 30%), from October 1st to October 15th.”

            Earlier, China announced to exempt 16 categories of US imports from new tariffs, including some anti-cancer drugs and lubricants, as well as animal feed ingredients whey and fish meal. Trump referred to that separately and said “They made a couple of moves … that were pretty good… I think it was a gesture, okay? But it was a big move.”

            The moves by both sides are more symbolic than substantial in nature. Yet, it’s a sign that both are working towards to create an easier atmosphere for the expected face-to-face high level trade meeting in Washington next month.

            Ifo: German economy could shrank -1.5% this year in better case scenario

              Ifo institute said in its spring forecast that the global economy is “collapsing” as a result of coronavirus pandemic. Global GDP would grow only 0.1% this year, comparing with 2.6% last year. World trade would see a decline of -1.7%. There are also “considerable” downside risks in the forecast.

              German economy could shrink by -1.5% this year. That could reduce growth rate by almost -3%, comparing with a situation without the outbreak. The full effect of the coronavirus crisis will be seen in Q2, leading to -4.5% contraction in GDP. By first half of 2021, production of goods and services should then “gradually return to a normal level”. In a second scenario, which includes bigger production restrictions, economic output will shrink by -6%

              New Zealand BusinessNZ manufacturing rose to 62.6, second highest on record

                New Zealand BusinessNZ Performance of Manufacturing Index rose from 60.9 to 62.6 in July. That’s the second highest reading after March’s 63.6. Looking at some details, production rose from 64.4 to 66.0.. Employment rose from 56.7 to 58.3, a new record. New orders rose from 63.6 to 65.0. Finished stocks dropped from 57.4 to 56.9. Deliveries rose from 55.2 to 57.9.

                However, the position of negative comments (51.4%) still remained higher than positive ones (48.6%). Increased domestic and overseas orders was the common factor for positive comments. In contrast, tight labor market, supply chain issues and raw material costs were the negatives.

                BNZ Senior Economist, Craig Ebert stated that “while New Zealand’s PMI is doing exceptionally well, we are also conscious of the headwinds happening for global manufacturing.  This is on account of the resurgence of COVID19 in its delta strain.”

                Full release here.

                UK PMI construction dropped to 52.6, severe loss of momentum

                  UK PMI Construction dropped to 52.6 in September, down from August’s 55.2, missed expectation of 53.9. Markit said output growth eased for the third month running. Sub-contractor charges increased at survey-record pace. Widespread supply shortages led to rapid cost inflation.

                  Tim Moore, Director at IHS Markit said: “September data highlighted a severe loss of momentum for the construction sector as labour shortages and the supply chain crisis combined to disrupt activity on site. The volatile price and supply environment has started to hinder new business intakes… Shortages of building materials and a lack of transport capacity led to another rapid increase in purchase prices… Measured overall, prices charged by sub-contractors increased at the fastest rate since the survey began in April 1997.”

                  Full release here.

                  BoE Bailey: Faster tightening will help, but policy not on predetermined path

                    In the post meeting press conference, BoE Governor Andrew Bailey said, “overall a faster pace of policy tightening at this meeting will help to bring inflation back to the 2% target sustainably in the medium term,” he said.

                    “Looking ahead, that does not mean we’re now moving to a predetermined path of raising bank rate by 50 basis points per meeting, or indeed any other number for that matter.”

                    “Policy is not on a preset path. And what we do this time does not tell you what we’re going to do next time. All options are on the table for our September meeting, and beyond that.”

                    Fed Evans: Current interest rate not nearly restrictive enough

                      Chicago Fed President Charles Evans said while interest at 3-3.25% is restrictive, ” with inflation as high as it is, and getting inflation under control being job one, it’s not nearly restrictive enough.”

                      “The risks continue to be high about more persistent inflation, and we just really need to get inflation in check,” Evans said.

                      Evans added that he expects interest rate to reach top by March.

                      ECB Schnabel: Rates must reach a sufficiently restrictive level

                        ECB Executive Board member Isabel Schnabel said in Twitter Q&A, “further rate hikes will help bring inflation back to our target, which – given nominal wages – will increase real wages.”

                        “Rates must reach a sufficiently restrictive level … (and) we’ll keep rates high until we see robust evidence that underlying inflation returns to our target,” she added.

                        IMF Lagarde: Global growth stabilizing, but must avoid self-inflicted wounds

                          In a blog post titled “How to Help, Not Hinder Global Growth”, IMF Managing Director Christine Lagarde “most recent economic data indicate that global growth may be stabilizing”. She noted “while first-quarter economic activity disappointed in parts of emerging Asia and Latin America, growth was stronger than expected in the United States, the euro area, and Japan. ”

                          The most important “stumbling block” is trade tensions. Lagarde said “there is strong evidence that the United States, China, and the world economy are the losers from the current trade tensions”. Overall, US-China-tariffs could reduce global GDP by 0.5% in 2020, or USD 455B. And she warned that “these are self-inflicted wounds that must be avoided”.

                          Full post here.

                          Fed Daly: Appropriate to start tapering by later this year

                            San Francisco Fed President Mary Daly said, “by the end of the year, if things continue as I expect them to with the economy, then I would expect us to hit that ‘substantial further progress’ goal, threshold, by later this year and it would be appropriate to start dialing back” asset purchases.

                            Daly also noted that Fed has set a different, higher bar for rate hike. “If we should get there in the time frame of next year that would be a tremendous win for the economy,” she said, but “I don’t expect that to be the case.”

                            UK May to meet Merkel and Macron ahead of EU summit

                              UK Prime Minister Theresa May is scheduled to meet German Chancellor Angela Merkel and French President Emmanuel Macron tomorrow, just a day ahead of the EU summit. She’ll also hold calls with other EU leaders today. May is generally expected to try to make her case for a Brexit extension till June 30.

                              But ahead of that, May needs to handle opposition Labour leader Jeremy Corbyn first. The two could meet against to find a compromised Brexit solution to get through the parliament. But May’s spokesman reiterated her insistence for UK to have independent trading policy after Brexit. And that is clearly in conflict with Labour’s requests for staying in the customs union.

                              Labour’s Keir Starmer also said “Both us and the government have approached this in the spirit of trying to find a way forward. We haven’t found that yet.”He added “the ball is in the government’s court” and “we need to see what they come back with and, when they do, we will take a collective position on that.”

                              Funo: BoJ will reexamine economic and price trends at next meeting

                                Bank of Japan board member Yukitoshi Funo said Japan is facing a situation where momentum towards price stability would be undermined. The central bank would “reexamine” the outlook at next meeting. He also said BoJ is ready to respond to prevent risks from materializing.

                                He warned of heightened downside risks from global slowdown. And, “We are facing a situation where we need to pay more attention than before to the risk that the momentum towards the price stability target will be undermined… With that situation in mind, we will reexamine economic and price trends at the next policy setting meeting”.

                                EU Tusk to Johnson: Don’t play stupid blame game

                                  European Council Donald Tusk warned Johnson that “what’s at stake is not winning some stupid blame game”. And, “at stake is the future of Europe and the UK as well as the security and interests of our people”. “You don’t want a deal, you don’t want an extension, you don’t want to revoke, quo vadis?”

                                  European Commission spokesperson Mina Andreeva reiterated that “The EU position has not changed, we want a deal, we are working for a deal with the United Kingdom and under no circumstances will we accept that the EU wants to do harm the Good Friday Agreement. The purpose of our work is to protect it.”

                                  Eurozone industrial production rose 0.4% mom, above expectation of 0.3% mom

                                    Eurozone industrial production rose 0.4% mom in August, above expectation of 0.3% mom. Annually, Eurozone industrial production dropped -2.8% yoy. Production of capital goods rose by 1.2% mom and intermediate goods by 0.3% mom, while production of non-durable consumer goods fell by -0.3% mom, and durable consumer goods and energy by -0,4% mom.

                                    EU28 industrial production came in at 0.1% mom, -2.0% yoy. Among Member States for which data are available, the highest increases in industrial production were registered in Malta (5.6% mom), Estonia (3.9% mom) and Latvia (3.0% mom). The largest decreases were observed in Croatia (-3.0% mom), Slovakia (-2.6% mom) and Lithuania (-2.4% mom).

                                    Full release here.

                                    Fed George: More abrupt changes in interest rates could create strains

                                      Kansas City Fed president Esther George said, “this is already a historically swift pace of rate increases for households and businesses to adapt to, and more abrupt changes in interest rates could create strains, either in the economy or financial markets,”

                                      “I find it remarkable that just four months after beginning to raise rates, there is growing discussion of recession risk, and some forecasts are predicting interest rate cuts as soon as next year. Such projections suggest to me that a rapid pace of rate increases brings about the risk of tightening policy more quickly than the economy and markets can adjust,” she added.

                                      France PMI services finalized at 56.3, narrative essentially unchanged

                                        France PMI Services was finalized at 56.3 in August, just slightly down from July’s 56.8. PMI Composite was finalized at 55.9, slightly down from June’s 56.6 Markit said business activity increased at slowest rate in four months. Employment growth, on the other hand, was at strongest since October 2018. Also, cost inflation was at sharpest rate for over a decade.

                                        Joe Hayes, Senior Economist at IHS Markit said: “The economic recovery in France continued to move along at a solid clip during August. The narrative is essentially unchanged – we’re still seeing strong demand, and firms are adjusting their workforces to accommodate growing order books. The rate of jobs growth was at its best in almost three years in August. There’s still ample work-in-hand however, so there’s clearly scope for further expansions in employment and business activity.

                                        “Business confidence is also proving to be resilient, despite the emergence of the delta variant and steep cost pressures across the economy. Whether the recovery in business activity can push on unchecked amid these risks remains to be seen.

                                        “Nevertheless, based on July and August survey data, France looks set for another solid GDP growth number in the third quarter.”

                                        Full release here.