Sat, Jan 28, 2023 @ 20:31 GMT

ECB Villeroy: Policy normalization should be gradual but resolute

    ECB Governing Council member Francois Villeroy de Galhau said in Pairs, “inflation is not only too high, but also too broad. This requires a normalization of monetary policy — I say normalization and not tightening.” He added that the normalization process should be “gradual but resolute”

    “Fiscal policy will itself be further constrained by the high level of post-Covid public debt, and by the increase in interest rates,” Villeroy added. “Furthermore, in the two next years, the context will be one of slower growth, or even, according to some fears, of economic stagnation.”

    BoJ Kuroda: Recovery sustains as business sentiments improves for three straight quarters

      BoJ Governor Haruhiko Kuroda said “while Japan’s economy remains in a severe state due to the pandemic’s impact, it is picking up as a trend”. As a whole, “recovery is being sustained as business sentiment improves for three straight quarters.”

      Still, Kuroda warned that “downside risks remain high”. BoJ will continue to “patiently” maintain its powerful monetary easing to achieve the 2% inflation target.

      BoJ Kuroda: Should continue with monetary easing

        BoJ Governor Haruhiko Kuroda said in a speech that Japan’s situation “differs” from both the US and the Eurozone. The country is still “on its way to recovery”. Output gap has “remained in negative territory”, but projected to “turn positive” as some point in H2 of this fiscal year. Inflation rate “has not risen from the demand side”. Current rise in inflation was “led by rise in import prices”, and the rate is projected to decline back to below 2% from fiscal 2023.

        He reiterated that BoJ “deems that it should continue with monetary easing and thereby firmly support economic activity”. By doing so, “it aims to provide a favorable environment for firms to raise wages and to achieve the price stability target in a sustainable and stable manner, accompanied by wage increases.”

        Regarding exchange rates, Kuroda said the “abnormally one-sided, sharp yen weakening appears to have paused, thanks partly to government’s FX intervention.” He emphasized it is “important for forex rates to move stably reflecting economic fundamentals”.

        Full speech here.

        UK payrolled employees rose 74k in Oct, unemployment rate at 3.6% in Sep

          In October, UK payrolled employees rose 0.2% mom or 74k. Comparing with October 2021, payrolled employees rose 2.7% yoy or 772k. Median monthly pay rose 6.0% yoy. Claimant counts rose 3.3k, versus expectation of -12.6k.

          In the three months to September, comparing to the previous three month period, unemployment was down -0.2% to 3.6%. Employment rate was unchanged at 75.5%. Economic inactivity rate rose 0.2% to 21.6%. Average earnings excluding bonus rose 5.7% yoy. Average earnings including bonus rose 6.0% yoy.

          Full release here.

          ECB Villeroy: Starting rate hike faster does not mean ending higher

            ECB Governing Council member Francois Villeroy de Galhau said today, “starting the increase in interest rates faster does not mean that (the cycle of increases) will end higher”.

            Regarding the new Transmission Protection Instrument (TPI), Villeroy said, “if needed, we will be as determined in activating (the programme) as we have been in setting it up, and there are no pre-defined limits on the amount of possible purchases.”

            Another Governing Council member Pablo Hernandez de Cos said the political crisis in Italy this week was not the reason behind the creation of anti-fragmentation tool. He added that the rate decision for September will be data-dependent.

            China Caixin PMI manufacturing rose to 51.9, price pressures to limit policy choices

              China’s official NBS PMI Manufacturing dropped to 51.1 in April, down form 51.9, below expectation of 51.4. NBS PMI Non-Manufacturing dropped to 54.9, down from 56.3, below expectation of 52.6. “Some surveyed companies report that problems such as chip shortages, problems in international logistics, a shortage of containers, and rising freight rates are still severe,” NBS statistician Zhao Qinghe said.

              Caixin PMI Manufacturing rose to 51.9, up from 50.6, above expectation of 50.9. Wang Zhe, Senior Economist at Caixin Insight Group said: “Policymakers have expressed concerns about rising commodity prices on several occasions and urged adjusting raw material markets and easing businesses’ cost pressure. In the coming months, rising raw material prices and imported inflation are expected to limit policy choices and become a major obstacle to the sustained economic recovery.”

              Fed Evans: Employment mandate is within sight, but inflation may prove more difficult

                Chicago Fed President Charles Evans said, “our employment mandate is within sight”, but “achieving our inflation goal may prove more difficult.” He added that “policy is likely on hold for some time.”

                Evans added that pre-pandemic economy with unemployment rate at 3.5% couldn’t even generate 2% inflation. hence, risk of overheating is “remote”.

                Additionally, “I would not be concerned about inflation moving persistently too high unless we saw some quite outsized movements in financial market pricing at the longer maturities or in survey-based measures of inflation expectations,” he said.

                Eurozone exports rose 24.0% yoy in Aug, imports rose 53.6% yoy

                  Eurozone exports of goods rose 24.0% yoy to EUR 231.1B in August. Imports rose 53.6% yoy to EUR 282.1B. Trade deficit came in at EUR -50.9B. Intra-Eurozone trade rose 34.8% yoy to EUR 210.5B.

                  In seasonally adjusted term, exports rose 3.5% mom to EUR 245.5B. Imports rose 5.5% mom to EUR 292.8B. Trade deficit widened from EUR -40.5B to EUR -47.3B, much larger than expectation of EUR -40.0B. Intra-Eurozone trade rose from EUR 230.9B to EUR 239.2B.

                  Full release here.

                  Bundesbank: Downturn forces prevalent in Germany industry, may intensify somewhat

                    Germany’s Bundesbank said in the monthly report that the rebound in Q1 was largely due to one-off factors. Underlying momentum in the economy remained weak and growth might not sustain.

                    It noted that “these effects, which had largely driven growth after the turn of the year, are expected to lapse or even reverse… Moreover, downturn forces continue to be prevalent in industry, and they may even intensify somewhat.”

                    In addition, automakers were facing weaker external demand. Global car sales were expected to contract further in 2019, extending the drop in 2018.

                    UK PMI construction rose to 61.7 in Mar, highest since 2014

                      UK PMI Construction rose to 61.7 in March, up sharply from 53.3, well above expectation of 55.0. That’s the strongest reading since September 2014. Markit also said there was robust growth in all major categories of construction activity. Rise in commercial work was fastest for six-and-a-half years. Job creation also accelerated to 27-month high.

                      Tim Moore, Economics Director at IHS Markit: “March data revealed a surge in UK construction output as the recovery broadened out from house building to commercial work and civil engineering… Improving confidence among clients in the commercial segment was a key driver of growth.. The increasingly optimistic UK economic outlook has created a halo effect on construction demand and the perceived viability of new projects.”

                      Full release here.

                      ECB Centeno: Many conditions in place for less than 75bps hike

                        ECB Governing Council member Mario Centeno was asked yesterday about whether the central bank should hike by less that 75bps in December. He said, “I think there are conditions in place — many conditions — for the increase to be less than that number”.

                        Centeno also noted that “rates in Europe continue to be roughly half those in the United States”, and that’s a good indicator of the difference between the economic fundamentals of the two regions. He also urged restraint in wage growth and company margins as that “could help the ECB a lot in combating inflation”.

                        Bundesbank Weidmann: Private consumption in Germany to overcome its weakness

                          Yesterday, Bundesbank President Jens Weidmann talked down risks of recession in Germany, as he spoke in a business forum. He said “given excellent labor market conditions and rising incomes, I expect private consumption in Germany to overcome its weakness”. And, there were “early signs of this already as the retail sector recorded strong growth in the first quarter.”

                          On ECB monetary policy, Weidmann said “the task of monetary policy is to ensure price stability… This means reacting to the weak domestic price pressures but also continuing on the path of policy normalization and not postponing unnecessarily if the inflation outlook permits it.”

                          ECB Knot: There is very good reason to expect robust recovery in H2

                            ECB Governing Council member, Dutch central bank chief Klaas Knot, said “there is very good reason to expect a robust recovery in the second half of the year.” And, “if the economy develops according to our baseline, we will see better inflation and growth from the second half onwards.”

                            “In that case, it would be equally clear to me that from the third quarter onwards we can begin to gradually phase out pandemic emergency purchases and end them as foreseen in March 2022,” he added.

                            Knot was also comfortable with higher nominal rates, if they are “entirely due to higher inflation expectations”. “To the extent that higher nominal yields are driven by better inflation and growth prospects, to me that’s entirely benign.”


                            RBNZ 2-yr inflation expectations rose to 3.62%

                              In RBNZ’s Survey of Expectations, businesses expect interest rate to rise 65bps to 4.15% a quarter ahead. In a year’s time, they saw interest rates rose further to 4.67%.

                              Mean one-year ahead GDP growth decreased from prior survey’s 1.49% to 1.27%. One year ahead inflation expectations rose from 4.86% in last quarter to 5.08%. Two year ahead inflation expectations rose sharply from 3.07% to 3.62%.

                              Full releases here.

                              Eurozone industrial production rose 0.9% mom, EU up 0.9% mom

                                Eurozone industrial production rose 0.9% mom in September, well above expectation of 0.1% mom. Production of non-durable consumer goods rose by 3.6% and capital goods by 1.5%, while production of intermediate goods as well as durable consumer goods fell by -0.9% and energy by -1.1%.

                                EU industrial production also rose 0.9% mom. Among Member States for which data are available, the highest monthly increases were registered in Ireland (+11.9%), Belgium (+7.1%) as well as in Hungary and the Netherlands (both +1.6%). The largest decreases were observed in Lithuania (-8.2%), Greece (-4.5%) and Estonia (-3.6%).

                                Full release here.

                                EU & UK held construction technical-level Brexit discussions, but more time needed

                                  As noted in a brief statement by European Commission, EU chief Brexit negotiator Michel Barnier held “constructive technical-level talks” with UK over the weekend. However, “a lor of work remains to be done” and technical level discussions will continue on Monday. Barnier is set to brief EU27 minutes at the General Affairs Council on Tuesday.

                                  On the other hand, UK Prime Minister Boris Johnson’s spokesperson said “The Prime Minister said there was a way forward for a deal that could secure all our interests … but that there is still a significant amount of work to get there and we must remain prepared to leave (without a deal) on October 31.”

                                  Reuters quoted a unnamed EU diplomat saying that “differences persist on customs” regarding the Irish border. And, there are “small chances” for a text to be ready for EU summit this week. More time is needed to continue to discussions. European Commission President Jean-Claude Juncker also said in an interview that “it’s up to the Brits do decide if they will ask for an extension… “But if Boris Johnson were to ask for extra time – which probably he won’t – I would consider it unhistoric to refuse such a request.”

                                  Fed Rosengren: Premature to focus on tapering

                                    Boston Fed President Eric Rosengren said on Wednesday that “significant slack remains in the economy”. “Substantial improvement” is needed to Fed to begin tapering. “It is quite possible that we’ll see those conditions as we get to the latter half of the year,” he said.

                                    “But right now what we have is one really strong employment report, one quarterly strong GDP report,” Rosengren added. “And so I think it’s premature right now to focus on the tapering.” He emphasized, “the Fed has no desire to surprise markets.”

                                    Separately, Vice Chair Richard Clarida told CNBC, “we’re still a long way from our goals, and in our new framework, we want to see actual progress and not just forecast progress.” Asked about when the Fed should start talking about tapering, he said, “we don’t think so right now.”

                                    Japan Abe expects US-China trade resolution, France to insist on climate change agreement at G20

                                      Japan Prime Minister Shinzo Abe, host of this week’s G20 summit in Osaka, urged the group to deliver a strong message on issues including promotion of free trade, innovation-driven global growth and rule-making for the digital economy. He also expressed optimism that US and China will resolve their conflicts on trade. Abe said in a news conference, “I expect that the United States and China will resolve their trade friction in a constructive manner through dialogue such as their bilateral meeting at G20”.

                                      Separately, it’s reported that French President Emmanuel Macron would insist on mentioning Paris climate change accord in the communiques. An unnamed French official was quoted by Reuters, “as for myself, I have one red line. If we don’t talk about the Paris Agreement and if we don’t get an agreement on it amongst the 20 members in the room, we are no longer capable of defending our climate change goals, and France will not be part of this, it’s as simple as that.”

                                      Australia AiG manufacturing rose to 55.3, 5 of 6 sectors reported positive conditions

                                        Australia AiG Performance of Manufacturing rose to 55.3, up from 52.1, indicating a stronger improvement in conditions over the summer holiday period. Five of the six manufacturing sectors reported positive trading conditions (results over 50 in trend terms), with the strongest results reported from manufacturers in machinery & equipment and chemicals, pharmaceuticals, cleaning, rubber, petroleum & related products.

                                        Full release here.