Canada retail sales rose 0.2% mom to CAD 66.0B in May, below expectation of 0.5% mom. Sales increased in five of nine subsectors and were led by increases at motor vehicle and parts dealers (+0.8%) and food and beverage retailers (+1.0%).
Core retail sales—which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers—were unchanged in May.
In volume terms, retail sales increased 0.1%.
China’s PBoC Governor Yi Gang indicated the central bank will step up credit support to the economy. Yi said during a meeting with commercial banks that capital replenishment will be promoted to increase bank’s lending ability. Additionally, countercyclical adjustments will be stepped up to ensure growth in money supply and social financing.
Markets are expecting PBoC to lower the Loan Prime Rate (LPR) tomorrow, for the third time since it’s introduced the benchmark in August. Yi urged lenders to reference the LPR to set their own lending rates.
Trump indicated he’s thinking about buying US farm products and distribute to poor countries, as a way to help farmers affected by trade war with China. But such simplistic, shallow way of thinking immediately drew criticism from Canada.
Canadian Agriculture Minister Marie-Claude Bibeau said yesterday that “dumping products in developing countries is not the way we do things.”
She added, “it seems easy, but it is complicated to do it the right way”. The process will need multilateral coordination. And, “obviously, it may create some distortion in the market and this is what we want to avoid.”
Australian Dollar recovers broadly today as Treasurer Scott Morrison becomes the next Prime Minister, winning a three way race with Foreign Minister Julie Bishop and former Home Affairs Minister Peter Dutton after Malcolm Turnbull was ousted. That’s the sixth change in prime ministership in a less than a decade.
ScoMo, as Morrison has come to be known, is seen as the most market-friendly option. In particular, as under him as Treasurer, there was substantial improvement in budget balance in Australia.
However, the rebound is limited as the markets are probably looking through to next year’s general election already. Bigger uncertainty lies ahead as there is a good chance of a Labor win while results in a change of government and policy directions.
Swiss GDP grew faster than expected by 0.7% qoq in Q2, versus expectation of 0.5% qoq. The government also raised growth forecast for this year.
A government economist Ronald Indergand said that “for the year as a whole we could be looking at a growth rate much nearer to the 3 percent rate than 2 percent, which would be above the long-term average.”
In the prior forecast, the government projected Swiss GDP to grow 2.4% in 2018, comparing to 1.6% in 2017.
ECB Chief Economist Philip Lane said in a conference over the weekend, monetary tightening is “going to dampen demand”, and “we’re not going to pretend this is pain free”.
“Demand is now a source of inflation pressure, it was not six or nine months ago in the same way it now is,” he added.
While rate hikes could continue at each remaining meeting of the year, and extend to early next year, Lane said ECB is open mind on where to stop with a meeting-by-meeting approach.
On the economy, Lane said separately in an RTE interview, “If we think our base case is to barely grow, a technical recession – falling into a mild recession – cannot be ruled out.”
Sterling dips notably lower after a batch of weaker than expected data.
Visible trade deficit widened to GBP -14.0B in April, from GBP -12.0B, missed expectation of -11.5B.
Industrial production at -0.8% mom 1.8% yoy in April , versus expectation of 0.1% mom 2.7yoy and prior 0.1% mom 2.9% yoy
Manufacturing production at -1.4% mom 1.4% yoy, versus expectation of 0.3% mom 2.9% yoy, and prior -0.1% mom 2.9% yoy.
Construction output rose 0.5% mom in April versus expectation of 2.4% mom and prior -2.3% mom.
The pound will face more tests in CPI, employment and retail sales later in the week.
In the summary of opinions of BoJ’s September 21-22 meeting, it’s noted that risks of “consumer prices deviating significantly upward from the baseline scenario, including the impact of foreign exchange rates, needs to be examined humbly and without any preconceptions.”
But while a “certain degree of upside risk to prices” exists, there is a “long way to go” to achieve 2% inflation target in a “sustainable and stable manner”. Output gap has been “negative”, unemployment rate and active active job openings-to-applicants ratio “have not returned to pre-pandemic levels”. Surge in energy and raw material prices has brought about an “outflow of income” from Japan. It is “appropriate” to continue with the current monetary easing.
Regarding exchange rate, one opinion noted that ” further depreciation of the yen is partly due to differences in the direction of monetary policy between Japan and other economies.. the Bank needs to carefully explain the significance of continuing with the current monetary easing.”
Japan’s exports marked the fourth consecutive month of growth with a 7.3% yoy increase to JPY 9470B in March, slightly surpassing expected 7.0%. This growth was largely fueled by robust performances in automotive and semiconductor & electronic parts, which reported gains of 7.1% yoy and 11.3% yoy respectively.
Regionally, exports to China accelerated to 12.6% yoy, from just 2.5% yoy in the previous month. However, exports to the US and Europe saw a slowdown, growing at 8.5% and 3.0% respectively.
Import contracted -4.9% yoy to JPY 9103B, which was slightly better anticipated -5.1% yoy. Overall trade balance for March showed a surplus of JPY 366.5B.
In seasonally adjusted term, exports rose 2.6% mom to JPY 8768B. Imports rose 3.9% mom to JPY 9470B. Trade balance came in at JPY -701B.
New Zealand BusinessNZ Manufacturing index dropped to 48.7 in December, down from 54.7. The manufacturing was back in contraction after staying in expansion territory for six straight months. Looking at some details, production dropped from 55.0 to 51.5. Employment dropped from 51.3 to 49.9. New orders dropped from 56.5 to 49.9. Finished stocks dropped from 59.2 to 45.9. Deliveries also dropped from 51.5 to 44.5.
BNZ Senior Economist, Doug Steel said that “the PMI’s three-month moving average sits at an expansionary 51.8, albeit below its long-term average of 53.0. This all suggests some expansion in the final quarter of last year, but the softer December month suggests some caution heading into the New Year.”
ECB Chief Economist Philip Lane said yesterday, “we have very high inflation rates now, and clearly we could be in a world where inflation psychology is taking hold.”
In a presentation, he said that Eurozone is facing three inflation shocks: pandemic cycle, energy shock and Russia-Ukraine war. Risks to inflation outlook include catch-up adjustment in wages, re-set of long term inflation expectations, inflation psychology, downward revision in potential output, and rise in real interest rate.
He added that monetary policy normalization is “appropriate” with “clear and robust” initial steps. That is, ECB will be stopping asset purchases, raise interest rate by 25bps in July, and again in September. Though, the size of the September hike is undecided. As for further steps, they will be state-contingent (gradualism, optionality, flexibility, data-dependency)
US goods trade deficit narrowed by -3.6% mom to USD -70.4B in September, down USD -2.7B from October’s 73.1B. Exports of goods were USD 135.9B, USD 2.2B less than August exports. Imports of goods were USD 206.3B, USD 4.9 than August imports. Advanced wholesale inventories dropped -0.3% mom in September, versus expectation of 0.3% mom.
Minneapolis Fed President Neel Kashkari said yesterday that Fed moved too slowly in 2021 in tackling high inflation. He’s concerned that inflation is pulling wages up and there are risks of going into a wage-driven inflation story. As inflation is spreading, he said that Fed need to act with urgency.
There are some financial markets that are indicating that Fed will cut interest rates in 2024. But Kashkari said, “I don’t want to say it’s impossible, but it seems like that’s a very unlikely scenario right now given what I know about the underlying inflation dynamics.”
“The more likely scenario is we would continue raising (interest rates) and then we would sit there until we have a lot of confidence that inflation is well on its way back down to 2%,” he said.
RBA Governor Philip Lowe reiterated in a speech that “further increases in interest rates will be required over the months ahead”. But policy is “not on a pre-sent path” due to uncertainties. Also, “all else equal, the case for a slower pace of increase in interest rates becomes stronger as the level of the cash rate rises.”
Lowe also highlighted three sources of uncertainty to the economy. The first is the “global economic environment”, including the US, Europe and China. He said, “some slowing in the global economy will help bring inflation down, but a sharp slowing would make the job of delivering a soft landing here in Australia much harder.”
The second source is “how inflation expectations and the inflation psychology in Australia adjust to the period of high inflation”. The third is “how households respond to higher interest rates”.
New Zealand goods exports rose 15% yoy to NZD 5.8B in July. Goods imports rose sharply by 35% yoy to NZD 6.2B. Monthly trade balance was a deficit of NZD -402m, versus expectation of NZD 100m surplus.
Exports to all trading partners were up (China +25% yoy, Australia 22% yoy, EU + 7.4% yoy, Japan +26% yoy), except the US (down -2.9% yoy. Imports from all top trading partners were up (China +22% yoy, EU + 38% yoy, Australia + 12% yoy, US + 14% yoy, Japan +71% yoy).
During his recent speech at IMF’s annual meeting in Marrakech, BoE Governor Andrew Bailey reflected on previous month’s decision to maintain interest rates at 5.25%. He characterized the decision as “a tight one”, added that “they’re going to go on being tight ones”.
The MPC’s narrow 5-4 vote to pause its series of consecutive rate hikes in September underscores the divided opinions within the bank regarding the best path forward.
Highlighting the bank’s recent efforts, Bailey commented, “We have made, I think, particularly in the last few months, solid progress in terms of showing signs that inflation is being tackled.”
However, he cautioned against overconfidence, adding, “let’s not get carried away because there’s an awful lot still to do.”
The “last mile” of inflation management, according to Bailey, will considerably depend on “restrictive policy.”
RBA announces a package of coronavirus response today. Firstly, cash rate is cut by 25bps to 0.25%. Additionally, the central bank will start purchases of government bonds to keep 3 year yield at around 0.25%, starting tomorrow. A three-year funding facility will also be set up to provide credit support to small and medium-sized businesses. Lastly, exchange settlement balances will be remunerated at 10 basis points, instead of zero.
The central said, “the various elements of this package reinforce one another and will help to lower funding costs across the economy and support the provision of credit, especially to small and medium-sized businesses.” “Today’s policy package from the Reserve Bank complements the welcome fiscal response from governments in Australia. Together, these measures will support jobs, incomes and businesses through this difficult period and they will also assist the Australian economy in the recovery.”
New York Fed President John Williams said yesterday, “We will we stay the course until our job is done… We must restore balance to the economy and bring inflation down to 2 percent on a sustained basis.”
“We need all the gears turning at the right pace to restore balance between demand and supply in the entire economy,” said Williams. “We still have some way to go to achieve that goal.”
He expects core inflation, as measured by core PCE reading at 4.4% in December, to fall to 3% this year and then 2% over the next few years. Growth will likely slow to just 1% this year, with unemployment rate to rise to between 4% and 5%.
US Trade Representative Robert Lighthizer complained that “Canada is not making concessions in areas where we think they’re essential”. And, there was “some distance” between the two sides on NAFTA negotiations. Lighthizer added that “We’re going to go ahead with Mexico … If Canada comes along now, that would be the best. If Canada comes along later, then that’s what will happen.”
Lighthizer also noted “we’re sort of running out of time,” referring to the US-imposed deadline of October 1.
Canadian Foreign Minister Chrystia Freeland’s spokesman Adam Austen reiterated that “Our focus is the substance, not timelines. We will continue to negotiate with a view to getting a deal that is in Canada’s national interest.”
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China retail sales grew only 2.8% yoy in Aug, way below expectation
China retail sales growth slowed sharply to 2.8% yoy in August , down from July’s 8.5% yoy, well below expectation of 7.1% yoy. China industrial production growth slowed further to 5.3% yoy, below expectation of 5.8% yoy. Fixed asset investment rose 8.9% ytd yoy, below expectation of 9.1%.
In a released, the National Bureau of Statistics said, “generally speaking, in August, the national economy maintained the trend of recovery. However, we must be aware that the international environment is still complicated and severe. At home, it has been felt that the sporadic outbreak of COVID-19 and natural disasters such as floods had caused impact on the economy, and the foundation for the economic recovery still needs to be consolidated”.