SNB Chairman Thomas Jordan reiterated the stance on negative interest rate, and readiness for intervention at the meeting with the seven member Federal Council. the Council said in a statement that “inflation is down, the global low interest environment has grown further entrenched and the situation on foreign exchange markets remains fragile.” “Against this backdrop, Chairman Jordan emphasized that monetary policy with negative interest rates and the readiness to intervene is just as necessary as before.”
ECB Holzmann: 50 minimum, 75 a good guess, 100 too fast, for Oct meeting
ECB Governing Council member Robert Holzmann said “50 may be the minimum” rate hike at next meeting in October. He added, “could it be 100? It could but I don’t see the necessity now to go as fast. I think 75 would be a good guess.”
Holzmann also noted that ECB is still “some way” from neutral interest rate. He said lifting deposit rate from current 0.75% to 2.50% would definitely take it beyond neutral.
Regarding quantitative tightening, he said it’s part of the normalization process, and will be discussed at a non-monetary-policy meeting next week in Cyprus.
Australia’s Westpac consumer sentiment dips -1.8% mom, RBA triggers sharp decline
In March, Westpac Consumer Sentiment Index in Australia dropped by -1.8% mom to 84.4. This downturn is attributed to renewed concerns about the near-term economic outlook, with fears regarding inflation and interest rate hikes only easing marginally.
The survey revealed a significant shift in sentiment in responses to the RBA’s latest policy decision. Sentiment scores were markedly higher at 94.9 for those surveyed before the decision, compared to a lower 79.3 for those surveyed afterwards.
The persistence of consumer concerns, notably regarding inflation and interest rates, was evident. Many had harbored hopes for a more reassuring update from RBA on these fronts. Yet, the central bank’s governor did not entirely dismiss the prospect of additional rate hikes. This stance likely contributed to dampening consumer sentiment, as individuals grappled with the implications for personal finances and economic conditions at large.
US Ross: Very good chance to get a reasonable settlement that China can live with
US Commerce Secretary Wilbur Ross expressed his optimism on US-China trade negotiation in a CNBC interview. He said “there’s a very good chance that we will get a reasonable settlement that China can live with, that we can live with and that addresses all of the key issues. And to me those are immediate trade. That’s probably the easiest one to solve,”
Regarding the slowdown in China, Ross said it’s a “big problem in their context of having a very big need to create millions of millions of jobs to hold down social unrest coming out of the little villages”. And that could create a “real social problem. But he added, regarding the slowdown, he is “not happy nor guilty. We expected this would happen.” But, “what has changed is China now understands how independent they are on us.”
US delegation is having the second day of trade talks in Beijing today.
EU Malmström sought clarity, Trump warned “we TAX CARS”
European Commissioner for Trade Cecilia Malmström met U.S. Trade Representative Robert Lighthizer over the weekend to seek clarity on the steel and aluminum tariffs of the US. However, Malmström expressed her frustrations afterwards complaining that the meeting delivered “no immediate clarity”. She tweeted “As a close security and trade partner of the U.S., the EU must be excluded from the announced measures. No immediate clarity on the exact U.S. procedure for exemption however, so discussions will continue next week.”
German Economy Minister Brigitte Zypries also warned that “Trump’s policies are putting the order of a free global economy at risk.” And, “he does not want to understand its architecture, which is based on a rule-based system of open markets. Anyone, who is questioning this, is jeopardizing prosperity, growth and employment.”
However, Trump stepped up his rhetoric again as he tweeted “the European Union, wonderful countries who treat the U.S. very badly on trade, are complaining about the tariffs on Steel & Aluminum.” He added “if they drop their horrific barriers and tariffs on U.S. products going in, we will likewise drop ours. Big Deficit. If not, we Tax Cars etc. FAIR!”
EU: No-deal Brexit is now a likely scenario on April 12
After UK Prime Minister Theresa May’s Brexit Withdrawal Agreement was rejected by the House once again, European Commission issued a swift statement noting that no-deal Brexit is now a likely scenario on April 12.
It noted: No-deal” scenario on 12 April is now a likely scenario. The EU has been preparing for this since 12/2017. Now fully prepared. We will remain united. Benefits of WA, including transition period, will not be replicated in “no-deal” scenario. Sectoral mini-deals are not an option.
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RBNZ Orr: We don’t feel a rush to be changing rates anytime soon
In a Bloomberg TV interview, RBNZ Governor Adrian Orr indicated that a forthcoming mild recession is the “bare minium” for New Zealand, as “demand has been well outstripping the pace of the supply capacity.”
“We need to see subdued consumer spending, business investment and government constraints on spending, these are a critical part of the inflation process,” he added.
Orr also reiterated that interest rate will need to stay high for a period of time, as “we don’t feel a rush to be changing rates anytime soon.”
“We believe if we stay where we are for long enough, inflation will be back inside the target band mid-next year and, and stay there,” he added.
RBNZ projects OCR to peak at 5.59% in mid-2024, then retract slightly to 5.36% by early 2025. This suggests rate cuts might be off the table for about 18 months. Orr clarified that these figures are projections and “signal or constraint.”
Eurozone unemployment rate dropped to 6.6% in May, EU unchanged at 6.1%
Eurozone unemployment rate dropped from 6.7% to 6.6% in May, better than expectation of 6.8%. EU unemployment rate was unchanged at 6.1%. Eurostat estimates that 13.066m men and women in the EU, of whom 11.004m in the Eurozone , were unemployed in May
US durable goods orders dropped -0.2% mom in Aug, ex-transport orders up 0.2% mom
US durable goods orders dropped -0.2% mom to USD 272.7B in August, slightly worse than expectation of -0.1% mom. Ex-transport orders rose 0.2% mom, below expectation of 0.3% mom. Ex-defend orders dropped sharply by-0.9% mom. Transportation equipment dropped -1.1% mom to USD 92.0B.
Eurozone PPI rose 2.7% mom , 16.0% yoy in Sep, well above expectations
Eurozone PPI rose 2.7% mom, 16.0 yoy in September, above expectation of 1.9% mom, 15.2% yoy. For the month, Industrial producer prices, increased by 7.7% in the energy sector, by 1.0% for intermediate goods, by 0.5% for capital goods, by 0.4% for durable consumer goods and by 0.3% for non-durable consumer goods. Prices in total industry excluding energy increased by 0.6%.
EU PPI rose 2.7% mom, 16.2% yoy. The industrial producer prices increased in all Member States, with the highest monthly increases being registered in Ireland (+23.2%), Denmark (+8.4%) and Greece (+5.8%).
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.”
UK CPI unchanged at 1.5%, core CPI at 1.7%
UK CPI was unchanged at 1.5% yoy in November. Core CPI was also unchanged at 1.70%. Both matched expectations. RPI accelerated to 2.2% yoy, up from 2.1% yoy, beat expectation of 2.1% yoy.
PPI input came in at -0.3% mom, -2.7% yoy, versus expectation of -1.2% mom, -4.9% yoy. PPI output was at -0.2% mom, 0.5% yoy, versus expectation of 0.0% mom, 0.9% yoy. PPI output core was at -0.1% mom, 1.1% yoy, versus expectation of 0.1% mom, 1.5% yoy.
Australia CPI surged to record 6.1% yoy, but below expectations
Australia CPI rose 1.8% qoq in Q2, blow expectation of 1.9% qoq. For the 12-month period, CPI accelerated from 5.1% yoy to 6.1% yoy, below expectation of 6.3% yoy. RBA trimmed mean CPI came in at 1.5% qoq, 4.9% yoy, versus expectation of 1.5% qoq, 4.7% yoy.
The quarterly increase was the second highest since the introduction of the Goods and Services Tax (GST), following on from a 2.1% increase in Q1. The annual rise was the highest since the introduction of GST.
“Annual trimmed mean inflation was the highest since the series commenced in 2003 and annual goods inflation was the highest since 1987, as the impacts of supply disruptions, rising shipping costs and other global and domestic inflationary factors flowed through the economy,” said Head of Prices Statistics at the ABS, Michelle Marquardt.
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.”
US initial jobless claims dropped -8k to 209k
US initial jobless claims dropped -8k to 209k in the week ending August 3, below expectation of 217k. Four week moving average of initial claims rose 0.25k to 212.25k.
Continuing claims dropped -15k to 1.684m. Four-week moving average of continuing claims dropped -11k to 1.687m.
Australian retails rose 0.9% mom, strong Sep in subdued 2023
Australia’s retail sales turnover registered a 0.9% mom growth in September to AUD 35.87B. This robust performance dwarfed the modest analyst expectations of a 0.3% mom growth. On an annual basis, sales turnover presented a rise of 2.0% yoy compared to the same month in the preceding year.
Speaking on the development, Ben Dorber, ABS head of retail statistics, elucidated, “The strong rise in September came from a diverse range of factors across the Retail industry.” He pinpointed the uncommonly warm onset of spring as a significant catalyst while technology and energy-conscious programs also had their roles.
However, while September’s figures paint a buoyant picture, Dorber pointed to a more restrained broader context.
“While the rise in September was the largest since January, subdued spending for most of 2023 means that underlying growth in Retail turnover remains historically low,” he said.
Adding weight to this perspective, he shared that “Retail turnover in trend terms is up only 1.5 per cent compared to September 2022 – the smallest trend growth over 12 months in the history of the series.”
EU Malmstrom urged China to work on WTO reform, after winning a lot from it
EU Trade Commissioner Cecilia Malmstrom urged China to cooperate on WTO reform in a press conference in Paris today. She said “China has won a lot from the WTO system”. And the EU calls on China to “show leadership and to engage with us to reform and to update the system, to create a level playing field.” She warned that “otherwise the U.S. will create a level playing field outside the system”.
Malmstrom also noted that the WTO’s disputes system was on a slippery slope and “one false step here could quickly lead to collapse of the whole rules-based system.” She added “Without it, it would be anarchy, there would be no order, and we would all be losers. And the poorest countries would be the biggest losers. And we would lose a system that has been used to ensure stability for generations.”
ECB press conference live stream
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INTRODUCTORY STATEMENT
Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. I would like to thank Chairman of the Board Vasiliauskas for his kind hospitality and express our special gratitude to his staff for the excellent organisation of today’s meeting of the Governing Council. We will now report on the outcome of our meeting.
Based on our regular economic and monetary analyses, we have conducted a thorough assessment of the economic and inflation outlook, also taking into account the latest staff macroeconomic projections for the euro area. As a result, the Governing Council took the following decisions in the pursuit of its price stability objective.
First, we decided to keep the key ECB interest rates unchanged. We now expect them to remain at their present levels at least through the first half of 2020, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.
Second, we intend to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when we start raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
Third, regarding the modalities of the new series of quarterly targeted longer-term refinancing operations (TLTRO III), we decided that the interest rate in each operation will be set at a level that is 10 basis points above the average rate applied in the Eurosystem’s main refinancing operations over the life of the respective TLTRO. For banks whose eligible net lending exceeds a benchmark, the rate applied in TLTRO III will be lower, and can be as low as the average interest rate on the deposit facility prevailing over the life of the operation plus 10 basis points.
A press release with further details of the terms of TLTRO III will be published at 15:30 CET today.
The Governing Council also assessed that, at this point in time, the positive contribution of negative interest rates to the accommodative monetary policy stance and to the sustained convergence of inflation is not undermined by possible side effects on bank-based intermediation. However, we will continue to monitor carefully the bank-based transmission channel of monetary policy and the case for mitigating measures.
Today’s monetary policy decisions were taken to provide the monetary accommodation necessary for inflation to remain on a sustained path towards levels that are below, but close to, 2% over the medium term. Despite the somewhat better than expected data for the first quarter, the most recent information indicates that global headwinds continue to weigh on the euro area outlook. The prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets, is leaving its mark on economic sentiment.
At the same time, further employment gains and increasing wages continue to underpin the resilience of the euro area economy and gradually rising inflation. Today’s policy measures ensure that financial conditions will remain very favourable, supporting the euro area expansion, the ongoing build-up of domestic price pressures and, thus, headline inflation developments over the medium term. Looking ahead, the Governing Council is determined to act in case of adverse contingencies and also stands ready to adjust all of its instruments, as appropriate, to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner.
Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP rose by 0.4%, quarter on quarter, in the first quarter of 2019, following an increase of 0.2% in the fourth quarter of 2018. However, incoming economic data and survey information point to somewhat weaker growth in the second and third quarters of this year. This reflects the ongoing weakness in international trade in an environment of prolonged global uncertainties, which are weighing, in particular, on the euro area manufacturing sector. At the same time, the euro area services and construction sectors are showing resilience and the labour market is continuing to improve. Looking ahead, the euro area expansion will continue to be supported by favourable financing conditions, the mildly expansionary euro area fiscal stance, further employment gains and rising wages, and the ongoing – albeit somewhat slower – growth in global activity.
This assessment is broadly reflected in the June 2019 Eurosystem staff macroeconomic projections for the euro area. These projections foresee annual real GDP increasing by 1.2% in 2019, 1.4% in 2020 and 1.4% in 2021. Compared with the March 2019 ECB staff macroeconomic projections, the outlook for real GDP growth has been revised up by 0.1 percentage points for 2019 and has been revised down by 0.2 percentage points for 2020 and by 0.1 percentage points for 2021.
The risks surrounding the euro area growth outlook remain tilted to the downside, on account of the prolonged presence of uncertainties, related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets.
According to Eurostat’s flash estimate, euro area annual HICP inflation was 1.2% in May 2019, after 1.7% in April, reflecting mainly lower energy and services price inflation. On the basis of current futures prices for oil, headline inflation is likely to decline over the coming months, before rising again towards the end of year. Looking through the recent volatility due to temporary factors, measures of underlying inflation remain generally muted, but labour cost pressures continue to strengthen and broaden amid high levels of capacity utilisation and tightening labour markets. Looking ahead, underlying inflation is expected to increase over the medium term, supported by our monetary policy measures, the ongoing economic expansion and stronger wage growth.
This assessment is also broadly reflected in the June 2019 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 1.3% in 2019, 1.4% in 2020 and 1.6% in 2021. Compared with the March 2019 ECB staff macroeconomic projections, the outlook for HICP inflation has been revised up by 0.1 percentage points for 2019 and revised down by 0.1 percentage points for 2020.
Turning to the monetary analysis, broad money (M3) growth stood at 4.7% in April 2019, after 4.6% in March. Sustained rates of broad money growth reflect ongoing bank credit creation for the private sector and low opportunity costs of holding M3. The narrow monetary aggregate M1 continues to be the main contributor to broad money growth on the components side.
The annual growth rate of loans to non-financial corporations increased to 3.9% in April 2019, from 3.6% in March. Beyond short-term volatility, the annual growth rate of loans to non-financial corporations has moderated somewhat in recent months from its peak in September 2018, reflecting the typical lagged reaction to the slowdown in economic growth observed over the course of 2018. The annual growth rate of loans to households stood at 3.4% in April, compared with 3.3% in March, continuing its gradual improvement.
The monetary policy measures taken today, including TLTRO III, will help to safeguard favourable bank lending conditions and will continue to support access to financing, in particular for small and medium-sized enterprises.
To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed that an ample degree of monetary accommodation is still necessary for the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.
In order to reap the full benefits from our monetary policy measures, other policy areas must contribute more decisively to raising the longer-term growth potential and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. The 2019 country-specific recommendations should serve as the relevant signpost. Regarding fiscal policies, the mildly expansionary euro area fiscal stance is providing support to economic activity. At the same time, countries where government debt is high need to continue rebuilding fiscal buffers. All countries should reinforce their efforts to achieve a more growth-friendly composition of public finances. Likewise, the transparent and consistent implementation of the European Union’s fiscal and economic governance framework over time and across countries remains essential to bolster the resilience of the euro area economy. Improving the functioning of Economic and Monetary Union remains a priority. The Governing Council welcomes the ongoing work and urges further specific and decisive steps to complete the banking union and the capital markets union.
We are now at your disposal for questions.
EU pledged to guard against all protecionist actions
Regarding trade tension with the US, EU leaders reiterated that the US steel and aluminium tariffs “cannot be justified on the grounds of national security”. And European Council ” fully supports the rebalancing measures, potential safeguard measures to protect our own markets, and the legal proceedings at the WTO, as decided on the initiative of the Commission”. EU also pledged to “respond to all actions of a clear protectionist nature”.
European Council also “underlines the importance of preserving and deepening the rules-based multilateral system.” And it invites the European Commission to “propose a comprehensive approach to improving, together with like-minded partners, the functioning of the WTO in crucial areas such as (i) more flexible negotiations, (ii) new rules that address current challenges, including in the field of industrial subsidies, intellectual property and forced technology transfers, (iii) reduction of trade costs, (iv) a new approach to development, (v) more effective and transparent dispute settlement, including the Appellate Body, with a view to ensuring a level playing field, and (vi) strengthening the WTO as an institution, including in its transparency and surveillance function.”
St. Louis Fed Bullard hearing full-throated angst about trade disputes
St. Louis Fed President James Bullard said he’s “hearing full-throated angst” regarding escalating trade disputes across his district. He added that “all aspects of the economy are affected, but agriculture is certainly” being hit.
He pointed to some suppliers using threat of new tariffs to raise prices, even though their businesses are not directly targeted. And to Bullard, “that shows you how uncertainty over trade policy can feed back” into business decision-making.”