ECB’s Stournaras cautions against hasty monetary tightening amid rising geopolitical risks

    ECB Governing Council member Yannis Stournaras emphasized caution against tightening monetary policy further today. He noted borrowing costs had already risen since the ECB’s last policy meeting as a result of higher bond yields. Furthermore, given that minimum reserves are not subject to remuneration, the total interest dispensed by the 20 Eurozone central banks to their respective commercial banks would see a decline.

    He noted borrowing costs had already risen since the ECB’s last policy meeting as a result of higher bond yields. Furthermore, given that minimum reserves are not subject to remuneration, the total interest dispensed by the 20 Eurozone central banks to their respective commercial banks would see a decline.

    Stournaras expressed skepticism regarding any immediate shift towards a tighter monetary stance. He articulated, “For the moment I see no reason why we should tighten monetary policy now because increasing the minimum requirements will imply monetary policy tightening.”

    He also responded to suggestions from some counterparts on an early end to the ECB’s PEPP bond-buying initiative. Stournaras emphasized the importance of maintaining this tool, especially in the current context marked by significant geopolitical uncertainties.

    He stated, “I see no value in bringing it (the end) forward especially now under the new uncertainty we have because of the events in Israel and Palestine.” Reiterating ECB’s need to retain its adaptability, he concluded, “So we need to keep our flexibility and act if necessary.”

     

     

     

    Japan’s exports rises 11.9% yoy in Jan, imports down -9.6% yoy

      Japan’s export recorded 11.9% yoy increase to JPY 7333B in January, marking the second consecutive month of growth. However, imports saw a contrasting trend, decreasing by -9.6% yoy to JPY 9091B. This resulted in a trade deficit of JPY -1758B for the month.

      A notable highlight from the trade data was Japan’s trade surplus with the US, amounting to JPY 415B, as exports reached an all-time high for the month at JPY 1.42T.

      Conversely, Japan faced a JPY -959.52B trade deficit with China, another significant trading partner. Despite this deficit, exports to China were supported by strong demand for chip-making equipment and cars.

      On seasonally adjusted basis, exports registered decline of -3.6% mom to JPY 8765B, while imports fell more sharply by -10.5% mom to JPY 8230B. This shift led to trade surplus of JPY 235B.

      European update: AUD stays strong, Sterling tumbles on Brexit worries

        Australian Dollar remains the strongest one today as boosted by US-China trade war ceasefire. And it’s still extending rally. RBA rate decision tomorrow is unlikely to alter the Aussie’s path. Canadian Dollar follows as the second one on strong rebound in oil price. Kiwi is the third strongest for now.

        On the other hand, Sterling is suffering fresh selling as focus is turning to Brexit vote in the parliament on December 11. For now, there is high risk of having the Brexit bill voted down. Swiss Franc and Yen follow as the next weakest on strong risk appetite.

        In European markets, for now:

        • FTSE is up 2.15%
        • DAX is up 2.41%
        • CAC is up 1.50%
        • German 10 year yield is up 0.006 at 0.323
        • Italy 10 year yield is down -0.050 at 3.163. Development is rather positive.
        • WTI crude oil hit as high as 53.83 but it’s now back at 53.10

        Earlier in Asia:

        • Nikkei closed up 1.00% at 22574.76
        • China Shanghai SSE rose 2.57% to 2654.8
        • Hong Kong HSI rose 2.55% to 27182.04
        • Singapore Strait Times rose 2.34% to 3190.62

        Fitch affirmed Japan’s rating at A with negative outlook

          Fitch affirmed Japan’s sovereign credit rating at “A”, with a “negative outlook”. The rating agency said that “balance the strengths of an advanced and wealthy economy, with correspondingly robust governance standards and public institutions, against weak medium-term growth prospects and very high public debt.”

          On the one hand, “strong external finances are underpinned by a persistent current account surplus, a large net external creditor position, and the yen’s reserve currency status.” But the negative outlook was retained, “given continued downside risks to the macroeconomic and fiscal outlook from the coronavirus shock.”

          Also, Fitch expected BoJ to maintain the currency monetary policy stance over the coming year. “The BOJ’s policies entail longer-term risks to the central bank’s balance sheet, particularly the purchase of ETFs and fluctuations in underlying equity prices,” it added.

          ECB’s Villeroy sees broad agreement for Spring rate cut

            In an interview with Le Figaro, ECB Governing Council member Francois Villeroy de Galhau revealed a “very broad agreement” within the council to initiate rate cuts in spring, with lasts until end of June.

            Villeroy, who also serves as Governor of Bank of France, expressed optimism that “we’re winning the battle against inflation”. The bank lowered core inflation forecast for 2024 from 2.8% to 2.4%. This revision aligns with more moderate wage increases, with average salaries expected to rise by 3.2%, down from the previously predicted 4.1%.

            On the growth front, Bank of France downgraded its 2024 growth projections slightly from 0.9% to 0.8%, with expectations for an acceleration to 1.5% in 2025 and 1.7% in 2026. Villeroy confidently stated, “France will avoid recession.”

             

            Bundesbank: German growth on sound path, private consumption as linchpin

              German Bundesbank noted in the latest monthly report that “economic boom in Germany was still ongoing”. In Q2, private consumption “continued its ascent” and was the “linchpin of economic growth”. Government consumption also rose “significantly”. Exports grew “moderately” following a drop at the start of the year.

              Bundesbank expected the economy to “remain on a sound growth path” in Q3 even though the pace could slow from H1. Industry is not expected to make any meaningful contribution to aggregate growth. On the other hand, private consumption remains a key growth driver due to “excellent labour market situation and the current strong wage hikes”

              For Eurozone, “the unabatedly positive sentiment among businesses and consumers suggests that the economic upturn in the euro area will continue”.

              Full release here.

              US GDP grew 2.4% in Q2, faster than Q1 and above expectations

                US GDP grew 2.4% annualized in Q2, according to the “advance” estimate, well above expectation of 1.6%. That’s also a faster growth than Q1’s 2.0% annualized. PCE price index slowed from 4.1% to 2.6% while PCE core price index also fell form 4.9% to 3.8%.

                BEA said: “Compared to the first quarter, the acceleration in GDP in the second quarter primarily reflected an upturn in private inventory investment and an acceleration in nonresidential fixed investment. These movements were partly offset by a downturn in exports, and decelerations in consumer spending, federal government spending, and state and local government spending. Imports turned down.”

                Full US GDP release here.

                Also released, in June, durable goods orders rose 4.7% versus expectation of 1.0%. Ex-transport orders rose 0.6%, versus expectation of 0.1%. Goods trade deficit narrowed to USD -87.8B, versus expectation of USD -91.8B.

                Initial jobless claims dropped slightly to 221k in the week ending July 21, below expectation of 233k.

                Italy EM Tria: Gradual reduction in deficit after 2019

                  Italy Economy Minister Giovanni Tria said today that the while the budget deficit will increased compared with previous forecast in 2019, “there will be a gradual reduction in the following years”. His comments echo reports that the populist government has revised their original plan after strong pressure from the EU.

                  Originally, the plan was to have budget deficit target at 2.4% of GDP in the three years from 2019. But according to unnamed government sources, the plan now is to keep 2.4% in 2019, but lower to 2.2% in 2020 and then 2% in 2021.

                  Prime Minister Giuseppe Conte is due to meet with key ministers today. The details could then be defined after the meeting.

                  Fed Bullard expects very strong GDP growth for all of 2021

                    In a presentation, St. Louis Fed President James Bullard said the health crisis will “wane in the months ahead” with early arrival of vaccines. “Macroeconomic forecasts suggest very strong U.S. real GDP growth for all of 2021,” he said, even though “downside risk remains”.

                    “Employment has rebounded more rapidly than expected”, he added. “Labor market recovery is about four years ahead of where it was following the 2007-09 recession”. Official unemployment rate could decline to as low as 4.8% in the months ahead.

                    Nevertheless, Bullard later added that “we’re still in the middle of a crisis, so it’s too early to initiate that discussion” about scaling back asset purchases.

                    Full presentation here.

                    Into US session: Yen strongest but Sterling is catching up

                      Entering into US session, Yen is trading generally higher as helped by mild risk aversion today. Sterling is also enjoying some renewed buying. EUR/GBP takes lead by extending recent fall from 0.9101. GBP/USD is also set to take on 1.2930 temporary top very soon.

                      New Zealand Dollar is the weakest one for today so far, followed by Canadian and then Swiss Franc. WTI crude oil’s recovery is losing steam after hitting 52.73 earlier this week and is now back at 51.4.

                      In European markets, at the time of writing:

                      • FTSE is down -0.73%.
                      • DAD is down -0.31%.
                      • CAC is down -0.46%.
                      • German 10-year yield is down -0.0026 at 0.223.

                      Earlier in Asia:

                      • Nikkei dropped -0.20%.
                      • Hong Kong HSI dropped -0.54%.
                      • China Shanghai SSE dropped -0.42%.
                      • Singapore Strait Times dropped -0.45%.
                      • Japan 10-year JGB yield rose 0.0044 to 0.012.

                      Italy coalition talk on verge of failure

                        In Italy, ruling 5-Star Movement halted the coalition talk with opposition Democratic Party with a blunt statement today. The statement noted that “Yesterday after four hours of talks, nothing was achieved… We cannot any longer work like this. Either the attitude changes or it’s difficult. We will see the PD again when the party has given its OK to the reappointment of Conte.” On the other hand, PD spokesman accused 5-Star leader Luigi Di Maio of hindering talks with his request to serve as interior minister as well as deputy prime minister.

                        The two parties are expected to report back to President Sergio Mattarella tomorrow, on the conclusion of coalition talks. If they cannot come to an agreement, Mattarella is expected to name a caretaker government and call early elections.

                        Fed George: New statement is a message of patience

                          Kansas City Fed President Esther George said in a speech that the revised FOMC statement is interpreted as a “tolerance” for higher inflation, “less as a promise to engineer” it. Also, there is “little benefit” in getting too tied up in a “precise mathematical formulation” of the “average”.

                          She also viewed the statement as a “message of patience”. That is, “we are signaling that the committee is unlikely to preemptively tighten policy at the prospect that inflation is approaching 2 percent, but rather a willingness to wait until the data confirms its arrival”.

                          Nevertheless, “given an unsettled outlook for inflation, it is not yet clear how much patience will be required,” she added. ” The pandemic has affected prices in a variety of ways, and it will be difficult to assess the underlying pace of inflation until the dust settles. ”

                          George’s full speech here.

                          NZ goods exports rose 17% yoy in Mar, imports rose 25% yoy

                            New Zealand goods exports rose 17% yoy to NZD 6.7B in March. Goods imports rose 25% yoy to NZD 7.1B. Trade balance was a deficit of NZD -392m, versus expectation of NZD -648m.

                            As a result of the monthly deficit in March 2022, the annual goods trade deficit has further widened to reach NZD -9.1B for the March 2022 year.

                            Full release here.

                            BoJ Kuroda: Various models show weak yen is positive

                              BoJ Governor Haruhiko Kuroda said today that Yen’s depreciation is “positive to the economy as long as the moves are stable”. He added, “various macroeconomic models show weak yen is positive.. But he also reiterated that it’s important for exchange rate to move “reflecting fundamentals”.

                              Kuroda also retracted the remain made earlier on inflation which triggered massive social media backlashes. He told reporters at the Prime Minister’s Office, “I did not mean that consumers are voluntarily accepting the price increases. I apologize if my words led to a misunderstanding.”

                              UK PMI manufacturing finalized at 47.5, impacts of Red Sea crisis continue

                                UK PMI Manufacturing was finalized at 47.5 in February, up from January’s 47.0. This marks the highest reading since April 2023, yet the sector has been contracting for 19 consecutive months.

                                Rob Dobson, Director at S&P Global Market Intelligence, said the impact of the Red Sea crisis was particularly pronounced, causing delays in raw material deliveries, inflating purchase prices, and impairing production capabilities. This crisis also had a knock-on effect on demand, with new export orders suffering due to supply chain disruptions and escalated shipping costs.

                                The crisis has exerted considerable pressure on both prices and supplies. Input cost inflation reached an 11-month high, necessitating further increases in selling prices, while average supplier lead times extended to the greatest extent since mid-2022.

                                Dobson suggests that this inflationary pressure may prompt policymakers to reconsider the timing of anticipated interest rate cuts, hinting at the broader economic implications of the manufacturing sector’s current challenges.

                                Full UK PMI manufacturing release here.

                                UK CPI ticked up to 1.9%, house price growth slowest since 2013

                                  In February, UK CPI accelerated to 1.9% yoy, up from 1.8% yoy and beat expectation of 1.8% yoy. It’s close to the two year low in January. Core CPI, on the other hand, slowed to 1.8% yoy, down from 1.9% yoy and missed expectation of 1.9% yoy. RPI was unchanged at 2.5% yoy, matched expectations.

                                  PPI input rose to 3.7% yoy, up from 2.6% yoy. PPI output rose to 2.2% yoy, up from 2.1% yoy. PPI output core slowed to 2.2% yoy, down from 2.4% yoy.

                                  Also from UK, house price index rose 1.7% yoy in January, down from December’s 2.5% yoy and missed expectation of 1.7% yoy. It’s also the slowest pace since June 2013.

                                  China: Adding tariffs can’t resolve any problem

                                    Chinese Foreign Ministry spokesman Geng Shuang said in a regular press briefing that “adding tariffs can’t resolve any problem” of trade conflicts. “Talks are by their nature a process of discussion. It’s normal for both sides to have differences. China won’t shun problems and is sincere about continuing talks,” he added.

                                    Shuang also said “We hope the U.S. side can work hard with China, to meet each other halfway, and on the basis of mutual respect and equality, resolve each other’s reasonable concerns, and strive for a mutually beneficial, win win agreement.”

                                    Vice Premier Liu He will still travel to the US on May 9-10 to resume trade negotiations despite re-escalated tariff threats. That’s a slight delay comparing to the original plan of traveling to the US on Wednesday.

                                    It’s widely reported that China reneged on the commitments it made, explicitly with the new draft agreement sent to the US over the weekend. Both US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin confirmed that. And it’s seen as the trigger for Trump to declare trade war escalation to full blown level this Friday.

                                    Mnuchin also confirmed that “the entire economic team … are completely unified and recommended to the president to move forward with tariffs if we are not able to conclude a deal by the end of the week.”

                                    NZ consumer confidence rose slightly to 77.7, but well below long-term average

                                      New Zealand’s Westpac McDermott Miller Consumer Confidence Index rose slightly by 2.1 points to 77.7 in March, but still remains well below the long-term average of 108.8. The President Conditions Index and the Expected Conditions Index also increased, but are still far below their long-term averages of 106.1 and 100.6, respectively.

                                      Despite the slight uptick in confidence, Westpac notes that households across the country continue to grapple with the increasing costs of living, higher mortgage rates, and a downturn in the housing market. The Expected financial situation has improved, but remains negative at -3.8, while the 1-year economic outlook has only slightly improved to -41.1, and the 5-year economic outlook has dropped to -10.8.

                                      The mounting financial pressures are already affecting household spending, and as they become more pronounced, Westpac expects to see an increasing number of households winding back their spending over the next year. This weakness in consumer confidence could have significant implications for the overall economy, as household spending is a major driver of economic growth.

                                      Full Consumer Confidence release here.

                                      Fed Mester: Do more upfront rather than waiting

                                        Cleveland Fed President Loretta Mester told Reuters, “I would need to see monthly numbers coming down in a compelling way before I would want to conclude we could now rest” on raising interest rates.

                                        “The risks to inflation are skewed to the upside and the cost of allowing that inflation to continue is high,” she said, an argument for the Fed “doing more upfront rather than waiting.”

                                        “I don’t think it (inflation) will get back to 2% next year. But it will be well on its way, in the range of two and half percent but moving in the right direction,” she said. “And given where the economy is and all the factors affecting inflation that are outside of our realm, that is acceptable to me.”

                                        China Caixin PMI composite hits 21-month high, domestic and foreign demand improved

                                          China Caixin PMI Services rose to 53.5 in November, up from 51.1, beat expectation of 51.2. PMI Composite rose to 53.2, up from 52.0, highest in 21 months. Markit said that both manufacturers and services providers see solid increases in output. Overall inflationary pressures remain weak.

                                          Commenting on the China General Services PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said: “China’s economy continued to recover in November, as domestic and foreign demand both improved. But business confidence remained subdued, reflecting the impact from uncertainties generated by the China-U.S. trade conflicts. That will restrain a recovery in economic growth. The trade dispute is the major reason behind the slowing economic growth this year, and will become a key factor affecting the stabilization and recovery of China’s economy next year.”

                                          Full release here.