Sat, Mar 25, 2023 @ 11:03 GMT

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.

        France GDP contracted -0.1% qoq in Q4

          France GDP dropped -0.1% qoq in Q4, much worse than expectation of 0.3% qoq expansion. On average over 2019, GDP growth slowed to 1.2%, from 1.7% in 2018.

          Looking at some details, household consumption expenditure slowed to 0.2% qoq, down from 0.4% qoq. Total gross fixed capital formation slowed sharply to 0.3% qoq, down form 1.3% qoq. Exports stayed in contraction, for the third quarter, by -0.2% qoq.

          Full release here.

          Fed Williams: Policy well-positioned for an uncertain future

            New York Fed President John Williams said that “from the domestic point of view, things are strong and continue to be strong”. However, “we’re dealing with various global factors we’re trying to navigate”. The US is facing headwinds from global slowdown, trade uncertainties and muted inflation pressures. As a result, “growth is starting to slow in the US”.

            Nevertheless, Williams still believed that Fed has “monetary policy in the right place”. The three rate cuts since July put policy “well-positioned for a future that is uncertain.” Still, policy was “not locked in” and would respond to incoming data.

            US retail sales dropped -0.2%, ex-auto sales rose 0.1%, both missed expectations

              In April, US headline retail sales dropped -0.2%, missed expectation of 0.2% mom rise. Ex-auto sales rose merely 0.1% mom, much lower than expectation of 0.7% mom.

              Empires State manufacturing index rose to 17.8 in May, up from 10.1 and beat expectation 8.0.

              Australia AiG services dropped to contraction at 48

                Australia AiG Performance of Services Index dropped sharply by -5.3 pts to 48.0 in September, back in contraction. Looking at some details, sales tumbled by -10.1 to 41.8. Employment edged down by -0.6 to 52.6. New orders dropped -7.1 to 50.2. Input prices rose 4.7 to 73.4. Selling prices dropped -2.9 to 58.3. Average wages dropped -1.7 to 65.9.

                Innes Willox, Chief Executive of Ai Group, said: “The increasingly uncertain economic environment is dragging on service industries. The sector has fallen into contraction in September, and all services activity indicators have worsened in the last month. Low consumer and business confidence – following repeated interest rate rises and persistent inflation – were major factors in this decline. The indicators for sales, new orders, and selling prices all fell, while input prices continued their upward march adding to inflationary pressures.

                Full release here.

                ECB Knot: Risk of doing too little clearly more pronounced

                  ECB Governing Council member Klaas Knot said, “My worry is still inflation, inflation, inflation… As long as the risks to our inflation outlook are so clearly tilted to the upside, I think the risk of us doing too little is clearly more pronounced than us doing too much… We should not give up too early and not cry victory too early.”

                  Knot also said a recession is “not a foregone conclusion”. “If you look at Germany, where actually the economy is doing better than then was feared, it’s not a foregone conclusion that we will get a recession”, he said. “We will get weaker growth, that’s for sure. But we also need weaker growth to bring inflation back to target.”

                  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.”


                    BoJ Kuroda: Economy growing moderately despite some weakness in exports and output

                      BoJ Governor Haruhiko Kuroda reiterated his view that the economy is “growing moderately” even though policymakers were “seeing some weakness in exports and output”. He said today in France that capital expenditure remained “very firm” and the global economy was still sustaining moderate growth despite various risks.

                      He added, “the board will debate policy this month based on this view”. But he also emphasized we will swiftly consider additional monetary easing steps if the economy loses momentum for hitting our inflation target.”

                      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.

                        US Mnuchin confirms to travel to Shanghai for trade negotiations next week

                          US Treasury Secretary Steven Mnuchin confirmed to CNBC that he will travel to China for a trade meeting with Trade Representative Robert Lighthizer next week. Mnuchin noted “there are a lot of issues” but he expected another meeting would follow in Washington afterwards. And, “hopefully we’ll continue to progress”.

                          The two-day meeting that starts on Tuesday will be held in Shanghai. Mnuchin noted the symbolism of the location, the Shanghai Communique of 1972 was considered an important step in normalizing relations between the U.S. and China.

                          Germany Ifo dropped to 84.3, slipping into recession

                            Germany Ifo Business Climate dropped from 88.6 to 84.3 in September, below expectation of 87.1. That’s the lowest level since May 2020. Current Assessment index dropped form 97.5 to 94.5, below expectation of 96.0. Expectations index dropped from 80.3 to 75.2, below expectation of 78.6.

                            Ifo said: “Companies assessed their current business as clearly worse. Pessimism regarding the coming months has grown decidedly; in retail, expectations have fallen to a record low. The German economy is slipping into recession.”

                            By sector, manufacturing dropped from -6.8 to -14.2. Services dropped from 1.4 to -8.9. Trade dropped from -25.8 to -32.3. Construction dropped from -14.8 to -21.6.

                            Full release here.

                            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.

                              UK Hammond repeats usual warning on no-deal Brexit

                                UK Chancellor of the Exchequer Philip Hammond repeated his usual warnings today that in case of no-deal Brexit, “there will be very significant disruption in the short term and a very significant hit to our economy in the medium to long term.” And, he pledged that “our job is deliver the British people what they believe they were promised in that referendum. To make sure we respect the decision of the referendum but do it in a way that gives them the future prosperity they were promised.”

                                Hammond refused to say if he would step down in no-deal Brexit. He just said “I’m not going to speculate because a lot depends on the circumstances, what happens. The responsibility I have is to manage the economy in what is in the best interests of the British people. Now I clearly do not believe that making a choice to leave without a deal would be a responsible thing to do.”

                                Fed Waller more comfortable to hike 50bps in Dec, but no judgement before more data

                                  Fed Governor Christopher Waller said in a speech that while the slowdown in CPI in October was “welcome news”, “we must be cautious about reading too much into one inflation report”

                                  “I don’t know how sustained this deceleration in consumer prices will be,” he said.And, it’s “way too early to conclude that inflation is headed sustainably down”

                                  Despite raising interest rates from near 0% to 3.75-4.00% in nine months, “policy is barely in restrictive territory today, so more interest rate hikes are needed to get inflation down,” he said.

                                  “The Committee will reach the terminal rate well before inflation reaches 2 percent because of the abundance of evidence that it takes months, and perhaps even longer, for the full effects of a rate increase to work through the economy.”

                                  “Looking toward the FOMC’s December meeting, the data of the past few weeks have made me more comfortable considering stepping down to a 50-basis-point hike. But I won’t be making a judgement about that until I see more data, including the next PCE inflation report and the next jobs report.”

                                  Full speech here.

                                  France household consumption dropped sharply by -2.8% yoy in Oct

                                    France household consumption dropped sharply by -2.8% mom in October, much worse than expectation of -0.9% mom. That’s also the largest decline since April 2021, primarily due to the sharp drop in energy consumption (-7.9%), but also stems from the decline in purchases of manufactured goods (-1.7%) and in food consumption (-1.4%).

                                    All item CPI was unchanged at 6.2% yoy in November. Food price accelerated from1 2.0% yoy to 12.2% yoy. Energy prices slowed from 19.1% yoy to 18.5% yoy. Manufacturing products rose from 4.2 yoy to 4.4% yoy while services dropped from 3.1% yoy to 3.0% yoy.

                                    Q3 GDP grew 0.2% qoq, unrevised.

                                    ECB hikes 50bps, expects to raise rates further

                                      ECB raises the three key interest rates by 50bps today as expected. The main refinancing, marginal lending, and deposit rates are 2.50%, 2.75% and 2.00% respectively. The Governing Council expects to “raise them further” based on “substantial upward revision to the inflation outlook”.

                                      Also ECB noted that “keeping interest rates at restrictive levels will over time reduce inflation by dampening demand and will also guard against the risk of a persistent upward shift in inflation expectations.” Future policy decisions will continue to be “data-dependent”, following a “meeting-by-meeting approach”.

                                      Reinvestment under the APP purchases will continue until the end of February 2023. The portfolio will then decline at a “measured and predictable pace” subsequently, amount to EUR 15B per month on average until Q2 2023. Reinvestment under PEPP will continue at least until the end of 2024.

                                      Based on new economic projections, inflation is expected to reach 8.4% in 2022, then fall to 6.3% in 2023, and then 3.4% in 2024, and 2.3% in 2025. Core inflation, excluding energy and food, is projected to be at 3.9% in 2022, 4.2% in 2023, 2.8% in 2024, and then 2.4% in 2025. The economy is projected to grow 3.4% in 2022, 0.5% in 2023, 1.9% in 2024, and then 1.8% in 2025.

                                      Full statement here.

                                      UK CPI rose back to 10.4% yoy in Feb, core CPI up to 6.2% yoy

                                        UK CPI accelerated from 10.1% yoy to 10.4% yoy in February, well above expectation of slowing to 9.8% yoy. The reading was still below recent peak of 11.1% yoy in October 2022, the highest since 1981. CPI excluding food, energy, alcohol and tobacco (core CPI) jumped from 5.8% yoy to 6.2% yoy, above expectation of 5.7% yoy.

                                        On a monthly basis, CPI rose 1.1% mom, more than reversing January’s -0.6% mom decline, above expectation of 0.6% mom.

                                        Full UK CPI release here.

                                        Also released, RPI came in at 1.2% mom, 13.8% yoy, above expectation of 0.8% mom, 13.2% yoy. PPI input was at -0.1% mom, 12.1% yoy, versus expectation of 0.8% mom, 12.5% yoy. PPI core output was at -0.2% mom, 10.4% yoy, versus expectation of 0.4% mom, 9.9% yoy.

                                        Fed Kashkari: We are moving at an appropriately aggressive pace

                                          Minneapolis Fed Bank President Neel Kashkari said yesterday, “We are moving very aggressively. There’s a lot of tightening in the pipeline. We are committed to restoring price stability but we also recognize given these lags there is a risk of overdoing it.”

                                          “We are committed to restoring price stability, but we also recognize, given these lags, there is the risk of overdoing it on the front end, and so I think we are moving at an appropriately aggressive pace,” he said.

                                          “The economy is sending us a lot of mixed signals right now,” Kashkari said. “We need to keep tightening policy until we see some compelling evidence that core inflation is actually having peaked and is on its way down,”

                                          “And then I think we need to sit there and we need to pause and wait and let the tightening work its way through the economy to see at that point, have we done enough?”