RBNZ Governor Adrian Orr affirmed today that the economy is “evolving as anticipated”, with inflation expectations declined. However, he reiterated inflation “is still too high”.
The governor emphasized the necessity of maintaining a restrictive monetary policy stance “for some time.” He added that he expects to “begin normalizing policy in 2025.”
UK CBI monthly Industrial Trends Survey indicated that manufacturing output stabilized August. 15% of manufacturers reported total order books to be above normal, and 28% said they were below normal, giving a balance of -13% (from -34% in July). This month’s figure is line with the long-run average (-13%).
Anna Leach, CBI Deputy Chief Economist, said: “Despite signs of stabilisation in the data this month, UK manufactures remain on the receiving end of a double whammy: the slowdown in the global economy and Brexit uncertainty. Trade tensions between nations such as China and the US only exacerbate the demand uncertainty facing UK manufacturers.
“As we get closer to October, it’s crucial that the new Prime Minister secures a Brexit deal ahead of that deadline and gets on with pressing domestic priorities, from improving our infrastructure to fixing the apprenticeship levy.”
US Conference Board Consumer Confidence dropped to 120.2 in January, down from 128.1 and missed expectation of 125.0.
Conference board noted in the release that “Shock events such as government shutdowns (i.e. 2013) tend to have sharp, but temporary, impacts on consumer confidence. Thus, it appears that this month’s decline is more the result of a temporary shock than a precursor to a significant slowdown in the coming months.”
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.
Swiss KOF Economic Barometer dropped from 113.5 to 110.6 in September, slightly above expectation of 110.3. That’s the fourth decline in a row. The index remains above its long-term average, but the slowing in recovery is “likely to continue in the coming months”.
KOF also said: “The recurring decline is primarily attributable to bundles of indicators concerning foreign demand. Indicators of the manufacturing sector send an additional negative signal, followed by indicators of the economic sector other services. By contrast, indicators from the finance and insurance sector are providing slightly positive impulses.”
In a Reuters interview, Boston Fed President Susan Collins revealed that she “in the range of two” rate cuts for this year, as per the quarterly forecast she submitted during the Fed’s March meeting.
Collins was clear that an increase in interest rates is “not part of my baseline”. However, she remained open to adjustments based on upcoming economic data, emphasizing, “I don’t think you can take possibilities as not being on the table, it really depends on where the data take us.”
Looking ahead, Collins anticipates slowdown in demand which she expects to continue into 2024. She believes this deceleration will be crucial in reducing inflationary pressures later in the year.
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.”
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.
Canada building permits dropped -13.0% mom to CAD 8.2B in May, worse than expectation of -10.0% mom. Permits increased in six provinces and all territories. But they’re not enough to offset the decreased in British Columbia.
Housing starts rose to 246k in June, up fro 197k and beta expectation of 209k. The national trend in housing starts increased primarily due to higher trending row and apartment starts, in urban areas.
The first day of US-China trade negotiations in Washington appeared to have completed well, with positive mood. President Donald Trump said: “We just completed a negotiation with China, we’re doing very well, we’re having another one tomorrow. I’m meeting with the vice premier over at the White House, and I think it’s going really well. We’re going to see them tomorrow, right here, and it’s going very, very well.” Trump is scheduled to meet Chinese Premier Liu He at 1845 GMT on Friday.
Myron Brilliant, US Chamber of Commerce head of international affairs, appeared to be upbeat too after being briefed by both sides. He said he negotiators were “trying to find a path toward the bigger deal” with progress on market access and less controversial intellectual property and other issues. Also, “I believe that there’s even the possibility of a currency agreement this week. I think that could lead to a decision by the U.S. administration to not put forth a tariff rate hike on Oct. 15.”
US Conference Board Consumer Confidence dropped to 125.5. in November, down from 126.1, missed expectation of 126.9. Present Situation Index dropped from 173.5 to 166.9. Expectations Index rose from 94.5 to 97.9.
“Consumer confidence declined for a fourth consecutive month, driven by a softening in consumers’ assessment of current business and employment conditions,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The decline in the Present Situation Index suggests that economic growth in the final quarter of 2019 will remain weak. However, consumers’ short-term expectations improved modestly, and growth in early 2020 is likely to remain at around 2 percent. Overall, confidence levels are still high and should support solid spending during this holiday season.”
Cleveland Fed President Loretta Mester said that while April job report was “disappointing”, “outlook is still bright”. She said, “no doubt we are in a recovery but will see some ups and downs.”
She wanted to see “see more strength in labor market and expecting that this year.” But, “until we get a broader vaccination rate, we won’t be back to normal.”
On inflation, she noted that readings will be “elevated” for the next few months “because of math”. “Inflation will end the year above 2% but next year, as supply constraints ease, will come back down.”
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.”
Eurozone unemployment rate dropped to 7.6% in July, down from 7.8%, matched expectations. EU unemployment rate dropped to 6.9%, down from 7.1%.
Compared with June 2021, the number of persons unemployed decreased by 430 000 in the EU and by 350 000 in the euro area.
ECB keeps interest rates unchanged as widely expected, with main refinancing rate at 4.50%, marginal lending facility rate at 4.75%, and deposit facility rate at 4.00%. The central maintained the language that current inflation will contribute substantially to bring inflation down to target, given that it’s maintained for sufficiently long duration. Future decisions will remain data-dependent.
In the new economic projections, both headline and core inflation forecasts are revised down reflecting lower contribution from energy prices. Inflation is estimated to average 2.3% in 2024, 2.0% in 2025, and 1.9% in 2026. Core inflation is expected to average 2.6% in 2025, 2.1% in 2025, and then 2.0% in 2026.
Growth projection for 2025 was downgraded to 0.6% as economic activity is expected to remain subdued in the near term. Thereafter the economy is expected to pick up and grow at 2.5% in 2025, 1.6% in 2026.
UK government’s leader in the House of Commons Andrea Leadsom said the government does not want no-deal Brexit. But it’s there because that is the “legal default position”. And “essentially that is what will happen if we don’t vote for a deal.” She also noted that “What the government is seeking to do is to sort out the arrangements on the backstop so that parliament can vote for the deal. That is the government’s sole focus.”
Meanwhile, Leadsom also urged EU to compromise on the Irish border backstop. She said “If the EU were to bring on the one thing that they have said they are determined to avoid, that is the risk of the UK leaving the EU without a deal at the end of March and thereby having to have some kind of hard border between Northern Ireland and Ireland. So it simply would not make sense to precipitate such a conundrum when the option of a negotiated arrangement, where the UK could put in place alternative arrangements for the backstop, would be far preferable from everybody’s point of view including from the perspective of the issue of the border between Northern Ireland and Ireland.”
Philadelphia Fed President Patrick Harker told CNBC “No. Not right now”, when asked if he sees a case for further rate cut. He explained, “the labor markets are strong, inflation is moving up slowly — but with the last CPI print, it was a good print,”
On the current interest rate, he said: “We’re roughly where neutral is. It’s hard to know exactly where neutral is, but I think we’re roughly where neutral is right now. And I think we should stay here for a while and see how things play out.”
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BoE’s Chief Economist Huw Pill suggested today that it is “not unreasonable” for central bank to consider rate cuts over the summer. However, he emphasized the critical need for to maintain a “restrictive stance” on monetary policy to address persistent domestic inflation pressures.
Pill’s comments come against the backdrop of newly released data, which he referenced in his remarks. “We actually got some additional data this morning that would be consistent with a small additional decline in the first quarter,” he said, pointing to the latest figures on private sector regular pay growth.
This data indicates a slight cooling in the labor market, although Pill noted that it “still remains pretty tight by historical standards.” He emphasized that “rates of pay growth remain quite well above what would be consistent for meeting the 2% inflation target sustainably.”
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Core inflation in Japan eases to 2%, but surpasses expectations
Japan’s CPI core (all items ex food) slowed from 2.3% yoy to 2.0% yoy, above expectation of 1.9% yoy. This marks the third consecutive month of decline, reaching the lowest level in 22 months and aligning precisely with BoJ’s inflation target of 2%.
The headline CPI also saw a decrease, moving from 2.6% to 2.2% yoy. Nevertheless, CPI core-core (ex-food and energy) showed only modest improvement, edging down from 3.7% to 3.5% yoy.
A significant factor contributing to the overall CPI’s decline a -12.1% yoy drop in energy prices, resulting from government interventions to mitigate utility bills through subsidies for oil wholesalers. In contrast, food prices saw 5.9% yoy increase, while accommodation fees surged by 26.9% yoy.
The latest inflation data should fortify the argument for BoJ to terminate its negative interest rate policy soon. However, the decisive factor for the exact timing—be it March or April—hinges on the forthcoming wage negotiations between large enterprises and unions scheduled for March 13.