Reuters reported that China offered 10m tonnes of tariff-free quota for US soybean imports today. The quota is allocated to major Chinese and international soybean crushers at meeting called by the state planner.
This is seen as follow up actions, in-line with US President Donald Trump’s claim that China agreed to by USD 50B in farm products annually, after trade talks earlier this month. However, after that China has indeed bought at least 480k tones of Brazilian soybeans.
New Zealand goods exports rose 14% yoy to NZD 6.1B in October. Goods imports rose 24% yoy to NZD 8.3B. Trade deficit widened from NZD -1.7B to NZD -2.1B, much larger than expectation of NZD -1.7B.
Annual goods expects, comparing with the year ended October 2021, rose 14% to NZD 71.1B. Annual goods imports rose 25% to NZD 84.0B. Annual trade deficit swelled to fresh record of NZD -12.9B, comparing to NZD -4.9B a year ago.
Bloomberg reported that European Commisions is planning to counter US President Donal Trump’s steel and aluminum tariffs. And EU officials discussed retaliatory tariff of 25 against all US goods.
European Commission’s chief spokesman Margaritis Schinas said regarding March 7 meeting
Last week European Commission President Jean-Claude Juncker issed a statement as immediate response to Trumps tariffs proposal. Here is the old statement.
San Francisco Fed President Mary Daly said she has “everything on the table” for the May FOMC meeting. “If we need to do 50, that is what we’ll do,” she added. “We’re prepared to do whatever it takes to ensure that we get price stability, which clearly no one thinks we have right now.”
Daly pointed to the new dot plot projection that interest rate will rise to 1.9% this year, and 2.8% by the end of next. “Relative to previous periods of tightening, this is quite a bit of front-loading just as the SEP (Summary of Economic Projections) has indicated.”
“I don’t think it’s appropriate to you, you know, really ratchet up so quickly, that we forget about the risks out there, but rather we be data dependent,” she said.
“We could get a lot of tightening in financial conditions globally and that is something we have to think about,” she said. “Some increase in the policy rate above neutral is likely to be required. That’s down the road in 2023. Right now I don’t think we need to be so decisional on what that looks like.”
ECB President Mario Draghi appears in the Hearing of the Committee on Economic and Monetary Affairs of the European Parliament today. Regarding Euro’s internal dimension, Draghi said “euro has indeed provided two decades of price stability”. And, thanks to the “collective efforts of all European citizens, the euro area has emerged from” the global financial crisis, with “22 consecutive quarters of economic growth, the unemployment rate at its lowest level since October 2008, and wages and incomes on the rise.”
But Draghi also repeated last week’s cautious comments. He noted “over the past few months, incoming information has continued to be weaker than expected on account of softer external demand and some country and sector-specific factors. The persistence of uncertainties in particular relating to geopolitical factors and the threat of protectionism is weighing on economic sentiment.” He reiterated that “significant monetary policy stimulus remains essential”, and “the Governing Council stands ready to adjust all of its instruments”.
On Euro’s external dimension, Draghi said since the global financial crisis, “the euro’s international role seems to have gradually eroded. While its importance as the currency of invoice for international trade transactions has remained broadly stable, its role in global foreign reserves and global debt markets has declined.” And he urged that “the international role of the euro is supported by the pursuit of sound economic policies in the euro area and a deeper and more complete EMU. And this requires further efforts along the path of deeper integration.”
San Francisco Fed President Mary Daly said, “by the end of the year, if things continue as I expect them to with the economy, then I would expect us to hit that ‘substantial further progress’ goal, threshold, by later this year and it would be appropriate to start dialing back” asset purchases.
Daly also noted that Fed has set a different, higher bar for rate hike. “If we should get there in the time frame of next year that would be a tremendous win for the economy,” she said, but “I don’t expect that to be the case.”
In a speech delivered yesterday, New York Fed President John Williams said he viewed the pre-2008 crisis era as “the world before” and the period after that as “the world after”. Inflation was a “major concerns” in the pre-2008 era. But now “inflation that’s too low is now a more pressing problem.” The experience of a slow recovery and persistently low inflation is a symptom of deeper problems afflicting advanced economies.
Two changes have taken place in “shifts in demographics and productivity growth” that fundamentally altered the economic environment. And that “translate directly into slower trend economic growth”. Also, “an abundance of savings, and a decline in demand for savings resulting from slower trend growth, together lead to lower interest rates”. Combined, they have contributed to “dramatic declines” in the longer-term neutral rate of interest, or r-star.
On the economy, he said “my baseline is a very good one” with GDP growth at above-trend 2.25% to 2.50%. Though, tailwinds from last year’s tax cuts are fading. Headwinds from trade tensions are rising. He added the yield curve inversion is a “pretty strong signal” of “perception that rates are going to be lower”. But he did’t take that as “an oracle”.
His full speech “If We Fail to Prepare, We Prepare to Fail“.
Bank of England policymaker Silvana Tenreyro said the UK economic outlook will “continue to depend on the global and domestic spread of COVID-19.” “Assuming prevalence gradually falls, my central case forecast is for GDP to follow an interrupted or incomplete ‘V-shaped’ trajectory, with the first quarterly step-up in Q3,” she added.
She also noted, “we are already seeing indications of a sharp recovery in purchases that were restricted only because of mandated business closures.” “But I think that this will be interrupted by continued risk aversion and voluntary social distancing in some sectors, remaining restrictions on activities in others, and in general, by higher unemployment.”
On monetary policy, she said “I remain ready to vote for further action as necessary to support the economy.”
Conference Board Consumer Confidence for US rose to 134.1 in May, up from 129.2 and beat expectation of 130.0. Present Situation Index rose to 175.2, up from 169.0. Expectations Index rose to 106.6, up from 102.7.
“Consumer Confidence posted another gain in May and is now back to levels seen last Fall when the Index was hovering near 18-year highs,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The increase in the Present Situation Index was driven primarily by employment gains. Expectations regarding the short-term outlook for business conditions and employment improved, but consumers’ sentiment regarding their income prospects was mixed. Consumers expect the economy to continue growing at a solid pace in the short-term, and despite weak retail sales in April, these high levels of confidence suggest no significant pullback in consumer spending in the months ahead.”
UK GDP grew 0.3% mom in December, above expectation of 0.2% mom. For Q4, GDP growth was flat at 0.0% qoq, matched expectations. Services rose 0.1% in the quarter while construction grew 0.5%. But production contracted -0.8%, offsetting the contributions of the other two sectors.
Head of GDP Rob Kent-Smith: “There was no growth in the last quarter of 2019 as increases in the services and construction sectors were offset by another poor showing from manufacturing, particularly the motor industry. The underlying trade deficit widened, as exports of services fell, partially offset by a fall in goods imports.”
For December, industrial production rose 0.1% mom, dropped -1.8% yoy, versus expectation of 0.3% mom, -0.8% yoy. Manufacturing rose 0.3% mom, dropped -2.5% yoy, versus expectation of 0.5% mom, -3.7% yoy. Goods trade balance turned into GBP 0.85B surplus, better than expectation of GBP -10.0B deficit.
Fed Governor Christopher Waller said in a speech over the weekend that “if the data comes in as I expect, I will support a similar-sized move at our July meeting,” referring to the 75bps hike at the June meeting. He added, “the Fed is ‘all in’ on re-establishing price stability.”
“It should not have been a surprise that the policy rate would rise fast in 2022. Rate hikes would need to be larger and more frequent, relative to the 2015-2018 tightening pace, to get back to neutral.”
“Looking back, should the Committee have signaled a steeper rate path once the liftoff criteria had been met? Perhaps another lesson is that giving forward guidance about liftoff should also include forward guidance about the possible path of the policy rate after liftoff.”
UK PMI Services was finalized at 60.5 in February, up from January’s 54.1. That’s the highest level since last June. PMI Composite was finalized at 59.9, up from February’s 54.2.
Andrew Harker, Economics Director at IHS Markit: “The ebbing of the Omicron wave of the COVID-19 pandemic contributed to a rebound in growth in the UK service sector in February, with rates of expansion in activity and new business up sharply… Although the latest set of PMI data were encouraging, the inflationary picture still has the potential to limit growth, while it remains to be seen what impact the Russian invasion of Ukraine will have on the service sector and wider economy.”
Australia Westpac Consumer Sentiment Index surged by 6.2% mom to 86 in February, marking the highest level since June 2022. This increase also represents the largest monthly gain since April of the previous year, which conincided with a period when RBA temporarily halted its tightening cycle.
According to Westpac, the surge in consumer sentiment was notably propelled by improved sentiment towards major purchases, which climbed 11.3% to 86.8, and more optimistic outlook for the economy over the next year, rising 8.8% to 88.9—the highest since May 2022. Additionally, five-year economic outlook rose 4.4% to 93.
The cooling inflation and more favorable perspective on interest rates are believed to be the primary factors behind this uplift. However, despite the recent gains, consumer mood remains in the pessimistic territory.
A notable “sharp turnaround” in sentiment was observed following RBA’s decision in February to maintain the cash rate steady, with sentiment dropping from 94.1 to just 80 post-meeting. While the decision to keep rates unchanged aligned with general expectations, the decline in sentiment suggests consumers were anticipating a “clearer indication” that interest rates might begin to decrease.
Looking forward, Westpac anticipates the RBA will maintain the current interest rate in March, contingent on inflation continuing to align with expectations.
RBNZ Governor Adrian Orr said in a speech that “monetary policy has been effective to date in supporting both inflation and employment as intended – at least at the aggregate level.”
New monetary policy tools will become “increasingly mainstream” in environment of low global inflation and low neutral interest rate.. But “price stability and contributing to maximum employment remain the targets for monetary policy,” after all.
Orr also reiterated that RBNZ “focused on being operationally ready to implement a negative OCR if necessary”. But, “its actual use will always depend on the economic context at the time, and its relative efficacy.”
Fed Governor Christopher Waller offered a cautious but upbeat assessment of recent US economic indicators in a CNBC interview today. Describing the previous week’s data as “a hell of a good week,” Waller emphasized that positive trends, particularly in inflation, would allow Fed to “proceed carefully” on interest rates.
Waller stated that inflation remains Fed’s primary concern at this time. “The biggest thing is just inflation,” he said, adding that consecutive favorable reports have been encouraging. However, he refrained from being overly optimistic, noting that Fed needs to “see whether this low inflation is a trend or if it was just an outlier or a fluke.”
His cautious tone comes from recent history. “We’ve been burned twice before,” Waller observed. In both 2021 and the end of 2022, initial indications suggested inflation was stabilizing, only to shoot up or be revised away later. As a result, Waller emphasized the need for a more sustained pattern of data before making any conclusive statements. “I want to be very careful about saying we’ve kind of done the job on inflation until we see a couple of months continuing along this trajectory,” he elaborated.
When asked about the possibility of further tightening, Waller insisted that decisions would be data-dependent. He did, however, reassure that one more rate hike wouldn’t necessarily throw the economy into recession. “It’s not obvious that we’re in real danger of doing a lot of damage to the job market, even if we raise rates one more time,” he stated.
BoE Deputy Governor Jon Cunliffe told CNBC, “one shouldn’t expect the reopening of the economy to be smooth, this is not something that you can just close down and reopen without bumps in the way.” He admitted, “we’re seeing a surge in demand. We’re seeing some constrictions in supply that’s driving inflation.”
“Are these factors that the economy will then adjust, supply will recover and adjust, and demand after the initial burst will cool off, or is this something more persistent that will become embedded in people’s expectations?” he questioned. But he emphasized that BoC will try to analyze the situation as the economy returns tor normal.
BoC is widely expected to raise interest rate by 50bps to 1.00% today, to curb inflation which was already at a 30-year high. That would be the first half a percentage point hike since May 2000. The tightening cycle will continue for sure, with some expecting to overnight rate hit 2.50% level by the end of the year. Another point to note is BoC would probably start the plan to unwind its balance sheet, and the pace will be closely watched.
Here are some previews:
Canadian Dollar is one of the stronger ones for the month, but rally stalled, following the pull back in oil prices. EUR/CAD’s recovery from 1.3586 temporary low might have completed at 1.3763, after failing to sustain above 4 hour 55 EMA. 1.3586 low will be back in focus today. Break there will extend larger down trend to 161.8% projection of 1.5096 to 1.4162 from 1.4633 at 1.3122. Meanwhile, break of 1.3763 will extend the recovery. But near term outlook will stay bearish as long as 1.3977 resistance holds.
European Commission forecasts Eurozone GDP to contract -7.7% in 2020, then rebound by 6.3% in 2021. Inflation is projected to slow sharply to 0.2% in 20202, then climb back to 1.1% in 2021. Unemployment rate would jump to 9.6% in 2020, then fall back to 8.6% in 2021.
EU GDP is projected to contract -7.4% in 202, then rebound by 6.1% in 2021. Inflation would drop to 0.6% in 2020, then climb back to 1.3% in 2021. Unemployment rate would surge to 9.0% in 2020, then fall back to 7.9% in 2021.
Valdis Dombrovskis, Executive Vice-President for an Economy that works for People, said, the coronavirus pandemic is a “symmetric shock” as all EU countries are expected to fall into recession this year. The collective recovery will “depend on continued strong and coordinated responses at EU and national level.”
Paolo Gentiloni, European Commissioner for the Economy, said, “Both the depth of the recession and the strength of recovery will be uneven, conditioned by the speed at which lockdowns can be lifted, the importance of services like tourism in each economy and by each country’s financial resources. Such divergence poses a threat to the single market and the euro area”.
Australia goods and services exports rose 3% mom to AUD 39.8B in April. Imports dropped -3% to AUD 31.7B. Trade surplus rose from AUD 2.2B to AUD 8.0B, matched expectations. Retail sales rose 1.1% mom, unchanged from preliminary results.
AiG Performance of Construction Index dropped -0.8 pts to 58.3, “largely maintaining the strong pace of post-2020 recovery following on from a record high in March”.
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Fed Mester upgrades growth forecasts, supports gradual policy path
Cleveland Fed President Loretta Mester said there’s more momentum in the economy then she anticipated. And, she’s been “upping” her forecasts, now expecting 2.75-3.00% for the year, and “probably close to 3%. She said that “the fiscal policy – the stimulus and the tax cuts – has been a positive for the economy in terms of demand growth and so that’s one of the factors.”
Mester also support the gradual path of monetary accommodation removal. But for now, it’s hard to judge whether the fed funds rate needs to go above neutral rate. But her neutral rate, at 3%, is higher than her fellows.