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Fed Chair Powell’s testimony, Day 2, live stream
German Ifo edges up to 85.5, stabilizing at a low level
German Ifo Business Climate ticked up from 85.2 to 85.5 in February, matched expectations. Current Assessment Index is unchanged at 86.9, a touch below expectation of 87.0. Expectations Index rose slightly from 83.5 to 84.1, above expectation of 83.8.
By sector, manufacturing fell from -15.8 to -17.4. Services rose from -4.8 to -4.1. Trade fell from -29.7 to -30.87. Construction rose from -35.8 to -35.4.
Ifo said that the German economy is “stabilizing at a low level”.
Swiss KOF falls to 101.6 in Feb, rather positive economic signals intact
Swiss KOF Economic Barometer fell from 102.5 to 101.6 in February, below expectation of 102.0. Despite this marginal cooling, KOF maintains an optimistic stance regarding the Swiss economy, asserting that “the rather positive economic signals in Switzerland remain intact.”
This assertion is particularly relevant to manufacturing and construction sectors, which have seen an improvement in their outlooks. Contrastingly, projections for financial and insurance services, hospitality, other services, and foreign demand have experienced a downturn. Meanwhile, forecast for private consumption within Switzerland remains stable.
Japan still aiming for a US trade deal by the end of the month
Japanese Foreign Ministry spokesman Masato Ohtaka reiterated the target to sign a trade agreement with US by the end of this month. He noted that “we still have some time and all my colleagues in the government are making their best efforts to actually meet this target”. Separately, Japanese Chief Cabinet Secretary Yoshihide Suga also said that “With the U.N. General Assembly meeting in mind, we are accelerating the remaining work, including the wording of a trade agreement.”
Japan officials and business executives have expressed concern of signing a trade deal with assurance from the US on not imposing tariffs on Japanese cars. That’s the key issue that might drag the negotiations through the self-imposed deadline. However, Japanese Foreign Minister Toshimitsu Motegi, said alongside US Trade Representative Robert Lighthizer, that he had no concern on the auto tariff threats. Motegi expected no much of a delay on the trade agreement.
Ireland Coveney hasn’t seen any credible proposal on Irish backstop alternatives yet
Irish Foreign Minister Simon Coveney emphasized that EU needs to get “credible proposal” on Irish backstop alternatives. But “we simply haven’t seen yet”, he added. He also said the meeting between Prime Minister Leo Varadkar and DUP’s Arlene Foster was “positive and friendly”. But he emphasized “it is important that its not interpreted as some sort of breakthrough, because I don’t think it is.”
Separately, a European Commission spokesperson said that there is not precise deadline for UK regarding Brexit proposals, but “every day counts”. She added, “we mentioned the European Council in October as a milestone in our calendar so in order to properly prepare a European Council the sooner we make progress the better, but I don’t have a precise date to give you”.
China PMI manufacturing dropped to 51.2, short term downward pressure emerged
The official China PMI manufacturing dropped -0.3 to 51.2 in July, below expectation of 51.3. Official PMI services dropped -1.0 to 54.0, missed expectation of 55.0. Analyst Zhang Liqun noted in the release that despite the slight decline in the PMI index, “steady growth of the economy remained unchanged”. However, “short term downward pressure has emerged”.
Looking at the details, eight of the sub-indices declined in the month. They include production, new order, purchase volume, import, purchase price, ex-factory price, suppliers delivery, production and operation expectation, New export orders, was unchanged but in contraction region at 49.8. The data set is seen by some as the first sign of impact from increasing trade tension with the US.
US retail sales rises 0.6% mom in Feb, ex-auto sales up 0.3% mom
US retail sales grew 0.6% mom to USD 700.7B in February, above expectation of 0.5% mom. Ex-auto sales rose 0.3% mom to USD 566.8B, below expecetation of 0.4% mom. Ex-gasoline sales rose 0.6% mom to USD 647.7B. Ex-auto & gasoline sales rose 0.3% mom to USD 513.7B.
In the three months to February, sales were up 2.1% from the same period a year ago.
CBI Fairbairn” Businesses not dancing in the streets for Brexit delay
CBI Director General Carolyn Fairbairn, criticized that the Brexit delay till October 31 only provides “brief relief” for businesses. And they wouldn’t be “dancing in the streets”. Instead, it will be quickly followed by ” frustration, exasperation, we’re still here.”
She added that “our huge hope off the back of this six-month reprieve is that it’s used to set up a process and it’s not just people locked in a room on their own which we’ve seen in the last few days.”
ECB Nagel: We’re coming to the home stretch, but we need to stay stubborn
In an interview with Deutschlandfunk radio, Bundesbank President Joachim Nagel painted a cautiously optimistic picture of ECB’s monetary policy landscape, implying that restrictive measures were beginning to bear fruit.
“We’re coming to the home stretch in the sense that we are reaching the area in monetary policy that’s considered restrictive,” Nagel noted, suggesting that ECB’s tightened policy stance was close to hitting its intended mark. He asserted his confidence that the monetary policy was indeed manifesting its effect.
However, he was quick to emphasize that ECB’s task was far from complete. “But we are not done hiking yet,” he added, “There is still work to be done on core inflation.”
Nagel emphasized the importance of staying the course with the current monetary policy, urging persistence. “We need to stay stubborn,” he said, reinforcing his commitment to seeing the central bank’s measures through.
Addressing concerns about the potential impact of the ongoing banking sector upheaval in the US on German banks, Nagel sought to allay fears. “German banks are in a fundamentally solid position,” he assured, indicating that he did not share the prevailing apprehensions over the stability of German banks.
White House Navarro insists Mexico should share their responsibility and take asylum seekers
Mexican Foreign Secretary Marcelo Ebrard will meet US Vice President Mike Pence at 1900 GMT today on the issue of tariffs and migration flow. The Mexican delegation is expected to use their every efforts to convince the US to avert the tariffs that Trump threatened to impose starting on June 10.
Ahead of the meeting White House economic adviser Peter Navarro said that it’s important to get the US-Mexico border issue solved. And he insisted that the Mexican government must bear their share of the responsibility. And the most important thing is for the Mexican government to take the asylum seekers.
UK Fox: Changes in EU’s Brexit position due to economic slowdown
UK Trade Minister Liam Fox said today that EU is now more afraid of no-deal Brexit due to economic slowdown , including Germany and France. Fox said “there have been some changes in the positions in recent times, dictated by reality”.
And, “We’ve seen, for example, the German economy weakening, we’ve seen the French economy weakening, and I think this (EU) view that ‘we can simply weather out any disturbance that would occur from a no deal’, I think there’s much less appetite for that.”
Fed Clarida: Baseline outlook favorable but economy confronts some evident risks
Fed Vice Chairman Richard Clarida reiterated that looking ahead, “monetary policy is not on a preset course”. FOMC will “proceed on a meeting-by-meeting basis to assess the economic outlook as well as the risks to the outlook.” Also, Fed will “act as appropriate to sustain growth and achieve dual mandate.
Clarida also repeated that the economy is “in a good place” and the “baseline outlook is favorable”. But the economy “confronts some evident risks”. In particular, he noted, ” Business fixed investment has slowed notably since last year, exports are contracting on a year-over-year basis, and indicators of manufacturing activity are weakening. Global growth estimates continue to be marked down, and global disinflationary pressures cloud the outlook for U.S. inflation.”
BoJ leaves rate unchanged at -0.1%, keeps 0.25% 10-yr yield cap
BoJ left short-term policy interest rate unchanged at -0.10%, and 10-year JGB target at around 0% under the yield curve control. It will continue to defend the 0.25% 10-year JGB yield cap, by offering to purchase it at the rate on every business day through fixed-rate purchase operations.
The decision was made by 8-1 vote. Goushi Kataoka dissented again, pushing for further strengthening monetary easing by lowering short- and long-term interest rate.
The central bank also said “it is necessary to pay due attention to developments in financial and foreign exchange markets and their impact on Japan’s economic activity and prices.”
Fed Bostic fairly comfortable standing pat with policy
Atlanta Fed President Raphael Bostic said consumers are “staying pretty rock solid” and labour market maybe a “bit beyond full employment. And currently monetary is already “accommodative”. He could have dissented the latest rate cut if had a vote on monetary policy.
Bostic added that “I do think that the economy today is on solid footing and is likely to remain so. I am fairly comfortable standing pat with policy and strongly favor weighing the incoming data, both macro and micro, over the coming months before deciding on any further adjustments.”
Negative impacts from the prolonged trade war with China remained modest. “Many businesses that we’ve talked to basically said we’re not going to pass that on, so we have not seen consumers face the tariffs,” he said. “When we do, that will be a new phase of the tariff war.”
ECB officials signal growing likelihood of rate cut in Jun
ECB officials have indicated a growing likelihood of a rate cut as soon as June, though decisions hinge on forthcoming economic projections and persistent inflation concerns.
Bundesbank President and ECB Governing Council member Joachim Nagel voiced cautious optimism to CNBC about the possibility of easing monetary policy, noting, “the probability is increasing” for a rate reduction, albeit with “some caveats” due to still-high core and service inflation rates.
Nagel emphasized that ECB’s upcoming projections in June will be crucial. “For the June meeting, we will get our projections, so we will get our new forecasts and if there is a confirmation that inflation is really going down and we will achieve our target in 2025,” he explained.
In tandem, Mario Centeno, Governor of the Bank of Portugal and fellow ECB Governing Council member, described a rate cut in June as “very likely,” asserting that even with a reduction of 25 or 50 basis the ECB’s monetary policy would remain tight.
Slovenia’s central bank governor Bostjan Vasle projected that interest rates should be “much closer to 3% towards the end of the year if everything goes according to plan.” However, he also expressed concern over recent geopolitical tensions in the Middle East.
ECB de Guindos: Eurozone slowdown raises financial stability risks
Vice President Luis de Guindos warned that weak Eurozone growth is raising financial stability risks due to weakening bank profits and rising concern over sovereign debt sustainability.
De Guindos said in a conference in Frankfurt that “in an environment where cyclical factors may exert further downward pressure on bank profitability, banks would need to step up their efforts to overcome structural challenges”.
Also, “such measures may include cost reductions – including lower staffing costs and streamlining of branch networks, enhanced digitalization – implying initial, one-off large-scale investments, revenue diversification and the reduction of the stock of non-performing loans in the six countries where levels are still high.”
Japan Motegi: Trade deal in August just Trump’s hopes, two sides still narrowing the gap
Japan Economy Minister Toshimitsu Motegi said today that Trump’s comment regarding a trade deal in August just reflects his own hope for quick progress in the negotiations. For now, the two sides are still working on “narrowing the gap”.
Motegi told reporters, “When you look at the exact wording of his comments, you can see that the president was voicing his hopes of swift progress in talks toward something that is mutually beneficial.” He also reiterated the differences between US and Japan, and no timetable had yet be set for more meetings. He noted, “we’ve agreed that we’ll strive to narrow the gap, including through possibly holding working-level talks.”
Trump said on Monday, after meeting Japanese Prime Minister Shinzo Abe in Japan, that he expected the two countries to be “announcing some things, probably in August, that will be very good for both countries” on trade.
ECB’s Lane: Disinflation process necessarily bumpy at current phase
ECB Chief Economist Philip Lane described disinflation process as “necessarily bumpy” at the current phase. In a speech, he pointed out that headline inflation is expected to “fluctuate around current levels in the near term,” influenced by base effects in energy sector and recent reversal of service inflation spikes caused by the early timing of Easter.
Meanwhile, Lane noting that while wage pressures are “gradually moderating,” they remain above what would be considered normal or steady-state levels. He emphasized that achieving ECB’s inflation target involves not just controlling wage growth but also managing profit margins across the economy.
Looking ahead to June Governing Council meeting, Lane indicated that ECB’s decisions would be informed by “updated staff projections” and comprehensive data on wage and profit dynamics from the early months of the year. He suggested that if these updated assessments and data provide stronger confidence that inflation is converging to ECB’s targets, it could be “appropriate to reduce the current level of monetary policy restriction.”
China confirms Liu He to go to US next week for trade deal signing
Chinese Ministry of Commerce spokesman Gao Feng confirmed that Vice Premier Liu He will travel to Washington next week to sign the first phase of trade agreement with US. Liu will be in US from January 13 to 15 as head of the delegation. Also, he will travel with the titles of Politburo member, vice premier and top trade negotiator.
There are no details regarding the 86-page trade deal yet. US Trade Representative Robert Lighthizer expected the document to be released after signing. One of the mostly concerned part is China’s USD 200B purchases of US goods and services. But Gao declined to comment on the amount of the purchase.
Canada CPI unchanged at 1.9%, matched expectations
Canada CPI rose 0.3% mom in October, matched expectations. Annually, CPI was unchanged at 1.9% yoy, match expectations too. Excluding gasoline, the CPI slowed to 2.3% yoy following three consecutive monthly increases of 2.4% yoy
Full release here.