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RBA maintains tapering plan, left rate unchanged

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    RBA maintained cash rate target unchanged at 0.10%. Also, target for April 2024 government bond yield was also kept at 0.10%. More importantly, it maintained the tapering plan unchanged. Weekly purchases will be lowered from AUD 5B to AUD 4B starting early September, until at least mid-November.

    RBA also pledged to “maintain its flexible approach to the rate of bond purchases”. The conditions for rate hike is not expected to be met before 2024.

    The central bank said the outlook for the coming months is “uncertain” and depends up on the “evolution of the health situation and the containment measures”. Then, the central scenario is for the economy to grow by “a little over 4 per cent over 2022 and around 2½ per cent over 2023.”

    Unemployment is expected to trend lower to 4.50% at the end of 2022, and then 4.0% at the end of 2023. Inflation is expected to be at 1.75% over 2022 and than 2.25% over 2023.

    Full statement here.

    Eurozone PMI composite fell to 35-month low, moving from bad to worse

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      ActionForex.com
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      Eurozone economy appears to be on shaky ground, with the latest PMI figures showing continued deterioration. October saw Manufacturing PMI slide to 43.0 from 43.4, while Services PMI dropped to a concerning 32-month low of 47.8, down from 48.7. Composite PMI wasn’t left behind, recording a 35-month low at 46.5, down from 47.2.

      Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, stated, “In the Eurozone, things are moving from bad to worse.” He highlighted that manufacturing has been grappling with a slump for over a year now. When examining the top Eurozone players, France and Germany, de la Rubia noted that their manufacturing downturns are almost on par.

      However, it’s not all gloom for France in the services sector. Despite a lower activity index compared to Germany, France showcases some resilience with new businesses not declining as rapidly. Moreover, companies in France are steadily adding jobs rather than eliminating them.

      Another noteworthy aspect is the persistent price increases within the services sector. Comparing it to prior economic downturns, inflation for both input prices and prices charged has only marginally slowed down. This trend might be challenging for ECB. As de la Rubia points out, “these figures reinforce the case of a pause in the interest rate cycle instead of thinking aloud about loosening monetary policy.”

      Full Eurozone PMI release here.

      BoC’s Macklem see rate cuts in 2024, but with focus on core inflation trend

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        ActionForex.com
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        BoC Governor Tiff Macklem, in an interview with Bloomberg overnight, indicated that interest rate cuts are being considered “sometime in 2024,” but he emphasized that this decision hinges critically on the sustained easing of core inflation.

        Macklem underlined the importance of core inflation as a key focus for BoC. He stated, “We’re very focused on core inflation.” Specifically, he pointed out the necessity for “a number of months with sustained downward momentum in core inflation” before the central bank can confidently move forward with interest rate cuts.

        Nevertheles, Macklem expressed a growing confidence in the effectiveness of the current monetary policy, acknowledging that “increasingly, the conditions are in place to get us back to two-per-cent inflation.”

        However, he was clear in conveying that this goal has not been fully achieved yet, stating, “but that is not yet assured, we’re not there yet.”

        France Le Maire: Strike has very limited impact on GDP

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          ActionForex.com
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          France Economy Minister Bruno Le Maire said the economic impact of strike, which is in its 46th day, will be limited. But still, it could cut Q3 GDP growth by -0.1%.

          He told LCI television: “There will be an impact but it will be, I think, limited. Today estimates available show that the impact would be of a 0.1 points on growth on a quarter. On the whole year, it is a very limited impact.”

          China trade surplus widened to USD 42.8B, much less than expected exports contraction

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            ActionForex.com
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            China’s trade surplus came in larger than expected at USD 42.8B in October. Both exports dropped much less than expected over the year. But contraction in imports were slightly larger. Looking at some details, contraction in imports to the US was more than double of exports, year-to-October. Imports from EU merely grew 0.1% ytd yoy.

            In USD terms, in October:

            • Total trade dropped -3.4% yoy to USD 383.0B.
            • Exports dropped -0.9% yoy to USD 212.9B, versus expectation of -5.2% yoy.
            • Imports dropped -6.4% yoy to USD 170.1B, versus expectation of -6.1% yoy.
            • Trade surplus widened to USD 42.8B, versus expectation of USD 40.6B.

            Year-to-October:

            • Total trade dropped -2.5% yoy to USD 3736B.
            • Exports dropped -0.2% yoy to USD 2038B.
            • Imports dropped -5.1% yoy to USD 1698B.
            • Trade surplus came in at USD 340B.

            With EU, year-to-October:

            • Total trade rose 3.1% yoy to USD 579.6B.
            • Exports rose 5.1% yoy to USD 352.8B.
            • Imports rose 0.1% yoy to USD 226.8B.
            • Trade surplus came in at USD 126.1B

            With US, year-to-October:

            • Total trade dropped -14.9% yoy to USD 447.8B.
            • Exports dropped -11.3% yoy to USD 347.8B.
            • Imports dropped -25.4% yoy to USD 100.0B.
            • Trade surplus came in at USD 247.8B.

            NZ BNZ services plunges down to 47.8, deepening contraction as activity dives

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              ActionForex.com
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              New Zealand’s service sector, as gauged by the BusinessNZ Performance of Services Index, experienced a marked decline in July, descending from 49.6 to a worrying 47.8. This latest reading is not only the lowest since January 2022 but also trails the long-term average of 53.5 significantly.

              A detailed analysis of the index highlights concerning trends. The activity component has sharply dropped from 50.9 to 39.6, marking its worst performance since August 2021 and setting a gloomy record. Specifically, this month’s reading stands as the worst non-lockdown related reading on record since 2007. New orders within businesses have taken a substantial hit, plummeting from 50.4 to 43.8.

              Meanwhile, employment showed a marginal decrease, moving from 49.1 to 49.0. On a brighter note, stocks or inventories observed an increase, jumping from 47.2 to 54.0, with supplier deliveries also ticking up from 51.0 to 52.1.

              BusinessNZ’s Chief Executive, Kirk Hope, said. “The further fall into contraction during July also saw another lift in the proportion of negative comments,” he remarked, drawing attention to the sharp increase in negative feedback, which escalated to 67% from 55.6% in June and 49.4% in May.

              Hope continued, “Overall, negative comments received were strongly dominated by a general downturn in the economic conditions/slowing economy, as well as ongoing increased costs.”

              BNZ Senior Economist, Doug Steel, weighed in on the data, highlighting a distressing pattern. “The results all point to a sharp drop in demand in July, significantly accelerating the slowing trend that had been evident for many months,” he said.

              Full NZ BNZ PSI release here.

              BoJ Kuroda keeps an eye on inflation risks while maintaining ultra-easy policy

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                ActionForex.com
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                BoJ Governor Haruhiko Kuroda told the parliament today, “the BOJ will continue its ultra-easy policy so improvements in corporate profits and the economy prop up wages and gradually accelerate consumer inflation.”

                “We remain vigilant to the risk prices may shoot up before wages begin to rise, or how (rising raw material costs) could hurt smaller firms. We must keep an eye out on these risks, while maintaining our current easy monetary policy,” Kuroda said.

                Meanwhile, Prime Minister Fumio Kishida said, “it’s desirable to create an environment in which companies can pass on rising costs and raise wages, so that increasing consumption spurs economic growth and inflation.”

                New Zealand terms of trade rose 3.3% in Q2 as export prices surged

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                  ActionForex.com
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                  New Zealand merchandise terms of trade rose 3.3% in Q2, well above expectation of 0.3%. Export prices for goods rose 8.3% while import prices rose 4.8%. Export volume for goods rose 2.9% while import volumes rose 4.4%. Export values rose 9.2% and import values rose 4.6%. Services terms of trade dropped -8.5%. Services export prices fell -1.6% while import prices rose 7.7%.

                  Terms of trade measures New Zealand’s purchasing power for import goods, based on the prices it receives for exports. An increase in terms of trade means that New Zealand can buy more import goods for the same quantity of exports.

                  Full release here.

                  ECB said to be keen on starting rate hike in Jul

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                    ActionForex.com
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                    According to a Reuters report, some unnamed ECB sources said ECB policymakers were keen to end the asset purchases in June, and start raising interest rate soon. Some expected interest hike to start as soon as in July. The main policy rate could be back to neutral at around 1.00-1.25% by the end of the year. That would also lift the deposit rate back into positive territory for the first time since 2014.

                    ECB President Christine Lagarde sounded more cautious with her comments, however. She just said last Friday, “If the situation continues as predicated at the moment, there is a strong likelihood that rates will be hiked before the end of the year. How much, now many times, remains to be seen and will be data dependent.”

                    Australia services returned to mild expansions

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                      ActionForex.com
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                      Australia AiG Performance of Services Index rose 7.5 pts to 51.4 in August. That’s a return to mildly positive conditions following a weak month in July. Also, trading conditions for some businesses picked up, returning to similar levels seen earlier in the year.

                      Looking at some details, there were expansions in four of eight services sectors in trend terms. However, among the business-oriented sectors, only finance & insurance reported positive results. Among the consumer-oriented segments, the ‘health, education & community services’ sector was strongest and the retail trade sector continued to perform very weakly.

                      Full release here.

                      Swiss KOF dropped to 113.5, 4th wave of pandemic fueling doubts on economy

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                        ActionForex.com
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                        Swiss KOF Economic Barometer dropped for the third month in a row to 113.5 in August, below expectation of 126.3. However, it’;s still well above it’s average value of 100. KOF said, “the fourth wave of the pandemic, which is now becoming increasingly clear, is apparently fueling doubts about largely unhindered economic activity in the near future.”

                        Full release here.

                        EU laid pre-conditions of lockdown exit, WHO suggests two-week staged approach

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                          ActionForex.com
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                          European Commission President Ursula von der Leyen urged members stage to take a “gradual approach” in exiting the coronavirus lockdown. And “every action should be continuously monitored”. Also, she laid down three main pre-conditions for the exit: 1. Significant decrease in the spread of the coronavirus 2. Sufficient health system capacity 3. Adequate surveillance and monitoring capacity

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                          Separately, the WHO said lifting of lockdowns should be down in stages of two weeks. WHO said: “To reduce the risk of new outbreaks, measures should be lifted in a phased, step-wise manner based on an assessment of the epidemiological risks and socioeconomic benefits of lifting restrictions on different workplaces, educational institutions, and social activities… Ideally there would be a minimum of 2 weeks (corresponding to the incubation period of COVID-19) between each phase of the transition, to allow sufficient time to understand the risk of new outbreaks and to respond appropriately.”

                          ECB Vujcic: We should persevere if core inflation persists

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                            ECB Governing Council member Boris Vujcic told Bloomberg TV yesterday, “as long as core (inflation) persists at the levels we’re talking about and this is significantly higher than our rates are and significantly higher than where are target is, we should persevere.”

                            The markets have been raising their bets on higher interest rates and are betting tightening extending into 2024. Vujcic said, “I think this repricing in a way is what we did during our last projections, where we projected basically higher inflation for longer, core inflation which turns out to be stickier than most people probably expected.”

                            “Probably markets are now repricing and saying ‘OK, we might see higher rates for maybe longer,'” he said.

                            UK CBI retail sales performance jumped, but stock shortages bite

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                              ActionForex.com
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                              UK CBI said retail sales grew in the year to October at the faster pace than last month, balance up from 11% to 30%. Growth is expected to accelerate further next month to 35%. Orders growth accelerated from 20% to 48% but is expected to ease slightly back to 41% next month.

                              Ben Jones, CBI Principal Economist, said: “The UK’s economic recovery has been pretty bumpy lately and the same seems true of the retail sector. Sales performance has jumped around in recent months, while stock shortages continue to bite. Disruption to supply chains, combined with staff shortages and uncertain public health conditions mean retailers are finding it difficult to plan for the winter ahead.”

                              Full release here.

                              Singapore slashes 2019 growth forecasts to 0.0-1.0%, uncertainties and risks increased

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                                ActionForex.com
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                                Singapore Ministry of Trade and Industry downgraded 2019 growth forecast to 0.0-1.0%, and expect growth to come in at around mid-point of the forecast range. That’s notably lower from prior estimate of 1.5-2.5%, after Q2 GDP contracted by -3.3%. The Ministry noted in the statement that “GDP growth in many of Singapore’s key final demand markets in the second half of 2019 is expected to slow from, or remain similar to, that recorded in the first half.”.

                                Also, “uncertainties and downside risks in the global economy have increased since three months ago”. The risks firstly include US new tariffs on USD 300B in Chinese imports. Secondly, a “a steeper-than-expected slowdown” of China, as precipitated by US tariffs, could lead to a “sharp fall” in Chinese import demands and “negatively affect the region’s growth”. Thirdly, risk of no-deal Brexit “has increased with the recent change in UK’s political leadership.” Fourthly, there are risks from uncertainties in Hong Kong, the trade dispute between Japan and South Korea, as well as geopolitical tensions in North Korea and the Strait of Hormuz.

                                Full release here.

                                Fed’s Powell signals caution on rate hikes, notes yield surge as de facto tightening

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                                  ActionForex.com
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                                  Fed Chair Jerome Powell, in his speech at the Economic Club of New York, asserted that while the option for an additional rate hike remains open, a prudent and careful approach will be the governing principle. Market participants, digesting Powell’s words, now overwhelmingly anticipate an extension of Fed’s pause in November, a sentiment reflected in fed fund futures pointing towards a 100% chance of this outcome. Referring to the recent rise in yields, he said it might have an effect “at the margins” on reducing the necessity for further rate hikes.

                                  Powell suggested that the surge in yields might be linked to growing concerns surrounding fiscal deficits and mentioned that the process of Quantitative Tightening could also be influencing it. Highlighting that the uptick in yields acts as a de facto policy tightening, Powell raised the possibility that this might reduce the need for aggressive rate hikes in the future.

                                  Although inflation metrics have dipped during the summer, Powell emphasized, “inflation is still too high, and a few months of good data are only the beginning.” The inflation outlook remains uncertain, marked by the unpredictability of its stabilization point in the upcoming quarters, and Powell concedes that, “the path is likely to be bumpy.”

                                  With an eye on economic growth and labor market dynamics, Powell indicated that persistent above-trend growth or sustained labor market tightness could trigger a reevaluation of the inflation outlook. Such developments “could warrant further tightening of monetary policy.”

                                  Underscoring the complexities and potential pitfalls ahead, Powell stated, Committee is “proceeding carefully.” “We will make decisions about the extent of additional policy firming and how long policy will remain restrictive based on the totality of the incoming data, the evolving outlook, and the balance of risks,” he added.

                                  Full prepared remarks of Fed Powell here.

                                  ECB to finally pause, EUR/USD looking soft

                                    By
                                    ActionForex.com
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                                    Today, ECB is broadly anticipated to maintain its main refinancing rate at 4.50% and the deposit rate at 4.00%. Having increased rates consistently during its previous ten meetings to tackle surging inflation, ECB hinted at a pause last month, reflective of the policy’s apparent efficacy, as evidenced by deceleration in the Eurozone economy.

                                    President Christine Lagarde, along with other top officials, has been keen to redirect discussions toward the duration for which the interest rates might need to remain at these current restrictive thresholds.

                                    Amid this backdrop, there’s also been speculation regarding ECB’s potential move for an early reduction in bond holdings within its colossal EUR 1.7T euro Pandemic Emergency Purchase Programme. However, given the prevailing climate of heightened macroeconomic, geopolitical, and financial ambiguities, it’s probable that the ECB will resist any hasty decisions to expedite quantitative tightening.

                                    Some previews on ECB:

                                    Technically, it’s possible that EUR/USD’s recovery from 1.0447 has completed at 1.0693, after rejection by 55 D EMA. Immediate focus for today is 1.0522 minor support. Firm break there should strengthen this bearish case. Further break of 1.0447 will resume whole fall from 1.1274, and target 61.8% retracement of 0.9534 to 1.1274 at 1.0199 next.

                                    Position trading update: Entered GBP/USD short

                                      By
                                      ActionForex.com
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                                      As planned in our weekly report, we entered GBP/USD short today at 1.3150, as the pair recovered to 1.3166. Stop is placed at 1.3300, slightly above 1.3297 resistance.

                                      Our view is unchanged that corrective rise from 1.2661 has completed with three waves up to 1.3297, just ahead of 38.2% retracement of 1.4376 to 1.2661 at 1.3316. Another fall is expected through 1.3042 support to retest 1.2661 low.

                                      There is prospect of resuming whole decline from 1.4376. Hence, if the trade turns out as expected, we’ll monitor downside momentum to decide whether to exit at around 1.2661, or hold through it.

                                      ECB Lagarde: Doesn’t make sent to react to current inflation by tightening policy

                                        By
                                        ActionForex.com
                                        -

                                        In a speech, ECB President Christine Lagarde said that the central bank focus on “medium term, not on current inflation numbers”. “When inflation pressure is expected to fade – as is the case today – it does not make sense to react by tightening policy,” she added. “The tightening would not affect the economy until after the shock has already passed.”

                                        Lagarde also said, “supply shock” will tend to “push up inflation and depress output. In this case, “tighter monetary policy would only exacerbate the contractionary effect on the economy.” The Eurozone is facing a “mixture of shocks”, partly related to catch-up demand but has a “strong supply-driven element”. “Tightening policy prematurely would only make this squeeze on household incomes worse.”

                                        “The conditions to raise rates are very unlikely to be satisfied next year,” she said. “Moreover, even after the expected end of the pandemic emergency, it will still be important for monetary policy – including the appropriate calibration of asset purchases – to support the recovery and the sustainable return of inflation to our target of 2%.”

                                        Full speech here.

                                        RBNZ Orr actively preparing a package of additional monetary policy tools

                                          By
                                          ActionForex.com
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                                          RBNZ Governor Adrian Orr said in a speech that the early policy actions on the pandemic, including significant reduction in the Official Cash Rate, and introduction of the Large Scale Asset Purchases, “have been effective in lowering interest rates across the board, and ensuring there is plentiful liquidity in the financial system.”

                                          He added that RBNZ is “actively preparing a package of additional monetary policy tools to use if needed”. The tools include “negative wholesale interest rates, further quantitative easing, direct lending to banks, and ongoing forward guidance about our intentions.” While some of the tools are “unfamiliar to many New Zealanders,” he noted, “they are used widely internationally”.

                                          Orr’s full speech here.

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