Swiss SECO Consumer Climate rose sharply from -7 to 8 in Q3. That’s the highest level since July 2010, and well above long-term average of -5. Expectations of general economic growth rose to record 48. Employment expectations rose to 29, just slightly below pre-crisis level. Expected financial situation also rose to 3, back above long-term average for the first time in over six years.
ECB Vice President Luis de Guindos addressed inflation expectations at an event today, noting that “headline inflation is there at 2.4%, core inflation below 3%.” He projected that inflation will “fluctuate around these values” in the coming months.
Looking further ahead, de Guindos expressed confidence in achieving ECB’s long-term inflation goal, stating, “In the medium term, in the year 2025, we will be moving in a stable way towards our price stability objective which is 2%.”
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.
A batch of mixed economic data was released from Japan today. Industrial production rose 1.3% mom in July, well above expectation of 0.3% mom. Growth was supported by increased production of cars and chemicals, which offset decline in oil products. The somewhat solid rebound in production offered a hopeful sign that manufacturers are weathering global slowdown and escalation of US-China trade war so far.
On the other hand, retail sales dropped -2.0% yoy in July, much worse than expectation of -0.6% yoy. The contraction raised concerns that momentum of domestic demand was much weaker than originally expected. In particular, consumption could be further strained by the planned sale tax hike later in the year.
Also released, unemployment rate dropped to 2.2% in July, beat expectation of 2.3%. Housing starts dropped -4.1% yoy, versus expectation of -5.4% yoy. Tokyo CPI slowed to 0.7% yoy in August, down from 0.9% yoy, missed expectation of 0.8% yoy.
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.”
White House economic adviser Larry Kudlow said yesterday that there was “quite constructive” telephone conversations at deputy level between US and China and trade. The deputies have agreed to set up another conference call and were working through some of the key issues.
Kudow added “we are still planning for the Chinese team to come over here in September.”
On the economy, Kudlow dismissed the concerns of a downturn. Instead, he said “we don’t anticipate anything but a solid strong economy.”
As noted in a brief statement by European Commission, EU chief Brexit negotiator Michel Barnier held “constructive technical-level talks” with UK over the weekend. However, “a lor of work remains to be done” and technical level discussions will continue on Monday. Barnier is set to brief EU27 minutes at the General Affairs Council on Tuesday.
On the other hand, UK Prime Minister Boris Johnson’s spokesperson said “The Prime Minister said there was a way forward for a deal that could secure all our interests … but that there is still a significant amount of work to get there and we must remain prepared to leave (without a deal) on October 31.”
Reuters quoted a unnamed EU diplomat saying that “differences persist on customs” regarding the Irish border. And, there are “small chances” for a text to be ready for EU summit this week. More time is needed to continue to discussions. European Commission President Jean-Claude Juncker also said in an interview that “it’s up to the Brits do decide if they will ask for an extension… “But if Boris Johnson were to ask for extra time – which probably he won’t – I would consider it unhistoric to refuse such a request.”
Kansas City Fed President Jeffrey Schmid expressed confidence that inflation will gradually return to Fed’s 2% target “over time”. But he also emphasized the importance of patience, saying, “I am prepared to be patient as this process plays out.”
Schmid highlighted the necessity of curbing demand growth to allow supply to catch up, which is essential for closing the imbalance driving inflation.
Regarding Fed’s balance sheet, “I didn’t really think we should have slowed the runoff,” Schmid said. “I think there was room to continue to run off like we were doing.”
US Treasury Secretary Steven Mnuchin tweeted that this round of trade talks in Beijing has concluded. He described the talks as “constructive”. And he looks forward to meeting Chinese Vice Premier Liu He in Washington next week to continue the “important” discussions.
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US initial jobless claims dropped -13k to 209k in the week ending July 6, below expectation of 221k. Four week moving average of initial claims dropped -3.25k to 219.25k.
Continuing claims rose 27k to 1.723m in the week ending June 29. Four-week moving average of continuing claims rose 5.75k to 1.695m.
US headline durable goods orders dropped -1.6% to USD 250.6B in February, below expectation of -1.2%. Ex-transport order rose 0.1%, also below expectation of 0.3%.
Boston Fed President Susan Collins highlighted that recent rise in long-term yields implies some tightening of financial conditions. “If it persists, it likely reduces the need for further monetary-policy tightening in the near term,” she noted in a speech yesterday.
Such market dynamics further bolstered Collins’ perspective on the current tightening cycle led. “This reinforces my view that we are very near, and perhaps at, the peak federal funds rates for this tightening cycle,” she stated, indicating that the cycle could be nearing its zenith.
However, Collins maintained a flexible stance on the future course of action, and clarified, “I would not take further tightening off the table yet.”
Weighed in on yesterday’s CPI data, which revealed that September’s headline inflation held steady at 3.7% and core inflation eased to 4.1%. Collins said, “Today’s CPI release is a reminder that restoring price stability will take time.”
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UK PMI Construction dropped to 58.7 in July, down sharply from June’s 24-year high of 66.3. House building remained best-performing category. Supply shortages led to another rapid rise in input prices.
Tim Moore, Economics Director at IHS Markit:
“July data marked the first real slowdown in the construction recovery since the lockdown at the start of this year. It was unsurprising that UK construction companies were unable to maintain output growth at the 24-year high seen in June, especially with widespread supply shortages and constrained capacity to take on additional orders…
“Long lead times for materials and shrinking sub-contractor availability were cited as factors holding back work on site… Another rapid increase in purchasing costs was linked to global supply and demand imbalances, but many firms also noted that local issues had amplified inflationary pressures. These included a severe lack of haulage availability, continued reports of Brexit trade frictions, and greater shortages of contractors due to exceptionally strong demand.”
New Zealand’s retail sales volumes rose by 0.5% qoq to NZD 25B in Q1, significantly outperforming the anticipated -0.3% qoq decline. Sales values increased by 0.7% qoq to NZD 30B.
“In the March quarter, we saw a modest increase in retail activity, with growth across most industries,” said Melissa McKenzie, business financial statistics manager. “This followed two years of declines.”
Of the 15 retail industries, nine experienced higher sales volumes during the quarter. The most notable contributions came from food and beverage services, which rose by 2.2%, motor vehicle and parts retailing, which increased by 1.1%, recreational goods retailing, which surged by 4.7%, and accommodation, which climbed by 4.1%.
UK retail sales volume fell sharply by -2.3% mom in April, much worse than expectation of -0.6% mom. Sales volumes fell across most sectors, with clothing retailers, sports equipment, games and toys stores, and furniture stores doing badly as poor weather reduced footfall. More broadly, sales volumes rose by 0.7% in the three months to April 2024 when compared with the previous three months
US initial jobless claims dropped -10k to 210k in the week ending October 5, below expectation of 217k. Four-week moving average of initial claims rose 1k to 213.75k. Continuing claims rose 29k to 1.684m in the week ending September 28. Four-week moving average of continuing claims rose 2.5k to 1.665m.
UK unemployment rate was unchanged at 4.1% in the three months to October, matched expectation. However, wage growth was rather impressive. Average weekly earnings including bonus rose 3.3% 3moy, above expectation of 3.0% 3moy. Average weekly earnings excluding bonus also rose 3.3% 3moy, above expectation of 3.2% 3moy. Wage growth was indeed fastest since 2008. Also claimant count rose 21.9k in November, above expectation of 13.2k.
Canada’s retail sales value fell -0.2% mom to CAD 66.4B in March, slightly worse than expectation of -0.1% mom. Sales were down in seven of nine subsectors and were led by decreases at furniture, home furnishings, electronics and appliances retailers.
Core retail sales—which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers—were down -0.6% om.
Advance estimate suggests that that sales increased 0.7% mom in April.
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ISM services rose to 59.7, mostly optimistic despite concerns on tariffs, capacity constraints and employment resources
ISM Non-Manufacturing Composite rose to 59.7 in February, up from 56.7, beat expectation of 57.3. Employment Index dropped -2.6 to 55.2. Business Activity Index rose 5 to 64.7. New Orders rose 7.5 to 57.7. Price dropped -5 to 54.4.
ISM noted that “respondents are concerned about the uncertainty of tariffs, capacity constraints and employment resources; however, they remain mostly optimistic about overall business conditions and the economy.”
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