US initial jobless claims rose 4k to 214k in the week ending October 12, slightly above expectation of 212k. Four-week moving average of initial claims rose 1k to 214.75k. Continuing claims dropped -10k to 1.679m in the week ending October 5. Four-week moving average of continuing claims rose 3.5k to 1.670m.
UK unemployment rate dropped to 3.8% in March, down from 3.9% and beat expectations. That’s a 44-year low since 1974. Overall employment rate was 76.1%, joint highest on record since 1971.
However, wage growth slowed with average weekly earnings including bonus rose 3.2% 3moy, down from 3.5% 3moy and missed expectation of 3.4% 3moy. Weekly earnings excluding bonus also slowed to 3.3% 3moy, down from 3.4% 3moy, matched expectations.
ECB Vice President Luis de Guindos said policy makers are “currently analyzing the causes of the economic slowdown in Europe, some of which are temporary”. But he emphasized that “we will not take a decision until we have conducted a thorough analysis.”
And, regarding inflation, he said “even if energy prices were to fall a little in the coming months, we are confident that inflation will, over the medium term, converge towards our aim of below, but close to, 2 percent.”
On no-deal Brexit, de Guindos said “a disorderly Brexit… would represent a significant macroeconomic shock at a time when the European economy is already weakened.”
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EU Chief Brexit negotiator Michel Barnier warned UK:-
Earlier today, European Commission President Jean-Claude Juncker in European Parliament on Brexit:-
In the summary of opinions at June 19-20 BoJ meeting, it’s noted that Japan’s economy is “likely to continue on a moderate expanding trend”. And “year-on-year rate of change in the consumer price index (CPI) is likely to increase gradually toward 2 percent”. Although “downside risks warrant attention”, it’s “appropriate” to continue with “current monetary policy stance”.
However, there was “an increase in uncertainties regarding overseas economies. US-China trade conflicts and threat of no-deal Break has “started to affect Japan’s economy and people’s sentiment”. The schedule consumption tax hike could “exert downward pressure on economic activity and prices.”
It’s argued that it’s important for BoJ to take “some kind of policy responses if some changes emerge in the baseline scenario of the outlook for prices”. And, “all policy measures — including adjustments in short- and long-term interest rates, an acceleration in the pace of expansion in the monetary base, and an increase in the amount of assets to be purchased — should be deliberated when considering additional easing.”
Additionally, it’s also argued that considering growing expectation for easing by Fed and ECB, BoJ “also needs to strengthen monetary easing”. And, “it is necessary to further consider in depth the feasibility of a wide range of additional easing measures, as well as their effects and side effects.”
Cleveland Fed President Loretta Mester reiterated yesterday that Fed should “front-load” interest rate hikes in the first of of the year, and start quantitative tightening at the same time. “We have to recognize that inflation is very elevated. It is well above our goal. We have to do what we can with both our policy tools to get inflation under control,” she emphasized.
“I think we’re going to need to do some 50 basis-point moves,” Mester added. “I don’t want to presuppose every meeting from here to July, but I do think we need to be more aggressive earlier rather than later.”
Canada retail sales dropped -0.1% mom in August to CAD 51.5B, below expectation of 0.4% mom. Ex-auto sales dropped -0.2% mom, above expectation of -0.3% mom. Sales were down in six sectors, representing 51% of total retail trade.
Retail sales in Ontario dipped -0.8%. In Manitoba (-1.6%) retail sales were down for the first time in three months. Sales rebounded in British Columbia (+0.8%) and New Brunswick (+3.8%).
Canada’s GDP grew 0.2% mom in February, below expectation of 0.3% mom. Services-producing industries (+0.2%) led the growth for a second month in a row. Goods-producing industries aggregate was essentially unchanged. Overall, 12 of 20 sectors increased in the month.
Advance information indicates that real GDP was essentially unchanged in March. That suggests the economy expanded 0.6% in the first quarter of 2024.
In a speech today, BoE Deputy Governor Ben Broadbent indicated that if current forecasts hold, which suggest that monetary policy will need to become “less restrictive at some point”, a rate cut could occur “over the summer”.
Broadbent noted that the direct impact of the pandemic and the war on inflation has now diminished. What remains are the “more persistent second-round effects” on domestic inflation stemming from these earlier shocks.
He emphasized the uncertainty surrounding how long these effects will persist. While a symmetrical process might suggest a quick unwinding within the next year, the Committee has consistently judged that the process is likely to be “asymmetric”. As stated in recent Monetary Policy Reports, “second-round effects in domestic prices and wages will take longer to unwind than they did to emerge.”
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.”
ECB’s Consumer Expectations Survey for February indicated continuing decline in consumers’ median inflation perceptions over the past 12 months, marking a fifth consecutive month of decrease, settling at 5.5% down from 6.0% in January.
Furthermore, median expectations for inflation over the next 12 months have dipped to 3.1% from 3.3%. This level is the lowest recorded since the onset of Russia’s conflict with Ukraine in February 2022.
Expectations for inflation three years ahead remained stable at 2.5%.
Yesterday, Bundesbank President Jens Weidmann talked down risks of recession in Germany, as he spoke in a business forum. He said “given excellent labor market conditions and rising incomes, I expect private consumption in Germany to overcome its weakness”. And, there were “early signs of this already as the retail sector recorded strong growth in the first quarter.”
On ECB monetary policy, Weidmann said “the task of monetary policy is to ensure price stability… This means reacting to the weak domestic price pressures but also continuing on the path of policy normalization and not postponing unnecessarily if the inflation outlook permits it.”
US durable goods orders rose 0.6% to USD 248.7b in October, well above expectation of -0.5% contraction. ex-transport orders rose 0.6%, also above expectation of 0.2%. Excluding defense, new orders increased 0.1%.
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Sentiments in Asia are apparently lifted after confirmation of US-China trade meeting in early October. The Chinese Ministry of Commerce said “both sides agreed that they should work together and take practical actions to create good conditions for consultations.” That came after a telephone call between Vice Premier Liu He and PBoC Governor Yi Gang, with US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin. Conversations between two sides will continue this month, in preparation for high level negotiation in early October.
Separately, USTR spokesperson Jeff Emerson also confirmed in a statement that “They agreed to hold meetings at the ministerial level in Washington in the coming weeks. And, “In advance of these discussions, deputy-level meetings will take place in mid-September to lay the ground work for meaningful progress.”
EU trade director-general Sabine Weyand acknowledged that “UK does not intend to go for an extension of the transition” and EU needs to be prepared for that. She added, “that means in the negotiations we have to look at those issues where failing to reach an agreement by 2020 would lead to another cliff-edge situation.”
Weyand also said EU is ready to start negotiations very quickly after UK leaves EU at the end of January. But she also emphasized, “the ambition for duty-free, quota-free trade under a free-trade agreement has to come accompanied by a level playing field.” European Commission is due today afternoon to brief EU27 countries on its work program for the negotiations.
Yesterday, Atlanta Fed President Raphael Bostic expressed guarded optimism and highlighted the “significant progress” in controlling inflation. He observed, “Inflation is well off its highs that we saw in the last year. And recent numbers have come in promising in ways that suggest that we might be seeing continued declines.”
Bostic pointed to the ongoing economic evolution as in line with an “orderly slowdown,” which he views as “quite promising”. As such, he advocated to be cautious, patient and resolute” in policy-making.
He also voiced concerns about the risk of overtightening monetary policy. “I think we are in a phase now where there is some risk of us overtightening. And so we’ve just got to have that in mind,” he said. By exercising appropriate caution, Bostic believes that the damage to employment can be minimized.
Looking forward, Bostic said, “My baseline outlook doesn’t contemplate any cuts until the second half of next year at the earliest.” He insists on being “resolute to make sure that we don’t move our policy posture in a different direction until we’re absolutely, absolutely certain that inflation is going to get to our target.”
In a Quora.com post, San Francisco Fed Mary Daly said the US is not headed towards a recessions right not. She saw “solid domestic momentum that points to a continued economic expansion:. Also, “the labor market is strong, consumer confidence is high, and consumer spending is healthy.”
But “considerable headwinds”, including global slowdown and trade uncertainties, contributed to fear that a “downturn is right around the corner”. Hence, she’s closely look at whether “fear of recession becomes a self-fulfilling prophecy”.
Daly added that recent rate cut was “appropriate recalibration” of policy in response to the headwinds. And, her support was “not because I see an impending downturn on the horizon.”
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BoE’s Bailey anticipates sharp decline in inflation, stresses need for balance
BoE Governor Andrew Bailey, speaking at an International Institute of Finance conference, projected a “quite a strong drop” in next month’s inflation figures. This expectation is largely due to the unique household energy pricing system in the UK, which is set to impact the overall inflation calculations differently compared to other sectors.
However, he was quick to temper this optimistic forecast with a note of caution regarding the broader inflationary landscape. According to Bailey, underlying components of the inflation measure continue to show disparities that could complicate monetary policy response.
The Governor pointed out that while energy price inflation is currently running at minus 20%, the inflation in services remains high, around 6%. This stark contrast in inflation rates across different sectors presents an “unbalanced” picture.
“We don’t have to have every component actually at target, but you do have to have a better balance,” Bailey remarked.