Weekly Market Recap (11-15 September)

Monday:

BoJ Governor Ueda interviewed by Japanese media Yomiuri over the weekend said that his focus is on a “quiet exit” to avoid significant impact on the market:

We could have enough data by year-end to determine whether we can end negative rates.
Once we're convinced Japan will see sustained rises in inflation accompanied by wage growth, there are various options we can take.
If we judge that Japan can achieve its inflation target even after ending negative rates, we'll do so.
The BOJ will patiently maintain ultra-loose policy.
While Japan is showing budding positive signs, achievement of our target isn't in sight yet.
Wage rises are beginning to push up service prices. The key is whether wages will keep rising next year.
“There are some things we cannot see, including overseas economies” and expressed his cautious approach.

BoE’s Mann (hawk – voter) said that she prefers to err on the side of overtightening:

If I am wrong and inflation and economy drop more significantly, I wouldn't hesitate to cut rates.
It's a risky bet that inflation expectations are sufficiently well-anchored, and we can wait for core inflation to ease.
We need to prepare for a world where inflation is more likely to be volatile.
The idea that 3% inflation is 'close enough' can't be the BOE's guide.

The NY Fed released its August inflation expectations survey:

Survey of consumers in August puts one-year ahead expected inflation at 3.6% vs. July reading of 3.5%.
August three-year ahead expected inflation at 2.8% vs. July 2.9%.
August five-year ahead expected inflation at 3.0% vs. July 2.9%.
August expected home price rise moves to 3.1% from July 2.8% (highest since July 2022).
Record number of consumers said credit now harder to get.
Households more downbeat on current and future finances.
Income growth perceptions declined to 2.9 percent, the lowest reading since July 2021.
The mean perceived probability of losing one’s job in the next 12 months rose by 2.0 percentage points to 13.8%, its highest reading since April 2021.

Tuesday:

BoJ offered to buy an unlimited amount of JGBs after the yield on the 10yr bond surged to the highest level since 2014 (around 0.70%).

The UK August Payroll change printed at -1K vs. 30K expected and -4K prior (revised from 97K!):

July ILO unemployment rate 4.3% vs. 4.3% expected and 4.2% prior.
July employment change -207k vs. -185k expected and -66K prior.
Average weekly earnings incl. Bonus 3M/YoY 8.5% vs. 8.2% expected and 8.4% prior (revised from 8.2%).
Average weekly earnings ex-Bonus 3M/YoY 7.8% vs. 7.8% expected and 7.8% prior.

German September ZEW survey fell to a new cycle low:

Current conditions -79.4 vs. -75.0 expected and -71.3 prior.
Expectations -11.4 vs. -15.0 expected and -12.3 prior.

BoE’s Breeden (neutral – non voter) will replace Jon Cunliffe in November:

The risks to inflation around August forecast are to the upside.
Sees balanced risks to growth and unemployment in both directions.
Expects inflation to be around the 2% target in two years.

The US NFIB Small Business Optimism Index missed coming in at 91.3 vs. 91.6 expected and 91.9 prior.

Wednesday:

The Japanese PPI slowed more in August on a year over year basis:

PPI M/M 0.3% vs. 0.1% expected and 0.1% prior.
PPI Y/Y 3.2% vs. 3.2% expected and 3.4% prior (revised from 3.6%).

The UK Monthly GDP missed expectations:

Monthly GDP -0.5% vs. -0.2% expected and 0.5% prior.
GDP 3M/3M 0.2% vs. 0.3% expected and 0.2% prior.
Services -0.5%.
Industrial output -0.7%.
Manufacturing output -0.8%.
Construction output -0.5%.

Eurozone Industrial Production missed expectations:

Industrial Production M/M -1.1% vs. -0.7% expected and 0.4% prior (revised from 0.5%).
Industrial Production Y/Y -2.2% vs. -0.3% expected and -1.1% prior (revised from -1.2%).

The US CPI came basically in line with expectations with the 3-month annualised Core CPI standing now at 2.4%:

CPI Y/Y 3.7% vs. 3.6% expected and 3.2% prior.
CPI M/M 0.6% vs. 0.6% expected and 0.2% prior.
Core CPI Y/Y 4.3% vs. 4.3% expected and 4.7% prior.
Core CPI M/M 0.3% (0.278% unrounded) vs. 0.2% expected and 0.2% prior.
Shelter M/M 0.3% vs. 0.4% prior.
Shelter Y/Y 7.3% vs. 7.7% prior.
Services less rent and shelter M/M 0.5% vs. 0.2% prior.
Real weekly earnings -0.1% vs. 0.0% prior.

Thursday:

The Australian August Jobs report beat expectations but most of the jobs added were part-time:

Employment change 64.9K vs. 23.0K expected and -14.6K prior.
Full-time employment 2.8K vs. -24.2K prior.
Part-time employment 62.1K vs. 9.6K prior.
Unemployment rate 3.7% vs. 3.7% expected and 3.7% prior.
Participation rate 67.0% vs. 66.7% expected and 66.7% prior.
Hours worked M/M -0.5%.

The PBoC cut the RRR by 25 bps. The weighted average RRR for financial institutions will be around 7.40% after the latest cut. The central bank adds that it will keep prudent monetary policy and ensure liquidity remains reasonably ample.

The ECB hiked interest rates by 25 bps as expected bringing the deposit rate to 4.00% vs. 3.75% prior and signals the peak:

Inflation continues to decline but is still expected to remain too high for too long.
Past rate hikes continue to be transmitted forcefully.
Financing conditions have tightened further and are increasingly dampening demand.
ECB considers that key rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target.
Future decisions will ensure that the key rates will be set at sufficiently restrictive levels for as long as necessary.
ECB will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction.

Growth and Inflation forecasts:

2023 GDP at 0.7% (previously 0.9%).
2024 GDP at 1.0% (previously 1.5%).
2025 GDP at 1.5% (previously 1.6%).
2023 inflation at 5.6% (previously 5.4%).
2024 inflation at 3.2% (previously 3.0%).
2025 inflation at 2.1% (previously 2.2%).

Moving on to the press conference, President Lagarde didn’t say anything hawkish and highlighted the slowing in the Eurozone economy:

Higher inflation forecasts mainly reflect higher energy.
Rates will remain at sufficiently restrictive levels for as long as necessary.
Rates were hiked to 'reinforce commitment to our target'.
The economy is likely to remain subdued in the coming months.
The services sector, which had been resilient, is now slowing.
Recent indicators suggest a weak Q3.
Labour market remains resilient.
In the coming months inflation will fall.
Most measures of underlying inflation are starting to fall.
The risks to economic growth are tilted to the downside.
We will continue to follow a data dependent model and stand ready to adjust all our instruments.
Some governors would have preferred to pause and wait on more data.
A 'solid majority' agreed with the decision.
Three quarters of the rise in the 2024 rise in inflation is due to carry-over from 2023.
We didn't discuss how long we will leave rates at these levels; we will continue to be data dependent.
We are not saying that we're now at the peak, we can't say that now.
The focus is expected to move towards duration.
Policy transmission is faster than previous cycles.
We are going through a phase of very sluggish growth.
We see weak signs.

The US Jobless Claims beat expectations across the board:

Initial Claims 220K vs. 225K expected and 217K prior (revised from 216K).
Continuing Claims 1688K vs. 1695K expected and 1684K prior (revised from 1679K).

The US Retail Sales beat expectations with some downward revisions to the prior figures:

Retail sales M/M 0.6% vs. 0.2% expected and 0.5% prior (revised from 0.7%).
Retail Sales Y/Y 2.5% vs. 2.6% prior (revised from 3.2%).
Retail Sales Ex-autos 0.6% vs. 0.4% expected and 1.0% prior.
Control group 0.1% vs. -0.1% expected and 0.7% prior (revised from 1.0%).
Retail sales ex gas and autos 0.2% vs. 0.7% prior (revised from 1.0%).

The US August PPI surprised to the upside on the headline readings, but the core measures were in line with forecasts:

PPI Y/Y 1.6% vs. 1.2% expected and 0.8% prior.
PPI M/M 0.7% vs. 0.4% expected and 0.4% prior (revised from 0.3%).
Core PPI Y/Y 2.2% y/y vs. 2.2% expected and 2.4% prior.
Core PPI M/M 0.2% vs. 0.2% expected and 0.4% prior (revised from 0.3%).

Friday:

The New Zealand Manufacturing PMI for August fell further into contraction:

46.1 vs. 46.6 prior.

The PBoC kept the MLF rate unchanged at 2.5% as expected but cut the 14-day reverse repo rate by 20 bps from 2.15% to 1.95%.

Chinese activity data surprised to the upside:

Retail Sales Y/Y 4.6% vs. 3.0% and 2.6% prior.
Industrial Production Y/Y 4.5% vs. 3.9% and 3.7% prior.
Unemployment rate 5.2% vs. 5.3% expected and 5.3% prior.

Comments from the National Bureau of Statistics (NBS):

In August, major indicators showed marginal improvement.
National economy showed good momentum of recovery.
Domestic demand remains insufficient.

ECB’s Lagarde (neutral – voter) didn’t push back on yesterday’s hint on the end of the tightening cycle:

We will return to 2% inflation target.
To set rates at restrictive level as long as needed for that.
Eurozone will not grow as much as expected earlier but should pick up in 2024.
Weaker growth does not mean recession.
What we do next on rates will be on a data-dependent basis.
We have not discussed rate cuts.

ECB’s Kazaks (hawk – voter) basically confirmed that the ECB has reached its terminal rate:

Latest monetary policy move was not a 'dovish hike'.
It does not preclude future decisions.
Comfortable with current level of rates.
Sees inflation target being reached in 2H 2025.
April rate cut would be inconsistent with ECB's macro scenario.

The US Industrial Production for August beat expectations:

Industrial Production M/M 0.4% vs. 0.1% expected and 0.7% prior (revised from 1.0%).

Industrial Production Y/Y 0.2% vs. 0.0% prior (revised from -0.2%)

Capacity utilization 79.7% vs. 79.3% expected and 79.5% prior (revised from 79.3%).

The University of Michigan Consumer Sentiment survey missed forecasts across the board with inflation expectations falling even after the rise in energy prices:

Consumer Sentiment 67.7 vs. 69.1 expected and 69.5 prior.
Current conditions 69.8 vs. 75.3 expected and 75.7 prior.
Expectations 66.3 vs 66.0 expected and 65.5 prior.
1-year inflation 3.1% vs. 3.5% prior.
5-10 year 2.7% vs. 3.0% prior.

The highlights for next week will be:

Monday: NZ Services PMI, US NAHB Housing Market Index.
Tuesday: RBA Meeting Minutes, Canada CPI, US Building Permits and Housing Starts.
Wednesday: PBoC LPR, UK CPI, BoC Summary of Deliberations, FOMC Policy Decision.
Thursday: NZ GDP, SNB Policy Decision, BoE Policy Decision, US Jobless Claims.
Friday: Japan CPI, BoJ Policy Decision, UK Retail Sales, Canada Retail Sales, Flash PMIs for AU, JP, UK, EZ, US.

That’s all folks, have a great weekend!