Monday:
The PBoC cut the 1-year LPR rate by less than expected and held the 5-year rate steady:
- LPR 1-year 3.45% vs. 3.40% expected and 3.55% prior.
- LPR 5-year 4.20% vs. 4.05% expected and 4.20% prior.
The German July PPI missed expectations:
- PPI M/M -1.1% vs. -0.2% expected and -0.3% prior.
- PPI Y/Y -6.0% vs. -5.1% expected and 0.1% prior.
Tuesday:
Fed’s Barkin (hawk- non voter) dismissed the moves in the bond market and left the door open for a rate hike in September if the economy shows too much strength:
- If the US has a recession, it would likely be less severe one.
- Try not to focus too much on short-term market moves.
- Fed needs to achieve 2% target to ensure its credibility.
- Accounting for implications of work-from-home still has a way to go.
- Credit card debt is basically on-trend from before the pandemic.
- Balance sheet normalization is a 'background' policy at this point.
- Consumer spending and economic strength make it possible US economy could re-accelerate before inflation cools.
- Won't pre-judge the outcome of the September FOMC meeting.
- If inflation remains high and demand gives 'no signal' it is likely to drop, that would require tighter monetary policy.
- Recent moves in bond yields not a sign of 'inappropriate' market tightening, likely a response to strong economic data.
Wednesday:
The New Zealand Q2 Retail Sales beat expectations although the figures were all negative:
- Retail Sales Q/Q -1.0% vs. -2.6% expected and -1.4% prior.
- Retail Sales Y/Y -3.5% vs. 3.1% expected and -4.1% prior.
- Retail Sales ex-autos -1.8% vs. -2.5% expected and -1.1% prior.
Wednesday was the PMIs day where we got lots of misses notably on the Services side:
- Australia Manufacturing PMI 49.4 vs. 49.6 expected and 49.6 prior.
- Australia Services PMI 46.7 vs. 47.9 expected and 47.9 prior.
- Japan Manufacturing PMI 49.7 vs. 49.5 expected and 49.6 prior.
- Japan Services PMI 54.3 vs. 53.9 expected and 53.8 prior.
- France Manufacturing PMI 46.4 vs. 45.0 expected and 45.1 prior.
- France Services PMI 46.7 vs. 47.5 expected and 47.1 prior.
- Germany Manufacturing PMI 39.1 vs. 38.7 expected and 38.8 prior.
- Germany Services PMI 47.3 vs. 51.5 expected and 52.3 prior.
- Eurozone Manufacturing PMI 43.7 vs. 42.6 expected and 42.7 prior.
- Eurozone Services PMI 48.3 vs. 50.5 expected and 50.9 prior.
- UK Manufacturing PMI 42.5 vs. 45.0 expected and 45.3 prior.
- UK Services PMI 48.7 vs. 51.0 expected and 51.5 prior.
- US Manufacturing PMI 47.0 vs. 49.3 expected and 49.0 prior.
- US Services PMI 51.0 vs. 52.3 expected and 52.3 prior.
Nvidia, which is the backbone of the AI-inspired rally, reported its quarterly earnings and it just crushed the expectations with insane numbers. Nevertheless, the stock erased the gains following the earnings report and the Nasdaq fell by more than 3% in a single day. Sign of a top?
Thursday:
The US Jobless Claims beat expectations with no sign of a deteriorating labour market yet:
- Initial Claims 230K vs. 240K expected and 240K prior (revised from 239K).
- Continuing Claims 1702K vs. 1708K expected and 1711K prior (revised from 1716K).
Fed’s Harker (neutral – voter) repeats that they probably have done enough on interest rates and they can hold steady into the next year:
- We are seeing an uptick in labour productivity.
- The low income consumer is clearly slowing down.
- Consumer credit card delinquencies are starting to tick up.
- Repeats that they probably have done enough on interest rates, wants to see where demand settles out.
- Student loans won't have a big economic effect but it will be a psychological effect.
- I want to see softening in the labour market, notably in the services sector.
- At this point, I see the Fed holding steady this year while next year is data driven.
- Need to see inflation falling before would be willing to cut rates.
ECB’s Centeno (dove – voter) calls for caution at the next meeting as downside risks to the economy have materialised:
- We have to be cautious at the next meeting.
- Transmission of policy is up and running.
- ECB has been data dependent on decisions.
- Plenty of data still to come ahead of September decision.
- Downside risks to the economy have materialized.
Fed’s Collins (neutral – non voter) acknowledged that they may be near a place where they can hold rates steady but added also that more rate hikes are possible:
- At this stage it's appropriate to be patient.
- Doesn't think it's helpful to designate a pre-set path.
- We may be near a place where we can hold rates.
- It's likely that we will need to hold for a substantial period of time.
- More Fed rate hikes are possible.
- Hasn't seen as much progress as hoped in core-services ex-housing.
- Housing is a big challenge for the economy.
- Mindful about how an easing in inflation would affect the policy stance.
Friday:
ECB’s Nagel (hawk – voter) remains very resolute on inflation fighting and suggests that it’s too early to think about a pause:
- European labour market is strong.
- Much too early to think about a rate-hike pause.
- ECB must be stubborn on policy, more stubborn than inflation is.
The Tokyo CPI, which is seen as a leading indicator for National CPI, missed expectations although the core-core reading reached a new high:
- Tokyo CPI Y/Y 2.9% vs. 3.0% expected and 3.2% prior.
- Tokyo CPI ex-Fresh Food Y/Y 2.8% vs. 2.9% expected and 3.0% prior.
- Tokyo CPI ex- Food and Energy 2.6% vs. 2.5% prior.
ECB’s Vujcic (hawk – voter) said that inflation has most likely peaked, and they need to see whether rates are restrictive enough to bring it back to their 2% inflation target:
- Eurozone economy is basically stagnating.
- Inflation has most likely peaked.
- Need to see whether rates are restrictive enough.
German August IFO Business Climate Index missed expectations as the Europe’s largest economy keeps on weakening:
- Business Climate Index 85.7 vs. 86.7 expected and 87.4 prior (revised from 87.3).
- Current Conditions 89.0 vs. 90.0 expected and 91.4 prior (revised from 91.3).
- Outlook 82.6 vs. 83.8 expected and 83.6 prior (revised from 83.5).
The Final July University of Michigan Consumer Sentiment was lower than the preliminary figures across the board with inflation expectations ticking higher:
- Consumer Sentiment 69.5 vs. 71.2 expected and 71.6 prior.
- Current Conditions 75.7 vs. 77.4 expected and 76.6 prior.
- Expectations 65.5 vs. 67.3 expected and 68.3 prior.
- 1 year Inflation Expectations 3.5% vs. 3.3% expected and 3.4% prior.
- 5–10 year Inflation Expectations 3.0% vs. 2.9% expected and 3.0% prior.
Fed Chair Powell (neutral – voter) delivered his remarks at the Jackson Hole Symposium, and he basically repeated the same old stuff i.e. the Fed is data dependent and all options are on the table. There’s a particular focus on the labour market and to me it looks like the Fed is no longer targeting inflation, but the labour market:
- We are prepared to raise rates further if appropriate, will proceed carefully.
- We will decide next move based on data.
- Fed will proceed 'carefully' when deciding to hike again or hold steady.
- Fed attentive to signs economy not cooling as expected.
- Economic uncertainty calls for 'agile' monetary policy making.
- Inflation remains too high.
- Two months of good data are only the beginning of what we need to see to build confidence on inflation path.
- Policy is restrictive but Fed can't be certain what neutral rate level is.
- Fed will not change 2% target.
- Lowering inflation also likely to require a softer labour markets.
- Signs job market not cooling could also warrant more Fed action.
- There is evidence that inflation has become more responsive to labour market tightness than was the case in recent decades. These changing dynamics may or may not persist, and this uncertainty underscores the need for agile policymaking.
- We will keep at it until the job is done.
Fed’s Harker (neutral – voter) just repeated what he said previously:
- He doesn't see the need for more hikes now.
- Hold rates steady and see how economy develops.
- If inflation retreat stalls, it could call for more hikes.
- Doubt rate cuts are on the table until next year at some point.
Fed’s Mester (hawk – non voter) remains firmly hawkish as she doesn't even see rate cuts for next year:
- We have to be very diligent about this.
- We don't want to be satisfied because inflation remains too high.
- We've had stronger underlying momentum since June forecasts.
- We've made progress on inflation.
- Core inflation over 4% is still too high.
- Notes she doesn't have cuts built in for next year but will watch the data.
- It was 'very good' to see the recent numbers on inflation but need to see more.
- It's very likely that we will need below-trend growth to get inflation under control.
- Labor market is stronger than I would have anticipated given rates, but pandemic effects are working their way through.
- We probably still have more work to do.
The highlights for next week will be:
- Monday: UK Bank Holiday, Australian Retail Sales.
- Tuesday: Japan Unemployment Rate, US Consumer Confidence, US Job Openings.
- Wednesday: US ADP.
- Thursday: Japan Retail Sales, Chinese PMIs, Eurozone CPI, Eurozone Unemployment Rate, US Jobless Claims, US Core PCE.
- Friday: Swiss CPI, US NFP, US ISM Manufacturing PMI.
That’s all folks, have a great weekend!
