Weekly Market Recap (22-26 January)

<p>Monday</p><p>The PBoC left the
LPR rates unchanged as expected:</p><ul><li>3.45% for the one year.</li><li>4.20% for the five year.</li></ul><p>The US Leading
Economic Index (LEI) fell by less than expected:</p><ul><li>LEI -0.1% vs. -0.3%
expected and -0.5% prior.</li></ul><p>From the Conference
Board: “The US LEI fell slightly in December, continuing to signal
underlying weakness in the US economy. Despite the overall decline, six out of
ten leading indicators made positive contributions to the LEI in December.
Nonetheless, these improvements were more than offset by weak conditions in
manufacturing, the high interest-rate environment, and low consumer confidence.
As the magnitude of monthly declines has lessened, the LEI’s six-month and
twelve-month growth rates have turned upward but remain negative, continuing to
signal the risk of recession ahead.”</p><p>Tuesday</p><p>The New Zealand
December Services PMI fell back into contraction:</p><ul><li>Services PMI 48.8
vs. 51.2 prior. </li><li>Long-term average is
53.4.</li></ul><p>BNZ Comments: “The
softening in the PSI, alongside the weakness in the PMI, is bad news for both
near term growth and employment in New Zealand. Tourism has been a key driver
of the services sector and will continue to support the economy, but it can’t
do all the heavy lifting by itself”.</p><p>The BoJ left
interest rates and the YCC setting unchanged as expected:</p><ul><li>Short-term interest
rate target -0.1%.</li><li>10-year bond yield
around 0% with 1% as a reference cap. </li><li>Makes no changes to
forward guidance on monetary policy.</li></ul><p>No
change to core-core inflation forecasts:</p><ul><li>Core-core CPI fiscal
2023 median forecast at 3.8 vs. 3.8% forecast in the October Outlook
Report.</li><li>Core-core CPI fiscal
2024 median forecast at 1.9% vs. 1.9% in October.</li><li>Core-core CPI fiscal
2025 median forecast at 1.9% vs. 1.9% in October.</li></ul><p>But core forecasts trimmed:</p><ul><li>Core CPI fiscal 2023
median forecast at 2.8% vs. 2.8% in October.</li><li>Core CPI fiscal 2024
median forecast at 2.4% vs. 2.8% in October.</li><li>Core CPI fiscal 2025
median forecast at 1.8% vs. 1.7% in October.</li></ul><p>GDP forecasts:</p><ul><li>FY 2023 1.8% vs. 2.0% in October. </li><li>FY 2024 1.2% vs. 1.0% in October. </li><li>FY 2025 1.0% vs. 1.0% in October. </li></ul><p>BoJ quarterly report: </p><ul><li>Risks to economic
activity generally balanced.</li><li>Need to closely
monitor whether virtuous cycle between wages and prices will intensify.</li><li>Will continue with
QQE with YCC as long as needed.</li><li>Won't hesitate to
take additional easing steps if needed.</li><li>BoJ will patiently
continue with monetary easing while nimbly responding to developments.</li><li>Japan's financial
system has maintained stability on the whole.</li></ul><ul><li>Uncertainty remains
but likelihood of achieving sustained 2% inflation continues to gradually
heighten.</li><li>Japan's economy
likely to continue recovering moderately.</li><li>Must be vigilant to
financial, FX market moves and their impact on Japan’s economy, prices.</li><li>Inflation expectations gradually heightening.</li><li>Core consumer
inflation moving below 2.5%, partly reflecting moderate rise in service
prices.</li><li>Consumption
continues to rise moderately.</li><li>Inflation likely to
gradually accelerate toward BoJ's target through end of projected period
in quarterly report.</li><li>Japan's output gap
improving, likely to gradually expand ahead.</li><li>Medium and long-term
inflation expectations heightening gradually.</li><li>Positive cycle of
rising wages, inflation to strengthen.</li></ul><p>Moving on to the
Governor Ueda Press Conference:</p><ul><li>Likelihood of
achieving 2% inflation target is gradually rising.</li><li>Japanese economy to
gradually pick up moving forward.</li><li>Must carefully watch
financial, FX market moves and their impact on prices.</li><li>Will not hesitate to
take additional easing measures if necessary.</li><li>Heard encouraging
comments from big firms on wage hikes.</li><li>Closely watching the
outcome of the spring wage negotiations.</li><li>Want to confirm
virtuous cycle of wages and prices is in place.</li><li>Economy is
progressing in line with our forecast.</li><li>Our confidence has
grown in the achievement of price target.</li><li>This confirms
economy is proceeding based on existing price outlook.</li><li>There is no change
in our stance to carefully examine price trends.</li><li>Cannot fully grasp
impact of earthquakes in Western Japan region just yet.</li><li>Uncertainty is still
high about how widespread wage hikes will be.</li><li>But it is not as
high as uncertainty seen last year.</li><li>Can't deny side
effects to negative interest rate policy.</li><li>Will foresee further
rate hikes when exiting negative interest rate policy.</li><li>More firms have
decided on wage hikes this year compared to last year.</li></ul><p>Following the free fall
in the stock market, Bloomberg reported on Tuesday, citing people familiar with
the matter that Chinese policymakers are seeking to mobilise about 2 trillion
yuan ($278.53 billion), mainly from the offshore accounts of Chinese
state-owned enterprises, as part of a stabilisation fund to buy shares onshore
through the Hong Kong exchange link. Bloomberg said Chinese officials have
allotted at least 300 billion yuan of local funds to invest in onshore shares
through China Securities Finance Corp or Central Huijin Investment Ltd. They
are also weighing other options and may announce some of them as soon as this
week if approved by the top leadership of the country, according to the report.
</p><p>Wednesday</p><p>The New Zealand Q4 CPI
came in line with expectations:</p><ul><li>CPI Q4 Y/Y 4.7% vs. 4.7%
expected and 5.6% prior.</li><li>CPI Q4 Q/Q 0.5% vs. 0.5%
expected and 1.8% prior. </li></ul><p>The Australian
Manufacturing and Services PMIs improved in January:</p><ul><li>Manufacturing PMI 50.3
vs. 47.6 prior.</li><li>Services PMI 47.9
vs. 47.1 prior.</li></ul><p>The Japanese
Manufacturing and Services PMIs improved in January:</p><ul><li>Manufacturing PMI
48.0 vs. 47.9 prior.</li><li>Services PMI 52.7
vs. 51.5 prior.</li></ul><p>The PBoC Governor Pan delivered some supporting
remarks and announced a 50 bps RRR cut (the last two RRR cuts in 2023 were both
of 25 bps):</p><ul><li>Will use various
policy tools to keep liquidity reasonably ample.</li><li>Will keep yuan
exchange rate basically stable.</li><li>Will steadily
promote yuan internationalisation.</li><li>Financial risks are
generally under control.</li><li>Monetary policy is
mainly based on domestic conditions.</li><li>There is still
sufficient room for monetary policy.</li><li>China's economy
faces some difficulties, but there are also positive factors.</li></ul><p>The Eurozone January Manufacturing PMI beat
expectations while the Services PMI missed forecasts:</p><ul><li>Manufacturing PMI
46.6 vs. 44.8 expected and 44.4 prior.</li><li>Services PMI 48.4
vs. 49.0 expected and 48.8 prior.</li></ul><p>The UK Manufacturing and
Services PMIs beat expectations in January:</p><ul><li>Manufacturing PMI
47.3 vs. 46.7 expected and 46.2 prior.</li><li>Services PMI 53.8
vs. 53.2 expected and 53.4 prior.</li></ul><p>The US Manufacturing and
Services PMIs beat expectations in January:</p><ul><li>Manufacturing PMI
50.3 vs. 47.9 expected and 47.9 prior.</li><li>Services PMI 52.9
vs. 51.0 expected and 51.4 prior.</li></ul><p>The BoC left interest
rates unchanged at 5.00% as expected and dropped the language about being
prepared to hike if needed:</p><ul><li>Still concerned
about risks to the outlook for inflation, particularly the persistence
in underlying inflation.</li><li>Statement no longer
says it "remains prepared to raise the policy rate further if
needed".</li><li>The Canadian economy
stalled since the middle of 2023 and growth will likely remain close to
zero through the first quarter of 2024.</li><li>Economic growth is
expected to strengthen gradually around the middle of 2024.</li><li>BoC forecasts GDP
growth of 0.8% in 2024.</li><li>BoC expects
inflation to remain close to 3% during the first half of this year before
gradually easing, returning to the 2% target in 2025.</li><li>Core measures of
inflation are not showing sustained decline.</li><li>Consumers have
pulled back their spending in response to higher prices and interest rates.</li><li>Economy now looks to
be operating in modest excess supply.</li><li>Labour market
conditions have eased, with job vacancies returning to near pre-pandemic levels
and new jobs being created at a slower rate than population growth.</li><li>Growth in the United
States has been stronger than expected but is anticipated to slow in 2024.</li><li>Inflation rates in
most advanced economies are expected to come down slowly, reaching central
bank targets in 2025.</li><li>Forecast for 2.8%
inflation this year is down from 3.0% in October.</li><li>There was a clear
consensus to maintain our policy rate at 5%.</li><li>We are trying to
balance the risks of over- and under-tightening.</li><li>We need to see
further and sustained easing of core inflation.</li></ul><p>Moving on to the Governor
Macklem Press Conference:</p><ul><li>We are not
forecasting a deep recession.</li><li>We don't need to
think that we need to get a recession to get inflation back to target.</li><li>Inflation is still
somewhat broad-based. That we become the persistence of underlying
inflation.</li><li>It's important that
we don't give Canadians a false sense of precision as regards to timing of
a rate cut.</li><li>Risk of a rate hike
is not at 0%, but raising rates is not the base case.</li><li>We are at a point
where there is a lot of push and pull. There are mixed signals. When have
confidence we will open the door toward easing policy. </li><li>Need more progress
on inflation before discussing cutting rates.</li><li>Asked if anyone
wanted to cut, said the focus was 'very much on holding'.</li><li>Repeats there was a
'clear consensus' to hold.</li><li>Our latest forecasts
have increased our confidence that we've raised rates enough.</li><li>We're concerned
about persistence in underlying inflation.</li><li>It's premature to
discuss reducing our policy rate.</li><li>We need to see more
progress on inflation before having a discussion about cutting rates.</li><li>On QT, will take it
one decision at a time; we're still 'some ways' from too tight.</li><li>We're trying to
balance the risks of too-high rates with too-low rates.</li><li>We need to give
monetary policy "a bit more time" to let it do its work.</li></ul><p>Thursday</p><p>The Federal Reserve announced
that its bank term funding program will cease making new loans as scheduled on
March 11. The central bank adjusted interest rate on new BTFP loans to be no
lower than interest rate on reserve balances on day loan was made. The new
rate on BTFP loans effectively increases rate by nearly 50 bps; change is
effective immediately. Says change to BTFP rate ensures the program
continues to support its goals in current rate environment. </p><p>The German January IFO
Business Climate Index missed expectations:</p><ul><li>IFO 85.2 vs. 86.7
expected and 86.3 prior (revised from 86.4).</li><li>Current conditions
87.0 vs. 88.6 expected and 88.5 prior.</li><li>Outlook 83.5 vs.
84.8 expected and 84.2 prior (revised from 84.3).</li></ul><p>The ECB left interest
rates unchanged at 4.00% as expected:</p><ul><li>Incoming
information has broadly confirmed previous assessment of the medium-term
inflation outlook.</li><li>Aside from an energy-related upward base effect on headline inflation,
the declining trend in underlying inflation has continued.</li><li>Tight
financing conditions are dampening demand, and this is helping to push down
inflation.</li><li>Future
decisions will ensure that policy rates will be set at sufficiently restrictive
levels for as long as necessary.</li><li>Stands
ready to adjust all of its instruments within its mandate to ensure that
inflation returns to its 2% target over the medium-term.</li><li>Based on current assessment, interest rates are at levels that,
maintained for a sufficiently long duration, will make a substantial
contribution to this goal.</li><li>Intends
to continue to reinvest, in full, principal payments from maturing securities
purchased under PEPP during 1H 2024.</li></ul><p>Moving on to President
Lagarde Press Conference:</p><ul><li>Risks to economic
data remain tilted to the downside.</li><li>Economy likely
stagnated in Q4.</li><li>Some surveys point
to a pickup in 2024.</li><li>Demand for labour is
slowing.</li><li>Upside risks to
inflation include heightened geopolitical tensions, including in Middle
East.</li><li>Market interest
rates have moved broadly sideways since our last meeting.</li><li>We are determined to
ensure inflation returns to our 2% target in a timeline manner.</li><li>We will continue to
follow a data-dependent approach.</li><li>The consensus was
that it was premature to discuss rate cuts.</li><li>I stand by my
comments (regarding possible summer rate cuts).</li><li>We are data dependent,
not date-dependent.</li><li>We're watching
shipping cost increases and delays.</li><li>Seeing some
stabilization in wage tracker.</li><li>Seeing slight
reduction of vacancies advertised.</li><li>Wage growth is
already declining.</li><li>Not seeing second
round effects.</li><li>We are trying to be
a little simpler in our words, so don't pay too much attention to word
changes in our statement.</li><li>80% of our survey
respondents say they are happy to work at the ECB.</li><li>I'm honoured to lead
the ECB.</li><li>It's often said that
wage data is backwards looking.</li><li>PMI numbers are a
small signal of stabilization and that a pickup is coming into place.</li><li>In terms of data,
we're seeing hard data that's weak (notes industrial production and retail
sales). If we look at PMIs, we're seeing some encouraging numbers.</li></ul><p>The US Advance Q4 GDP
beat expectations:</p><ul><li>Q4 GDP 3.3% vs. 2.0%
expected.</li><li>Consumer spending 2.8% vs. 3.1% prior.</li><li>Consumer spending on
durables 4.6% vs. 6.7% prior.</li><li>GDP final sales 3.2%
vs. 3.6% prior.</li><li>GDP deflator 1.5%
vs. 2.3% expected and 3.3% prior.</li><li>Core PCE 2.0% vs.
2.0% expected and 2.0% prior.</li><li>Business investment 2.1% vs. 10.0% prior.</li></ul><p>The US Jobless Claims
missed expectations across the board:</p><ul><li>Initial Claims 214K
vs. 200K expected and 189K prior (revised from 187K).</li><li>Continuing Claims
1833K vs. 1828K expected and 1806 prior. </li></ul><p>Friday</p><p>The Tokyo January CPI saw
all the measures easing further:</p><ul><li>CPI Y/Y 1.6% vs. 2.4%
prior.</li><li>Core CPI Y/Y 1.6%
vs. 1.9% expected and 2.1% prior.</li><li>Core-Core CPI Y/Y 2.2% vs. 2.7% prior.</li></ul><p>ECB’s Vujcic (hawk –
voter) seemed to suggest that he prefers to wait patiently for clear signs and
if something breaks before that they can always cut more aggressively:</p><ul><li>There was no dovish
tilt on Thursday.</li><li>It is possible to cut
rates later but with bigger steps.</li><li>Personally prefer 25
bps rate cuts to begin with though.</li><li>Economy is more in a
stagnation phase rather than recession.</li><li>The overall picture
is good at the moment.</li></ul><p>ECB’s Simkus (hawk –
voter) shared his scepticism on market’s expectations:</p><ul><li>I am confident that
the data will not support a rate cut in March.</li><li>Rate cuts will be
more likely as the year progresses.</li><li>We are still less
optimistic than markets are on rate cuts at the moment.</li></ul><p>ECB’s Kazaks (hawk –
voter) continues to support a patient approach:</p><ul><li>Confident about
monetary policy but preaches patience for now.</li><li>Interest rates
should start to go down.</li><li>But ECB is in no
rush to begin the process for now.</li><li>Cutting rates too
early would be by all mean worse than waiting just a bit.</li><li>There’s the risk
that inflation starts to come back and then one would need to raise rates
much more.</li></ul><p>The US December PCE came
in line with expectations:</p><ul><li>PCE Y/Y 2.6% vs.
2.6% expected and 2.6% prior.</li><li>PCE M/M 0.2% vs. 0.2%
expected and -0.1% prior.</li><li>Core PCE Y/Y 2.9%
vs. 3.0% expected and 3.2% prior.</li><li>Core PCE M/M 0.2% vs.
0.2% expected and 0.1% prior.</li></ul><p>Consumer
spending and income:</p><ul><li>Personal income 0.3%
vs. 0.3% expected and 0.4% prior.</li><li>Personal spending 0.7%
vs. 0.4% expected and 0.4% prior (revised from 0.2%).</li><li>Real personal
spending 0.5% vs. 0.5% prior (revised from 0.3%).</li></ul><p>The highlights for next
week will be:</p><ul><li>Tuesday: Japan Unemployment
Rate, Eurozone Q4 GDP, US Job Openings, US Consumer Confidence.</li><li>Wednesday: BoJ Summary of
Opinions, Japan Industrial Production and Retail Sales, Australia CPI, Chinese
PMIs, Switzerland Retail Sales, US ADP, Canada GDP, US ECI, FOMC Policy
Decision.</li><li>Thursday: China Caixin
Manufacturing PMI, Switzerland Manufacturing PMI, Eurozone CPI, Eurozone
Unemployment Rate, BoE Policy Decision, US Challenger Job Cuts, US Jobless
Claims, Canada Manufacturing PMI, US ISM Manufacturing PMI.</li><li>Friday: Australia PPI, US NFP.</li></ul><p>That’s all folks. Have a
nice weekend!</p>

This article was written by Giuseppe Dellamotta at www.forexlive.com.