Weekly Market Recap (07-11 August)

<p>Monday:</p><p>Fed’s Bowman (hawk
– voter) delivered hawkish comments over the weekend as she leans towards more
rate hikes:</p><ul type="disc"><li>We should remain
willing to raise rates at a future meeting if data show inflation progress
has stalled.</li><li>In considering
further rate hikes and how long to keep rates restrictive, consistent
drops in inflation will be looked for.</li><li>Additional U.S.
interest-rate increases will be needed.</li><li>Monetary policy is not
on a preset course.</li><li>Slowing consumer
spending and loosening in labour market conditions will be watched for.</li><li>Recent decline in
core inflation is a 'positive' sign, but inflation remains well above
target.</li><li>Demand for workers
exceeds supply, adding upward pressure on prices.</li><li>No signs of sharp
credit contraction from March banking turmoil.</li><li>Will be looking for
evidence that inflation is on a “consistent and meaningful” downward path
in making decisions.</li><li>Inflation still
significantly above 2% target.</li></ul><p>The BoJ released
its latest Summary of Opinions from the last monetary policy meeting on July 27th/28th:</p><ul type="disc"><li>One member said BOJ
needs to patiently continue with monetary easing toward achieving the
price stability target.</li><li>One member said
there is still a significantly long way to go before revising the negative
interest rate policy, and the framework of yield curve control needs to be
maintained.</li><li>One member said
strictly capping 10-year Japanese Government Bond (JGB) yields at the 0.5
percent level could affect the functioning of bond markets and the
volatility in other financial markets.</li><li>One member said
given that there are increasingly significant upside and downside risks to
the outlook for prices, it is appropriate for the bank to conduct yield
curve control with greater flexibility in order to respond to these risks.</li><li>One member said the
bank should conduct yield curve control with greater flexibility and
thereby make preparations, so that it can successfully continue with
monetary easing while nimbly responding to both upside and downside risks.</li><li>One member said
until the likelihood of achieving the price stability target rises
sufficiently, the bank needs to maintain yield curve control while
conducting it with greater flexibility.</li><li>One member said to
ensure monetary easing can be continued smoothly for as long as needed, it
is desirable to increase flexibility of yield curve control to a certain
extent in advance while it is able to do so without turmoil.</li><li>One member said
achievement of 2% inflation in a sustainable and stable manner seems to
have clearly come in sight.</li><li>One member said
while conducting yield curve control with greater flexibility as a
preventive measure against future risks, the bank should maintain its
basic stance that it will continue with monetary easing.</li><li>One member said
allowing to some extent a rise in long-term interest rates in response to
the price environment will make real interest rates stable and enable BOJ
to contain side-effects.</li><li>One member said it
is appropriate for BOJ to conduct monetary policy that is designed to give
consideration to market functioning while maintaining accommodative
financial conditions.</li><li>One member said in
conducting yield curve control with greater flexibility, it is important
to let rates be determined by markets as much as possible, prevent sharp
fluctuations in rates.</li><li>MOF rep said govt
considers that the proposals made at this MPM are aimed at enhancing the
sustainability of monetary easing.</li><li>MOF rep said govt
expects BOJ to conduct appropriate monetary policy toward achieving price
stability target in a sustainable and stable manner while closely
cooperating with govt.</li><li>Cabinet Office rep
said BOJ must carefully explain to the public its intention regarding
changes proposed at this meeting.</li><li>One member said as
signs of change have been seen in firms' wage- and price-setting
behaviour, close monitoring is warranted on their effects on prices.</li><li>One member said
determining whether wage hikes will continue next year will be a key
issue.</li><li>One member said
prices could deviate upward from BOJ's baseline scenario as firms' moves
to pass on cost increases become widespread.</li></ul><p>Fed’s Collins
(neutral – non voter) said that her read of the data so far says that they are
near or perhaps at a sufficiently restrictive level of monetary policy to hold
for some time. </p><p>The Switzerland
July seasonally adjusted unemployment rate printed at 2.1% vs. 2.0% expected
and 2.0% prior. </p><p>Fed’s Williams
(neutral – voter) deviated from the Fed’s “higher for longer” stance hinting to
cuts in early 2024 IF the data supports such a move:</p><ul type="disc"><li>Inflation is coming
down as hoped.</li><li>Expects unemployment
to rise slightly as the economy cools, personally sees unemployment rate rising
above 4% next year.</li><li>Does not rule out
possibility of lowering rates in early 2024.</li><li>It all depends on
the economic data.</li></ul><p>BoE’s Pill (hawk – voter) just mentioned that there are risks on both sides
for UK inflation:</p><ul type="disc"><li>Risk inflation may
fall below target in years.</li><li>There are also risks
the UK hasn't raised rates enough.</li><li>There are risks on
both sides of UK inflation.</li><li>Food inflation is
longer-lasting than past spikes.</li><li>Food price inflation
will fall to 10% this year.</li></ul><p>Tuesday:</p><p>Japan overall labour cash
earnings for June printed at 2.3% vs. 2.9% prior, while overtime pay showed an
increase of 2.3% vs. 0.5% last month. The yen weakened following the release as
the BoJ placed a great emphasis on wage growth in determining their monetary policy.
</p><p>Moody's announced a
number of regional bank downgrades which coupled with the Chinese data later
may have weighed on risk sentiment for most of the day.</p><p>Chinese Exports and Imports data missed expectations by a big margin
causing some risk off sentiment across the board:</p><ul><li>Exports Y/Y fell -14.5% vs. -12.5% expected (previous -12.4%).</li><li>Imports Y/Y fell -12.4% vs. -5.0% expected (previous -6.8%).</li></ul><p>Fed’s Harker (neutral –
voter) said that he believes the Fed is at a point where they can hold rates
steady barring “alarming” new data before September:</p><ul type="disc"><li>Barring “alarming”
new data by mid-Sept, I believe we may be at the where we can be patient
and hold rates steady.</li><li>Should we be at the
point of holding rates steady, “we will need to be there for a while”.</li><li>Does not foresee any
consequences for an immediate easing of the policy rate.</li><li>Latest PCE report
showed continued disinflation.</li><li>Sees core PCE
falling just below 4% by year end and below 3% in 2024 and at target in
2025.</li><li>Expects unemployment
to “tick up slightly”.</li><li>Expects only a
modest slowdown.</li><li>I do see us on the
flight path to a soft landing we've all been hoping for.</li><li>Focused on the Oct 1
resumption of Federal student loan repayments.</li><li>We're going back to
a more-normal circumstance.</li><li>Fiscal stimulus is
burning off.</li><li>Supply chain issues
are starting to heal.</li><li>Our forecast is not
that inflation might spike back up.</li><li>We will probably
start cutting rates sometime next year.</li><li>We don't want to
overdo it on rates.</li></ul><p>Fed’s Barkin (hawk – non
voter) didn’t signal any preference for a pause:</p><ul><li>Inflation remains too high.</li><li>GDP remains solid and labour market is “remarkably resilient”.</li></ul><p>Wednesday: </p><p>China
July CPI Y/Y fell into deflation for the first time since February 2021:</p><ul><li>CPY Y/Y printed at -0.3%
vs. -0.4% expected and 0.0% prior. </li><li>CPI M/M was 0.2% vs.
-0.1% expected and -0.2% prior. </li><li>PPI Y/Y remained in
negative territory at -4.4% vs. -4.1% expected and -5.4% prior. </li></ul><p>As a reminder, the PBoC
said that it expects inflation to pick up in the second half of the year. </p><p>Thursday:</p><p>Japan PPI Y/Y rose the
least since March 2021 and it also market the 7th straight month of
slowdown in producer inflation:</p><ul><li>PPI Y/Y 3.6% vs. 3.5%
expected and 4.3% prior (revised from 4.1%).</li><li>PPI M/M 0.1% vs. 0.2%
expected and -0.1% prior (revised from -0.2%).</li></ul><p>The US CPI report showed
further disinflation with the Core readings looking good:</p><ul><li>CPI Y/Y 3.2% vs. 3.3%
expected and 3.0% prior.</li><li>CPI M/M 0.2% vs. 0.2%
expected and 0.2% prior.</li><li>Core CPI Y/Y 4.7% vs. 4.8% expected and 4.8% prior.</li><li>Core M/M 0.2% (0.16% unrounded) vs. 0.2% expected and 0.2% prior.</li></ul><p>The market is pricing
just a 10% chance of a hike in September and 27% in November. It’s worth
reminding though that the Fed will see another NFP and CPI report before the
September meeting.</p><p>The US Initial Claims
jumped to 248K vs. 230K expected and 227K prior, while Continuing Claims, which
lag Initial Claims by a week, printed at 1684K vs. 1710K expected and 1692K
prior (revised from 1700K).</p><p>Fed’s Daly (neutral – non
voter) acknowledged the good inflation data, but remained wary of the risks:</p><ul type="disc"><li>CPI data was as
expected, it's good news for families and businesses.</li><li>We are committed to
getting core inflation down.</li><li>There's a lot more
info coming in before September.</li><li>I see slowing in the
economy but we're not there yet.</li><li>It's still hard to
find workers, the economy isn't yet in balance.</li><li>Whether we need to
hike rates or hold them steady for a longer period, it's premature to
project, there is a lot of data left.</li><li>We've been watching
the data and asking “does anything we're seeing change the outlook”.</li><li>Today's inflation
data is a “good data point”.</li><li>If core services ex
housing doesn't come down and stalls, that's something I'm watching.</li><li>I'm going to hold
myself to data dependence.</li><li>
I would need to really gain confidence that the path of inflation is
completely downward. That's not food or energy prices, it's goods price
inflation, which is coming down.</li><li>If you look at new
leases and new rents, that's pulling things down.</li><li>We're going to be
watching supercore carefully, that's a big component of spending and it
hasn't made much progress so far, we need to see it come back to
pre-pandemic levels.</li><li>If demand slips
below supply, that would be a good indication we could cut rates.</li><li>We are a long way
from a conversation about rate cuts.</li></ul><p>Fed’s Bostic (dove – non
voter) just reaffirmed the Fed’s work about bringing down inflation:</p><ul><li>Fed has been working hard
to reduce too-high inflation.</li><li>I don't know how
persistent pandemic labour market changes will be.</li></ul><p>Friday:</p><p>New Zealand Manufacturing
PMI fell further into contraction:</p><ul><li>46.3 vs. 47.5 prior.</li></ul><p>This is the 5th
straight month of contraction.</p><p>RBA’s Lowe spoke before
the House of Representatives and his remarks sound like he’s comfortable
holding rates steady:</p><ul type="disc"><li>It is too early to declare victory on
inflation, but things are moving in the right direction.</li><li>The board is mindful that interest rates
have been increased by a large amount in a short period of time and that
there are lags in the operation of policy.</li><li>The board remains resolute in its
determination to return inflation to the 2-3 per cent target range.</li><li>Monetary policy is in restrictive
territory, and it is working to establish a better balance between supply
and demand.</li><li>Our central forecast is for CPI
inflation to be around 3,25 per cent by the end of next year and to be
back within the 2-3 per cent target range by late 2025.</li><li>It is possible that some further tightening
of monetary policy will be required to ensure that inflation returns to target
within a reasonable timeframe.</li><li>Recent data indicate that there has been
some easing in the labour market.</li><li>Whether or not this is the case will depend
upon the data and the board's evolving assessment of the outlook and risks.</li><li>We expect employment to continue to grow,
but below the rate of growth in the labour force.</li><li>It's encouraging that the recent data are
consistent with inflation returning to target over the next couple of
years.</li><li>The Australian economy is currently
experiencing a period of below-trend growth, and this is expected to
continue for a while yet.</li><li>Data are also consistent with the
Australian economy continuing to travel along that narrow path that I have
spoken about.</li><li>The bank’s central scenario is that
economic growth remains subdued for the rest of this year before gradually
picking up to around 2,25 per cent by end 2025.</li><li>Dwelling investment is expected to increase
again next year, after the recent difficulties in that sector.</li><li>Monetary policy is in restrictive territory.</li><li>Possible that some further tightening of
monetary policy will be required.</li><li>Board is seeking to establish a credible
path back to the inflation target over the next couple of years.</li><li>Board wants to have reasonable confidence
that inflation will return to target over the current forecast period.</li><li>It is a complicated picture and there are
scenarios in which consumption is weaker than our central case and others
in which it is stronger.</li><li>Risk that services price inflation may stay
high, prolonging the period of inflation being above target.</li><li>Board is seeking to establish a credible
path back to the inflation target over the next couple of years to
avoid a damaging shift in inflation expectations.</li><li>Worst is over for
inflation.</li><li>To get inflation to target in 2024 would
require substantially higher rates and not be in the national interest.</li><li>Understandable that community thinks peak
for rates is now or close at hand.</li></ul><p>UK Q2 Preliminary GDP
beat expectations:</p><ul><li>Q/Q reading 0.2% vs. 0.0%
expected and 0.1% prior.</li><li>Y/Y reading 0.4% vs. 0.2%
expected and 0.2% prior. </li></ul><p>The US PPI beat expectations
across the board:</p><ul><li>PPI Y/Y 0.8% vs. 0.7%
expected and 0.2% prior (revised from 0.1%).</li><li>PPI M/M 0.3% vs. 0.2%
expected and 0.0% prior (revised from 0.1%).</li><li>Core PPI Y/Y 2.4% vs.
2.3% expected and 2.4% prior.</li><li>Core PPI M/M 0.3% vs.
0.2% expected and -0.1% prior (revised from 0.1%).</li></ul><p>The University of
Michigan Consumer Sentiment Index beat slightly forecasts with inflation expectations
ticking lower:</p><ul><li>Consumer Sentiment 71.2
vs. 71.0 expected and 71.6 prior.</li><li>Current conditions 77.4
vs 76.9 expected and 76.6 prior.</li><li>Expectations 67.3 vs 68.1
expected and 68.3 prior.</li><li>1-year inflation 3.3% vs
3.4% prior.</li><li>5-10 year inflation 2.9% vs 3.0% prior.</li></ul><p>The
highlights for next week will be:</p><ul><li>Tuesday: Australia Wage Price
Index, China Industrial Production, UK Jobs Report, German ZEW, US Retail
Sales, Canada CPI, NAHB Housing Market Index.</li><li>Wednesday: RBNZ Policy Decision,
UK CPI, FOMC Meeting Minutes.</li><li>Thursday: Australia Jobs Report,
US Jobless Claims.</li><li>Friday: Japan CPI, UK Retail
Sales.</li></ul><p>That’s all folks, have a
great weekend!</p>

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