Weekly Market Recap (07-11 August) | Forexlive

Monday:

Fed’s Bowman (hawk
– voter) delivered hawkish comments over the weekend as she leans towards more
rate hikes:

• We should remain
  willing to raise rates at a future meeting if data show inflation progress
  has stalled.
• In considering
  further rate hikes and how long to keep rates restrictive, consistent
  drops in inflation will be looked for.
• Additional U.S.
  interest-rate increases will be needed.
• Monetary policy is not
  on a preset course.
• Slowing consumer
  spending and loosening in labour market conditions will be watched for.
• Recent decline in
  core inflation is a ‘positive’ sign, but inflation remains well above
  target.
• Demand for workers
  exceeds supply, adding upward pressure on prices.
• No signs of sharp
  credit contraction from March banking turmoil.
• Will be looking for
  evidence that inflation is on a “consistent and meaningful” downward path
  in making decisions.
• Inflation still
  significantly above 2% target.

The BoJ released
its latest Summary of Opinions from the last monetary policy meeting on July 27^th/28^th:

• One member said BOJ
  needs to patiently continue with monetary easing toward achieving the
  price stability target.
• 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.
• 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.
• 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.
• 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.
• 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.
• 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.
• One member said
  achievement of 2% inflation in a sustainable and stable manner seems to
  have clearly come in sight.
• 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.
• 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.
• 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.
• 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.
• MOF rep said govt
  considers that the proposals made at this MPM are aimed at enhancing the
  sustainability of monetary easing.
• 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.
• Cabinet Office rep
  said BOJ must carefully explain to the public its intention regarding
  changes proposed at this meeting.
• 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.
• One member said
  determining whether wage hikes will continue next year will be a key
  issue.
• One member said
  prices could deviate upward from BOJ’s baseline scenario as firms’ moves
  to pass on cost increases become widespread.

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.

The Switzerland
July seasonally adjusted unemployment rate printed at 2.1% vs. 2.0% expected
and 2.0% prior.

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:

• Inflation is coming
  down as hoped.
• Expects unemployment
  to rise slightly as the economy cools, personally sees unemployment rate rising
  above 4% next year.
• Does not rule out
  possibility of lowering rates in early 2024.
• It all depends on
  the economic data.

BoE’s Pill (hawk – voter) just mentioned that there are risks on both sides
for UK inflation:

• Risk inflation may
  fall below target in years.
• There are also risks
  the UK hasn’t raised rates enough.
• There are risks on
  both sides of UK inflation.
• Food inflation is
  longer-lasting than past spikes.
• Food price inflation
  will fall to 10% this year.

Tuesday:

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.

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.

Chinese Exports and Imports data missed expectations by a big margin
causing some risk off sentiment across the board:

• Exports Y/Y fell -14.5% vs. -12.5% expected (previous -12.4%).
• Imports Y/Y fell -12.4% vs. -5.0% expected (previous -6.8%).

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:

• Barring “alarming”
  new data by mid-Sept, I believe we may be at the where we can be patient
  and hold rates steady.
• Should we be at the
  point of holding rates steady, “we will need to be there for a while”.
• Does not foresee any
  consequences for an immediate easing of the policy rate.
• Latest PCE report
  showed continued disinflation.
• Sees core PCE
  falling just below 4% by year end and below 3% in 2024 and at target in
  2025.
• Expects unemployment
  to “tick up slightly”.
• Expects only a
  modest slowdown.
• I do see us on the
  flight path to a soft landing we’ve all been hoping for.
• Focused on the Oct 1
  resumption of Federal student loan repayments.
• We’re going back to
  a more-normal circumstance.
• Fiscal stimulus is
  burning off.
• Supply chain issues
  are starting to heal.
• Our forecast is not
  that inflation might spike back up.
• We will probably
  start cutting rates sometime next year.
• We don’t want to
  overdo it on rates.

Fed’s Barkin (hawk – non
voter) didn’t signal any preference for a pause:

• Inflation remains too high.
• GDP remains solid and labour market is “remarkably resilient”.

Wednesday:

China
July CPI Y/Y fell into deflation for the first time since February 2021:

• CPY Y/Y printed at -0.3%
  vs. -0.4% expected and 0.0% prior.
• CPI M/M was 0.2% vs.
  -0.1% expected and -0.2% prior.
• PPI Y/Y remained in
  negative territory at -4.4% vs. -4.1% expected and -5.4% prior.

As a reminder, the PBoC
said that it expects inflation to pick up in the second half of the year.

Thursday:

Japan PPI Y/Y rose the
least since March 2021 and it also market the 7^th straight month of
slowdown in producer inflation:

• PPI Y/Y 3.6% vs. 3.5%
  expected and 4.3% prior (revised from 4.1%).
• PPI M/M 0.1% vs. 0.2%
  expected and -0.1% prior (revised from -0.2%).

The US CPI report showed
further disinflation with the Core readings looking good:

• CPI Y/Y 3.2% vs. 3.3%
  expected and 3.0% prior.
• CPI M/M 0.2% vs. 0.2%
  expected and 0.2% prior.
• Core CPI Y/Y 4.7% vs. 4.8% expected and 4.8% prior.
• Core M/M 0.2% (0.16% unrounded) vs. 0.2% expected and 0.2% prior.

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.

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).

Fed’s Daly (neutral – non
voter) acknowledged the good inflation data, but remained wary of the risks:

• CPI data was as
  expected, it’s good news for families and businesses.
• We are committed to
  getting core inflation down.
• There’s a lot more
  info coming in before September.
• I see slowing in the
  economy but we’re not there yet.
• It’s still hard to
  find workers, the economy isn’t yet in balance.
• 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.
• We’ve been watching
  the data and asking “does anything we’re seeing change the outlook”.
• Today’s inflation
  data is a “good data point”.
• If core services ex
  housing doesn’t come down and stalls, that’s something I’m watching.
• I’m going to hold
  myself to data dependence.
• 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.
• If you look at new
  leases and new rents, that’s pulling things down.
• 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.
• If demand slips
  below supply, that would be a good indication we could cut rates.
• We are a long way
  from a conversation about rate cuts.

Fed’s Bostic (dove – non
voter) just reaffirmed the Fed’s work about bringing down inflation:

• Fed has been working hard
  to reduce too-high inflation.
• I don’t know how
  persistent pandemic labour market changes will be.

Friday:

New Zealand Manufacturing
PMI fell further into contraction:

• 46.3 vs. 47.5 prior.

This is the 5^th
straight month of contraction.

RBA’s Lowe spoke before
the House of Representatives and his remarks sound like he’s comfortable
holding rates steady:

• It is too early to declare victory on
  inflation, but things are moving in the right direction.
• 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.
• The board remains resolute in its
  determination to return inflation to the 2-3 per cent target range.
• Monetary policy is in restrictive
  territory, and it is working to establish a better balance between supply
  and demand.
• 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.
• It is possible that some further tightening
  of monetary policy will be required to ensure that inflation returns to target
  within a reasonable timeframe.
• Recent data indicate that there has been
  some easing in the labour market.
• Whether or not this is the case will depend
  upon the data and the board’s evolving assessment of the outlook and risks.
• We expect employment to continue to grow,
  but below the rate of growth in the labour force.
• It’s encouraging that the recent data are
  consistent with inflation returning to target over the next couple of
  years.
• The Australian economy is currently
  experiencing a period of below-trend growth, and this is expected to
  continue for a while yet.
• Data are also consistent with the
  Australian economy continuing to travel along that narrow path that I have
  spoken about.
• 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.
• Dwelling investment is expected to increase
  again next year, after the recent difficulties in that sector.
• Monetary policy is in restrictive territory.
• Possible that some further tightening of
  monetary policy will be required.
• Board is seeking to establish a credible
  path back to the inflation target over the next couple of years.
• Board wants to have reasonable confidence
  that inflation will return to target over the current forecast period.
• 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.
• Risk that services price inflation may stay
  high, prolonging the period of inflation being above target.
• 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.
• Worst is over for
  inflation.
• To get inflation to target in 2024 would
  require substantially higher rates and not be in the national interest.
• Understandable that community thinks peak
  for rates is now or close at hand.

UK Q2 Preliminary GDP
beat expectations:

• Q/Q reading 0.2% vs. 0.0%
  expected and 0.1% prior.
• Y/Y reading 0.4% vs. 0.2%
  expected and 0.2% prior.

The US PPI beat expectations
across the board:

• PPI Y/Y 0.8% vs. 0.7%
  expected and 0.2% prior (revised from 0.1%).
• PPI M/M 0.3% vs. 0.2%
  expected and 0.0% prior (revised from 0.1%).
• Core PPI Y/Y 2.4% vs.
  2.3% expected and 2.4% prior.
• Core PPI M/M 0.3% vs.
  0.2% expected and -0.1% prior (revised from 0.1%).

The University of
Michigan Consumer Sentiment Index beat slightly forecasts with inflation expectations
ticking lower:

• Consumer Sentiment 71.2
  vs. 71.0 expected and 71.6 prior.
• Current conditions 77.4
  vs 76.9 expected and 76.6 prior.
• Expectations 67.3 vs 68.1
  expected and 68.3 prior.
• 1-year inflation 3.3% vs
  3.4% prior.
• 5-10 year inflation 2.9% vs 3.0% prior.

The
highlights for next week will be:

• Tuesday: Australia Wage Price
  Index, China Industrial Production, UK Jobs Report, German ZEW, US Retail
  Sales, Canada CPI, NAHB Housing Market Index.
• Wednesday: RBNZ Policy Decision,
  UK CPI, FOMC Meeting Minutes.
• Thursday: Australia Jobs Report,
  US Jobless Claims.
• Friday: Japan CPI, UK Retail
  Sales.

That’s all folks, have a
great weekend!