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Eurozone March preliminary CPI +1.4% vs +1.5% y/y expected

  
Analysis, Economy

Latest data released by Eurostat – 1 April 2019

  • Prior +1.5%
  • Core CPI +0.8% vs +0.9% y/y expected
  • Prior +1.0%
After the softer readings seen in France and Germany, the overall headline reading also comes in a tad softer. What’s more worrying though is that the core reading actually fell further to just +0.8% y/y compared to the +1.0% y/y reading in February.
If the ECB is trying to persuade markets that it is still on track to reach its inflation target, the data release here isn’t a convincing sign. EUR/USD holds steady at 1.1248 currently near the highs for the day as the dollar remains weak. EUR/GBP rather unphased as well at 0.8596, a little lower after the pound got a jolt higher from the PMI release earlier.

China says Liu He has left for Washington for trade talks

  
Analysis, Economy

US-China trade talks resume in Washington this week

US-China

With markets hopped up on the euphoria from slightly better Chinese PMI figures, let’s not forget that there’s still this to contend with throughout the week. So far, a Trump-Xi meeting to finalise any deal is still not in sight just yet despite constant talks over the past few weeks between both sides.

All eyes now turn to eurozone PMI’s

  
Analysis, Economy

ECB on a dovish tilt

ECB on a dovish tilt

The Euro is on the ropes with economic growth being scaled back and the ECB making concerned noises about its future path. The revised growth forecasts out earlier this month on March 7 were:

  • 2020 GDP 1.6% vs 1.7% prior
  • 2021 GDP 1.5% vs 1.5% prior

Inflation:

  • 2019 1.2% vs 1.6% prior
  • 2020 1.5% vs 1.7% prior
  • 2021 1.6% vs 1.8% prior

 

This was on the back of growth forecasts scaled back in December 2018 too. Draghi on Wednesday 27 March last week gave a catchy sound bite to sum up where the ECB were at. He said that the situation was ‘delayed, not derailed’. He also spoke about the resilience of the economy as well as ‘risks being tilted to the downside’. A series of cheap loans to eurozone banks was implemented by the ECB. Known as LTRO’s (Long term refinancing options), the loans provide funding to eurozone banks which the ECB have used in the past and became popular during the financial crisis of 2008. Here was Draghi speaking on the loans on March 27:

The Governing Council also decided to launch a new series of targeted longer-term refinancing operations (TLTRO-III) in order to preserve favourable bank lending conditions and maintain the efficient bank-based transmission of our policy.

These decisions ensure that our policy stance remains accommodative in the face of a weaker growth outlook. And the calibration of the remaining parameters of the TLTRO-III will reflect the evolving macroeconomic conditions. A slew of Eurozone data out shortly will give us an indication of where the dust has settled for now with the poor recessionary PMI readings. Remember how Germany’s poor PMI reading of 44.7 sparked concerns around the middle of March on Friday (March 22). Here was Justin’s instantly insightful comments at the time as he gave the heads up on just how bad a miss that reading was:

Boom! That’s a massive miss on manufacturing/factory sentiment and it is sending the euro to session lows on the day. It’s a third straight contraction for manufacturing PMI but the size of the miss here is really what is driving the euro lower at the moment.For some context, the manufacturing print is the lowest since August 2012 while the composite print is dragged lower as a result to its weakest print since June 2013.

All eyes now turn to the euro PMI’s.

ECB GDP

 

Japan Manufacturing PMI (March, Nikkei / Markit ‘final’ ): 49.2 (Preliminary was 48.9)

  
Analysis, Economy

The final reading for Japan manufacturing PMI from Nikkei/Markit for March 2019

49.2
  • preliminary 48.9
  • prior 48.9
Markit highlight ‘Key points’:
  •  Demand remains sluggish, pulling output lower
  • Firms push resources to clearing backlogs due to lack of new work
  • Business confidence remain among lowest on record
Comment, Joe Hayes, Economist at IHS Markit:
  • “The final manufacturing PMI print of Q1 for Japan points to the worst quarterly performance in the sector since Q2 2016. The likelihood of the negative trend in output being stymied any time soon appears slim, with demand for goods from both domestic and international sources waning further. 
  • Firms cut production at the fastest rate in almost three years and showed reluctance to replace out-going staff, with employment growth at the lowest since late-2016. 
  • “The economic backdrop for the manufacturing sector in Japan remains fiercely challenging. Asian goods producers face headwinds from slowing growth in Europe and China, while global trade risks are yet to be mitigated by a breakthrough in US-Sino relations.
  • “For the Japanese economy to keep its head above water, the service sector will need to pick up any manufacturing slack, which will hinge on domestic demand pressures sustaining the strength that supported the growth rebound at the end of 2018.”

Bank of Japan Q1 Tankan economy survey – manufacturing misses

  
Analysis, Economy

Quarterly survey from the Bank of Japan

Tankan Large Mfg Index: 12 for a miss
  • expected 13, prior was 19
Tankan Large Mfg Outlook: 8 for a bigger miss
  • expected 12, prior was 15
Tankan Large Non-Mfg Index: 21, miss
  • expected 22, prior was 24
Tankan Large Non-Mfg Outlook: 20, in line
  • expected 20, prior was 20
Tankan Large All Industry Capex: 1.2% and a beat!
  • expected +0.7%, prior was +14.3%
Tankan Small Mfg Index: 6, a big slump and a miss
  • expected 10, prior was 14
Tankan Small Mfg Outlook: -2, very poor indeed
  • expected 6, prior was 8
Tankan Small Non-Mfg Index: 12 for a beat on this one
  • expected 9, prior was 11
Tankan Small Non-Mfg Outlook: 5 in line
  • expected 5, prior was 5

(more…)

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