Archives of “Economy” category

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BOJ announce no change to monetary policy, as expected

  
Analysis, Economy

Bank of Japan March 14 and 15 policy meeting Statement issued now

  • maintains short-term interest rate target at -0.1 pct
  • maintains 10-year JGB yield target around zero pct
  • BOJ decision on yield curve control made by 7-2 vote, board members Harada, Kataoka dissent
  • BOJ leaves unchanged pledge to buy JGBin flexible manner so its holdings increase at annual pace of around 80 trln yen

BOJ cuts assessment on exports, output

  • tweaks assessment on Japan’s economy
  • Says Japan’s economy expanding moderately but exports, output affected by overseas slowdown
  • says overseas economies growing moderately but slowdown observed
  • says exports showing some weakness recently
  • says output showing some weakness but rising moderately as a trend
  • says Japan economy likely to continue expanding moderately despite impact of overseas slowdown
  • Says exports likely to remain weak for some time but remain on moderate rising trend

This decision and the surrounding downgrades were all expected by the market.

China February activity data: IP, retail sales, asset investment out now

  
Analysis, Economy

Industrial production, retail sales and fixed asset investment (excl rural)

  • (January – February combined) Industrial production +5.3% y/y (vs. +5.6% expected)
  • (January – February combined) Retail sales +8.2% (expected +8.2%
  • (January – February combined) Fixed asset investment +6.1% (expected +6.1%)
Combining Jan and Feb works towards removing the seasonal distortions evident in these two months’ data (moveable lunar new year dates).
NBS accompanying remarks:
  • China economy generally steady in Jan-Feb
  • Economy faces external uncertainties
  • Downward pressure still exists
The AUD had traded lower in the lead up to the data, its barely off itsw (small range) session low:
china activity data and the AUD

Eurozone January industrial production +1.4% vs +1.0% m/m expected

  
Analysis, Economy

Latest data released by Eurostat – 13 March 2019

  • Prior -0.9%
  • Industrial production WDA -1.1% vs -2.1% y/y expected
  • Prior -4.2%
That’s a beat on expectations and will only add to the recent uptick in Eurozone economic data as of late. That being said, the data here is for January and we’ll have to see if the coming months can offer more of the same in order for markets to feel confident about a shift in the ECB dial down the road.
EUR/USD holds near the highs at 1.1298 currently, just under the 1.1300 handle where near-term price action may be kept limited. EUR/GBP holds lower at 0.8600 as the pound remains firm since the early European morning.

ECB’s Coeure: Italy is only Eurozone country in technical recession

  
Analysis, Economy

He’s not technically wrong, though

  • There is a lack of progress in the Italian jobs market
  • Italy must be part of Europe debate
  • ECB still sees consistent growth in the region but less strong
While Italy is suffering from economic isolation, the tough part is that it is also being singled out politically ahead of the European parliamentary elections in May. And Coeure’s comments here is just further proof of that.
EU recession
With regards to economic performance, while Italy is the standout in terms of how poor the economy is faring, it’s not to say that others are in a beaming state either. So, that’s something to be wary about and could come back and bite Coeure in the back side later.

Thoughts about the ECB and Euro

  
Analysis, Economy
Mario Draghi’s term at the helm of the ECB is winding down.  He will step down in October.  It has not been an easy job.  The light at the end of the tunnel in 2017 turned out to be another train in 2018.  The eurozone enjoyed 0.7% quarterly growth every quarter in 2017.  The ECB was able to outline an exit from its asset purchases.  The debate began over sequencing and when the first rate hike could be delivered.
But alas, the cyclical recovery fizzled and in the second half of 2018, the German and Italian economies contracted.  Price pressures eased. At the last meeting, the concerns had reached a point that the ECB took unprecedented action and downgraded its risk assessment before the staff provided updated forecasts.  
 
The staff has to make good on this at this week’s meeting.  In December, the ECB forecast 1.6% CPI and 1.7% GDP growth.  Both will likely be revised lower.  We suspect that CPI projection will be shaved by 0.1%-0.2% and the GDP to be marked down to 1.2%-1.4%.  It is, arguably, preferable to have to lift the forecasts in the future rather than cut them again. The extent that the 2020 forecasts are revised, however, may offer more insight into the mood of policymakers and their level of concern of the risks this slowdown does continue to evolve into an outright contraction.

Even if the cart was before the horse, the combination of the changed risk assessment and the updated forecasts require a policy response.  The policy response will more nuanced than a change in rates.  There are two levers.  Forward guidance and a new loan facility.

(more…)

Beijing drops ‘Made in China 2025’ from government report

  
Analysis, Economy

Chinese Premier Li Keqiang was conspicuously silent on the “Made in China 2025” initiative as he spoke at the opening session of the National People’s Congress, the country’s parliament, on Tuesday, in a likely acknowledgment of harsh U.S. criticism against Beijing’s pet industry-building program.

This is the first time Li stayed silent on the program in his annual report to the congress since 2015, when he first introduced it. He mentioned it twice in last year’s report. Other top officials and state news media have already been shying away from the topic for some time.

Made in China 2025, a state-led industrial policy that seeks to make China dominant in global high-tech manufacturing, has come under fire, not least for its massive government subsidies to its industries. It is one of the key sticking points in China’s trade talks with the U.S.

But the shedding of the 2025 plan could be in name only. In his 100-minute-plus speech, Li touched on many aspects of Made in China 2025, including pledging to invest heavily in emerging industries such as next-generation information technology, high-end equipment, biomedicine, and new energy automobiles. (more…)

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