Sive Morten
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Fundamentals
No doubts the major events of this week were ECB statement and CPI report, but it is even more important market ignorance of good inflation data before Fed meeting on coming week. you will be surprised when you see Core CPI chart later in report that indicates inflation level right now...
Market overview
First is back view on recent NFP report from Fathom consulting. Last week Fathom has released the report where they suggest spike in inflation till the end of the year, while in this new note they report on economy recovering, which stands totally in a row with our long-term view as well:
The currency market volatility on Tuesday hit the lowest level in more than a year, as investors sat on the sidelines waiting for clearer signals on inflation levels and central bank policies around the world.
With inflation updates from China, Europe and the United States this week and an European Central Bank meeting to be followed by a U.S. Federal Reserve meeting next week, currency investors appeared to be treading water. Range-bound currency markets meant a fall in volatility. The Deutsche Bank Currency Volatility Index hit its lowest level since February 2020.
The dollar index was down slightly on Thursday in a choppy session in which it alternated between losses and gains as investors digested elevated U.S. inflation data and commentary from the European Central Bank.
After adopting a wait-and-see attitude all week, sucking volatility from the market and leaving major currencies mostly range-bound Thursday's news appeared to add little new direction to currency markets.
The European Central Bank raised its growth and inflation views but promised to keep ample stimulus flowing, fearing that a retreat now would accelerate a worrisome rise in borrowing costs and choke off recovery.
Already buying up most of the new debt issued by euro zone governments, the ECB said it would buy bonds at a "significantly higher" pace than during the early months of the year, reaffirming its pledge from March as most ECB watchers had expected.
Yet sources told Reuters three of the 25 members of the Governing Council wanted to reduce the pace of PEPP at the meeting, citing a better outlook for growth and inflation. Lagarde acknowledged some debate around the decision but said there was broad majority support for "significantly higher" bond buys.
The 19-country euro zone has relied on copious ECB money printing to finance ballooning government deficits, leaving it especially vulnerable to any curbing of stimulus. The ECB has bought around 80 billion euros worth of debt per month under its Pandemic Emergency Purchase Programme (PEPP) this quarter, up from around 62 billion euros in the first quarter.
Thursday's decision still gives policymakers some leeway to adjust bond buys, particularly during the summer months when liquidity tends to fall.
The ECB raised most of its growth and inflation projections and declared risks to the outlook balanced, giving up long-standing guidance for downside risks. It now sees 2021 growth at 4.6%, above the 4% projected in March, while next year's forecast was lifted to 4.7% from 4.1%.
Inflation projections were also raised for the next several years and the ECB now sees price growth at 1.9% this year, in line with its target and above its last projection for 1.2%. But the seemingly strong data mask weak underlying trends and mostly reflect a bounce back from the deepest recession in living memory.
Underlying inflation remains low and overall inflation is expected to decline for the next several years, staying below the ECB's target at least through 2023.
Europe is also far behind the United States in its recovery and on vaccinations, so that any withdrawal of support ahead of the U.S. Federal Reserve would be seen as a danger.
U.S. consumer prices rose solidly in May, leading to the biggest annual increase in nearly 13 years as a reopening economy boosted demand for travel-related services, while a global semiconductor shortage drove up prices for used motor vehicles. T
he pandemic's easing grip on the economy was also underscored by other data from the Labor Department on Thursday showing the number of Americans filing new claims for unemployment benefits fell last week to the lowest level in nearly 15 months.
May's inflation drivers appear to be temporary, fitting in with Federal Reserve Chair Jerome Powell's repeated assertion that higher inflation will be transitory.
The consumer price index increased 0.6% last month after surging 0.8% in April, which was the largest gain since June 2009. Food prices rose 0.4%, but gasoline declined for a second straight month. In the 12 months through May, the CPI accelerated 5.0%. That was the biggest year-on-year increase since August 2008 and followed a 4.2% rise in April.
The jump partly reflected the dropping of last spring's weak readings from the calculation. May was probably the peak in the CPI, with these so-called base effects expected to level off in June. Economists polled by Reuters had forecast the CPI rising 0.4% in May and vaulting 4.7% year-on-year. Excluding the volatile food and energy components, the CPI increased 0.7% after soaring 0.9% in April.
The core CPI shot up 3.8% in the 12 months through May, the largest increase since June 1992. The Fed has signaled it could tolerate higher inflation for some time to offset years in which inflation was lodged below its 2% target, a flexible average. The U.S. central bank's preferred inflation measure, the personal consumption expenditures price index, excluding the volatile food and energy components, rose 3.1% in April, the biggest gain since July 1992.
In another report on Thursday, the Labor Department said initial claims for state unemployment benefits fell 9,000 to a seasonally adjusted 376,000 for the week ended June 5. Claims have decreased for six straight weeks. The drop in applications was led by California and Pennsylvania. Though layoffs are subsiding, claims remain well above the 200,000 to 250,000 range that is viewed as consistent with a healthy labor market.
After a week of anxious waiting, markets got the high U.S. inflation number they dreaded, then shrugged it off and moved on - leaving the U.S. dollar under pressure and most majors stuck in ranges.
Focus now turns to the Fed's meeting next week, although traders now say that there may not be much of a shift in rhetoric which has played down the need to taper stimulus. A plan for reducing bond buying is expected to be announced in August or September a Reuters poll of economists found, but it isn't forecast to begin until next year.
The Federal Reserve is likely to announce in August or September a strategy for reducing its massive bond buying program, but won’t start cutting monthly purchases until early next year, a Reuters poll of economists found.
A significant number of Fed watchers also said the central bank would wait until later in the year before announcing a taper, now the main focus for markets fretting over rising inflation as an end to the pandemic in the United States is in sight.
Booming demand with the U.S. economy reopening is expected to continue and push up consumer prices this year, with the June 4-10 Reuters poll of over 100 economists showing an upgrade to both growth and inflation forecasts.
Nearly 60% of economists, or 29 of 50, who responded to an additional question said a much-anticipated taper announcement from the central bank will come next quarter, despite a patchy recovery in the job market in recent months.
Nearly 60% of economists, or 26 of 45, said the reductions would start in the first quarter of next year. Among those who ventured a guess by how much monthly bond purchases would be reduced gave a median forecast of $20 billion. The Fed is currently purchasing $80 billion a month in Treasuries and $40 billion in MBS.
Driven by massive government spending and a rapid inoculation drive, the U.S. economy was expected to grow at a seasonally adjusted annualized rate of 10.0%, 7.0% and 5.0% in the current, next and the fourth quarter, respectively. That compared to 9.5%, 6.7% and 4.7%, respectively, forecast in the previous poll.
The U.S. unemployment rate was forecast to gradually fall through to the end of next year, averaging over 5% this year and more than 4% in 2022. That is still above its pre-crisis level of 3.5%.
"While a lot of what we are seeing now is indeed transitory, structural changes are taking place in the global economy and domestic fiscal policy that could lead to more sustained high inflation," said Philip Marey, senior U.S. strategist at Rabobank.
Over 60% of economists, or 23 of 38, said higher inflation was the biggest risk to the U.S. economy, compared to just six penciling in high unemployment. And about two-thirds said they were concerned about rising U.S. inflation.
The dollar index edged down on Friday and major currency pairs were stuck within recent ranges as markets shrugged off Thursday’s high U.S. inflation number, believing the Federal Reserve’s stance that it is likely to be a temporary blip.
A gauge of euro-dollar implied volatility over a six-month horizon was at its lowest since early March 2020, almost back to the levels it was at before the COVID-19 pandemic caused volatility to spike.
The euro and sterling dipped against the dollar on Friday as investors bet interest rates would stay lower for longer in Europe and Britain while looking ahead to next week’s U.S. monetary policy meeting.
A day after the European Central Bank stuck to its dovish stance, ECB policymaker Klaas Knot said that flexible fiscal rules would be needed for years as monetary policy remains constrained.
Traders were still preparing for volatility around the Federal Open Market Committee meeting scheduled for the week ahead, according to Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.
Strong inflation numbers aside, recent data has offered snapshots of an economy that is strengthening but does not appear to be close to overheating. Employment, for instance, remains about 7.6 million jobs below its February 2020 peak while the latest monthly report fell short of economists estimates.
Analysts at BofA Global Research on Friday outlined a number of reasons that inflation may be more sustained than many expect, including second-tier indicators such as the National Federation of Independent Businesses survey of small businesses showing price pressures are filtering to customers.
COT Report
This week guys report shows position closing with light drop in bullish sentiment which mostly reflects market's preparation to ECB meeting and CPI report. This week, we probably could see the same dynamic as now it is preparation to Fed meeting which is promised to be even more active.
Next week to watch
#1 FED-FLATION RUMBLINGS
Markets will listen closely to what the Federal Reserve will have to say on inflation at the end of their two day meeting on Wednesday, amid concerns that trillions in fiscal stimulus will fuel a rise in consumer prices.
After years of very low inflation, a range of metrics, including the Fed’s preferred core personal consumption expenditures (PCE) price index, are on the rise. The PCE rose 3.8% in the 12-months to May, its largest jump in three decades.
The Fed insists consumer price gains will be temporary and that it has the tools to combat an inflationary surge. Signs that policy makers may be digging in for a more sustained rise in consumer prices could spark fears of a sooner-than-expected unwind of easy money policies, and hurt stocks.
-ANALYSIS-Job-inflation tradeoff, exiled from Fed policy, could mean a hot summer
#2 FLIGHTLESS GROWTH
Is the newly-hawkish Reserve Bank of New Zealand about to get its first-quarter growth forecast beaten? Kiwi GDP lands on Thursday, and the central bank thinks it’s going to be negative, putting the country back in technical recession.
Partial indicators, however, say it may not be so. While the absence of foreign tourists will be keenly felt, domestic consumption has been robust and commodity prices - especially milk and lumber - have shifted favourably.
A beat may not mean sustainable strength, but a headline surprise would suggest an economy on firmer footing than the RBNZ appreciates, adding pressure to normalise policy even faster than the aggressive schedule flagged last month.
To be continued in the next post...
No doubts the major events of this week were ECB statement and CPI report, but it is even more important market ignorance of good inflation data before Fed meeting on coming week. you will be surprised when you see Core CPI chart later in report that indicates inflation level right now...
Market overview
First is back view on recent NFP report from Fathom consulting. Last week Fathom has released the report where they suggest spike in inflation till the end of the year, while in this new note they report on economy recovering, which stands totally in a row with our long-term view as well:
US nonfarm payrolls increased by 559K in May. While this was below consensus expectations of a 650K gain, it represented a strong increase after a disappointing rise of 278K in April. Overall job gains were driven by increases of 292K in leisure and hospitality, 87K in education and health services and 67K in government. The unemployment rate is now at 5.8%, the lowest since March 2020, but still well above the pre-pandemic rate of 3.5%, and the employment-to-population ratio is around 3 percentage points lower. All in all, the May numbers represent a welcome improvement, although they are unlikely to lead to an imminent shift in Fed policy. Nevertheless, with the recovery likely to remain robust over coming quarters, further labour market improvements alongside elevated inflation are likely to fuel increased calls by Fed officials for the beginning of discussions on the potential for a future tapering of asset purchases.
The currency market volatility on Tuesday hit the lowest level in more than a year, as investors sat on the sidelines waiting for clearer signals on inflation levels and central bank policies around the world.
With inflation updates from China, Europe and the United States this week and an European Central Bank meeting to be followed by a U.S. Federal Reserve meeting next week, currency investors appeared to be treading water. Range-bound currency markets meant a fall in volatility. The Deutsche Bank Currency Volatility Index hit its lowest level since February 2020.
"All the major currencies are having muted reaction right now as they wait," said JB Mackenzie, managing director of futures and forex at TD Ameritrade. "We're looking at the inflation numbers to see how the economies are running. Are they very hot and, if so, does that mean there could be a reaction from central banks globally?"
The dollar index was down slightly on Thursday in a choppy session in which it alternated between losses and gains as investors digested elevated U.S. inflation data and commentary from the European Central Bank.
After adopting a wait-and-see attitude all week, sucking volatility from the market and leaving major currencies mostly range-bound Thursday's news appeared to add little new direction to currency markets.
The European Central Bank raised its growth and inflation views but promised to keep ample stimulus flowing, fearing that a retreat now would accelerate a worrisome rise in borrowing costs and choke off recovery.
Already buying up most of the new debt issued by euro zone governments, the ECB said it would buy bonds at a "significantly higher" pace than during the early months of the year, reaffirming its pledge from March as most ECB watchers had expected.
"We believe that the steady hand is actually the right response," ECB President Christine Lagarde told a news conference, stressing that tapering, exiting or transitioning away from the 1.85 trillion euro Pandemic Emergency Purchase Programme had not even been discussed.
Yet sources told Reuters three of the 25 members of the Governing Council wanted to reduce the pace of PEPP at the meeting, citing a better outlook for growth and inflation. Lagarde acknowledged some debate around the decision but said there was broad majority support for "significantly higher" bond buys.
The 19-country euro zone has relied on copious ECB money printing to finance ballooning government deficits, leaving it especially vulnerable to any curbing of stimulus. The ECB has bought around 80 billion euros worth of debt per month under its Pandemic Emergency Purchase Programme (PEPP) this quarter, up from around 62 billion euros in the first quarter.
Thursday's decision still gives policymakers some leeway to adjust bond buys, particularly during the summer months when liquidity tends to fall.
"We expect the situation to look different at the next joint assessment of financing conditions and the inflation outlook in September, when vaccinations will be close to the 70% inoculation target and the recovery fund will be operational," Morgan Stanley said. At that point we expect a reduction in purchases. Maintaining its long-standing guidance, the ECB also said PEPP would last until March 2022 and that it reserved the right to buy less than its purchase quota or increase it as needed to "maintain favourable financing conditions".
The ECB raised most of its growth and inflation projections and declared risks to the outlook balanced, giving up long-standing guidance for downside risks. It now sees 2021 growth at 4.6%, above the 4% projected in March, while next year's forecast was lifted to 4.7% from 4.1%.
Inflation projections were also raised for the next several years and the ECB now sees price growth at 1.9% this year, in line with its target and above its last projection for 1.2%. But the seemingly strong data mask weak underlying trends and mostly reflect a bounce back from the deepest recession in living memory.
Underlying inflation remains low and overall inflation is expected to decline for the next several years, staying below the ECB's target at least through 2023.
"We are far away from our ultimate aim. We are certainly not where we would like to be once the pandemic is over," Lagarde said.
Europe is also far behind the United States in its recovery and on vaccinations, so that any withdrawal of support ahead of the U.S. Federal Reserve would be seen as a danger.
U.S. consumer prices rose solidly in May, leading to the biggest annual increase in nearly 13 years as a reopening economy boosted demand for travel-related services, while a global semiconductor shortage drove up prices for used motor vehicles. T
he pandemic's easing grip on the economy was also underscored by other data from the Labor Department on Thursday showing the number of Americans filing new claims for unemployment benefits fell last week to the lowest level in nearly 15 months.
May's inflation drivers appear to be temporary, fitting in with Federal Reserve Chair Jerome Powell's repeated assertion that higher inflation will be transitory.
"Parts of the economy contributing the most to inflation in April and May are going through understandable short-term adjustments or merely reflating back to 'normal' levels," said Chris Low, chief economist at FHN Financial in New York. "Areas not impacted by the pandemic are moderating the CPI rise. But this report confirms demand is exceeding supply."
The consumer price index increased 0.6% last month after surging 0.8% in April, which was the largest gain since June 2009. Food prices rose 0.4%, but gasoline declined for a second straight month. In the 12 months through May, the CPI accelerated 5.0%. That was the biggest year-on-year increase since August 2008 and followed a 4.2% rise in April.
The jump partly reflected the dropping of last spring's weak readings from the calculation. May was probably the peak in the CPI, with these so-called base effects expected to level off in June. Economists polled by Reuters had forecast the CPI rising 0.4% in May and vaulting 4.7% year-on-year. Excluding the volatile food and energy components, the CPI increased 0.7% after soaring 0.9% in April.
The core CPI shot up 3.8% in the 12 months through May, the largest increase since June 1992. The Fed has signaled it could tolerate higher inflation for some time to offset years in which inflation was lodged below its 2% target, a flexible average. The U.S. central bank's preferred inflation measure, the personal consumption expenditures price index, excluding the volatile food and energy components, rose 3.1% in April, the biggest gain since July 1992.
“Figures like today’s CPI will certainly be raising eyebrows at the Fed, but the bottom line is they will likely need additional evidence to determine whether upward inflation pressures will be more persistent,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.
In another report on Thursday, the Labor Department said initial claims for state unemployment benefits fell 9,000 to a seasonally adjusted 376,000 for the week ended June 5. Claims have decreased for six straight weeks. The drop in applications was led by California and Pennsylvania. Though layoffs are subsiding, claims remain well above the 200,000 to 250,000 range that is viewed as consistent with a healthy labor market.
"You have this tug between the two currencies and it's creating a back and forth. That's why you're seeing a little bit of a cap in terms of dollar weakness and euro strength," said Minh Trang, Senior FX Trader at Silicon Valley Bank. The overall trend has been a bit of dollar weakness not just because of the robust growth in the U.S. there's been robust growth over all. A lot of economies have been recovering," he said. "When you have optimism in overall global growth typically that creates a risk on mentality that's going to favor other currencies over the dollar. People are digesting what the next move may be. The data today didn't give enough lift to commit to one side or the other," said Trang.
After a week of anxious waiting, markets got the high U.S. inflation number they dreaded, then shrugged it off and moved on - leaving the U.S. dollar under pressure and most majors stuck in ranges.
"What we're seeing is a market that believes in the Fed," said Chris Weston, head of research at broker Pepperstone in Melbourne, as investors temper worries that the strong recovery in the United States prompts early rate hikes. "We're going to get tapering," he said. "But it's going to get done a such a snail's pace."
"It basically fit the Fed script, that we'd get a burst but it's going to be temporary," said Westpac currency analyst Imre Speizer. "This report is consistent with that, it doesn't argue against it. I think the market needed something that argued against it to push the U.S. dollar higher."
Focus now turns to the Fed's meeting next week, although traders now say that there may not be much of a shift in rhetoric which has played down the need to taper stimulus. A plan for reducing bond buying is expected to be announced in August or September a Reuters poll of economists found, but it isn't forecast to begin until next year.
The Federal Reserve is likely to announce in August or September a strategy for reducing its massive bond buying program, but won’t start cutting monthly purchases until early next year, a Reuters poll of economists found.
A significant number of Fed watchers also said the central bank would wait until later in the year before announcing a taper, now the main focus for markets fretting over rising inflation as an end to the pandemic in the United States is in sight.
Booming demand with the U.S. economy reopening is expected to continue and push up consumer prices this year, with the June 4-10 Reuters poll of over 100 economists showing an upgrade to both growth and inflation forecasts.
Nearly 60% of economists, or 29 of 50, who responded to an additional question said a much-anticipated taper announcement from the central bank will come next quarter, despite a patchy recovery in the job market in recent months.
"We expect to hear clear hints at the Jackson Hole Conference that the Fed is now discussing the merits of QE tapering and this will be developed further at the September FOMC which is just four weeks later," said James Knightley, chief international economist at ING. At that point we suspect the Fed will indicate the market should be braced for a formal QE taper announcement with outlined path forward at the December FOMC."
Nearly 60% of economists, or 26 of 45, said the reductions would start in the first quarter of next year. Among those who ventured a guess by how much monthly bond purchases would be reduced gave a median forecast of $20 billion. The Fed is currently purchasing $80 billion a month in Treasuries and $40 billion in MBS.
Driven by massive government spending and a rapid inoculation drive, the U.S. economy was expected to grow at a seasonally adjusted annualized rate of 10.0%, 7.0% and 5.0% in the current, next and the fourth quarter, respectively. That compared to 9.5%, 6.7% and 4.7%, respectively, forecast in the previous poll.
"The U.S. is on track to have recovered all its lost output in the current quarter and end the year with a larger economy than if there had been no pandemic and growth had merely continued at its 2014-19 trend," added ING's Knightley.
The U.S. unemployment rate was forecast to gradually fall through to the end of next year, averaging over 5% this year and more than 4% in 2022. That is still above its pre-crisis level of 3.5%.
"While a lot of what we are seeing now is indeed transitory, structural changes are taking place in the global economy and domestic fiscal policy that could lead to more sustained high inflation," said Philip Marey, senior U.S. strategist at Rabobank.
Over 60% of economists, or 23 of 38, said higher inflation was the biggest risk to the U.S. economy, compared to just six penciling in high unemployment. And about two-thirds said they were concerned about rising U.S. inflation.
"You get the message, in large font: the peppy rollout of stimulus and vaccines is causing U.S. demand to rebound much faster than supply," said Sal Guatieri, senior economist at BMO Capital Markets. This is creating many unpleasant side-effects, like inflation...just a few quarters after the economy's collapse instead of the usual several years for imbalances to emerge after a recession. The writing is on the wall: The Fed's temporary-inflation mantra is sounding more dated by the week."
The dollar index edged down on Friday and major currency pairs were stuck within recent ranges as markets shrugged off Thursday’s high U.S. inflation number, believing the Federal Reserve’s stance that it is likely to be a temporary blip.
“We agree with the Fed that elevated inflation pressures will prove short-lived,” UBS strategists said in a note to clients. “Both Federal Reserve and European Central Bank policymakers have been unusually consistent in stressing that policy will only need to be tightened if inflation becomes more sustained—which they currently view as unlikely.”
A gauge of euro-dollar implied volatility over a six-month horizon was at its lowest since early March 2020, almost back to the levels it was at before the COVID-19 pandemic caused volatility to spike.
“This glut of liquidity is driving volatility levels lower across asset classes and driving the search for carry, including at the long end of yield curves,” wrote ING strategists in a note. In currency trading, “carry” refers to gains from holding higher-yielding currencies. This environment should continue to see the dollar gently offered against those currencies with good stories (monetary tightening or commodity exposure) and a little carry,” ING said.
The euro and sterling dipped against the dollar on Friday as investors bet interest rates would stay lower for longer in Europe and Britain while looking ahead to next week’s U.S. monetary policy meeting.
A day after the European Central Bank stuck to its dovish stance, ECB policymaker Klaas Knot said that flexible fiscal rules would be needed for years as monetary policy remains constrained.
“ECB policy makers are indicating that inflation rates are way below levels that are needed to put upward pressure on rates,” said Karl Schamotta, chief market strategist at Cambridge Global Payments in Toronto. That’s cutting away at the euro’s recent rally, putting some downward pressure on it. The biggest contributor to the move we’ve seen overnight is the (euro) weakness as opposed to idiosyncratic dollar positive forces. The dollar’s winning the reverse beauty contest,” Schamotta added.
Traders were still preparing for volatility around the Federal Open Market Committee meeting scheduled for the week ahead, according to Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.
If you’re starting from a position where you’re already short dollars, since FOMC meetings often have a lot of volatility, you might reduce your short for risk management purposes,” Anderson said.
Strong inflation numbers aside, recent data has offered snapshots of an economy that is strengthening but does not appear to be close to overheating. Employment, for instance, remains about 7.6 million jobs below its February 2020 peak while the latest monthly report fell short of economists estimates.
Analysts at BofA Global Research on Friday outlined a number of reasons that inflation may be more sustained than many expect, including second-tier indicators such as the National Federation of Independent Businesses survey of small businesses showing price pressures are filtering to customers.
“The list of excuses for transitory inflation is getting long. The risk of higher, more persistent inflation is growing,” BofA’s analysts wrote.
COT Report
This week guys report shows position closing with light drop in bullish sentiment which mostly reflects market's preparation to ECB meeting and CPI report. This week, we probably could see the same dynamic as now it is preparation to Fed meeting which is promised to be even more active.
Next week to watch
#1 FED-FLATION RUMBLINGS
Markets will listen closely to what the Federal Reserve will have to say on inflation at the end of their two day meeting on Wednesday, amid concerns that trillions in fiscal stimulus will fuel a rise in consumer prices.
After years of very low inflation, a range of metrics, including the Fed’s preferred core personal consumption expenditures (PCE) price index, are on the rise. The PCE rose 3.8% in the 12-months to May, its largest jump in three decades.
The Fed insists consumer price gains will be temporary and that it has the tools to combat an inflationary surge. Signs that policy makers may be digging in for a more sustained rise in consumer prices could spark fears of a sooner-than-expected unwind of easy money policies, and hurt stocks.
-ANALYSIS-Job-inflation tradeoff, exiled from Fed policy, could mean a hot summer
#2 FLIGHTLESS GROWTH
Is the newly-hawkish Reserve Bank of New Zealand about to get its first-quarter growth forecast beaten? Kiwi GDP lands on Thursday, and the central bank thinks it’s going to be negative, putting the country back in technical recession.
Partial indicators, however, say it may not be so. While the absence of foreign tourists will be keenly felt, domestic consumption has been robust and commodity prices - especially milk and lumber - have shifted favourably.
A beat may not mean sustainable strength, but a headline surprise would suggest an economy on firmer footing than the RBNZ appreciates, adding pressure to normalise policy even faster than the aggressive schedule flagged last month.
To be continued in the next post...