Friday September 20 2019
Japan Inflation Rate Falls to 6-Month Low
Mario |

Japan's consumer price inflation fell to 0.3 percent year-on-year in August 2019 from 0.5 percent in the previous month and well below market expectations of 0.6 percent. It was the lowest inflation rate in six months, raising the chances of further stimulus after the Bank of Japan decided to leave policy unchanged in its September meeting but left the window wide open for easing, calling for a review of prices and the economy in October.

The slowdown was mainly explained by a further decline in food prices, up only 0.1 percent after climbing 0.9 percent in the previous month. Also, inflation for fuel, light & water charges declined to 1.2 percent from 2 percent in the previous month. In addition, transportation & communication prices fell for the ninth consecutive month, down 1.2 percent for the second straight month. In contrast, prices rose the most for furniture & household utensils, up 2.3 percent. 

Annual core consumer inflation, which excludes fresh food, was at 0.5 percent in August, down from 0.6 percent in the previous month and in line with market expectations. The latest reading remained well below the Bank of Japan's 2 percent target and was an over 2-year low. Meanwhile, stripping away the effect of fresh food and energy, consumer prices rose by 0.6 percent year-on-year  for the second straight month.

On a seasonally adjusted monthly basis, consumer prices were unchanged in August, following a 0.1 percent increase in the previous month. The core CPI was up 0.1 percent.

Thursday September 19 2019
South Africa Holds Key Interest Rate Steady at 6.5%
Luisa Carvalho |

The South African Reserve Bank decided unanimously to leave its benchmark repo rate unchanged at 6.50 percent on September 19th 2019, as widely expected, after trimming it by 25 bps in the prior meeting, despite concerns about economic growth. Policymakers noted that inflation expectations continued to moderate and said that they will continue to focus on anchoring inflation expectations near the mid-point of the inflation target in the interest of balanced and sustainable growth. The bank added that future policy decisions will continue to be highly data-dependent, sensitive to the assessment of the balance of risks to the outlook, and will seek to look-through temporary price shocks.

Excerpts from the statement by Governor Lesetja Kganyago:

The medium-term inflation outlook is largely unchanged. The inflation forecast generated by the SARB’s Quarterly Projection Model (QPM) is for headline inflation to average 4.2% in 2019 (down from 4.4%). The projection for 2020 is unchanged at 5.1%, and for 2021 slightly up to 4.7% (from 4.6%). Headline CPI inflation is expected to peak at 5.3% in the first quarter of 2020 and settle at 4.5% in the last quarter of 2021. The forecast for core inflation is lower at 4.3% in 2019 (down from 4.4%), is unchanged at 4.7% in 2020 and is slightly higher at 4.6% in 2021 (up from 4.5%). Electricity, food and fuel price inflation continue to shape the near and medium-term trajectory of headline inflation.

Since the July MPC, the rand has depreciated by 4.6% against the US dollar, and by 3.0% against the euro. The implied starting point for the rand is R14.88 against the US dollar, compared with R14.40 at the time of the previous meeting. At these levels, the QPM assesses the rand to remain slightly undervalued. While the rand has benefited from improvements in global sentiment, investors remain concerned about domestic growth prospects and fiscal risks.

GDP rebounded to 3.1% in the second quarter, following a decline of 3.1% in the first quarter. The sharp quarterly rebound was caused by stronger output in nearly all sectors, including investment and government consumption spending. However, longer term weakness in most sectors remains a serious concern. Based on recent short term economic indicators for the mining and manufacturing sectors, the third quarter GDP outcome is expected to be muted. Business confidence has declined further. The Absa Purchasing Managers’ Index came out at 45.7 points in August (from 46.3), and the RMB/BER Business Confidence Index fell to 21 points (from 28). 

The forecast of GDP growth for 2019 remains unchanged at 0.6%. The forecasts for 2020 and 2021 have decreased to 1.5% (from 1.8%) and 1.8% (from 2.0%), respectively, due to revisions to global growth and domestic potential growth. The MPC assesses the risks to the growth forecast to be balanced in the near term, but remains concerned about medium term growth and weak employment prospects. Escalation in global trade tensions, further domestic supply constraints and/or sustained higher oil prices could generate headwinds to growth. Public sector financing needs remain high, exerting pressure on the currency and pushing local bond yields higher relative to country peers. Implementation of prudent macroeconomic policies and structural reforms that lower costs, and raise investment and potential growth, remains urgent. 

The overall risks to the inflation outlook are assessed to be largely balanced. Demand side pressures remain subdued and food, wages and rental prices are expected to increase at moderate rates. Global inflation should remain low. In the absence of shocks, relative exchange rate stability is expected to continue. Some upside risks to the inflation outlook remain, in particular from fuel, electricity and water prices. 

Against this backdrop, the MPC unanimously decided to keep the repurchase rate unchanged at 6.5% per annum. Monetary policy actions will continue to focus on anchoring inflation expectations near the mid-point of the inflation target range in the interest of balanced and sustainable growth. In this persistently uncertain environment, future policy decisions will continue to be highly data-dependent, sensitive to the assessment of the balance of risks to the outlook, and will seek to look-through temporary price shocks. 

Thursday September 19 2019
US Jobless Claims Rise Less than Expected
DOL | Agna Gabriel |

The number of Americans filling for unemployment benefits increased by 2 thousand to 208 thousand in the week ended September 14th from the previous week’s revised level of 206 thousand and compared with market expectations of 213 thousand.

The 4-week moving average was 212,250, a decrease of 750 from the previous week's revised average. The previous week's average was revised up by 500 from 212,500 to 213,000. 

According to unadjusted data, the biggest rises were reported in California (+4,259); Georgia (+1,385); New York (+1,129) and South Carolina (+1,165) while the largest decreases were seen in Arkansas (-879); Michigan (-533) and Illinois (-525).

The advance seasonally adjusted insured unemployment rate was 1.2 percent for the week ending September 7, unchanged from the previous week's unrevised rate. 

The advance number for seasonally adjusted insured unemployment during the week ending September 7 was 1,661,000, a decrease of 13,000 from the previous week's revised level. The previous week's level was revised up 4,000 from 1,670,000 to 1,674,000. The 4-week moving average was 1,677,500, a decrease of 3,750 from the previous week's revised average. The previous week's average was revised up by 1,000 from 1,680,250 to 1,681,250.

Thursday September 19 2019
BoE Leaves Monetary Policy Unchanged
Bank of England | Joana Ferreira |

The Bank of England's Monetary Policy Committee voted unanimously to hold the Bank Rate at 0.75 percent during its September policy meeting, as widely expected. The bank also reaffirmed its pledge to gradual and limited rate rises in the event of greater clarity that the economy is on a path to a smooth Brexit, and assuming some recovery in global growth.

BoE Monetary Policy Summary:

Since the MPC’s previous meeting, the trade war between the United States and China has intensified, and the outlook for global growth has weakened. Monetary policy has been loosened in many major economies. Shifting expectations about the potential timing and nature of Brexit have continued to generate heightened volatility in UK asset prices, in particular the sterling exchange rate has risen by over 3½%.

Brexit-related developments are making UK economic data more volatile, with GDP falling by 0.2% in 2019 Q2 and now expected to rise by 0.2% in Q3. The Committee judges that underlying growth has slowed, but remains slightly positive, and that a degree of excess supply appears to have opened up within companies. Brexit uncertainties have continued to weigh on business investment, although consumption growth has remained resilient, supported by continued growth in real household income. The weaker global backdrop is weighing on exports. The Government has announced a significant increase in departmental spending for 2020-21, which could raise GDP by around 0.4% over the MPC’s forecast period, all else equal.

CPI inflation fell to 1.7% in August, from 2.1% in July, and is expected to remain slightly below the 2% target in the near term. The labour market appears to remain tight, with the unemployment rate having been just under 4% since the beginning of this year. Annual pay growth has strengthened further to the highest rate in over a decade. Unit wage cost growth has also risen, to a level above that consistent with meeting the inflation target in the medium term. The labour market does not appear to be tightening further, however, with official and survey measures of employment growth softening.

For most of the period following the EU referendum, the degree of slack in the UK economy has been falling and global growth has been relatively strong. Recently, however, entrenched Brexit uncertainties and slower global growth have led to the re-emergence of a margin of excess supply. Increased uncertainty about the nature of EU withdrawal means that the economy could follow a wide range of paths over coming years. The appropriate response of monetary policy will depend on the balance of the effects of Brexit on demand, supply and the sterling exchange rate.

It is possible that political events could lead to a further period of entrenched uncertainty about the nature of, and the transition to, the United Kingdom’s eventual future trading relationship with the European Union. The longer those uncertainties persist, particularly in an environment of weaker global growth, the more likely it is that demand growth will remain below potential, increasing excess supply. In such an eventuality, domestically generated inflationary pressures would be reduced.

In the event of a no-deal Brexit, the exchange rate would probably fall, CPI inflation rise and GDP growth slow. The Committee’s interest rate decisions would need to balance the upward pressure on inflation, from the likely fall in sterling and any reduction in supply capacity, with the downward pressure from any reduction in demand. In this eventuality, the monetary policy response would not be automatic and could be in either direction.

In the event of greater clarity that the economy is on a path to a smooth Brexit, and assuming some recovery in global growth, a significant margin of excess demand is likely to build in the medium term. Were that to occur, the Committee judges that increases in interest rates, at a gradual pace and to a limited extent, would be appropriate to return inflation sustainably to the 2% target.

Thursday September 19 2019
SNB Holds Policy Rate at -0.75%
Swiss National Bank | Joana Ferreira |

The Swiss National Bank held the SNB policy rate at -0.75 percent during its September meeting, saying that the expansionary monetary policy continues to be necessary given the latest international developments and the inflation outlook. Policymakers agreed that the situation on the foreign exchange market is still fragile, while the Swiss franc remains highly valued.

Excerpt from the Swiss National Bank's statement:

The SNB is adjusting the basis for calculating negative interest as follows. Negative interest will continue to be charged on the portion of banks’ sight deposits which exceeds a certain exemption threshold. However, this exemption threshold will now be updated monthly and thereby reflect developments in banks’ balance sheets over time.

This adjustment to the calculation basis takes account of the fact that the low interest rate environment around the world has recently become more entrenched and could persist for some time yet. The adjustment raises the exemption threshold for the banking system and reduces negative interest income for the SNB. The new exemption threshold calculation comes into effect on 1 November 2019.

The new conditional inflation forecast is lower than in June. This is primarily due to weaker growth and inflation prospects abroad and the stronger Swiss franc. The forecast for the current year has been reduced slightly to 0.4%, from 0.6% in the previous quarter. For 2020, the SNB now expects an inflation rate of 0.2%, compared to 0.7% last quarter. The inflation rate increases to 0.6% in 2021; in the previous quarter, a rise to 1.1% had been forecast. The conditional inflation forecast is based on the assumption that the SNB policy rate remains at –0.75% over the entire forecast horizon.

Global economic signals have deteriorated in recent months due to heightened trade tensions and political uncertainty. Economic growth around the world slowed in the second quarter, and manufacturing output has since been showing signs of weakening. The economic slowdown is being accompanied by subdued capital spending and a decline in the global trade in goods. Employment growth in the advanced economies was also slower than in previous quarters. In light of the heightened economic risks and modest inflation dynamics, various central banks have adjusted their monetary policy stance and lowered their key rates.

In its new baseline scenario for the global economy, the SNB is revising down its growth forecast for the coming quarters. Over the short term, international momentum is likely to be modest. However, in the medium term the SNB expects the global economy to pick up again, not least due to monetary policy easing measures. Inflation is then expected to rise again gradually.

Risks to the global economy remain tilted to the downside. Chief among them are still political uncertainty and trade tensions, which could lead to renewed turbulence on the financial markets and a further dampening of economic sentiment.

The Swiss economy continued to grow at a moderate rate in the second quarter. Developments on the labour market also remained positive. Employment figures continued to rise, and the unemployment rate remained stable at a low level.

The deterioration of the international economic environment will likely cause growth to weaken temporarily. The SNB expects growth of between 0.5% and 1% for 2019 as a whole, compared to around 1.5% in June. The forecast adjustment is largely attributable to the fact that GDP growth rates for the second half of 2018 and the first quarter of 2019 were revised downwards.

Thursday September 19 2019
Bank Indonesia Slashes Interest Rates for 3rd Month
Bank Indonesia | Joana Ferreira |

Bank Indonesia reduced its 7-day reverse repo rate by 25bps to 5.25 percent during its September meeting, in an attempt to boost economic growth amid low inflation expectations. It was the third straight cut in three months, amid growing concerns about global growth due to continued trade tensions and a number of geopolitical risks. The overnight deposit and lending facilities were also trimmed by the same amount to 4.50 percent and 6.00 percent, respectively.

Excerpts from the Bank Indonesia press release:

Ongoing trade tensions between the United States and China, accompanied by geopolitical risks, continue to suppress the global economy and amplify global financial market uncertainty. The tit-for-tat imposition of higher import tariffs by the United States and China is stifling world trade volume and global economic growth. The US economy is moderating on declining exports and non-residential investment. In addition, economic growth in Europe, Japan, China and India continues to decelerate on weaker exports, which has fed through to lower domestic demand. The global economic slowdown has triggered lower international commodity prices, including oil, leading to mild inflationary pressures. In response, many countries have introduced fiscal stimuli and relaxed monetary policy. Meanwhile, high global financial market uncertainty has triggered a shift in global funds to safe haven assets, such as government bonds in the United States and Japan as well as gold, although capital inflows to developing economies have been maintained. Prevailing global economic dynamics demand vigilance due to the potential impact on efforts to stimulate economic growth and maintain foreign capital inflows to bolster external stability.

Indonesia's economy remains overshadowed by intense global headwinds. Exports have failed to regain momentum in line with weaker global demand and sliding commodity prices despite several manufacturing exports, such as motor vehicles, maintaining positive growth. Consequently, investment growth remains underwhelming, non-building investment in particular, while national strategic project development continues to prop up building investment. Private consumption has posted limited gains, although social aid program (bansos) disbursements by the government have helped to maintain stable household consumption growth. Moving forward, the policy mix implemented by Bank Indonesia and the Government is projected to maintain national economic growth momentum towards the lower half of the 5.0-5.4% range in 2019 before increasing towards the midpoint of the 5.1-5.5% targeted for 2020.

Low and stable inflation remains under control. CPI inflation in August 2019 was recorded at 0.12% (mtm), decreasing from 0.31% (mtm) the month earlier. Annually, headline inflation in August 2019 stood at 3.49% (yoy), up slightly from 3.32% (yoy) in the previous period. Inflation was supported by controlled core inflation in line with anchored inflation expectations due to policy consistency by Bank Indonesia to maintain price stability, manage aggregate demand and minimise the impact of global prices. Core inflation has been edged up over the past few months by rising international gold prices as well as the second-round effect of higher volatile food (VF) inflation. The latest developments, however, point to lower VF inflation in line with maintained foodstuff supply. Meanwhile, administered prices recorded deflation in the reporting period due to lower transport fares, airfares in particular due to implementation of the airlines’ low season strategy. Moving ahead, Bank Indonesia will consistently maintain price stability and strengthen policy coordination with the central and regional governments to control inflation. Therefore, Bank Indonesia projects inflation in 2019 below the midpoint of the 3.5%±1% target corridor and within the target range for 2020, namely 3.0%±1%.

Thursday September 19 2019
Swiss Posts Smallest Trade Surplus in Over 1-1/2 Years
Swiss Customs Administration l Chusnul Ch Manan |

The Swiss trade surplus narrowed to CHF 1.2 billion in August 2019 from a downwardly revised CHF 2.6 billion in the previous month. This was the smallest trade surplus since January last year, as exports fell while imports rose.

Exports dropped 4.3 percent from a month earlier to CHF 18.7 billion in August, due to lower sales of chemical and pharmaceutical products (-5.0 percent), jewellery (-9.8 percent), machinery and electronics (-5.1 percent); food, beverages and tobacco (-1.0 percent); and metals (-2.8 percent). Conversely, sales rose for watchmaking (1.7 percent); precision instruments (0.5 percent).
Among major trade partners, exports declined to France (-4.6 percent), Spain (-4.3 percent), Belgium (-10.4 percent), Germany (-13.6 percent), Italy (-4.6 percent), the US (-2.2 percent), the Middle East (-8.0 percent), Hong Kong (-16.0 percent), and Singapore (-17.2 percent). Meanwhile, there were increases in exports to the UK (4.8 percent), the Netherlands (0.7 percent), Austria (23.5), Japan (2.7 percent), and China (10.4 percent),

Imports increased 3.4 percent to CHF 17.6 billion, mainly due to higher purchases of chemical and pharmaceutical products (2.5 percent), vehicles (3.1 percent); jewellery (22.8 percent); and energy products (3.2 percent). On the other hand, imports dropped for: machinery and electronics (-1.9 percent); food, beverages and tobacco (-1.9 percent); metals (-3.0 percent), and textiles, clothing, footwear (-5.9 percent).

Among major trade partners, imports were up from France (19.7 percent), Belgium (14.4 percent), Austria (25.3 percent), Germany (0.8 percent), the UK (11.7 percent), Spain (0.8 percent), the middle east (2.8 percent), China (8.7 percent), and the US (2.9 percent), but decreased from, Italy (-12.4 percent), Ireland (-36.3 percent), the Netherlands (-7.1 percent), and Japan (-19.9 percent).
Considering the first eight months of the year, the trade surplus widened sharply to CHF 15.9 billion from CHF 11.1 billion in the same period of 2018.

Thursday September 19 2019
BoJ Holds Rates, Signals More Easing in October
Bank of Japan l Rida Husna |

The Bank of Japan left its key short-term interest rate unchanged at -0.1 percent at its September meeting, as widely expected, hours after the Federal Reserve lowered rates for the second time this year. Policymakers also kept the target for the 10-year Japanese government bond yield at around zero percent, but said they would review economic and price developments more thoroughly at the next policy meeting, heightening the chance of expanding stimulus as early as October.

With regard to the amount of JGBs to be purchased, the bank will conduct purchases in a flexible manner so that their amount outstanding will increase at an annual pace of about 80 trillion yen. 

The BoJ also determined by an unanimous vote to purchase ETFs and Japan real estate investment trusts (J-REITs) so that their amounts outstanding will increase at an annual paces of about 6 trillion yen and about 90 billion yen, respectively. With a view to lowering risk premia of asset prices in an appropriate manner, the bank may increase or decrease the amount of purchases depending on market conditions. As for CP and corporate bonds, the bank will maintain their amounts outstanding at about 2.2 trillion yen and about 3.2 trillion yen, respectively.  

Excerpts from the Statement on Monetary Policy:

Japan's economy has been on a moderate  expanding trend, with a virtuous cycle from income to spending operating, although exports, production, and business sentiment have been affected by the slowdown in overseas economies. Overseas economies have been growing moderately, although slowdowns have continued to be observed. In this situation, exports have shown some weakness. On the other hand, with corporate profits and business sentiment staying at high levels, business fixed investment has continued on an increasing trend. Private consumption has been increasing moderately, albeit with fluctuations, against the background of steady improvement in the employment and income situation. Housing investment and public investment have been more or less flat, reflecting the rise in domestic demand, and labor market conditions have remained tight. Meanwhile, financial conditions are highly accommodative. On the price front, the yoy rate of change in the consumer price index (CPI, all items less fresh food) is at around 0.5%. Inflation expectations have been more or less unchanged.

Risks to the outlook include the following: the US macroeconomic policies and their impact on global financial markets; the consequences of protectionist moves and their effects; developments in emerging and commodity-exporting economies such as China, including the effects of the two aforementioned factors; development in global adjustment in IT-related goods; negotiations on the UK's exit from the EU and their effects; and geopolitical risks. 

As for policy rates, the bank intends to maintain the current extremely low levels of short-and long-term rates for an extended period of time, at least through spring 2020, taking into account uncertainties regarding economic activity and prices including developments in overseas economies and the effects of the scheduled consumption tax hike. It will examine the risks considered mostrelevant to the conduct of monetary policy and make policy adjustment as appropriate, taking account of development in economic activity and prices s well as financial conditions, with a view to maintaining the momentum toward achieving price stability target. In particular, in a situation where downside risks are significant, the bank will not hesitate to take additional easing measures if there is greater possibility that the momentum toward achieving the price stability target will be lost.

Given that, recently, slowdowns in overseas economies have continued to observed and their downside risks seem to be increasing, the bank judges that its is becoming necessary to pay closer attention to the possibility that the momentum toward achieving the price stability target will be lost. Taking this situation into account, the bank will re-examine economic and price developments at the next MPM, when it updates the outlook for economic activity and prices.

Thursday September 19 2019
Australia Jobless Rate Highest in a Year
ABS | Rida Husna |

Australia's seasonally adjusted unemployment rate edged up to 5.3 percent in August 2019 from 5.2 percent in the previous month and in line with market expectations. It was the highest jobless rate since August last year, as the number of unemployed increased by 4,100 and employment rose by 34,700.

The number of unemployed rose by 4,100 to 716,800 in August. People looking for only part-time work went up 27,000 to 223,300, while those looking for full-time work declined by 22,900 to 493,500. Male unemployment grew by 6,700 to 382,200, while female unemployment fell 2,700 to 334,500.

Employment increased by 34,700 to 12,926,900 people in August, easily beating market consensus of a 10,000 gain and compared to a downwardly revised 36,400 increase in July. Part-time employed persons rose by 50,200 to 4,108,900, while full-time employed persons dropped 15,500 to 8,818,000. 

The participation rate edged up 0.1 point to a new record high of 66.2 in August, above forecasts of 66.1 percent. Also, the employment to population ratio rose 0.1 point to 62.7.

The underemployment rate increased 0.2 points to 8.6 percent in August, while the underutilisation rate rose 0.2 points to 13.8 percent.

Seasonally adjusted monthly hours worked in all jobs increased by 3.9 million hours, or 0.2 percent, to 1,782.6 million hours.

Thursday September 19 2019
Brazil Cuts Interest Rate to Fresh Record Low
Banco Central do Brasil | Mario |

The Central Bank of Brazil voted unanimously to trim its key Selic rate by 50bps to 5.50 percent during its September meeting, as widely expected. It is the second consecutive rate cut bringing borrowing costs to its lowest on record, amid the global economic slowdown and as key domestic reforms continue to move forward.

The Committee underscored that data on economic activity since the previous Copom meeting suggest resumption of the process of economic recovery. However, they expect this to occur at a gradual pace, and that risks of a global slowdown persist amid an uncertain outlook. Policymakers emphasizes that risks around its baseline scenario remain in both directions. On the one hand, the high level of economic slack may continue to produce lower-than-expected prospective inflation trajectory. Meanwhile, a possible frustration regarding the continuation of reforms and the perseverance in the necessary adjustments in the economy may affect risk premia and increase the path for inflation over the relevant horizon for the conduct of monetary policy. The Committee added that the decision reflects its baseline scenario for prospective inflation and the associated balance of risks, and it is consistent with convergence of inflation to target over the relevant horizon for the conduct of monetary policy. The Copom sees progress in the process of reforms and necessary adjustments in the economy, but emphasizes that persevering in this process is essential for the reduction of its structural interest rate and for sustainable economic recovery. Policymakers said that concrete progress in the reform agenda is fundamental for the consolidation of the benign scenario for prospective inflation.

The Copom deems that the consolidation of the benign scenario for prospective inflation should permit additional adjustment of the degree of stimulus. The Copom reiterates that communicating this assessment does not restrict its next decision, and emphasizes that the next steps in the conduct of monetary policy will continue to depend on the evolution of economic activity, the balance of risks, and on inflation projections and expectations.

The central bank started its easing cycle in October of 2016 after the inflation rate eased from double digits. The inflation rate finished 2018 within the central bank target of 4.5 percent plus or minus 1.5 percentage points and above 2.95 percent in 2017. It currently remains on target, as the annual inflation rate rose modestly  to 3.43 percent in August (versus 3.22 percent in July). Inflation expectations for 2019, 2020, 2021, and 2022 collected by the Focus survey are around 3.5%, 3.8%, 3.75%, and 3.5%, respectively.

The recovery is still taking longer than initially expected, but the economy gained some steam in the second quarter. GDP expanded 1.0 percent year-on-year in the second quarter of 2019, following a 0.5 percent growth in the previous period and beating market consensus of 0.7 percent. The latest central bank’s Focus survey of market expectations (13 September) pointed slightly higher GDP growth forecasts for 2019, now at 0.87 percent (vs 0.83 percent four weeks ago).

Wednesday September 18 2019
Fed Cuts Rates Despite Disagreement Among Policymakers
Federal Reserve | Joana Ferreira |

The Federal Reserve lowered the target range for the federal funds rate to 1.75-2 percent on a 7-3 vote during its September meeting. It was the second rate cut this year, amid global growth concerns and muted inflation pressures.

Median Fed policymaker projection is for no further rate cuts in 2019 but seven of 17 policymakers saw one more cut as appropriate.

GDP forecasts were raised to 2.2 percent in 2019 (vs 2.1 percent previously estimated) and 1.9 percent in 2021 (vs 1.8 percent), while that for 2020 was unchanged at 2.0 percent. Inflation expectations were seen at 1.5 percent in 2019, 1.9 percent in 2020 and 2.0 percent in 2021, matching June's projections.

Amid a breakdown this week in the overnight repurchase lending market, the Fed set interest on excess reserves rate at 1.80%, widening the spread from top of target range to 20 bp from 15 bp. 

FOMC Statement:

Information received since the Federal Open Market Committee met in July indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports have weakened. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-3/4 to 2 percent. This action supports the Committee's view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair, John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles. Voting against the action were James Bullard, who preferred at this meeting to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent; and Esther L. George and Eric S. Rosengren, who preferred to maintain the target range at 2 percent to 2-1/4 percent.

Thursday September 19 2019
Ghana Inflation Rate Lowest since 2013
Ghana Statistical Service Luisa Carvalho | Luisa Carvalho |

The annual inflation rate in Ghana fell to 7.8 percent in August 2019, the lowest level since September 2013, from 9.4 percent in the previous month, and below the mid-point of Bank of Ghana's target range of 6-10 percent. Prices slowed for non-food products while picked up for food.

Year-on-year, prices increased at a softer pace for non-food products (7.4 percent vs 10.4 percent in July), namely clothing & footwear (6.6 percent vs 14.9 percent); hotels, cafes & restaurants (4.8 percent vs 9.9 percent); education (2.7 percent vs 6.4 percent); health (5.4 percent vs 7.9 percent); furnishings (6.1 percent vs 14.6 percent) and recreation & culture (7.4 percent vs 14.8 percent). Meanwhile, cost rose further for alcoholic beverages & tobacco (12.9 percent vs 10.3 percent); housing & utilities (9.9 percent vs 9.8 percent), mainly attributable to hikes in electricity and water tariffs with effect from July and transport (10.2 percent vs 6.9 percent), following hikes in fuel prices.

Contrastingly, food inflation jumped to 8.2 percent from 6.6 percent in the prior month, boosted by prices of fruits and nuts (25.2 percent); cereals and cereal products (10.6 percent); sugar, confectionery and deserts (9.0 percent), and ready-made food and other food products (8.3 percent).

The base year for the consumer price index was changed to 2018 from 2012 and the new basket was expanded to 307 items compared with 267 before.

Wednesday September 18 2019
Ghana GDP Growth Slows to 1-Year Low in Q2
Ghana Statistical Service | Luisa Carvalho |

The economy of Ghana advanced 5.7 percent year-on-year in the second quarter of 2019, following a 6.7 percent growth in the previous period. It was the slowest expansion since the second quarter of 2018, amid sharp contraction in construction, water supply and electricity. Also, mining and financial services grew less.

The industrial sector rose 6.1 percent, following a 8.4 percent advance in the first quarter of 2019. Output growth weakened for mining & quarrying (14.0 percent vs 20.9 percent) while contractions were recorded for construction (-8.3 percent vs -8.7 percent); water supply, sewerage, waste management and remediation activities (-7.9 percent vs -6.4 percent) and electricity supply (-7.5 percent vs 11.1 percent). In contrast, oil & gas (25.2 percent vs 14.6 percent) and manufacturing (7.4 percent vs 5.6 percent) grew solidly and at a faster clip.

The services sector expanded 6.5 percent, slower than 7.2 percent in the previous period, as activity moderated in financial services (1.4 percent vs 2.1 percent); trade, repair of vehicles and household goods (2.0 percent vs 2.9 percent); hotels & restaurants (6.6 percent vs 8.6 percent); professional, administrative & support service activities (5.9 percent vs 6.8 percent) and health & social work (10.3 percent vs 22.1 percent). In addition, public administration, defense & social security posted a decline (-2.8 percent vs 3.2 percent). Conversely, sharper gains were seen for information & communication (52.8 percent vs 37 percent); real estate (14.9 percent vs 9.1 percent); transport & storage (3.7 percent vs 3.1 percent) education (8.9 percent vs 8.5 percent).

Agriculture grew 3.1 percent, much faster than 2.2 percent in the prior quarter, pushed by livestock (5.7 percent vs 5.5 percent) and crops and cocoa (4 percent vs 2.4 percent). However, forestry & logging (-6.5 percent vs -5.8 percent) and fishing (-2.1 percent vs -1.5 percent) reported declines.

On a quarterly basis, the GDP grew 1.4 percent, the least in a year, compared to 1.6 percent in the previous quarter. 

Wednesday September 18 2019
Russia Jobless Rate Falls to Record Low of 4.3%
Federal State Statistics Service | Agna Gabriel |

Russian unemployment rate decreased to an all-time low of 4.3 percent in August of 2019 from 4.5 percent in the previous month and below market expectations of 4.4 percent.

The number of unemployed dropped by 106 thousand to 3.258 million in August from 3.364 million in the previous month. Compared with the previous year, unemployment decreased by 248 thousand from 3.506 million.

Meantime, registered unemployment came in at 0.712 million, lower than July's 0.727 million but above last year's 0.679 million.

Russia’s real wages increased 3 percent from the previous year in August of 2019, the same as in the previous month and in line with market expectations. Average nominal wages climbed 7.4 percent to RUB 45,100 while annual inflation was at 4.3 percent, its lowest since December 2018.

Wednesday September 18 2019
Canada Inflation Rate at 5-Month Low of 1.9%
Statistics Canada | Luisa Carvalho |

The annual inflation rate in Canada edged down to 1.9 percent in August 2019 from 2.0 percent in the previous month and below market expectations of 2 percent. It was the lowest inflation rate since March, primarily due to lower gasoline prices.

Year-on-year, prices slowed mostly for transport (1.4 percent vs 1.5 percent in July), namely gasoline (-10.2 percent vs -6.9 percent) amid lower global oil prices; and food (3.6 percent vs 3.8 percent), driven by fresh vegetables, fresh fruit and meat. Also, cost increased less for recreation, education and reading (2.0 percent vs 2.7 percent); health and personal care (0.9 percent vs 1.5 percent) and alcoholic beverages, tobacco and recreational cannabis (0.9 percent vs 1.2 percent). In contrast, inflation edged higher for shelter (2.4 percent vs 2.3 percent); household operations, furnishings and equipment (0.5 percent vs 0.3 percent). Meantime, prices advanced at the same pace for clothing & footwear (1.1 percent).

Regarding special aggregates of the CPI, cost of goods slowed to 0.9 percent in August from 1.3 percent in July, namely durable (1.6 percent vs 1.9 percent) and non-durable goods (0.6 percent vs 1.3 percent); and cost of energy fell more deeply (-4.7 percent vs -3.2 percent). Conversely, cost of services increased at a faster pace (2.6 percent vs 2.4 percent).

On a monthly basis, consumer prices dropped 0.1 percent, after rising 0.5 percent in the previous month and compared with market expectations of a 0.2 percent decrease.

The BoC's annual core inflation, which excludes volatile items, eased to 1.9 percent in August from 2 percent in July, and below market consensus of 2.2 percent. It was the lowest rate in four months.

Wednesday September 18 2019
US Housing Starts Climb to 12-Year High
US Census Bureau | Joana Ferreira |

US housing starts jumped 12.3 percent from a month earlier to a seasonally adjusted annual rate of 1,364 thousand units in August 2019, the highest level since June 2007 and compared to market expectations of 1,250 thousand. It is the highest number since June 2007 likely boosted by lower mortgage rates.

Starts for the volatile multi-family housing segment soared 32.8 percent to a rate of 445 thousand units in August; and single-family homebuilding, which accounts for the largest share of the housing market, rose 4.4 percent to a rate of 919 thousand units, the highest level since January. Increases in housing starts were recorded in the South (14.9 percent to 711 thousand), Northeast (30.5 percent to 124 thousand) and Midwest (15.4 percent to 210 thousand), while starts in the West were flat at 319 thousand. 

The 30-year fixed mortgage rate has dropped more than 130 basis points to an average of 3.56 percent, according to Freddie Mac. While the 30-Year Mortgage Rate backed by the Mortgage Bankers Association was recorded at 3.82 percent in the week ended September 6th, the lowest since October 2016.

Building permits climbed 7.7 percent to a rate of 1,419 thousand units in August, while markets had forecast a decline to 1,300 thousand. That was the highest level in permits since May 2007, boosted by a 13.3 percent jump in the volatile multi-family housing segment. In addition, single-family authorizations rose 4.5 percent to 866 thousand. Across regions, permits were higher in the South (11.0 percent to 748 thousand), Northeast (26.9 percent to 151 thousand) and Midwest (14.5 percent to 189 thousand), but declined in the West (-7.8 percent to 331 thousand).

Year-on-year, housing starts increased 6.6 percent while building permits advanced 12.0 percent.

Wednesday September 18 2019
Italy Posts Biggest Trade Surplus in 3 Years
Istat | Luisa Carvalho |

Italy's trade surplus widened to EUR 7.631 billion in July 2019 from EUR 5.659 billion in the same month a year ago and beating market expectations of a EUR 4.71 billion surplus. This is the largest trade surplus since July 2016, as exports hit their highest ever monthly figure, boosted by shipments of pharmaceuticals and botanical articles. Imports grew much slower, as higher purchases of basic metals and transport equipment were partly offset by lower acquisitions of chemicals and refined petroleum products.

Exports jumped 6.2 percent year-on-year to a record high of EUR 45.38 billion in July 2019, driven by shipments of pharmaceuticals and botanical articles (27.3 percent); food, beverages and tobacco (13.9 percent), leather goods, excluding clothing, and similar (15.3 percent), means of transport, excluded vehicles (13.1 percent); articles of clothing, including leather and fur (12.8 percent); basic metals and metal products (6.0 percent) and chemical products (4.1 percent). In contrast, lower sales were registered for refined petroleum products (-19.4 percent); vehicles (-1.2 percent) and electrical apparatus (-4 percent).

Among major trading partners, exports rose to Germany (2.6 percent), France (4.6 percent), Spain (8.9 percent), the UK (5.9 percent), Belgium (2.8 percent), the Netherlands (12.2 percent), Poland (13 percent), Switzerland (32.8 percent), the US (18 percent) and Japan (27.3 percent). However, overseas sales were down to China (-10.1 percent), Russia (-1.0 percent) and Turkey (-3.3 percent).

Imports advanced 1.8 percent from a year earlier to EUR 37.75 billion, driven by basic metals and metal products (8.2 percent); transport equipment (5.1 percent), of which vehicles (1.3 percent); pharmaceuticals and botanical articles (8.0 percent); textiles, clothing, leather & accessories (5.5 percent); food (4.7 percent). Meanwhile, purchases declined for chemical products (-3.4 percent); refined petroleum products (-9.0 percent) and wood & wood products (-0.4 percent).

Among major trading partners, imports grew from Germany (2.0 percent), the Netherlands (0.9 percent), Spain (4.7 percent), Belgium (0.7 percent), the UK (6 percent), Russia (16.4 percent), Switzerland (20.5 percent), China (15 percent) and Turkey (8.1 percent). Conversely, acquisitions declined from France (-1.8 percent), Austria (-0.4 percent), the US (-0.5 percent) and India (-23.2 percent).

With European countries, the country's trade surplus widened significantly to EUR 3.575 billion from EUR 2.660 billion in July 2018.

Considering the first seven months of the year, the country's trade surplus rose to EUR 29.71 billion from EUR 24.72 billion a year earlier.

Wednesday September 18 2019
Eurozone Inflation Rate Unchanged at Near 3-Year Low
Eurostat | Stefanie Moya |

The annual inflation rate in Euro Area was at 1 percent in August 2019, unchanged from the previous month and in line with a preliminary estimate and market expectations, final data showed. It remained the lowest inflation rate since November 2016, as energy prices fell while cost of food, alcohol & tobacco rose further.

Cost of energy dropped 0.6 percent, after increasing 0.5 percent in July and non-energy industrial goods prices eased(0.3 percent from 0.4 percent). On the other hand, prices advanced at a faster pace for food, alcohol & tobacco (2.1 percent from 1.9 percent), boosted by unprocessed food (2.5 percent from 1.7 percent) while processed food, alcohol & tobacco slowed (1.9 percent from 2 percent); and services (1.3 percent from 1.2 percent). 

Among Eurozone's largest economies, the highest annual rate was recorded in France (1.3 percent), followed by Germany (1.0 percent), Italy (0.5 percent) and Spain (0.4 percent).

The annual core inflation, which excludes volatile prices of energy, food, alcohol & tobacco and at which the ECB looks in its policy decisions, was confirmed at 0.9 percent, the same as in the previous month and matching market forecasts.

On a monthly basis, consumer prices went up 0.1 percent, rebounding from a 0.5 percent fall in the prior month and below market forecasts of 0.2 percent.

Wednesday September 18 2019
Japan Trade Gap Narrows as Imports Slump
Ministry of Finance, Japan | Stefanie Moya |

Japan's trade deficit narrowed to JPY 136.3 billion in August 2019 from JPY 448.1 billion in the same month a year earlier and compared to market expectations of a JPY 356 billion gap. Exports declined 8.2 percent, the ninth straight month of decline, while imports plunged 12 percent, as trade policy uncertainty continues to drag activity.

Exports fell 8.2 percent from a year earlier to JPY 6.14 trillion in August, compared to market forecasts of a 10.9 percent decline and July's 1.5 percent decrease. It was the ninth straight month of declines in shipments, amid weakening global demand and the US-China trade dispute. Lower sales were recorded in transport equipment (-8.2 percent), mainly due to motor vehicles (-7.2 percent), parts of motor vehicles (-13.6 percent) and motorcycles & autocycles (-32 percent); and machinery (-12.3 percent) namely semiconductor machinery (-24.5 percent),  power generating machines (-12.7 percent), computers and untis (-4.8 percent) and parts of computer (-9.5 percent); electrical machinery (-8.1 percent), in particular semiconductors (-2.7 percent), electrical apparatus (-14.5 percent) and measuring (-12.4 percent), batteries & accumulators (-15.3 percent) and electrical power machinery (-3.3 percent). Also, sales dropped for manufactured goods (-11 percent), of which iron & steel products (-13.6 percent), nonferrous metals (-10 percent), manufactures of metals (-8.5 percent), rubber (-8.6 percent), non-metallic mineral ware (-10.9 percent) and paper (-17.3 percent); and chemicals (-5.1 percent) mostly plastic materials (-6 percent) and organic chemicals (-6.9 percent). 

Among main trade partners, exports went down to China (-12.1 percent), the US (-4.4 percent), the EU (-1.3 percent), South Korea (-9.4 percent), Taiwan (-8.5 percent), Hong Kong (-11.5 percent), Singapore (-19.4 percent), Thailand (-3.6 percent), and Australia (-18.5 percent), but rose to the Middle East (0.7 percent).

Imports slumped 12 percent to JPY 6.28 trillion, compared to expectations of a 11.2 percent fall and the previous month's 1.2 percent decline. Purchases of mineral fuels dropped 25.3 percent, in particular petroleum (-25 percent), petroleum products (-28.8 percent), LNG (-23.3 percent), LPG (-32 percent) and coal (-24.5 percent). In addition, imports went down for electrical machinery (-8.9 percent), namely semiconductors (-12.5 percent) and telephony & telegraphy (-19.4 percent); machinery (-14.8 percent), of which power generating machines (-27.4 percent) and parts of computer (-0.8 percent); and foodstuff (-5 percent), namely fish & fish preparations (-14.5 percent), meat (-1.5 percent), cereals (-6.2 percent), vegetables (-6.8 percent) and fruits (-4.4 percent). Also, purchased declined for manufactured goods (-10 percent), mainly nonferrous metals (-21.5 percent), iron & steel products (-5.3 percent), metals (-4.6 percent), textile yarn & fabrics (-9.4 percent) and non-metallic mineral ware (-10.5 percent); chemicals (-4.2 percent), due to organic (-14.4 percent); transport equipment (-1.7 percent); and raw materials (-10 percent).

Imports dropped from China (-8.5 percent), South Korea (-10.3 percent), Taiwan (-6.8 percent), the US (-9.2 percent),  the EU (-2.3 percent), and the Middle East (-29.8 percent).

Wednesday September 18 2019
UK August Inflation Rate at Over 2-1/2-Year Low
ONS | Stefanie Moya |

The annual inflation rate in the United Kingdom fell to 1.7 percent in August 2019 from 2.1 percent in the previous month and below market expectations of 1.9 percent. It was the lowest inflation rate since December 2016, amid a slowdown in cost of transport and a fall in clothing & footwear prices.

Year-on-year, prices eased for transport (1.4 percent from 1.5 percent in July); furniture, household equipment and maintenance (0.8 percent from 1.1 percent); recreation and culture (1.2 percent from 2.4 percent); restaurants and hotels (2.8 percent from 3.1 percent); health (2.4 percent from 2.6 percent); communication (3.6 percent from 3.8 percent); and alcoholic beverage and tobacco (3.3 percent from 3.8 percent). Also, cost of clothing and footwear dropped 0.9 percent, after increasing 0.4 percent in July. On the other hand, prices rose further for food and non-alcoholic beverages (1.8 percent from 1.4 percent); and miscellaneous goods and services (1.8 percent from 1.7 percent). In addition, inflation was steady for housing, water, electricity, gas and other fuels (at 2.4 percent); and education (at 3.1 percent).

The consumer prices index including owner occupiers’ housing costs (CPIH) declined to 1.7 percent in August from 2 percent in the prior month.

The annual core inflation rate, which excludes prices of energy, food, alcohol and tobacco, decreased to 1.5 percent, its lowest since November 2016, from 1.9 percent in July.

On a monthly basis, consumer prices advanced to 0.4 percent, following a flat reading in the previous month.