The negativity continued with a disappointing ISM, an unanticipated crackdown on a ride hailing app by Chinese regulators and some disquieting noises surrounding potential defaults in the Chinese construction industry. Whilst corporate regulation and defaults are necessary part of markets, the short-term mark to market may be a little more painful than previously anticipated. Towards the end of the week the Chinese State Council took the unusual step of recommending a cut in the Reserve Ratio Requirement, which the PBOC duly implemented.
The net result was a 4bp rally over the week in 10y UST as markets shook off Thursday’s max-pessimism and whilst US equity indices made new highs Asian equities ones did not.
Employment impressed at +230.7k (175.0k exp., -68.0k prev.) with most jobs generated in the part-time sector. The unemployment rate dropped to +7.8% (7.8% exp., 8.2% prev.) and the participation rate increased to +65.2% (64.6% prev.) as more workers entered the labor force. All this data supports the BoC continuing its tapering of QE.
ISM Services was expansionary, but disappointed. The FOMC minutes did not add to the taper discussion in a meaningful manner.
This weeks’ voice of reason was the ECB, which says as much in itself. The Central Bank announced the result of its internal review which was a shifting of the inflation target to a symmetrical 2%. It’s not quite the AIT the Fed follows, so wasn’t viewed to be as bold a move as some in the market had wished for. Additionally, the new inflation measure is set to include an element of housing, which previous analysis have shown increases the result. So, net-net it looked like the committee’s hawks had hobbled the doves before they even got started. With more details to be released over the coming weeks along with how this will affect forward guidance, maybe the doves will get their way in the end.
Retail sales were slightly better at +4.6% MoM (4.3% exp., -3.1% prev.) and +9.0% YoY (8.2% exp., 23.9% prev.) French industrial and manufacturing production was slightly weaker. German factory orders and industrial production were weaker and surveys of expectations disappointed. Italian retail sales and industrial production were weaker, and PMIs were stronger than expected.
Norway Core GDP was strong at +1.8% MoM (0.9% exp., 0.3% prev.) and headline CPI was robust at +0.3% MoM (0.4% exp., -0.1% prev.) and +2.9% YoY (2.9% exp., 2.7% prev.) with core CPI a little more subdued +0.4% MoM (0.5% exp., -0.4% prev.) and +1.4% YoY (1.5% exp., 1.5% prev.). Only industrial production & manufacturing disappointed with both printing negative MoM. This data will not challenge the Norges Bank’s desire to raise policy rates.
Sweden PMIs ticked lower but were expansionary. Measures of industrial, orders, services and household activity as well as monthly GDP were positive.
The main news was a new lockdown in Tokyo and the disappointment of an Olympics without spectators. Sentiment surveys were mixed.
Industrial, manufacturing, services and construction measures of output disappointed.
The RBA met and left policy rates unchanged at 0.1% (0.1% exp., 0.1% prev.) and 3-Yr Yield Target 0.1% (0.1% exp., 0.1% prev.) but upgraded the probability of the central scenario meeting the inflation target in 2024, albeit with a wider range either side. Additionally, a faster taper was hinted at in the Governor’s subsequent speech.
Lockdowns continued in Sydney, with the immediate lifting of restrictions rolled back as a larger number of cases were discovered.