[ECB] Nagel: Structural Factors Will Keep Inflation Higher

Remarks of Officials

Summary:

The euro area will not return to the ultra-low inflation era before the pandemic as geopolitics, decarbonization, and other factors may keep inflation in the euro area at a high level in the next few years.

ECB Governing Council member and the President of the Deutsche Bundesbank Joachim Nagel delivered a speech at the Joint Spring Conference 2024 on May 7, local time, with the key points as follows.

Since late 2022, the wave of inflation has been receding. Energy price dynamics even reached negative territory, supply-chain strain eased, and core inflation has started to decline. In the euro area, inflation is expected to return to around 2%.

Although inflation in the euro area has come down significantly to 2.4% now, views diverge as to whether the risk of future inflation being too high or too low is greater.

Looking ahead, the euro area will not return to the ultra-low inflation era before the pandemic as geopolitics, decarbonization, and other factors may keep inflation in the euro area at a high level in the next few years.

With these structural factors, monetary policy is likely to reach a certain equilibrium with inflation at about 2% and the level of interest rates not too high but at a safe distance from the effective lower bound.

If there is more price pressure in the medium term, we must take action against it. Even a temporary accommodation of higher inflation rates bears a risk of inflation expectations becoming de-anchored. We should not allow this risk to materialize.

Nagel's Speech

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Cohen

Economic

Bank of Japan chief Kazuo Ueda said Tuesday after meeting with Prime Minister Fumio Kishida that the central bank will keep close tabs on the impact of the yen's recent sharp drop on inflation and its conduct of monetary policy.

Ueda reiterated that the weak yen has had no big impact on underlying inflation so far, but he expressed caution that currency moves could potentially affect the economy "to a great extent."

His comments came after he was perceived to have played down the significance of the yen's rapid depreciation last month, accelerating its fall against the U.S. dollar.

"While the situation surrounding prices and wages was a major point, we did talk about foreign exchange rates," Ueda told reporters at the prime minister's office.

"We will carefully watch how (the weak yen) will impact trend inflation," he said.

The meeting between Kishida and Ueda was the first since March, when the BOJ made a landmark shift from unorthodox monetary easing. The two confirmed the need for close coordination between the government and the central bank, according to the governor.

Alarmed by its blow to households and businesses, Japanese authorities are suspected to have intervened in the foreign exchange market and the country's top currency diplomat on Tuesday warned anew that the government would take "appropriate" action against excessive yen fluctuations.

While the yen's recent rapid fall against the dollar apparently prompted Japan to intervene in the market last week for the first time since 2022, analysts say the underlying trend of yen weakness will likely persist.

The BOJ raised interest rates in March for the first time in 17 years but they are still behind its global peers, including the U.S. Federal Reserve, which has aggressively tightened policy to curb inflation. The interest rate gap has made the yen less appealing, prompting intense selling of the currency.

Masato Kanda, vice finance minister for international affairs, said foreign exchange rates should be stable, reflecting economic fundamentals. But he remained silent on whether Japan had stepped into the market.

"We must take action against disorderly movements, led by speculators and others," Kanda told reporters. "We will respond appropriately to excessive fluctuations that deviate from fundamentals."

The yen rebounded sharply after falling beyond 160, a 34-year low versus the dollar, on April 29. The yen later retreated to the 157 range but again surged to the 151 level following another suspected intervention in New York on Wednesday.

After the series of suspected market interventions estimated by market sources to be worth over 8 trillion yen ($52 billion), the yen was mostly trading in the 154 territory on Tuesday in Tokyo.

Unlike in September 2022, when Japan announced its foray into the market immediately after taking action, it has not confirmed whether or not it intervened in the market this time around, in an apparent bid to leave traders cautious about making bold moves.

Asked about the difference in response, Kanda said the September 2022 announcement was an "exception," given that the government had carried out its first intervention in a quarter century.

Source：KYODO NEWS

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Cohen

Economic

Stocks

The intense pace of deals in the world's most populous region comes as countries and companies respond to booming demand for AI, calling for more data capacity, industry executives said.

Asia Pacific, including Japan, has led dealmaking activities in the global data centre market this year, with M&A value totalling $840.47 million, more than half of the global amount, LSEG data showed.

In 2023, the region's data centre deals hit a record high of $3.45 billion, according to LSEG. That tally is set to be surpassed this year with at least a couple of large transactions in the pipeline.

A number of financial sponsors, including global investment powerhouse Blackstone Inc (BX.N), are looking to acquire AirTrunk, which owns 11 hyperscale data centres in Australia and the rest of the region, sources close to the transaction said.

AirTrunk owners, Macquarie Group (MQG.AX) and Canada's Public Sector Pension Investment Board (PSP), are aiming to value the business at up to A$15 billion ($9.8 billion), sources said, in what could be Asia's largest data centre transaction this year.

AirTrunk, Blackstone, Macquarie and PSP declined to comment.

"The AI revolution is creating an unprecedented wall of demand for high quality data centre capacity," said Garren Cronin, managing director of Cadence Advisory, which advised on Australian data centre operator NEXTDC's $861 million capital raising in April.

"The new capacity that needs to be built in Asia Pacific in the next three to five years is simply mind blowing. My expectation is that deal flow in the data centre space will intensify in 2024."

Microsoft Corp (MSFT.O) last week said it would invest $2.2 billion over the next four years in Malaysia to expand its cloud and AI services across Asia.

The rise of data centre investments in Asia follows a similar trajectory to that seen in the U.S. and Europe with technology giants including Amazon (AMZN.O), Microsoft, Alphabet Inc (GOOGL.O) and Meta Platforms(META.O), rapidly expanding their AI capabilities.

Microsoft will open its first Asian data centre in Thailand, the company said last Wednesday, a day after announcing $1.7 billion worth of investments in AI and cloud facilities in neighbouring Indonesia.

DATA CONSUMPTION

Other potential deals in Asia include Indonesia's state-owned Telkom Indonesia (TLKM.JK)'s sale of a stake in its data centre business worth $1 billion and Japan's NEC weighing $500 million data centre sale, according to news reports.

Telkom Senior Vice President Investor Relations Ahmad Reza told Reuters on Wednesday that Telkom is open to strategic partnerships to bring its data centre business arm NeutraDC new capabilities and new markets.

"We have explored several potential partners, but we are still evaluating for the best one," he said. "We expect to finish this process by the end of this year."

NEC said it was not able to comment on market speculation.

U.S. investment firm Bain Capital is seeking credit financing for the international assets of data centre operator Chindata and investments for its China business, people close to Bain Capital said.

Bain, which took Chindata private from the Hong Kong bourse last year in a $3.16 billion deal, declined to comment.

Goldman Sachs Asset Management (GSAM), which invested in AirTrunk in 2017 before selling its stake to a Macquarie-led consortium three years later, has deployed more than $1 billion on data centre development in Asia over the past three years.

The firm would actively invest in additional projects, with a particular focus on Japan and South Korea, said Nikhil Reddy, head of APAC real estate at GSAM.

"AI creates a different type of need for data centres beyond the historic demands of the cloud focused on low latency. Now with AI, which entails massive data consumption, capacity is key," he said.

Source: Reuters

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FastBull Featured

Daily News

[Quick Facts]

1. Fed's Kashkari says current rates may not be enough to curb inflation.

2. EIA expects 2024 oil market supply and demand to be balanced.

3. ECB's Nagel says structural forces could keep inflation higher.

4. Powell's public confidence nears a historic low.

5. Israel takes control of Rafah crossing.

[News Details]

Fed's Kashkari says current rates may not be enough to curb inflation

Recent data suggests that the Fed's monetary tightening may not be as tight as Fed officials thought, and inflation may be hovering around 3%, Minneapolis Fed President Neel Kashkari said on Tuesday.

"My colleagues and I are of course very happy that the labor market has proven resilient, but, with inflation in the most recent quarter moving sideways, it raises questions about how restrictive policy really is,” Kashkari said.

Since the 2008 financial crisis, the number of homes built in the United States has failed to keep pace with population growth, leading to a persistent housing supply shortage. In addition, remote working as a result of the COVID-19 pandemic has increased demand for housing in many markets, and recent waves of immigration have added to supply pressures. Meanwhile, the Fed's policy has pushed the 30-year mortgage rates up by roughly 3.5 percentage points, from roughly 4% before the pandemic to around 7.5% today.

Perhaps due to these factors, the impact of current mortgage rates on residential investment is not as big as expected.

The most likely scenario for the U.S. economy is that interest rates remain high for a while. If inflation declines or the labor market weakens significantly, rates may need to be cut. But if we are ultimately convinced that inflation is fixed at 3%, and we need to raise rates further. We will take the necessary steps.

EIA expects 2024 oil market supply and demand to be balanced

The U.S. Energy Information Administration (EIA) released its short-term energy outlook on Tuesday, with global crude oil supply expected to increase to 102.76 million barrels per day (bpd). At the same time, the agency lowered its global demand forecast to 102.84 million bpd, which leaves the crude oil market with a supply gap of only 80,000 bpd in 2024, lower than previously forecast.

The EIA said that production from non-OPEC countries led by the U.S., Canada, Brazil and Guyana has increased by 1.8 million barrels per day (bpd) in 2024. The EIA estimates that OPEC's idle production capacity is about 4 million bpd.

The oil market is forecast to reach a supply-demand balance in 2024 as increased production from non-OPEC countries offset recent OPEC production cuts.

ECB's Nagel says structural forces could keep inflation higher

A range of potential factors could lead to higher inflationary pressures in the future, such as demographic trends that could lead to sustained high wage growth, ECB Governing Council member and President of the Deutsche Bundesbank Joachim Nagel said on Tuesday. The interaction of structural drivers could keep inflation higher. Action will be taken if upward price pressures return in the medium term.

Powell's public confidence nears a historic low

A new Gallup poll has found that Jerome Powell is struggling to shed his label as the lowest-rated US Federal Reserve chairman in nearly a quarter century, as inflation persists and high prices irritate US consumers. The survey shows 39% of US adults say they have a "great deal" or a "fair amount" of confidence that the Fed chairman would do the right thing for the economy, a slight increase from 36% a year ago when prices were rising more rapidly. The fluctuation was within the poll's margin of error of 4 percentage points. But politics is also one of the main reasons why Powell's satisfaction ratings are struggling to climb. Former President Trump hinted that Powell would use his influence to help Democrats win the November election. Only 30% of Republicans say they have confidence in Powell, almost half of the 56% of Democrats.

Israel takes control of Rafah crossing

Israeli military forces have taken control of the Palestinian side of the Rafah crossing between Gaza and Egypt, Israeli officials said on May 7. The channel for humanitarian aid to Gaza has been closed. On the same day, Egypt and many other parties condemned Israel's move.

The attack came despite Hamas saying on Monday that it had agreed to the terms of a truce deal finalized by mediators. In this round of negotiations, Hamas showed greater sincerity and made some concessions to Israel in the ceasefire proposal, but it still didn't satisfy Israel's core demands.

[Focus of the Day]

UTC+8 20:00 ECB Governing Council Member Wunsch Speaks

UTC+8 23:00 Fed Vice Chairman Jefferson Speaks on the Economy

UTC+8 23:45 Boston Fed President Collins Speaks

UTC+8 01:00 Next Day: ECB Governing Council Member Hernandez de Cos Speaks

UTC+8 01:30 Next Day: Fed Governor Lisa Cook Speaks on Financial Stability

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Alex

Cryptocurrency

The Bitcoin price has started the week with an upward momentum, before witnessing a volatile on May 7. Notably, the price of the largest crypto by market, along with several other altcoins, has witnessed heightened volatility in recent weeks due to a flurry of reasons. For instance, the significant outflow from the U.S. Spot Bitcoin ETF has weighed on the sentiments in recent weeks.

So, let’s take a look at the factors that have so far impacted the Bitcoin price, and how it may perform in the long term.

Factors Impacting Bitcoin Price:

The Bitcoin price was largely impacted this year due to U.S. Spot Bitcoin ETF approval, the Fed’s policy rate stance, and the Bitcoin Halving. Here we take a quick recap of the year.

Bitcoin ETF Hype

The Bitcoin price has noted positive trading since last year, as investors were anticipating the Bitcoin ETF. Notably, the approval of the U.S. Spot Bitcoin ETF in January has bolstered investors’ confidence. In addition, the positive influx into the investment instrument has also fuelled the market sentiment.

Meanwhile, the immense success of the Bitcoin ETFs has also sent the BTC price to its all-time high in mid-March. Simultaneously, the recent approval of the Spot ETF in Hong Kong has further bolstered confidence, while reflecting the the growing institutional confidence in the sector.

Federal Reserve’s Interest Rate

The Federal Reserve’s stance with their policy rates has also weighed on the sentiments so far this year. For context, the market was anticipating around five rate cuts through the year, while expecting the inflation to cool.

However, the economic data has shown that inflation has stayed strong while dampening hopes over potential rate cuts this year. Now, a flurry of analysts are expecting a single or two rate cuts through the year. Besides, some have also put their bets on no change in the policy rates in 2024.

Bitcoin Halving

The Bitcoin Halving is one of the key events the market was waiting for in 2024. The recent Halving event has so far fuelled the confidence of the market participants, given its potential impact on the BTC in previous events.

Historically, the Bitcoin Halving event has triggered a significant rally in the BTC price, sending it to a new high. Considering that the market was also bullish towards the flagship crypto. However, several market pundits suggested a short-term volatility after the halving, while maintaining an upward trajectory for the long term.

Now that we have gone through some of the basic factors that have impacted the BTC performance significantly, let’s look at how the Bitcoin price might perform in the coming days.

Will Bitcoin Price Remain Stable In August?

Rekt Capital, a prominent crypto market analyst, provides insights into Bitcoin’s potential peak in the current cycle. Analyzing historical trends, he suggests Bitcoin could peak between mid-December 2024 and early March 2025.

However, he also noted that the ongoing deceleration in the cycle may lead to a resynchronization with traditional Halving cycles. As Bitcoin consolidates, the potential for stability and resynchronization increases, impacting its peak timeframe.

Will Bitcoin Price Remain Stable Till August?Here’s All_1

Notably, the analyst highlights that Bitcoin’s performance beyond old All-Time Highs has historically lengthened, suggesting a longer Bull Market Peak timeframe. With these factors in mind, investors anticipate stability and potential peak adjustments in the coming months, influencing Bitcoin’s price trajectory in August 2024.

In addition, another market expert, Ali Martinez said that despite the recent advancement in Bitcoin price this week, the “MVRV 90-Day Ratio” suggests that Bitcoin is still under a “prime buy zone.” This has also fuelled the confidence of the investors, over a potential stability in the BTC’s trajectory in the coming days. Will Bitcoin Price Remain Stable Till August?Here’s All_2

Will Bitcoin Price Remain Stable Till August?Here’s All_2

Simultaneously, the recent U.S. Job data showed that the inflation pressure has cooled, although it still stayed above the Fed’s 2% target range. Given that, some have raised their bets over a potential rate cut in July. Notably, such a factor, if happens, could potentially boost the investors’ sentiment, and help Bitcoin maintain stability in August.

Meanwhile, as of writing, the Bitcoin price was down 1.10% and traded at $63,585.38, while its trading volume rose 67.61% to $30.56 billion. However, the crypto has touched a high of 65,494.90 in the last 24 hours.

Source：coingape

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Samantha Luan

Economic

Forex

The offshore yuan further retreated from a more than three-month high hit last week, helped by hopes of further policy stimulus from Beijing to shore up its economy. It last stood at 7.2247 per dollar.

The yen was last little changed at 154.75 per dollar, edging away from its peak of 151.86 hit last week on the back of suspected intervention from Japanese authorities to prop up the sliding currency.

Analysts have said that any intervention from Tokyo would only serve as a temporary respite for the yen, given stark interest rate differentials between the U.S. and Japan remain.

Bank of Japan Governor Kazuo Ueda said on Wednesday the central bank will scrutinise the impact of yen moves on inflation in guiding monetary policy, while the country's Finance Minister Shunichi Suzuki repeated a warning that authorities were ready to respond to excessively volatile moves in the currency market.

"If we were to see a sudden, sharp move up in dollar/yen then I would expect them to step into the market to support the yen. But if we continue to see a gradual move up, I doubt they'll come in, but there's obviously a risk," said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

The euro and New Zealand dollar edged 0.02% lower each to $1.0752 and $0.6000, respectively.

Against a basket of currencies, the greenback was steady at 105.41, some distance away from a roughly one-month low it hit last week.

Investors continue to be focused on the pace and timing of Fed rate cuts that will likely drive currency moves, with the latest weaker-than-expected U.S. jobs data and an easing bias from the U.S. central bank cementing expectations that rates will likely be lower by the end of the year.

While Minneapolis Fed President Neel Kashkari said on Tuesday it is too soon to declare that inflation has definitely stalled out, that did little to move the needle on market pricing for rate cuts.

"The market brushed off comments from Minneapolis Fed President Kashkari, who sits at the hawkish end of the spectrum and is a non-voter this year," said Rodrigo Catril, senior FX strategist at National Australia Bank.

Elsewhere, sterling dipped 0.08% to $1.2499, ahead of the Bank of England's policy decision on Thursday, where focus will be on how soon the central bank could begin cutting rates.

Analysts expect the central bank to leave the door open to lower interest rates as early as June.

The Australian dollar fell 0.2% to $0.6585, pressured in part by a less hawkish outlook from the Reserve Bank of Australia than anticipated after it held interest rates steady on Tuesday.

Source: Reuters

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Owen Li

Economic

Forex

The RBA, the Australian Labor Market, and China

On Wednesday (May 8), market risk sentiment will likely influence buyer demand for the AUD/USD early in the session.

However, the AUD/USD may remain under pressure due to the less hawkish-than-expected RBA press conference. On Wednesday, the RBA will release its chart pack, which provides investors with graphics of the Australian economy and financial markets.

During the RBA press conference, RBA Governor Michele Bullock discussed tight labor market conditions, household income, and the sticky inflation environment. The graphics will likely illustrate the balancing act the RBA faces. On the one hand, the RBA needs to bring inflation down, but on the other, the RBA wants to avoid adversely impacting the labor market.

Later this week, economic indicators from China will influence sentiment toward the global macroeconomic environment. On Thursday, trade data from China will provide a snapshot of the demand environment. RBA staff consider the Chinese economy in their forecasts. An improving demand environment could be another challenge for the RBA to face in combating inflation.

However, investors must wait until next week for the next round of Australian wage growth and unemployment figures. Deteriorating labor market conditions could prompt a reassessment of the RBA’s wait-and-see strategy.

US Economic Calendar: FOMC Member Speakers in the Spotlight

Later in the Wednesday session, investors should monitor FOMC member speeches. FOMC members Philip Jefferson, Susan Collins, and Lisa Cook are on the calendar to speak.

Views on inflation, the labor market, the economic outlook, and the timing of a Fed rate cut need consideration.

Recent speeches have impacted investor expectations of a September Fed rate cut. Minneapolis Fed President Neel Kashkari released a hawkish new essay on Tuesday (May 7), suggesting a possible need for a Fed rate hike. While the US Jobs Report was weaker than expected, inflation remains the bugbear.

According to the CME FedWatch Tool, the chances of the Fed leaving interest rates unchanged in September increased from 34.3% to 35.5% on Tuesday (May 7).

Short-Term Forecast

Near-term AUD/USD trends will hinge on trade data from China and FOMC member speeches. A more hawkish Fed could tilt monetary policy divergence toward the US dollar. RBA Governor Michele Bullock poured cold water on speculation about an RBA rate hike. The status quo would leave interest rate differentials stacked against the Aussie dollar.

AUD/USD Price Action

Daily Chart AUD to USD Forecast: RBA Forward Guidance and Fed Chatter Influences_1

The AUD/USD hovered above the 50-day and 200-day EMAs, sending bullish price signals.

An Aussie dollar return to the $0.66500 handle would support a move toward the $0.67003 resistance level.

The RBA chart pack and FOMC member speeches need consideration.

Conversely, an AUD/USD break below the $0.65760 support level and the 200-day EMA could give the bears a run at the 50-day EMA. A fall through the 50-day EMA would bring sub-$0.65 into view.

With a 14-period Daily RSI reading of 56.76, the AUD/USD may move to the $0.67003 resistance level before entering overbought territory.