May 26th Financial News

Summary:

McCarthy: Will continue to resolve differences over the long weekend in order to reach an agreement; BoJ Governor hinted at reducing stimulus measures; U.S. GDP in the first quarter rose to 1.3%...

【Quick Facts】

1. McCarthy: Will continue to resolve differences over the long weekend in order to reach an agreement.

2. Haskell: Cannot rule out further rate hikes.

3. The job market remained resilient as U.S. jobless claims rose moderately.

4. BoJ Governor hinted at reducing stimulus measures.

5. Guindos: Wages and profit margins pose upside risks to inflation.

6. U.S. GDP in the first quarter rose to 1.3%.

【News Details】

1. McCarthy: Will continue to resolve differences over the long weekend in order to reach an agreement.

On Thursday night, House Speaker McCarthy said that congressional Republicans and the White House still need to resolve some differences to reach an agreement before the deadline. "We know where our differences lie," McCarthy told reporters at the Capitol, adding that he intends to stay at the Capitol this weekend to continue our work. "We don't reach an agreement yet. It's difficult, but we're working on it until it's done." There is one week left before the U.S. Treasury runs out of funds, and the two sides communicated back and forth by phone rather than in person. The long weekend of the Memorial Day holiday is coming and most members of Congress are off.

The chance of the Fed raising interest rates in June rose to 49.4% as the debt ceiling negotiations have been unable to reach an agreement and "X" day is approaching.

2. Haskell: Cannot rule out further rate hikes.

BoE member Haskell said at an event at the Peterson Institute in Washington on May 25 that "some indicators indicate that the labor market is easing, but overall it remains very tight". He noted that job openings and unemployment rates remain historically high, as does the economic growth rate in wages.

Haskell also noted that high core inflation and subdued economic activity indicate that the supply side of the economy may have deteriorated. Faced with such uncertainty, he argues that it would be prudent for us to focus less on medium-term forecasts and more on near-term data and stresses that he prefers to head off risks to inflationary momentum.

Haskell said the MPC is committed to bringing inflation back to its 2% target in a sustainable way and will do so, but acknowledged that further rate hikes cannot be ruled out to achieve that goal.

3. The job market remained resilient as U.S. jobless claims rose moderately.

U.S. jobless claims this week was 229,000, a modest rise from last week. Despite the recent surge in applications, driven by fraudulent filings in Massachusetts, the overall situation remains consistent with a tight labor market. Initial jobless claims were lower, in line with recently released data on retail sales, factory production, and business activity. These data all show that the U.S. economy resumed its growth rate at the beginning of the second quarter. It also shows that the job market has remained resilient despite 500 bps rate hikes raised by the Fed since March 2022. Economists expect a mild recession until the second half of the year as the impact of rate hikes spreads. The U.S. real GDP annualized quarterly revision for the first quarter also rose, which economists had expected no revision.

4. BoJ Governor hinted at reducing stimulus measures.

BoJ Governor Kazuo Ueda hinted on Thursday that the central bank may scale back its monetary easing and eventually exit even if inflation falls below its 2% target. He noted that a sustained and steady rise in inflation is important. While the BoJ's policy guidance now explicitly mentions the need for wage increases to meet its inflation target, Ueda said in an interview that achieving wage growth itself is not the central bank's goal.

5. Guindos: Wages and profit margins pose upside risks to inflation.

ECB Vice President Guindos said in a speech on May 25 that upside risks to inflation stem from rising wages and expanding profit margins, while downside risks include: weaker lending if the banking sector faces renewed pressures. Future policy decisions will ensure that the policy rate reaches a sufficiently restrictive territory to bring inflation back to the medium-term target of 2% in time". Once reached, it will remain at these levels for as long as necessary.

6. U.S. GDP in the first quarter rose to 1.3%.

The revised data released by the U.S. Department of Commerce on May 25 showed that in the first quarter of 2023, the U.S. real GDP grew at an annual rate of 1.3%, mainly reflecting the upward adjustment of private inventory investment.

According to the data, in the first quarter, non-residential fixed asset investment, which reflects the investment status of enterprises, increased 0.7 percentage points to 1.4%; net exports of goods and services rose 0.4 percentage points to 5.2%; government consumption expenditure and investment increased from 4.7% to 5.2%, and consumer spending, which accounts for about 70% of the U.S. economy, slightly up 0.1 percentage points to 3.8%.

【Focus of the Day】

UTC+8 14:00 U.K. Retail Sales MoM (Apr)

UTC+8 15:40 Speech by ECB Chief Economist Lane

UTC+8 20:30 U.S. PCE (Apr)

UTC+8 20:30 U.S. Durable Goods Orders (Apr)

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May 26th Financial News

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