NBP: Most Expect Governor To Stick With Hawkish Rhetoric During Presser (1/2)
Jan-17 10:17
Below we summarise sell-side views released after the publication of the NBP's rate decision and post-MPC statement and ahead of today's press conference with Governor Adam Glapinski (14:00GMT/15:00CET). With the statement seen as more hawkish than the previous one, as the Council decided to drop/tone down several references to disinflationary factors, most analysts expect the Governor to maintain the hawkish tone of his comments later today, even as several of his colleagues voiced dissenting opinions in recent weeks.
- Alior Bank note that the statement may be interpreted as hawkish and supporting the rhetoric from December. They still expect the NBP to cut rates in June 2025.
- Bank Pocztowy write that below-forecast inflation did not make any impression on the MPC, with the statement suggesting that the panel remains wary of inflation consolidating at elevated levels for longer. In their view, the MPC could start discussing rate cuts in March but monetary policy action should only take place at the turn of 1H/2H25 at the earliest.
- BGK write that the statement was rather laconic and fits in less than two pages. They believe that Joanna Tyrowicz again sought a 200bp hike, to no avail, while no other motions were voted on. They warn that history teaches that one should not expect the Council to have a well thought-out and stable position, which is why they will be looking out for a confirmation of the hawkish tilt after next month's meeting. They do not expect any changes to the Governor's hawkish rhetoric today.
- BOS Bank flag "slight modifications" to the statement coupled with a "wait-and-see" stance and the assessment that inflation should return to the target in the medium term. While the tone of the statement has become marginally more hawkish, the key message about the eventual return to the inflation target remained unchanged. They see the tweaks to the statement as an expectations management tactic intended to lower expectations of near-term rate cuts and de-emphasise the importance of the March MPC meeting, which has been perceived as the first possible moment for a rate-cut debate. Citing high volatility of the Governor's rhetoric, they note that paradoxically, it cannot be ruled out that he corrects his messaging on longer-term outlook during today's presser (e.g. by flagging dissenting views of some members). They expect three 25bp rate cuts this year in July, September and November.
- Confederation Lewiatan Chief Economist Mariusz Zielonka said that "we are making big steps towards the anticipated rate cut." The business lobby expects the NBP to lower rates by the end of 1Q25, initially by 25bp.
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FOREX: Greenback Eyes Monthly Highs Ahead of Fed Decision
Dec-18 10:15
- The Fed decision later today marks the halfway point of the last full week for markets of 2024, at which the FOMC are expected to proceed with a further 25bps rate cut. The market is set to focus not on today's decision itself, but on the messaging and communication for the path of policy across 2025, via the policy statement, Powell's press conference and the dot plot.
- Ahead of the decision, the greenback is firmer, but only modestly so - with price action largely contained and recent ranges respected. The USD Index remains at the upper-end of the December range, making 107.19 the bull trigger, above which the USD eyes the best levels seen since the Presidential election at 108.071.
- Elsewhere, the EUR trades well, recovering a small part of recent weakness, aided higher by demand in the crosses: EUR/AUD has broken to a new monthly high and cleared resistance at the early November print of 1.6601. For now, 1.6648 is holding, but clearance of that mark will be the highest EUR/AUD print since August.
- GBP has slipped against most others as both core and services CPI came in modestly below expectations. As a result, markets have shrugged off the inline headline read, which should have little bearing on the thinking of the MPC.
- Outside of the Fed decision, US housing starts and building permits data are set to cross.
EUROPEAN INFLATION: EZ Final HICP Y/Y 4 Hundredths Below Flash
Dec-18 10:15
Eurozone November Final HICP was revised down a tenth from the rounded flash reading on an annual basis to 2.2%Y/Y from 2.3%Y/Y - unrounded this was a smaller -0.04 revision to 2.24% Y/Y (vs 2.28% flash, 2.00% prior). On a M/M basis, the rounded reading was unrevised at -0.3% M/M (unrounded -0.32% vs -0.28% flash, 0.34% in October) non-seasonally adjusted.
- Core inflation (ex energy, food, alcohol & tobacco) was revised 2 hundredths lower versus flash at 2.72% Y/Y (2.74% flash and 2.69% prior) and -0.57% M/M (vs -0.6% flash, 0.25% in October).
- The final reading reaffirms the stickiness seen in the flash services inflation print, with services contribution only marginally lower at 1.74ppts (vs 1.77ppts in October) and the Y/Y figure falling to 3.92% Y/Y from 3.95% in October.
- The pace of decline in energy prices was marginally more than the flash estimate at -2.0% Y/Y (vs -1.9% flash, -4.6% Oct) with the sequential November revised lower to 0.5% M/M (vs 0.6% flash). The contribution to HICP Y/Y was -0.19ppts in November - the highest since July.
- "Non-energy industrial goods" (i.e. core goods) contribution increased slightly to 0.17ppts (vs 0.13ppts in October) - also the highest since July, with the Y/Y print just rounding down below flash to 0.6%Y/Y (0.65% Y/Y unrounded vs 0.7% flash, 0.50% prior).
- "Unprocessed foods" contribution fell to 0.10ppts whilst, "Processed foods, alcohol and tobacco" contribution remained unchanged at 0.43ppts.
ECB: Lane: ECB Can Afford To Look Through Small Deviations From Target
Dec-18 10:09
Q: Once price stability has been restored, can Central Banks afford to look-through deviations from the target in either direction?
A: Lane: “Our 2% target is not a continuous target, it’s a medium-term target. That means we can look through short-term fluctuations”.
- The monetary policy reaction will depend on the size, persistence and origin of the deviation from target.
- “There is some value in having a stable interest rate policy all else equal”.
- If there is a deviation, we then need to assess second round effects and decide whether to respond or ignore. Lane stresses again that the 2% target is symmetric.
- In a previous response, Lane notes that he thinks the Eurozone is “quite far away” from a recession, based on current data.
