Sun, Oct 25, 2020 @ 07:53 GMT

US PMI composite rose to 55.5, 20-month high

    US PMI Manufacturing rose 0.1 to 53.3 in October, matched expectation. PMI services also rose to 56.0, up from 54.6, beat expectation of 54.5. PMI Composite rose to 55.5, up from 54.3, hit a 20-month high.

    Chris Williamson, Chief Business Economist at IHS Markit, said:

    “The US economy looks to have started the fourth quarter on a strong footing, with business activity growing at a rate not seen since early 2019. The service sector led the expansion as increasing numbers of companies adapted to life with COVID-19, while manufacturing continued to report solid growth amid rising demand from households and businesses.

    “A slowdown in hiring and weaker new order inflows were in part attributable to hesitancy in decision making ahead of the presidential election. More encouragingly, business optimism surged higher, indicating that firms have become increasingly positive about prospects for the coming year amid hopes of renewed stimulus, COVID-19 containment measures gradually easing and greater certainty for businesses and households after the presidential elections.”

    Full release here.

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    UK PMI composite dropped to 52.9, Q4 to slow sharp, risk of a renewed downturn risen

      UK PMI Manufacturing dropped to 53.3 in October, down from 54.1, above expectation of 53.1. PMI Services dropped to 52.3, down from 56.1, missed expectation of 54.0. PMI Composite dropped to 52.9, down from 56.5, a 4-month low.

      Chris Williamson, Chief Business Economist at IHS Markit, said: “The slower growth of output, the renewed fall in demand and further deterioration in the labour market suggest the economy started the fourth quarter on a weakened footing. While Brexit preparations may cause a short-term boost to some parts of the economy ahead of 31st December, rising COVID-19 cases and the imposition of local lockdown measures bode ill for the near-term economic outlook. While the fourth quarter still looks likely to see the economy expand, the rate of growth looks to have slowed sharply and the risk of a renewed downturn has risen.”

      Full release here.

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      Eurozone PMI composite back in contraction, diverging sectors and countries

        Eurozone PMI Manufacturing rose to 54.4 in October, up from 53.7, beat expectation of 53.1. That’s also the highest level in 26 months. PMI Services dropped to 46.2, down from 48.0, missed expectation of 47.0. PMI Composite dropped to a 4-month low at 49.4, down from 50.4.

        Chris Williamson, Chief Business Economist at IHS Markit said:

        “The eurozone is at increased risk of falling into a double-dip downturn as a second wave of virus infections led to a renewed fall in business activity in October. The survey revealed a tale of two economies, with manufacturers enjoying the fastest growth since early-2018 as orders surged higher amid rising global demand, but intensifying COVID-19 restrictions took an increasing toll on the services sector, led by weakening demand in the hard-hit hospitality industry.

        “The divergence is even starker by country. While Germany is buoyed by its manufacturing sector booming to a degree exceeded only twice in almost 25 years of survey history, the rest of the region has sunk into a deepening downturn.

        “While the overall downturn remains only modest, and far slighter than seen during the second quarter, the prospect of a slide back into recession will exert greater pressure on the ECB to add more stimulus and for national governments to help cushion the impact of COVID-19 containment measures, which not only tightened across the region in October but look set to be stepped up further in November.”

        Full release here.

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        German PMI manufacturing hits 30-month high, but services contract

          Germany PMI Manufacturing rose to 58.0 in October, up from 56.4, above expectation of 55.5. That’s also the highest level in 30 months. However, PMI Services dropped to 48.9, down from 50.6, missed expectation of 49.0. PMI Composite hit a 2-month low at 54.5, down from 54.7.

          Phil Smith, Associate Director at IHS Markit said: “Encouragingly, the German economy is showing a degree of resilience in the face of a second wave of coronavirus cases, October’s flash PMI data suggests. While some services firms in Germany have been hit by new restrictions and increased uncertainty around a ‘second wave’, the decline in service sector activity has so far been quite limited, whilst at the same time the country’s economic performance is being buoyed by a strong showing from manufacturing.”

          Full release here.

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          France PMI composite dropped to 47.3, notable negative impact from rise in COVID

            France PMI Manufacturing dropped slightly to 51.0 in October, down from 51.2, matched expectations PMI Services dropped to 46.5, down from 47.5, below expectation of 47.0. PMI Composite dropped to 47.3, down form 48.5, hitting a 5-month low.

            Eliot Kerr, Economist at IHS Markit said: “The results suggest that the recent rise in COVID-19 cases and subsequent tightening of restrictions has had a notable negative impact on business conditions… With the European winter fast approaching, the prospect of a sharp drop in new positive cases and a full reopening of the economy seems unlikely. The festive period, usually so important for wide range of business, is set to be a difficult one.”

            Full release here.

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            Australia CBA PMI composite rose to 53.6, but subdued new business casts doubts of upturn durability

              Australia CBA PMI Manufacturing dropped to 54.2 in October, down from September’s 55.4. PMI Services rose to 53.8, up from 50.8. PMI Composite rose to 53.6, up from 51.1.

              Bernard Aw, Principal Economist at IHS Markit, said, business confidence strengthened as ” firms expect the eventual return of normal market conditions” after restrictions easing. But “subdued ” new business growth casts doubts on the “durability of the current upturn”. Firms are “saddled with unused capacity” while companies “reduced their workforce” again.

              Full release here.

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              New Zealand CPI rose 0.7% qoq in Q3, missed expectation and RBNZ’s forecast

                New Zealand CPI rose 0.7% qoq in Q3, turned positive from Q2’s -0.5% qoq, but missed expectation of 0.9% qoq. Annually, CPI slowed to 1.4% yoy, down from Q2’s 1.5% yoy, missed expectation of 1.7% yoy. Separately released, RBNZ core CPI based on sectoral factor model was unchanged at 1.7% yoy.

                The inflation readings are substantially below RBNZ’s own forecast of 1.1% qoq and 1.8% yoy as presented in the August MPS. While the economy appeared to be rebounding well from pandemic slump, risks to inflation outlook are clearly to the downside. As inflation is expected to slow further ahead, the case for more RBNZ easing continues to build up. It’s just a matter of time when negative rates will be adopted.

                Full CPI release here.

                NZD/USD continues to gyrate around 55 day EMA for now and upside momentum for rebound has been limited. Price actions from 0.6511 are more likely forming the second leg of the pattern from 0.6797 high. That is, we’d expect the corrective fall from 0.6797 to resume sooner or later to 38.2% retracement from 0.5469 at 0.6290, sooner or later.

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                Japan PMI manufacturing edged up to 48.0, slow-going recovery could remain

                  Japan PMI Manufacturing rose slightly to 48.0 in October, up from 47.7, but missed expectation of 48.4. Markit noted that was the “slowest deterioration in the health of the manufacturing sector since January”. PMI Services dropped to 46.6, down from September’s 46.9. PMI Composite rose 0.1 to 46.7.

                  Bernade Aw, Principal Economist at IHS Markit, said: “recovery is slow-going and could remain so in the coming months as a global resurgence of COVID-19 cases could weigh on Japanese economic activity, particularly in the external facing sectors”.

                  Full release here.

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                  Japan CPI core ticked up to -0.3% yoy, no price growth for six months

                    Japan CPI core (all item ex-food) ticked up to -0.3% yoy in September, from August’s -0.4% yoy, better than expectation. Still, core CPI hasn’t be positive for six months since May. The negative reading was caused largely by the government’s travel discount campaign. Yet, taking that facto out, core CPI was just flat. All item CPI dropped to 0.0% yoy, down from 0.2% yoy. CPI core-core (all item ex-food and energy) ticked up to 0.0% yoy, from -0.1% yoy.

                    BoJ will release its quarterly economic outlook along with policy statement on October 29. No policy change is expected at the meeting. Though, inflation forecasts could be downgraded to reflect the temporary downward price pressure of Prime Minister Yoshihide Suga’s Go To Travel campaign.

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                    UK signs trade deal with Japan, opens a pathway to TPP

                      In Tokyo today, UK International Trade Secretary Liz Truss and Japan Foreign Minister Toshimitsu Motegi formally signed a trade agreement, putting in pen the deal they agreed in principle back in September. That’s the first major trade deal UK came to since Brexit. The deal is seen as largely preserving the terms which UK traded with Japan as part of the EU. UK expected it to boost GDP by 0.07% over the next 15 years.

                      The deal “has a much wider strategic significance”, Truss hailed . “It opens a clear pathway to membership of the Comprehensive Trans-Pacific Partnership — which will open new opportunities for British business and boost our economic security.”

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                      US initial jobless claims dropped to 787k, continuing claims down to 8.4m

                        US initial jobless claims dropped -55k to 787k in the week ending October 17, better than expectation of 860k. Four-week moving average of initial claims dropped -21.5k to 811.3k.

                        Continuing claims dropped -1024k to 8373k in the week ending October 10. Four-week moving average of continuing claims dropped -1094k to 10086k.

                        Full release here.

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                        BoE Haldane: Ensuring a tool in the toolbox is remotely the same as deploying

                          BoE Chief Economist Andy Haldane said while the central bank is doing the work to ensure a tool is in the tool box, “that is not remotely the same as saying that we are about to deploy that tool.” He added, “that will depend on the balance of costs and benefits”. The comments suggested that BoE is not near to using negative interest rates for the moment.

                          On the economy, Haldane said household spending has been “remarkably resilient” through the coronavirus pandemic. Also, spending had suffered relatively little from a second wave over the summer.

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                          Germany Gfk consumer climate dropped to -3.1, recovery come to a standstill

                            Germany Gfk Consumer Climate for November dropped to -3.1, down form -1.7, missed expectation of -2.5. Economic expectations dropped from 24.1 to 7.1. Income expectations dropped from 16.1 to 9.8. Propensity to buy edged slightly lower from 38.4 to 37.0.

                            “The rapid increase in infection rates is leading to a tightening of restrictions brought on by the pandemic. Fear of a second lockdown, should infections get out of control in the coming winter months, is also increasing,” explains Rolf Bürkl, GfK Consumer Expert.

                            “As a result, the in parts significant recovery we saw in consumer sentiment at the start of the summer has come to a standstill and is causing the consumer climate to plummet once more. An increase in propensity to save in October has also contributed to this.”

                            Full release here.

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                            RBNZ Robbers: We’re progressing the work for additional instruments

                              RBNZ Assistant Governor Simone Robbers said in a speech that the central bank recognized the “possible need for further monetary stimulus”. Thus, they’re “progressing” the work to deploy additional instruments, including Funding for Lending Programme (FLP), a negative OCR, and purchases of foreign assets.

                              She also noted there is still a “high degree of uncertainty around the economic outlook”. It is ” possible that bank resilience will be tested in the coming months as loan losses rise materially from current low levels”. She also urged financial institutions to play a role here and they should be “reassessing how they are supporting the recovery and best serving their customers”

                              Full speech here.

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                              Fed Beige Book: Activity increase across all districts but varied greatly by sector

                                Fed’s Beige Book noted that “economic activity continued to increase across all districts, with the pace of growth characterized as slight to modest in most districts.” However, “changes in activity varied greatly by sector.” Employment increased in “almost all Districts” but growth “remained slow”.

                                Prices rose “modestly” across Districts with “input costs generally increased faster than consumer prices”. Overall, consumer prices across Districts “rose modestly”.

                                Full report here.

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                                Fed Bullard: We have enough fiscal stimulus in terms of aggregate resources

                                  St. Louis Fed President James Bullard said Fed’s policy is “so far so good”. Negative rates are not a good option for the US and he even questioned they aren’t effect where they have been adopted. Fed would instead need to think about the way to play with QE going forward.

                                  Bullard is also comfortable with the current amount of fiscal stimulus, as “in terms of the aggregate resources it seems like we should have enough” to bolster growth until Q1. He’s not expecting a surge in fatality rate of coronavirus, which the US has brought down to accidental injury level. He expected business can cope with the situation and operate safely yet succeed economically.

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                                  US moved closer to fresh fiscal stimulus, stocks shrug, yields surge

                                    After a 48-minute phone call, US Treasury Steven Mnuchin and House Speaker Nancy Pelosi appeared to move closer to an agreement on fresh fiscal stimulus. Yet, time is running out for passing any deal before election. Pelosi spokesman Drew Hammill said the negotiators moved “closer to being able to put pen to paper to write legislation” and left “better prepared to reach compromise on several priorities.” “Differences continue to be narrowed on health priorities, including language providing a national strategic testing and contract tracing plan” Hammill added. “But more work needs to be done to ensure that schools are the safest places in America for children to learn”.

                                    US stocks were sluggish overnight with DOW ended down -0.35%. Risk of a deep pull back remains low for now and there could be another attempt on 29199.35/29568.57 key resistance zone. But a sustained break of 55 day EMA would extend the pattern from 29199.35 with another leg back to 26537.01 support.

                                    10-year yield, on the other hand, staged a strong rally and closed up 0.019 at 0.816. Solid support was give by 55 day EMA again, which solidify near term bullishness. We’d likely see the rise from 0.504 extends further towards 0.957 structural resistance. Though, no decisive break is expected there any time soon, not at until the pandemic risks are all cleared, or something drastic happens.

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                                    US oil inventories dropped -1m barrels, WTI looking back at 40 as rally fades

                                      US commercial crude oil inventories dropped -1.0m barrels in the week ending October 16, versus expectation of 0.5m barrels rise. At 488.1m barrels, oil inventories are about 10% above the five year average for this time of the year. Gasoline inventories rose 1.9m barrels. Distillate dropped -3.8m barrels. Propane/propylene dropped -1.6m barrels. Commercial petroleum dropped -7.2m barrels.

                                      WTI edged higher to 41.62 earlier in the week but failed to extend gain. Focus is back on 40 handle and sustained break will open up the way lower. But after all, it’s seen as stuck in medium term range pattern between 34.36 and 43.50. We’re not expecting a breakout soon and the path could be choppy, meaning that any move won’t be sustained.

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                                      Fed Brainard warns against premature withdrawal of fiscal support

                                        Fed Governor Lael Brainard said in a speech that “strong support from monetary policy – if combined with additional targeted fiscal support – can turn a K-shaped recovery into a broad-based and inclusive recovery that delivers better outcomes overall.”

                                        However, “premature withdrawal of fiscal support would risk allowing recessionary dynamics to become entrenched, holding back employment and spending, increasing scarring from extended unemployment spells, leading more businesses to shutter, and ultimately harming productive capacity,” she warned.

                                        Full speech here.

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                                        US targeting fiscal deal in 48 hours after sunny optimistic morning

                                          White House Chief of Staff Mark Meadows told Fox Business today, “the last 24 hours have moved the ball down the field” with House Speaker Nancy Pelosi on fresh fiscal stimulus. And the goal now is “some kind of deal in the next 48 hours or so.”

                                          White House economic adviser Larry Kudlow also told CNBC that “there’s a relatively sunny, optimistic morning in terms of the negotiations”. “Things are moving in a favorable direction. I can’t promise anything, but things are getting better, looking better for this.”

                                          Dollar is staying under heavy selling pressure today while 10-year yield also surges through 0.81 handle. DOW is slightly up by around 100 pts for now, but that’s hardly impressive.

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