Sun, Jun 24, 2018 @ 08:30 GMT

Euro down on Trump’s 20% tariffs on cars threat

    Trump threatens EU with 20% on cars if the latter doesn’t “remove” the trade barriers to US vehicles. Both Euro and Sterling dip after the tweet.

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    US PMIs: Strong Q2 but exports back in decline

      US PMI manufacturing dropped to 54.6 in June, down from 56.4, below expectation of 56.2. PMI services dropped to 56.5, down from 56.8, but beat expectation of 54.9. PMI composite dropped to 56.0, down from 56.6, hit a two-month low.

      Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

      “The flash PMI surveys add to evidence that the US economy is enjoying a strong second quarter. Despite growth cooling slightly in June, the latest numbers round off the best quarter for three years, and suggest economic growth has lifted markedly higher than the 2.3% rate of expansion seen in the first quarter to well over 3%.

      “The upturn also continues to create new jobs in encouragingly high numbers. The employment gauges from the June surveys are running at levels indicative of non-farm payrolls rising by 190,000, with hiring remaining solid in both the services and manufacturing sectors.

      “Price pressures remain elevated, however, widely blamed on a mix of rising fuel prices and tariff-related price hikes, as well as supplier’s gaining pricing power as demand outstrips supply for many inputs.

      “Risks are tilted to the downside for coming months. Business expectations about the year ahead have dropped to a five month low, led by the weakest degree of optimism for nearly one and a half years in manufacturing. Exports are back in decline, showing the worst performance for over two years, causing factory order book growth to slump sharply lower compared to earlier in the year.

      “For the first time this year, factory output is growing faster than order books, suggesting production may be adjusted down in coming months. Inflows of new business into the service sector have meanwhile cooled to the weakest since January. Finally, although employment is still rising strongly, even here there are signs of weakness, with the latest rise in payrolls being the lowest for a year.”

      Full release here.

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      Canada retail sales dropped -1.2%, ex-auto sales dropped -0.1%, core CPI moderated

        Canadian Dollar drops sharply after very weak retail sales data. Headline sales dropped -1.2% mom in April versus expectation of 0.0% mom. Ex-auto sales dropped -0.1% mom versus expectation of 0.2% mom.

        Inflation data is not helping neither. CPI rose 0.1% mom, 2.2% yoy in May, below expectation of 0.4% mom, 2.6% yoy. CPI core common was unchanged at 1.9% yoy. CPI core median dropped to 1.9% yoy, down from 2.1% yoy. CPI core Trim dropped to 1.9% yoy, down from 2.1% yoy.

        USD/CAD resumes recent rally after brief retreat, and is on course for 1.3404 projection level.

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        Eurozone PMI: Services improvement offsets manufacturing, points to 0.5% GDP growth in Q2

          Eurozone PMI manufacturing dropped to 55.0 in June, down from 55.5 and met expectation. PMI services rose to 55.0, up from 53.8 and beat expectation of 53.7. PMI composite rose to 54.8, up from 54.1 and beat expectation of 53.9. PMI composite is at a 2 month high while PMI services is at at 4-month high. However, PMI manufacturing is at an 18-month low. Overall, the data point to 0.5% GDP growth in Q2.

          Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

          “An improved service sector performance helped offset an increasing drag from the manufacturing sector in June, lifting Eurozone growth off the 18- month low seen in May. With growth kicking higher in June, the surveys are commensurate with GDP rising 0.5% in the second quarter.

          “Price pressures are also on the rise again, running close to seven-year highs. Increased oil and raw material prices are driving up costs, but wages are also lifting higher, in part reflecting tighter labour markets in some parts of the region. Service sector jobs are being created at the fastest rate seen over the past decade, underscoring the extent to which the job market is tightening.

          “However, the details of the survey warn against any complacency. The June uptick could be at least in part explained by business returning to normal after an unusually high number of public holidays in May, suggesting that the underlying trend remains one of slower growth. Business expectations are running at one-and-a-half year lows, and output continues to increase at a faster rate than incoming new orders, all of which suggests that output and employment growth could weaken again in July unless demand picks up again.

          “Manufacturing is looking especially prone to a further slowdown in coming months, with companies citing trade worries and political uncertainty as their biggest concerns. Sentiment about the year ahead in the factory sector has sunk to its lowest since 2015.

          “While the June upturn provides some hope that the weakening of official data earlier in the year may have overstated the region’s weakness, the risks remained tilted towards a further slowdown in the second half of the year.”

          Full release here.

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          Germany PMI composite hits 2 month high, clear divergence between manufacturing and services

            Germany PMI manufacturing dropped to 55.9 in June, down from 56.9 and missed expectation of 56.3. PMI services rose to 53.9, up from 52.1 and beat expectation of 52.2. PMI composite rose to 54.2, up from 53.4, and hit a 2-month high.

            Commenting on the flash PMI data, Phil Smith, Principal Economist at IHS Markit said:

            “The headline PMI numbers for Germany make for slightly better reading in June thanks to a pick-up in the pace of expansion in the service sector, though the performance over the second quarter as a whole still looks to be one of only modest growth.

            “The big disappoint was manufacturing, where the PMI fell further from last December’s record high to the lowest in one-and-a-half years. A worrying slide in export order growth seen since the start of the year continued into June, with the latest survey’s anecdotal evidence highlighting quieter client interest from the US and China.

            “A clear divergence between manufacturing and services was also seen in the survey’s gauge of business confidence. Services firms are in buoyant mood towards the outlook over the next 12 months, but manufacturers see growth continuing to cool and are their least optimistic for over three years.”

            Full release here.

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            France PMI composite rose to 2 month high, diverging trends

              French PMI manufacturing dropped to 53.1 in June, down from 54.4 and missed expecttation of 54.0. But PMI services rose to 56.4, up from 54.3 and beat expectation of 54.3. PMI composite rose to 55.6, up from 54.2, and hit a 2 month high.

              Commenting on the Flash PMI data, Paul Smith, Economics Director at IHS Markit said:

              “France’s economy showed noticeably divergent trends at the end of the second quarter, with the manufacturing and service sectors heading in markedly different growth directions.

              “Whilst the services economy strengthened on the back of increased market activity, manufacturers faced a number of headwinds including a general loss of external demand momentum, ongoing vendor delivery delays and rising price pressures, especially for metals (in part linked to higher tariffs).

              “Although the surveys suggest that underlying economic growth is continuing at a decent clip, on balance the latest data support the current IHS call for a 0.3% rise in GDP for Q2 as a whole.”

              Full release here.

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              No follow through buying in Sterling after strong but brief BoE rebound

                The BoE triggered rebound in Sterling yesterday was initially rather strong, but lacked follow through buying. GBP/USD is kept well below key near term resistance at 1.3471. EUR/GBP is still hovering around mid-point of range of 0.8693/8844. Even GBP/JPY is held below 146.46 minor support. For the week, Sterling is staying in red against Dollar, Euro, Swiss and Yen. It’s just up against the risk aversion hit Canadian, Australian and New Zealand Dollar.

                GBP action bias table also reveals no notable momentum in the Sterling pairs.

                Yesterday’s more hawkish than expected BoE announcement just revived the chance of an August hike. That was indeed the base case as presented in the May Inflation Report. Remember that during the most Sterling bullish time earlier this year, markets were expecting a hike in May and speculating for another one in November. The BoE announce just solidify the case for a hike in the second half of the year, that is either in August or November, possibly in August. And it sort of ruled out the possibility of BoE standing pat for the rest of the year.

                Suggested readings on BoE

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                DOW extends losing streak on trade war, 24247 support in focus

                  DOW closed down -196.10 pts or -0.8% overnight to 24461.70. Trade war fears extended the losing streak to eight days, longest in more than a year.

                  Technically, the break of near term trend line support this week, and the failure to regain 55 day EMA argues that rise from 23344.52 has completed earlier that expected at 25402.83. It couldn’t reach 25800.35/26616.71 resistance zone. Immediate focus will be on 24247.84 today and next week. Break there could accelerate the selloff to 23344.52 support.

                  Overall, there there are a few interpretations of the price actions from 26616.71 high, they all point to the case that it’s a correction that’s not completed. That is, fall from 25402.83 could be a falling leg of the whole medium term correction pattern that could break through 23344.52 low. We’d maintain our view that the correction from 26616.71 should at least extend to 38.2% retracement of 15450.56 to 26616.71 at 22351.24 before completion.

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                  Oil price in range ahead of pivotal OPEC meeting

                    WTI oil price is staying in range between 63.6/66.9 as markets await the pivotal meeting in Austria. Delegations of OPEC and non-OPEC oil producing countries are meeting today in Vienna. The producers are trying to reach a consensus on easing the output cap, that is raising production, to cool oil prices.

                    Saudi Arabia’s Energy Minister Khalid Al-Falih, the defacto leader of OPEC, said yesterday that he was “optimistic” on a deal as there was a “spirit of cooperation” among the group. And they would discuss how to raise production by around 1 million barrels per day.

                    The United Arab Emirates’ minister of energy and industry, and OPEC president, Suhail Al- Mazrouei emphasized that OPEC is “not a political organization” but a “commercial organization”. Iraq’s Oil Minister Jabbar Ali al-Luaibi also said he’s “confident that we will reach some sort of agreement”.

                    However, Iran, Iraq and Venezuela are known to oppose the relaxation of production cut. Iranian Oil Minister Bijan Zanganeh said he doubted OPEC could reach a deal this week and he was feeling “very good” about the current production levels.

                    Russian Energy Minister Alexander Novak warned that “Oil demand usually grows at the steepest pace in the third quarter … We could face a deficit if we don’t take measures.” And, “this could lead to market overheating.” Russia is pushing up to 1.5 million barrels per day of output raise, OPEC and non-OPEC countries together.

                    Full program of the meeting.

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                    Japan CPI Core unchanged, PMI manufacturing improved

                      Released from Japan, all items CPI rose to 0.7% yoy in May, up from 0.6% yoy. Core CPI, less fresh food, was unchanged at 0.7% yoy. Core core CPI, less fresh food and energy even slowed to 0.3% yoy, down from 0.4% yoy. The data highlighted BoJ’s inability to lift inflation and inflation expectation even with the ultra-loose monetary policy. And the central bank is still a long way from stimulus exit.

                      PMI manufacturing rose to 53.1 in June, up from 52.8, beat expectation of 52.6. Comments by Joe Hayes, Economist at IHS Markit:

                      “The final PMI reading of the second quarter revealed a quickened pace of growth across the Japanese manufacturing economy.

                      “The sector has sustained a relatively solid upward trend across 2018. June data indicated continued growth in new orders, a faster rate of job creation, rising backlogs of work and increasing output prices. As such, there appears to be further legs in the manufacturing growth cycle.

                      “That said, for the first time since August 2016, new export orders declined. With geopolitical risk aplenty, haven demand for the yen remains a downside risk to the country’s manufacturing exporters.”

                      Full release here.

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                      Minneapolis Fed Kashkari doubts long term impact of tax cut

                        Minneapolis Fed President Neel Kashkari expressed his doubts on the long term effect of Trump’s USD 1.5T package of corporate and individual tax cuts. In an event at African Development Center of Minnesota, he said “we know if you cut taxes on the margin that should boost economic growth in the short term.” However, “the question is when that short term is over, does it actually lead to longer-term, higher sustained economic growth? That’s unclear right now.”

                        He also points to the information he got from businesses. Kashkari said while business leaders “are more optimistic than I had expected,” they are also saying that lower tax rates have not led them to make new investments, at least not yet. He added “I am asking businesses ‘are you actually investing more?’ And so far the answer that I’ve heard is ‘we’re waiting to see.'”

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                        Philly Fed index dropped sharply to 19.9, initial claims stayed low at 218k

                          Here is a summary of US data released today.

                          Philly Fed Manufacturing index dropped sharply to 19.9 in June, down from 34.4 and missed expectation of 25. 6-month expectation dropped to 34.8, down from 38.7. From the release, it’s said that “Responses to the June Manufacturing Business Outlook Survey indicate continued expansion for the region’s manufacturing sector, although indicators for general activity and new orders fell notably from last month. The firms reported continued increases in employment, and the indexes for prices paid and received continued to reflect widespread price pressures. Looking ahead six months, the firms remain optimistic overall, but the survey’s future indicators continued to moderate.”

                          Initial jobless claims dropped -3k to 218k in the week ended June 16, below expectation of 220k. Four-week moving average of initial claims dropped -4k to 221k. Continuing claims rose 22k to 1.723m in the week ended June 9. Four-week moving average of continuing claims dropped -4.75k to 1.7225m. This is the lowest level since December 8, 1973.

                          House price index rose 0.1% mom in April versus expectation of 0.3% mom. Leading index rose 0.2% in May versus expectation of 0.4%.

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                          Into US session: Sterling strongest on BoE, but it’s not bullish yet

                            Entering into US session, Sterling is now the strongest one today as boosted by hawkish BoE hold. Most importantly, heavy weight Chief Economist Andy Haldane joined known hawks Ian McCafferty and Michael Saunders to vote for a hike. Euro is now trading as the second weakest, followed by Yen and New Zealand Dollar.

                            GBPUSD H and 6H action bias has turned neutral with the rebound, after a string of downside red bars. Still, it’s kept well below 1.3471 near term resistance. Overall outlook remains bearish though but some more consolidation could come first.

                            Meanwhile, EUR/GBP is still clearly held in range with a neutral outlook.

                            GBP/JPY is also neutral as the corrective pattern from 144.37 extends.

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                            Sterling surges as BoE chief economist Haldane joined hawks to vote for rate hike

                              Sterling surges BoE kept bank rate unchanged 0.50% with 6-3 vote. The usual suspects Ian McCafferty and Michael Saunders voted for a hike to 0.75%. And to many’s surprise, chief economist Andrew Haldane voted for a hike too. His vote carries much significance.

                              On growth, BoE noted the judgement that the dip in Q1 was temporary “appears broadly on track”. It pointed to the rebound in household consumption and sentiments as evidence while “employment growth has remained solid”. Despite decline in manufacturing output in April, surveys of business activity have been stable. And overall, the data “point to growth in the second quarter in line with the Committee’s May projections.

                              On inflation, BoE expects CPI to “pick up by slightly more than projected” in the near term. That reflects ” higher dollar oil prices and a weaker sterling exchange rate.” And, indicators of wage growth also picked up with labor markets remains tight. “Domestic cost pressures will continue to firm gradually, as expected.”

                              On forward guidance, BoE expects to maintain the size of assets purchased at GBP 435B and use the Bank Rate as “primary instrument” for momentary policy for now. And BoE will NOT reduce the size of the assets until Bank Rate reaches around 1.50%, lowered from prior guidance of around 2.00%.

                              Full statement below.

                              Bank Rate Maintained at 0.50%

                              Our Monetary Policy Committee has voted by a majority of 6-3 to maintain Bank Rate at 0.5%. The committee also voted unanimously to maintain the stock of corporate bond purchases and UK government bond purchases.

                              Monetary Policy Summary and minutes of the Monetary Policy Committee meeting

                              The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. At its meeting ending on 20 June 2018, the MPC voted by a majority of 6-3 to maintain Bank Rate at 0.5%. The Committee voted unanimously to maintain the stock of sterling non-financial investment-grade corporate bond purchases, financed by the issuance of central bank reserves, at £10 billion. The Committee also voted unanimously to maintain the stock of UK government bond purchases, financed by the issuance of central bank reserves, at £435 billion.

                              In the MPC’s most recent projections, set out in the May Inflation Report, GDP was expected to grow by around 1¾% per year on average over the forecast, conditioned on the gently rising path of Bank Rate implied by market yields at the time. In those projections, growth continued to rotate towards net trade and business investment and away from consumption. While modest by historical standards, the projected pace of GDP growth over the forecast was nevertheless slightly faster than the diminished rate of supply growth, which averaged around 1½% per year. As a result, a small margin of excess demand was projected to emerge by early 2020, feeding through into higher rates of pay growth and domestic cost pressures. Nevertheless, CPI inflation continued to fall back gradually as the effects of sterling’s past depreciation faded, reaching the 2% target in two years.

                              A key assumption in the MPC’s May projections was that the dip in output growth in the first quarter would prove temporary, with momentum recovering in the second quarter. This judgement appears broadly on track. A number of indicators of household spending and sentiment have bounced back strongly from what appeared to be erratic weakness in Q1, in part related to the adverse weather. Employment growth has remained solid. Although manufacturing output recorded a decline in April, and this was accompanied by a fall in goods exports, surveys of business activity have been stable and, as a whole, point to growth in the second quarter in line with the Committee’s May projections.

                              Internationally, activity data have been mixed. Indicators suggest that US growth bounced back strongly in Q2 from the softness in Q1. Euro-area growth has been weaker than expected, and downside risks have increased in some emerging markets, in part reflecting tighter financial conditions. More broadly, the prospects for global GDP growth remain strong, and while financial conditions have tightened somewhat, they continue to be accommodative.

                              CPI inflation was 2.4% in May, unchanged from April. Inflation is expected to pick up by slightly more than projected in May in the near term, reflecting higher dollar oil prices and a weaker sterling exchange rate. Most indicators of pay growth have picked up over the past year and the labour market remains tight, suggesting that domestic cost pressures will continue to firm gradually, as expected.

                              The Committee’s best collective judgement remains that, were the economy to develop broadly in line with the May Inflation Report projections, an ongoing tightening of monetary policy over the forecast period would be appropriate to return inflation sustainably to its target at a conventional horizon. For the majority of members, an increase in Bank Rate was not required at this meeting. All members agree that any future increases in Bank Rate are likely to be at a gradual pace and to a limited extent.

                              In addition to its discussion of the immediate policy decision, the Committee reviewed its previous guidance on the level of Bank Rate at which the MPC will consider whether to start to reduce the stock of purchased assets. The MPC continues to expect to maintain the stock of purchased assets until Bank Rate reaches a level from which it can be cut materially, reflecting the Committee’s preference to use Bank Rate as the primary instrument for monetary policy. Since the previous guidance, the Committee has reduced Bank Rate from 0.5% to 0.25% in August 2016 and has noted that it could lower it further if required. Reflecting this, the MPC now intends not to reduce the stock of purchased assets until Bank Rate reaches around 1.5%, compared to the previous guidance of around 2%. Any reduction in the stock of purchased assets will be conducted at a gradual and predictable pace. Decisions on Bank Rate will take into account any impact of changes in the stock of purchased assets on overall monetary conditions, in order to achieve the inflation target. In the event that potential movements in Bank Rate are judged insufficient to achieve the inflation target, the reduction in the stock of assets could be amended or reversed.

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                              EU Malmstrom urges New Zealand to lead by example together on multilateral trade

                                EU Trade Commissioner Cecilia Malmstrom launched free trade negotiation with New Zealand in Wellington today. Trade negotiation teams from both sides would start the first round of talks in Brussels over July 16-20. Malmstrom said in a press conference after meeting New Zealand trade minister David Parker that “today is an important milestone in EU- New Zealand relations. Together, we can conclude a win-win agreement that offers benefits to business and citizens alike.”

                                She also emphasized that “This agreement is an excellent opportunity to set ambitious common rules and shape globalization, making trade easier while safeguarding sustainable development. We can lead by example.”

                                Malmstrom also hailed New Zealand as “a friend, an ally”. And she urged that “together we stand up for common values … of sustainable trade, open trade, transparent trade, and trade that is done in compliance with international rules in the multilateral system.”

                                The New Zealand government recently launched its “Trade for All Agenda“, calling for a “progressive and inclusive” approach to negotiating trade deals. Parker said “we can not only do good for ourselves in this trade agreement but we can actually set out rules for how trading agreements should look for the betterment of the world.”

                                Parker also hailed that Malmstrom has asked negotiators to work through the complicated areas early, so as not to cause delays in the end. He said “I think that demonstrates a willingness on the part of the European side of the negotiation, which we share, to bring this to a conclusion as soon as we can.”

                                Joint press conference of Parker and Malmstrom.

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                                SNB stands pat, raised 2018 inflation forecasts, but lowered 2020’s, full statement

                                  SNB left monetary policy unchanged as widely expected. Sight deposit rate is held at -0.75%. Three-month Libor target range is kept at -1.25% to -0.25%.

                                  SNB also pledge to stand by for intervention and “remain active in the foreign exchange market as necessary, while taking the overall currency situation into consideration”.

                                  2018 inflation forecast was raised to 0.9%, up from March projection of 0.6%. That’s due to a “marked rise in the price of oil”.

                                  2019 inflation forecast was kept unchanged at 0.9%. Though, from mid-2019, the new condition forecast is lowered due to “muted outlook in the euro area”.

                                  For 2020, inflation forecast was lowered to 1.6%, down from March projection of 1.9%.

                                  All the inflation forecasts were based on assumption the three month Libor remains at -0.75% over the entire forecast horizon.

                                  On global growth, SNB expected economy to continue to grow above its potential. But risks are “more to the downside” due to “political developments in certain countries as well as potential international tensions and protectionist tendencies.”

                                  Swiss GDP is projected to growth at around 2% in 208, unchanged. And unemployment is expected to fall further.

                                  Full release below.

                                  Swiss National Bank leaves expansionary monetary policy unchanged

                                  The Swiss National Bank (SNB) is maintaining its expansionary monetary policy, thereby stabilising price developments and supporting economic activity. Interest on sight deposits at the SNB remains at −0.75% and the target range for the three-month Libor is unchanged at between −1.25% and −0.25%. The SNB will remain active in the foreign exchange market as necessary, while taking the overall currency situation into consideration.

                                  All in all, the value of the Swiss franc has barely changed since the monetary policy assessment of March 2018. The currency remains highly valued. Following the March assessment, the Swiss franc initially depreciated slightly against the US dollar and the euro. However, in light of political uncertainty in Italy, we have since seen countermovement, particularly against the euro. The situation on the foreign exchange market thus remains fragile, and the negative interest rate and our willingness to intervene in the foreign exchange market as necessary therefore remain essential. These measures keep the attractiveness of Swiss franc investments low and ease pressure on the currency.

                                  The new conditional inflation forecast for the coming quarters is slightly higher than it was in March 2018 due to a marked rise in the price of oil; this price rise ceases to affect annual inflation after the first quarter of 2019. From mid-2019, the new conditional forecast is lower than it was in March 2018, mainly due to the muted outlook in the euro area. At 0.9%, the inflation forecast for 2018 is 0.3 percentage points higher than projected at the March assessment. For 2019, the SNB continues to anticipate inflation of 0.9%. For 2020, we expect to see inflation of 1.6%, compared with 1.9% forecast in the last quarter. The conditional inflation forecast is based on the assumption that the three-month Libor remains at –0.75% over the entire forecast horizon.

                                  Overall, global economic growth was solid in the first quarter. Growth in the US and China was strong and broad-based. The pace of economic expansion slowed in the euro area, however, albeit partly due to temporary factors. The economic signals for the coming months remain favourable. The SNB’s baseline scenario therefore assumes that the global economy will continue to grow above its potential.

                                  The risks to the SNB’s baseline scenario are more to the downside. Chief among them are political developments in certain countries as well as potential international tensions and protectionist tendencies.

                                  Switzerland’s economy continued to recover as expected, with GDP once again growing faster than estimated potential in the first quarter. Overall capacity utilisation improved further on the back of this positive development. The SNB still anticipates GDP growth of around 2% for the current year and expects to see unemployment falling further.

                                  Imbalances on the mortgage and real estate markets persist. While growth in mortgage lending has been only moderate over the last few quarters, real estate prices have continued to rise. Particularly in the residential investment property segment, there is the risk of a correction due to the strong increase in prices in recent years. The SNB will continue to monitor developments on the mortgage and real estate markets closely, and will regularly reassess the need for an adjustment of the countercyclical capital buffer.

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                                  Canadian Trudeau can’t accept why Trump damages his own auto industry

                                    Canadian Prime Minister Justin Trudeau said yesterday that he couldn’t imagine Trump damaging the car industry of the US by imposing auto tariffs. He said, “I have a hard time accepting that any leader might do the kind of damage to his own auto industry that would happen if he were to bring in such a tariff on Canadian auto manufacturers, given the integration of the parts supply chains or the auto supply chains through the Canada-U.S. border.”

                                    Trudeau tried to tone down Trump’s personal attack on him. He said that “I’m not in a position to opine on motivations of the president. I’m going to stay focused on the relationship that we’re building, on defending Canada’s interests, on looking for ways to further push the benefits of improving and modernizing NAFTA … in all three of our countries.”

                                    Accord to a recent poll by Ipsos conducted between June 13-15, approval rating of Trudeau jumped to 50%, with 12% of Canadian strongly supporting him and 39% somewhat supporting. That’s a notable increase from the low of 44% at the end of March. That came after Trump’s personal attack on Trudeau saying that he acted so “meek and mild” during the G7 meeting. And, Trump’s trade advisor Peter Navarro said “there is a special place in hell” for Trudeau.

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                                    Chinese Vice Premier to meet European Commission Vice President Katainen next week on trade

                                      Chinese Vice Premier Liu He will be meeting with European Commission Vice President Jyrki Katainen in Bejing on June 25. That’s the seventh China-EU high level economic and trade summit since 2007, when the mechanism was established.

                                      Spokesman of the Ministry of Commerce said in a regular briefing that the meeting is an important platform for for communications and coordinations of economic and trade policies. And it’s an important time when “trade and economic cooperation faces new historical opportunities.”

                                      Issues to be discussed will include ” global economic governance, trade and investment, innovation-driven development, and interconnection that are of common concern to both sides”. And, it’s a “positive signal between China and the EU to oppose unilateralism and protectionism and support the multilateral trading system.”

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                                      New Zealand GDP grew 0.5% qoq, a look at bearish NZDUSD

                                        New Zealand GDP grew 0.5% qoq in the March quarter, slowed from 0.6% qoq in the prior quarter and met expectation. Over the year, GDP grew 2.7% ended March 2018. Per capita GDP was unchanged, down from 0.1% qoq rise in the prior quarter. Services industries grew 0.6%, notably slowed from prior 1.1%. Good-producing industries were flat as jump in manufacturing was offset by fall in constructions. Primary industries rebounded by growing 0.6%, up from prior quarter’s -2.6%.

                                        Full release here.

                                        New Zealand Dollar remains pressured after GDP data and is extending the recent broad based decline. It’s trading as the weakest for today and for the week.

                                        NZD/USD breaks May’s low at 0.6850 to resume recent down trend from 0.7436. NZD/USD action bias table and the D action bias chart show that the down trend is picking up downside momentum again.

                                        Nonetheless, we’d like to point out that 0.6779 (2017 low) is a key support level decisive break there will confirm completion of the corrective rise from 2015 low at 0.6102. And that will very likely resume the long term down trend from 2014 high at 0.8835, through 0.6102. So for quick trading, selling NZD/USD is the strategy for sure. But one has to be alerted as it touches 0.6779. For position trading, we’d prefer to see if 0.6779 would be taken out firmly first.

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                                        Fed Powell: Historical experience doesn’t shed much light on unemployment-inflation relationship

                                          Fed Chair Jerome Powell’s speech at the ECB Forum on Central Banking in Portugal was titled “Monetary Policy at a Time of Uncertainty and Tight Labor Markets“. There he said that growth trend is “not as strong as we would like it to be”. But labor market is “particular robust”. Meanwhile, policymakers have “yet to see “if inflation could remain near to 2% target on “sustained basis”.

                                          Powell also compared the current labor market to the period from  February 1966 through January 1970, when unemployment rate was below 4%. He pointed out that inflation jumped from 2% in 1965 to 5% in 1970. And the unsustainably low unemployment at the time had contributed to escalating inflation.

                                          However, after half a century, Powell said the US economy has “changed in many ways”. And the so called “natural rate of unemployment” is “substantially lower now. The Congressional Budget Office’s estimated natural rate was at 5.75% in late 1960 but at 4.75% currently. Rising education levels was a factor that sent the natural rate down. Also, policymakers have a “greater appreciation” of the role of inflation expectation and and have clearer commitment to maintaining low and stable inflation.

                                          So, Powell said that “historical comparison does not shed as much light as we might have hoped.”

                                          More in the speech here.

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