Mon, Feb 24, 2020 @ 20:29 GMT

DOW drawing support from 28000 after gap down, 10-year yield in free fall

    DOW open sharply lower today in response to worries over global outbreak of China’s Wuhan coronavirus. It hit as low as 27995.37 and is currently down -780pts or -2.7%. Currently it’s trying to draw support from 28000 handle, which is close to 28169.52 support, as well as 38.2% retracement of 25743.46 to 29568.57 at 28107.37. We’d expect current cluster level to provide some support for a recovery. However, it all depends on how the global outbreak develops. Another decline could send DOW to 61.8% at 27204.65, in rather quick manner.

    10-year yield also suffers steep fall on massive safe-have flow into treasuries. TNX hits as low as 1.359, taking out 1.429 support decisively to resume larger down trend. Next near term target will be 100% projection of 1.949 to 1.512 from 1.639 at 1.202.

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    Mnuchin: Coronavirus has no material pact on US-China trade deal phase 1

      US Treasury Secretary Steven Mnuchin said in Reuters interview that outbreak of Wuhan Coronavirus in China is not going to have any material impact on US-China trade deal phase one. He said, “I don’t expect that this will have any ramifications on Phase 1. Based on everything that we know, and where the virus is now, I don’t expect that it’s going to be material.”

      Though, he cautioned that “obviously that could change as the situation develops. Within the next few more weeks, we’ll all have a better assessment as there’s more data around the rate of the virus spreading.”

      Meanwhile, the outbreak also delays the start of phase two negotiations. But Mnuchin isn’t worried about the time frame for now. “If we get the right deal before the election, that’s great. If we get the right deal after the election, that’s great. We don’t feel any pressure one way or another,” he said.

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      German Ifo business climate rose to 96.1, economy seems unaffected by coronavirus developments

        German Ifo Business Climate rose to 96.1 in February, up from 95.9, beat expectation of 96.0. Current Assessment index rose to 93.4, up from 92.9, beat expectation of 93.3. However, Expectations index dropped slightly to 98.9, down from 99.1, missed expectation of 99.0.

        Clemens Fuest, President of the ifo Institute, said, “the German economy seems unaffected by developments surrounding the coronavirus. The survey results and other indicators suggest economic growth in the first quarter will amount to 0.2 percent.”

        Looking at some details, manufacturing index rose from -1.6 to -1.3, staying negative for the eighth straight months. Services index dropped for the third month, down form 18.8 to 17.3. Trade index dropped form 2.2. to 1.0. Construction index dropped from 13.5 to 13.1.


        Full release here.

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        New Zealand retail sales rose 0.7% in Q4, ex-auto sales up 0.5%

          New Zealand retail sales rose 0.7% qoq in Q4, slightly below expectation of 0.8% qoq. Ex-auto sales rose 0.5% qoq, below expectation of 0.9% qoq. Electrical and electronic goods retailing had the largest rise of all 15 industries in the December 2019 quarter. After adjusting for price and seasonal effects, the sales volume of electronics was up 4.3 percent, following a 4.4 percent rise in the September quarter.

          Full release here.

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          Gold surges to 1680 on coronavirus fears, 1713 next target

            Gold surges to as high as 1680.74 today on concerns of global coronavirus outbreak. 61.8% projection of 1445.59 to 1611.37 at 1547.49 at 1649.94 was taken out with ease. There is no sign of topping yet and near term outlook will remain bullish as long as 1611.37 resistance turned support holds. Next near term target is 100% projection at 1713.27.

            In the bigger picture, the current upside acceleration suggests that up trend from 1046.37 (2015 low) might be heading to retest 1920.70 (2011 high). This will be the favored case as long as 1445.39 medium term support holds.

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            G20: Global growth remains low, downside risks persist

              In the joint communique of the G20 finance ministers and central bankers meeting at Saudi Arabia over the weekend, it’s noted that “global economic growth remains slow and downside risks to the outlook persist, including those arising from geopolitical and remaining trade tensions, and policy uncertainty.” The group also pledged to “will enhance global risk monitoring, including of the recent outbreak of COVID-19. We stand ready to take further action to address these risks.”.

              Separately, IMF Managing Director Kristalina Georgieva said, “in our current baseline scenario, announced policies are implemented and China’s economy would return to normal in the second quarter… As a result, the impact on the world economy would be relatively minor and short-lived.” She added, “but we are also looking at more dire scenarios where the spread of the virus continues for longer and more globally, and the growth consequences are more protracted”.

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              Coronavirus cases surged in South Korea, Italy and Iran

                Global markets start the week in risk aversion as global outbreak of China’s Wuhan coronavirus intensified over the weekend. South Korea is suffering most with a total of 763 confirmed cases and 7 deaths. The country is put on high alert in response to the community outbreak. Total cases in Japan rose to 838, including Diamond Princess liner, with 4 deaths. Cases in Iran also surged to 43, with 8 deaths.

                Cases in Italy also exploded, with 152 cases and 3 deaths. Prime Minister Giuseppe Conte told state broadcaster RAI, “I was surprised by this explosion of cases.” Health authorities also warned, “if we cannot find ‘patient zero’ then it means the virus is even more ubiquitous than we thought.”

                Back in China, where the outbreak originated, according to the numbers claimed by the National Health Commission, total cases now stand at 77150, death tolls hit 2592. President Xi Jinping warned “at present, the epidemic situation is still severe and complex, and prevention and control work is in the most difficult and critical stage”. “For us, this is a crisis and is also a big test,” he added. Yet, Xi is still pushing for production restoration in some perceived low- and medium- risk provinces.

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                Dollar falls on cautious Fed Brainard, 30-yr yield hits record low

                  Dollar reverses some of this week’s strong gains as pressured by surprisingly cautious comments from Fed Governor Lael Brainard, in the background of record low in 30-year yield, below 1.9 handle.

                  Brainard said in a speech that “with trend inflation running below the symmetric 2 percent objective, there is a risk that inflation expectations have slipped. . And, “with price inflation showing little sensitivity to resource utilization, policy may have to remain accommodative for a long time to achieve 2 percent inflation following a period of undershooting.”

                  Meanwhile, 30-yaer yield hits new record low at 1.892 today. The development argues that TXY might even be resuming long term down trend. it’s a bit early to say. But we’re tentatively looking at 61.8% projection of 3.455 to 1.905 from 2.393 at 1.435 at the next medium term target.

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                  Canada retail sales flat in Dec, ex-auto sales rose 0.5%

                    Canada retail sales were virtually unchanged at CAD 52.6B in December, matched expectations. Ex-auto sales rose 0.5% mom, above expectation of 0.4% mom. Sales were up in eight provinces. Ontario rose 0.4% as a result of higher sales at motor vehicle and parts dealers. In Toronto, sales were up 1.8%. In Alberta, sales grew 1.0%. In Quebec, sales dropped -1.4%, largest monthly decline in more than a year.

                    Full release here.

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                    Eurozone CPI finalized at 1.4%, core at 1.1%

                      Eurozone CPI was finalized at 1.4% yoy in January, core CPI at 1.1% yoy. Highest contribution to the annual Eurozone inflation rate came from services (0.68%), followed by food, alcohol & tobacco (0.40%), energy (0.19%) and non-energy industrial goods (0.08%).

                      EU27 CPI was finalized at 1.7% yoy. The lowest annual rates were registered in Italy (0.4%), Cyprus (0.7%), Denmark and Portugal (both 0.8%). The highest annual rates were recorded in Hungary (4.7%), Romania (3.9%), Czechia and Poland (both 3.8%).

                      Full release here.

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                      UK PMI manufacturing rose to 51.9, overall business activity on a stronger path

                        UK PMI Manufacturing rose to 51.9 in February, up from 50.0, beat expectation of 49.7. That’s also the highest level in 10 months. PMI Services, however, dropped to 53.3, down from 53.9, missed expectation of 53.4. PMI Composite was unchanged at 53.3.

                        Tim Moore, Associate Director at IHS Markit, said:

                        “UK private sector growth held its ground in February as a stronger contribution from manufacturing output helped to keep overall business activity on a stronger path than any time since September 2018. The latest survey also revealed a solid upturn in the service economy, driven by improving domestic spending and a recovery in new business enquiries since the start of 2020.

                        “The recent return to growth signalled by the manufacturing and services PMIs provides a clear indication that the UK economy is no longer flat on its back, with our GDP nowcast pointing to 0.2% growth through the first quarter of the year.

                        “While there are positive signals for UK businesses on the domestic front, the latest PMI findings highlight a number of concerns from an international perspective following the COVID-19 outbreak. Service providers often commented on reduced tourism-related bookings and cancellations from overseas clients in affected markets.

                        “Manufacturers noted that abrupt shortages of components from China had reverberated through their supply chains and led to difficulties sourcing critical inputs. The downward trajectory of the suppliers’ delivery times index since January was the steepest since the survey began, exceeding the previous record set amid the UK fuel protests in September 2000.

                        “Stocks of inputs dropped at the fastest pace for just over seven years in February as supply chain bottlenecks in Asia amplified the swing in the inventory cycle from Brexit-related destocking. Some manufacturing firms suggested that rising export demand from clients in the US and Europe had added to pressure on the availability of materials, although there were only sporadic reports that component shortages had disrupted production schedules in February.”

                        Full release here.

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                        Eurozone PMI manufacturing rose to 49.1, encouraging signs of pulling out of downturn

                          Eurozone PMI Manufacturing rose to 49.1 in February, up from 47.9, and beat expectation of 47.5. It’s the highest level in 12 months, even though it stayed in contraction region. PMI Services rose to 52.8, up from 52.5 beat expectation of 52.2. PMI Composite rose to 51.6, up from 51.3.

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

                          “The eurozone economy managed to pick up some momentum again in February despite many companies having been disrupted in various ways by the coronavirus, which caused supply problems and showed signs of hitting travel and tourism numbers in particular. The flash PMI has climbed to a six-month high, consistent with GDP growing at a quarterly rate approaching 0.2%.

                          “The expansion is being led by welcome resilience in the service sector but manufacturing is also showing encouraging signs of pulling out of the downturn that has plagued producers for over a year, with new orders falling at the slowest rate since late-2018.

                          “However, the outlook remains highly uncertain, notably in respect to the potential for further disruptions to supply chains, travel, tourism and demand arising from the coronavirus outbreak. In particular, the widespread delivery delays seen in February bode ill for production in March unless new deliveries can be secured.

                          “While the February survey data are welcome news in a month in which media headlines have been dominated by fears of economic growth being hit by the COVID-19 outbreak, the full immediate impact may not yet be apparent.”

                          Full release here.

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                          Germany PMI manufacturing rose to 13-mth high, despite fresh setback to exports

                            Germany PMI Manufacturing rose notably to 47.8 in February, up from 45.3, beat expectation of 44.8. That’s the highest level in 13 months even though it’s staying in contraction. PMI Services, however, dropped to 53.3, down form 54.2, missed expectation of 54.0. PMI Composite dropped slightly from 51.2 to 51.1.

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

                            “February’s ‘flash’ PMI results show that the German economy managed to eke out another marginal increase in business activity, despite a fresh setback to exports in the wake of the outbreak of the coronavirus.

                            “Reports from surveyed businesses indicate that, so far, disruption to manufacturing production from supply issues has been fairly limited, but these are still early days in what could potentially be a lengthy saga.

                            “The signs from the data are that domestic demand remained in good health, with service sector activity continuing to rise despite reports of lower tourist numbers, and even manufacturers noting a slowdown in the rate of decline in new orders despite plunging export sales.

                            “The manufacturing PMI defied expectations in February to move to its highest in 13 months. Though there were positive contributions from all five components, the observed jump in the headline index flatters the sector’s current trajectory, with longer input delivery times stemming from disruption to supply chains in China having an unduly positive effect.”

                            Full release here.

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                            France PMI composite rose slightly to 51.9, faster growth solely attributed to services

                              France PMI Manufacturing dropped to 49.7 in February, down from 51.1, missed expectation of 50.7. It’s a 7-month low and back in contraction region. PMI Services, on the other hand, rose to 52.6, up from 51.0, beat expectation of 51.2. PMI Composite rose to 51.9, up from 51.5.

                              Commenting on the Flash PMI data, Eliot Kerr, Economist at IHS Markit said:

                              “Faster private sector growth in February can be solely attributed to services, where the expansion in activity was the quickest for four months. Meanwhile, there was fresh disappointment in the manufacturing sector.

                              “Despite PMI data signalling green shoots for manufacturers in recent months, there was a renewed production decline in February. A first output contraction for five months came amid several headwinds for demand and a subsequent reduction in new orders. Automotive sector weakness, the prolonged discontinuation of Boeing 737 Max production and supply-chain issues related to the coronavirus, all negatively impacted on French manufacturers in the latest survey period.”

                              Full release here.

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                              Australia PMI composite dropped to 48.3, fiscal stimulus needed

                                Australia CBA PMI Manufacturing rose 0.2 to 49.8 in February, up from 49.6. However, PMI Services dropped to 48.4, down from 50.6. PMI Composite also turned into contraction at 48.3, down from 50.2. The rate of output reduction was the “steepest seen since data collection began in May 2016”. Panel membered linked this to “a combination of subdued client demand, adverse weather and the Covid-19 outbreak”.

                                CBA Senior Economist, Gareth Aird said: “The February flash PMIs imply a contraction in private demand. Whilst this is clearly a disappointing result, it is not altogether surprising given the two exogenous shocks that have hit the Australian economy – the bushfires and the coronavirus (Covid-19).”

                                “Our main concern is that these event have hit the global and local economies at a time when domestic demand was already soft. The level of both the services and manufacturing PMIs highlights the need for more policy stimulus. With monetary policy doing most of the heavy lifting an easing in fiscal policy continues to look the most appropriate response to support aggregate demand.”

                                Full release here.

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                                Japan PMI composite dropped to 47.0, Q1 recovery hope dashed

                                  Japan PMI Manufacturing dropped to 47.6 in February, down from 48.8. PMI services dropped to sharply to 46.7, down from 51.0, dipped into contraction. PMI Composite also dropped to 47.0, down from 50.1, now in contraction too.

                                  Joe Hayes, Economist at IHS Markit, said: “latest PMI data dash any hopes of a first quarter recovery in Japan and significantly raise the prospect of a technical recession”. February’s data “stack the odds heavily against Q1 growth, despite Abe’s best efforts to stimulate the economy after the sales tax hike”.

                                  Full release here.


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                                  Japan national CPI core rose to 0.8%, but core-core slowed

                                    Japan national CPI core (all items ex-fresh food), rose to 0.8% yoy in January, up from 0.7% yoy, matched expectations. But it remains well below BoJ’s 2% target. Headline CPI slowed to 0.7% yoy, down form 0.8% yoy. CPI core-core (all items ex-fresh food, energy slowed to 0.8% yoy, down fro 0.9% yoy.

                                    BoJ Governor Haruhiko Kuroda told the parliament today that he saw the economy to continue with moderate recovery. The central bank won’t hesitate to take additional easing measures if necessary. But he didn’t believe it’s needed now.

                                    Kuroda added that uncertainty regarding China’s coronavirus outbreak is high, because of the impact on exports, production, and tourism. He’d watching the effects with “grave concern.” Also, the coronavirus will be the “biggest topic on the agenda” at this week’s G20 meeting.

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                                    Philly Fed manufacturing index rose to 36.7, highest since Feb 2017

                                      Philadelphia Fed manufacturing outlook index rose to 36.7 in February, up from 17, beat expectation of 12. That’s also the highest reading since February 2017. Current indicators for general activity, new orders, and shipments increased this month, suggesting more widespread growth. Future indexes also showed improvement, indicating continuation of growth in the next six months.

                                      Full release here.

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                                      US initial jobless claims rose 4k to 210k

                                        US initial jobless claims rose 4k to 210k in the week ending February 15, matched expectations. Four-week moving average dropped -3.25k to 209k.

                                        Continuing claims rose 25k to 1.726m in the week ending February 8. Four-week moving average of continuing claims dropped -5.25k to 1.772m.

                                        Full release here.

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                                        ECB: Sept easing package gradually transmitted to the economy

                                          In the accounts of ECB January 22-23 meeting, it’s noted that the package of stimulus measures announced last September “have lowered term premia and contributed to the overall substantial easing in financial conditions.” There were also “indications” that the package was “being gradually transmitted to the economy”.

                                          “Market sentiment had turned positive and risk appetite among market participants seemed strong.” Additionally, “uncertainties were perceived as receding”, mainly due to US-China trade deal and stabilization in economy outlook. But monetary policy “had to remain highly accommodative for a prolonged period of time”, with inflation “still far away” from target, and “robust convergence” of inflation towards target was “not yet assured”.

                                          Meanwhile, “risks remained tilted to the downside” even though they had become “less pronounced”. Also, “it was cautioned that a more optimistic outlook for the economy needed to be communicated carefully in order not to give rise to a premature tightening of financial conditions.”

                                          Full ECB accounts here.

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