Sun, Jun 16, 2019 @ 10:42 GMT

US retail sales rose 0.5%, ex-auto sales rose 0.5%, EUR/USD dives

    US retail sales rose 0.5% mom in May, below expectation of 0.7% mom. But ex-auto sales rose 0.5% mom, above expectation of 0.4% mom. April’s headline sales was revised up from -0.2% mom to 0.3% mom. April’s ex-auto sales was also revised up from 0.1% mom to 0.5% mom.

    Full release here.

    EUR/USD breaks through 1.1251 minor support after the release. The development suggests that rebound from 1.1107 has completed at 1.1347. Intraday bias is now back on the downside for retesting 1.1107 low.

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    ECB Draghi: Policy has neutral effect of bank profitability, lower-income households are main beneficiaries

      ECB President Mario Draghi sent separate letters to four Members of the European Parliaments today, explaining the impact of the central bank’s monetary policy. There Draghi noted the “overall effect” of ECB’s monetary policy on bank profitability has so far been “broadly neutral”. The negative impact on banks’ net interest margins has been offset by an improvement in the economic outlook that has led to an “increase in the total volume of loans” and, moreover,” improved credit quality”, which has reduced provisioning costs. Though, he also pledged to carefully monitor the overall effects of negative interest rates.

      Draghi also said lending to non-financial corporations (NFCs) “recovered significantly” since the ECB introduced its non-standard monetary policy measures. And overall, the non-standard measures “have contributed to a more uniform transmission of monetary policy to bank lending rates across euro area countries and firm sizes.”

      Moreover, taking into account both financial and macroeconomic effects, ECB research finds that “lower-income households have been among the main beneficiaries of the ECB’s non-standard monetary policy measures, through their positive impact on growth and employment creation.”

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      Gold breaks key resistance as up trend resumes finally

        Gold finally resumes recent up trend by breaking through 1346.71 resistance decisively and reaches as high as 1358.16 so far. Further rise should now be seen to 61.8% projection of 1160.17 to 1346.71 from 1266.26 at 1381.54 next. And in any case, near term outlook will remain bullish as long as 1319.95 support holds, in case of retreat.

        More importantly, upside re-acceleration is seen in weekly MACD after drawing support from 55 week EMA. The development is rather medium term bullish. Rise from 1160.17 could indeed be resuming whole rise from 1046.37 (2015 low) as consolidation from 1375.17 completed with three waves to 1160.17. That is, we’d likely see decisive break of 38.2% retracement of 1920.70 (2011 high) to 1046.37 (2015 low) at 1380.36 finally. In that case, further rise should be seen to 61.8% retracement at 1586.70 in medium to long term.

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        New Zealand Manufacturing PMI dropped to 50.2, lowest since 2012, downside risks accumulating

          New Zealand BusinessNZ Manufacturing PMI dropped to 50.2 in May, down from 52.7. Also, it’s the lowest reading since December 2012. BusinessNZ’s executive director for manufacturing Catherine Beard said that the drop in activity to its lowest point in over six years was obviously a concern, especially when the sub-index values are examined.

          She added: “Production (46.4) was at its lowest value since April 2012, while the other key sub-index of new orders (50.4) only just managed to stay in positive territory.  Given the latter feeds through into the former, it does not instil a strong belief that the sector will show solid improvement over the next few months”.

          BNZ Senior Economist, Doug Steel said that “the PMI sends a warning signal for near term growth via its mix of falling production, near flat new orders, and rising inventory. Next week’s Q1 GDP should be reasonable, but beyond this downside risks are accumulating”.

          Full release here.

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          661 US Companies and Associations urged Trump to avoid tariff escalation

            In an open letter to Trump, 661 US Companies and Associations urged the administration to avoid tariff escalation with China. Instead, the administration should try to reach resolution with China on trade. The letter came as US Trade Representative is set to start hearings regarding 25% tariffs on USD 300B, essentially all untaxed, Chinese imports. The letter, lead by “Tariffs Hurt the Heartland” campaign,w as signed by 520 companies and 141 trade associations. .

            “We remain concerned about the escalation of tit-for-tat tariffs,” the letter states. “We know firsthand that the additional tariffs will have a significant, negative and long-term impact on American businesses, farmers, families and the U.S. economy. Broadly applied tariffs are not an effective tool to change China’s unfair trade practices. Tariffs are taxes paid directly by U.S. companies, including those listed below – not China.”

            “We urge your administration to get back to the negotiating table while working with our allies to develop global, enforceable solutions. An escalated trade war is not in the country’s best interest, and both sides will lose,” the companies and associations added.

            Full letter and signers here.

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            Euro’s international role recovered in period of trade tensions and protracted slowdown

              ECB said in a report that euro’s international role strengthened in 2018 and early 2019 reversing a declining trend in recent years. Share of Euro as global reserve currency rose 1.2% in 2018, up from 19.5% to 20.8%. The euro’s share in international debt issuance and international deposits also increased, together with its share in the value of outstanding international loans.

              ECB President Mario Draghi said that the period was “characterized by growing concerns about the impact of international trade tensions, a protracted slowdown in global growth, reversals in cross-border capital flows and challenges to multilateralism, including the imposition of unilateral sanctions.:

              “On balance, these developments, together with progress towards deepening Economic and Monetary Union (EMU), seem to have had a positive effect on the international use of the euro, which showed tentative signs of recovering from historic lows.”

              Full report here.

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              White House said it looks like Trump is moving in that direction of meeting with Chinese Xi

                White House spokesman Hogan Gidley was asked by Fox News Channel if Trump and Chinese President Xi will have a sideline meeting at G20 summit in Osaka. He didn’t answer directly and said “it looks like we’re moving in that direction.”

                Trump said yesterday he has “no deadline” for the trade negotiations with China. But he emphasized that “I would never take something that would be less than what we already had”. He reiterated he had very good relationship with Xi, just “a little bit testy right now”.

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                US initial jobless claims rose 3k to 222k, import price dropped -0.3% mom

                  US initial jobless claims rose 3k to 222k in the week ending June 8, above expectation of 215k. Four-week moving average of initial claims rose 2.5k to 217.75k. Continuing claims rose 2 to 1.69M.

                  US import price index dropped -0.3% mom in May, matched expectations.

                  Also release, Canada new housing price index rose 0.0% mom in April, matched expectations.

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                  Into US session: AUD stays weakest on RBA cut bets, CAD rebounds with oil

                    Entering into US session, Australian Dollar remains the weakest one for today weak details in May job data suggests that considerable slack remains in the Australian labor market and affirms the case for more RBA rate cut later this year. For now, New Zealand Dollar is the second weakest.

                    On the other hand, Canadian Dollar and Swiss Franc are the strongest ones so far. WTI crude oil rebounds strongly ahead of 50.64 support. There are reports that two oil tankers had been attacked in the Gulf of Oman, with fresh tensions in that region potentially posing a threat to global supplies. SNB kept policy rate unchanged at -0.75% and reiterated the readiness for currency intervention. Franc and Yen are lifted by mild risk aversion.

                    In Europe, currently:

                    • FTSE is up 0.09%.
                    • DAX is up 0.39%.
                    • CAC is down -0.02%.
                    • German 10-year yield is down -0.005 at -0.241.

                    Earlier in Asia:

                    • Nikkei dropped -0.46%.
                    • Hong Kong HSI dropped -0.05%.
                    • China Shanghai SSE rose 0.05%.
                    • Singapore Strait Times rose 0.40%.
                    • Japan 10-year JGB yield rose 0.0004 to -0.111.
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                    Italy Tria insists no additional measures needed on budget

                      Ahead of a meeting of euro zone finance ministers Italian Economy Minister Giovanni Tria insisted that no additional measures are needed over its budget. But Italy can still seek a deal with EU to avoid the excessive deficit procedures. He said “we will explain we will reach our targets over deficit… we don’t need additional measures, (but if needed) we will adopt them”. And what will happen at the Eurozone finance minister meeting by July 9 is that ” we will seek a deal.”

                      Eurogroup President Mario Centeno warned that reducing Italy’s debt “is of utmost importance for growth, for the stability of the euro zone.” And, what he expected to hear from Tria was “that the targets that were committed by the Italian government at the end of last year are achieved”.

                      European Commission Vice President Valdis Dombrovskis reiterated that “substantial corrections” is needed in Italy’s budget to meet fiscal targets for 2019 agreed with the European Commission last December.

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                      Eurozone industrial production dropped -0.5% in April

                        Eurozone industrial production dropped -0.5% mom in April, in line with expectation. in EU28, industrial production dropped -0.7% mom.

                        Among the main industrial groups, in Eurozone, production of durable consumer goods fell by -1.7%, capital goods by -1.4% and intermediate goods by -1.0%. Production of non-durable consumer goods rose by 0.2% and energy by 1.4%.

                        Full release here.

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                        German government: Subdued economy with first signs of labor market slowdown

                          German Federal Ministry of Economy and Energy said the economy will “remain subdued for the time being”. And data indicates continuation of “two-part development” as services support growth but manufacturing is in decline. Meanwhile, there are also two parts in manufacturing, paralyzing industry and booming construction.

                          The ministry also noted “the first signs of the economic slowdown are evident in the labor market: employment continues to grow, but the lower momentum is solidifying. Unemployment increased in May, not just because of special factors.”

                          Full release here.

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                          Swiss SECO raised 2019 growth forecasts to 1.2%, still below average

                            Swiss State Secretariat for Economic Affairs expects growth to remain “below average” this year on subdued outlook and high uncertainty. But growth forecasts for 2019 was revised slightly up to 1.2%, from 1.1%. For 2020, growth projection was kept unchanged at 1.7%.

                            SECO noted that “declining momentum in the international economy, the development of world trade is weak and demand for Swiss products is flattening out, slowing down the export economy.” And, “downside risks continue to predominate for the global economy”.

                            It warned that with the recent tariff increases between US and China, the trade dispute has taken an “unfavourable turn”. Swiss economy would “cool off more strongly” if situation were to intensify further, particularly if EU and Germany were to be significantly affected. Meanwhile, “political uncertainty remains high in Europe”, including Brexit and Italy.

                            Full release here.

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                            SNB Jordan: Swiss Franc and Yen appreciated as safe havens as US-China trade tensions escalated

                              In the post meeting press conference, SNB Chairman Thomas Jordan noted that “when the trade dispute between the US and China escalated again in May, the Swiss franc and the Japanese yen appreciated” as safe havens. And, “in light of the high valuation of the franc and the fragility of the situation, our willingness to intervene remains necessary, as does the negative interest rate.

                              Jordan also, noted decline in long term rates in US, Swiss and Eurozone since December meeting. And, “the global decline in long-term interest rates reflects the heightened risks. Inflation expectations in Swiss “declined slightly” but “remain within the range of 0% to 2% that we equate with price stability.”

                              Full remarks here.

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                              SNB kept policy rate at -0.75%, global risks more pronounced

                                SNB left Sight Deposit rate unchanged at -0.75% as widely expected and changed the name to SNB policy rate . SNB will also “remain active in the foreign exchange market as necessary”. The central bank noted that expansionary monetary policy “remains necessary” against the backdrop of the current price and economic developments”. Franc’s exchange rate is “somewhat stronger” than in March and is “still highly valued”. Current markets “continues to be fragile”.

                                Also signs from global economy “remain mixed”. But SNB expect global growth to “remain in line with potential”. Risks are “still to the downside” and are “more pronounced” than at March meeting. “Chief among them are political uncertainty and trade tensions, which could lead to renewed turbulence on the financial markets and a further dampening of economic sentiment.” Swiss growth “gathered momentum” at the beginning of 2019 with “positive” labor market development and “well utilized” production capacity. Momentum remains “favorable” for 1.5% growth in 2019.

                                In the new economic projection, SNB raised 2019 inflation forecast to 0.6%, up from 0.3%. 2020 inflation forecast was raised to 0.7%, down from 0.6%. But for 2021, inflation forecast was lowered to 1.1%, down from 1.2%.

                                Full statement here.

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                                Australia unemployment rate unchanged at 5.2%, AUD/JPY downside breakout

                                  Australia employment rose 42.3k in May, well over expectation of 16.0k. However, the growth was mainly driven by 39.8k addition in part-time jobs. Full-employment rose merely 2.4k. Monthly hours worked in all jobs also decreased by -0.3%. Unemployment rate was steady at 5.2% , above expectation of 5.1%. Participation rate rose 0.1% to 66.0%.

                                  In seasonally adjusted terms, the largest increase in employment was in New South Wales (up 38.5k), followed by Victoria (up 28.6k) and Queensland (up 7.8k). The only decreases were in Western Australia (down -4.0k) and Tasmania (down -0.4k).

                                  The data suggests that there is still considerable slack in the labor market. According to recent comments from RBA Assistant Governor Luci Ellis, unemployment could need to be pushed down to as low as 4.5% before material uplift in wage pressure and inflation. There’s still a long way to go for the central bank, which is on track for more rate cuts this year.

                                  AUD/USD drops sharply today, reaffirming the case that corrective recovery from 0.6864 has completed at 0.7022. Retest of 0.6864 should be seen next and break will resume larger decline from 0.7295.

                                  AUD/USD’s break of 74.96 support confirms resumption of decline from 80.71. Outlook will stay bearish as long as 76.01 resistance holds. Next target is 61.8% retracement of 70.27 to 80.71 at 74.25. Sustained break there will pave the way back to retest 70.27 flash crash low.

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                                  UK RICS house price balance rose to -10, but anecdotal insight shows political and economic concerns

                                    UK RICS House Price Balance improved to -10 in May, up from -22. That is, 10% more respondents saw a fall rather than rise in May. This would indicate a deceleration in the pace of price declines in six months time.

                                    Simon Rubinsohn, RICS Chief Economist, said: “Some comfort can be drawn from the results of the latest RICS survey as it suggests that the housing market in aggregate may be steading. However much of the anecdotal insight provided by respondents is still quite cautious, reflecting concerns about both the underlying political and economic climate.”

                                    Full release here.

                                     

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                                    Fed will hold interest rates this year according to consensus of a Reuters poll

                                      According to a Reuters poll in June 7-12 period over 100 economists, consensus is that Fed will hold interest rates at current 2.25-2.50% this year. However, median from a smaller sample showed 55% of one Fed cut this year, 40% for two. The median chance of a recession in the next 12 months increased slightly by 5% to 30%. But the range from 10% to 80% is huge. For the next two years, median chance stood at 40%, with range from 10% to 90%.

                                      Opinions are divided as some point out that concerns are mainly on the risks to economic outlook, rather than the outlook. And the risks and uncertainty could turn out to be a lot weaker. Fed’s decision remain data dependent and some strong numbers could push out a possible July rate cut. Meanwhile Fed could resume rate hikes next year should the risks not materialize.

                                      However, the probability of a recession has risen due to trade tensions. The next round of tariffs against China is the “big, big concern”. Some expected recession in second half of 2020 and an insurance rate cut by Fed is seen as not enough in this case. Fed could be forced to start a full blown cutting cycle next year.

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                                      Chinese officials delivered bullish comments, but interest rate and RRR cut said to be underway

                                        At a financial forum in Shanghai, Chinese Vice Premier Liu He said there are plenty of policy tools to use to deal with the challenges the economy is facing. He also sounded confidence and said major macroeconomic indicators all remain within reasonable ranges. Meanwhile, China will roll out more strong measures on reforms in the near future.

                                        In the same forum, Pan Gongsheng, head of the State Administration of Foreign Exchange, said the country’s FX market is largely stable with FX reserves steadily rising. And, China is capable and confident of keeping its currency basically stable. Guo Shuqing, head of the China Banking and Insurance Regulatory Commission (CBIRC) reiterated there are plans to further open up its banking securities and insurance sectors.

                                        Separately, the official China Daily said that more money and credit supply adjustment are under way to counter the downside risks of trade war. Measures could include cuts in interest rates or reserve ratio requirements. The newspaper noted the near for stronger measures to maintain liquidity in the financial market and support infrastructure investment

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                                        US oil inventories rose 2.2M barrels, WTI heading back to 50.64 support

                                          US commercial crude oil inventories rose 2.2M barrels in the week ending June 7, above expectation of -1.0M barrels fall. At 485.5 million barrels, U.S. crude oil inventories are about 8% above the five year average for this time of year. WTI crude oil weakens mildly after the release.

                                          Prior recovery from 50.64 was limited at 54.68 and failed to sustain above 54.61 minor resistance. It’s also staying below falling 4 hour 55 EMA. Near term outlook remains bearish and further decline is still expected. Break of 50.64 and sustained trading below 61.8% retracement of 42.05 to 66.49 at 51.38 could pave the way to retest 42.05 low.

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