Mon, Aug 10, 2020 @ 21:40 GMT

Bank of France: July economic activity -7% below normal levels

    Bank of France said in the monthly report that economic activity is running -7% below normal levels in July. That follows -13.8% contraction in the economy in Q2.

    It also noted, in July, “industrial activity continued to recover, albeit at a more subdued pace compared to June”. “Services sector activity continued to expand, but at a slower rate than previous month”. “Construction sector activity continued to grow but decelerated.”

    For August, business leaders expect industry to “grow moderately”, services to “remain almost stable”, construction to “tick upwards”.

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    Eurozone Sentix investor confidence rose to -13.4

      Eurozone Sentix Investor Confidence rose to -13.4 in August, up from -18.3, beat expectation of -15.2. It’s also the fourth increase in a row, and highest since February. Current Situation index rose to -41.3, up from -49.5, highest since March. Expectations, however, dropped slightly to 19.3, down from 19.5.

      Sentix said: “If one compares the development of the current situation following the financial crisis in 2009 with the recovery movement of the sentix economic indices this year, it is noticeable that the recovery of the current situation is very similar in terms of both level and timing. At that time, the expectations were also the first to rise. For a long time, the current situation values bobbed in the deep red range. It was not until summer 2009 that the economic indicators began to recover. The path in 2020 is now very similar, giving rise to the fantasy that the low point has definitely been passed and that the initiated recovery can continue.”

      Full release here.

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      New Zealand ANZ business confidence dropped to -42.2, post-lockdown rebound run its course

        August’ preliminary reading of New Zealand ANZ Business Confidence dropped back to -42.4, down form -31.8. It’s still above lockdown low of -55, though. Own Activity Outlook also dropped to -17.0, down from -8.9.

        ANZ said the reading “adds to the evidence that the post-lockdown rebound may have run its course.” “There are three prongs to this economic crisis: lockdown, closed borders, and an incredibly synchronised global slowdown that will hit exports.”

        Full release here.

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        Fed Evans: Another support package is really incredibly important

          Chicago Fed President Charles Evans said in a CBS interview that “we’ve not control over the virus spread,” and “another support package is really incredibly important”. He emphasized the importance of public confidence “so that people feel good about going back to work, they feel safe they can go out to retail establishments and enjoy leisure and hospitality that put people back to work.”

          Evans said the actual unemployment rate is “somewhat higher” that the official number at 10%. “If we got the kind of support that we needed as quickly as possible, got control of the virus, perhaps all the people who were sent home to stay safe could be brought back by their- by their previous employers. ”

          Full transcript here.

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          Gold dips on Dollar rebound, topped for short term?

            Gold retreats notably, accompanying Dollar’s broad based rebound. The break of 2028.34 minor support argues that a short term top is formed at 2075.18, on bearish divergence condition in 4 hour MACD. Intraday bias is now mildly on the downside for 4 hour 55 EMA (now at 1990.24). Sustained break there will confirm this view and bring deeper pull back to 38.2% retracement of 1670.66 to 2075.18 at 1920.65. We’ll see if this scenario would play out.

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            Canada employment grew 418.5k, unemployment rate dropped to 10.9%

              Canada employment grew 418.5k in July, below expectation of 653.3k. Combined with the 953k added in June and 290k in May, employment was brought back to within 1.3m (-7.0%) of pre-pandemic February level.

              Unemployment rate dropped to 10.9%, down form 12.3%, much better than expectation of 12.8%. Labor force participation rate rose back to 64.3%, within 1.2% from February level of 65.5%.

              Full release here.

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              US NFP grew 1763k, unemployment rate dropped to 10.2%

                US non-farm payroll employment grew 1763k in July, above expectation of 1510k. Notable job gains occurred in leisure and hospitality, government, retail trade, professional and business services, other services, and health care.

                Unemployment rate dropped to 10.2%, down from 11.1%, better than expectation of 10.7%. Labor force participation was little changed at 61.4%. Average hourly earning rose 0.2% mom, better than expectation of -0.5% mom decline.

                Full release here.

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                Trade surplus in Germany and Italy widened, EUR/CAD mildly higher

                  Germany exports dropped -9.4% yoy to EUR 96.1B in June. Imports dropped -10.0% yoy to EUR 80.5B. Trade surplus came in at EUR 15.6B. In calendar and seasonally adjusted terms, trade surplus widened to EUR 14.5B, up from EUR 7.6B, above expectation of EUR 10.3B. Industrial production rose 8.9% mom in June, above expectation of 8.8% mom.

                  France trade deficit widened slightly to EUR -8.0B in June, up fro EUR -7.1B. Industrial output rose 12.7% mom, above expectation of 10.0% mom. Italy trade surplus widened slightly to EUR 6.23B, up from EUR 5.58B.

                  EUR/CAD recovers mildly following the releases but there is no follow through buying yet. The pair failed to break through 1.5991 resistance and retreated, as Canadian Dollar rebounded following oil price rally. Though, with 1.5654 support intact, further rise is expected in the cross. Break of 1.5991 is expected eventually.

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                  China exports rose 7.2% in July, imports dropped -1.4%

                    In USD term, China’s exports rose 7.2% yoy to USD 237.6B in July. Imports dropped -1.4% yoy to USD 175.3B. Trade surplus came in at USD 62.3B, widened from June’s USD 46.4B, beat expectation of USD 42.5B.

                    Year-to-July, overall:

                    • Exports dropped -4.1% yoy to USD 1336B.
                    • Imports dropped -5.7% yoy to USD 1106B.
                    • Trade surplus was at USD 230B.

                    Year-to-July, with EU:

                    • Exports rose 0.7% yoy to USD 209.2B.
                    • Imports dropped -8.5% yoy to USD 133.5B.
                    • Trade surplus was at USD 75.7B.

                    Year-to July, with US

                    • Exports dropped -7.3% yoy to USD 221.3B.
                    • Imports dropped -3.5% yoy to USD 67.7B.
                    • Trade surplus was at USD 153.6B.
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                    RBA paints slower recovery, says no to negative rates and intervention

                      In the Monetary Policy Statement, RBA revised down GDP projections for 2021, projecting a slower recovery. There were also upward revisions in unemployment rate forecasts and downward in inflation forecasts. The central bank also reiterated that currency intervention and negative rates no appropriate for the moment.

                      GDP contraction for year ending December 2020 was maintained at -6%. But a slower recovery is projected, at 5% for year ending December 2021, revised down from 6%. Growth is expected to slow further to 4% in the year ending December 2022.

                      Unemployment rate is projected be at 10% (revised from 9%) by 2020 end, then drop to 8.5% (revised up from 7.5%) in 2021 end, then to 7% in 2022 end. Trimmed mean inflation projections were also revised down to 1.00% (from 1.25%) in 2020 end, then 1.00% (from 1.25%) in 2021 end, and crawl back to 1.50% in 2020 end.

                      RBA said: “At a time when the value of the Australian dollar is broadly in line with its fundamentals and the market was working well, there was not a case for intervention in the foreign exchange market. Intervention in such circumstances is likely to have limited effectiveness.”

                      “The Board continues to view negative interest rates as being extraordinary unlikely in Australia. The main potential benefit is downward pressure on the exchange rate. But negative rates come with costs too. They can cause stresses in the financial system that are harmful to the supply of credit, and they can encourage people to save rather than spend.”

                      Full RBA Monetary Policy Statement here.

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                      Asian stocks tumble as Trump moves to ban TikTok and WeChat, HSI down -2.2%

                        Asia markets tumble broadly, particularly serious in Hong Kong, after US President Donald Trump issued an executive order to ban China’s TikTok and WeChat apps. The orders will go into effect in 45 days, and block all transactions with TikTok’s owner ByteDance, and transactions involving WeChat. The move was made under the International Emergency Economic Powers Act, which allows the president to declare a national emergency, block transactions and seize assets, in response to “unusual and extraordinary threat”.

                        “To protect our Nation, I took action to address the threat posed by one mobile application, TikTok. Further action is needed to address a similar threat posed by another mobile application, WeChat,” Trump said. “This data collection threatens to allow the Chinese Communist Party access to Americans’ personal and proprietary information — potentially allowing China to track the locations of Federal employees and contractors, build dossiers of personal information for blackmail, and conduct corporate espionage”.

                        At the time of writing, Hong Kong HSI is down -566 pts or -2.27%. It’s still holding above a near term channel support nevertheless. If HSI could rebound from the current level and break through 25201.43 resistance, near term bullish would be retained for another rise through 26782.61. However, sustained trading below the channel support will argue that the corrective rise from 21139.26 has completed and bring deeper fall to 22519.73 support to confirm.

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                        US initial jobless claims dropped to 1.186k, continuing claims down to 16.1m

                          US initial jobless claims dropped -249k to 1186k in the week ending August 1, better than expectation of 1450k. Four-week moving average of initial claims dropped -31k to 1338k.

                          Continuing claims dropped -884k to 16107k in the week ending July 25. Four-week moving average of continuing claims dropped -413k to 16628k.

                          Full release here.

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                          BoE Bailey: Negative rates more effective in an established upswing

                            BoE Governor Andrew Bailey said the central bank is “ready to act, should that be needed”. However, he added that while negative rates are “part of out tool box”, at the moment, “we do not have a plan to use them.

                            A “conclusion we tend to be drawing from other experiences is that the negative rates and their effectiveness depends on what point in the cycle you use them,” he explained. “If you see what the ECB have done in their analysis that probably they are more effective in an established upswing than they are in a difficult downswing.”

                            On the economic outlook, he emphasized “forecasts can sometimes look beguilingly straightforward”. But “there’s an awful lot of risk in there ad it’s obviously distributed one way.”

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                            UK PMI construction rose to 58.1, but employment fell as a faster pace

                              UK PMI Construction rose further to 58.1 in July, up from 55.3, beat expectation of 57.0. That’s the second straight month of expansion reading, and the best since October 2015. Markit said growth was led by sharp increase in house building. There was modest improvement in new order books. However, employment fell at a faster pace.

                              Tim Moore, Economics Director at IHS Markit: “Survey respondents noted a boost to sales from easing lockdown measures across the UK economy and reduced anxiety about starting new projects. However, new work was still relatively thin on the ground, especially outside of residential work, with order book growth much weaker than the rebound in construction output volumes.

                              “Concerns about the pipeline of new work across the construction sector and intense pressure on margins go a long way to explain the sharp and accelerated fall in employment numbers reported during July. This shortfall of demand was mirrored by the fastest rise in sub-contractor availability since November 2010 and another decline in hourly rates charged.”

                              Full release here.

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                              BoE stands pat, spendings recover significantly but investments weak

                                BoE left monetary policy unchanged as widely expected. Bank Rate is maintained at 0.1%. The asset purchase target is also held at GBP 745B. Both decisions were made by unanimous 9-0 votes. The Committee “does not  intend to tighten monetary policy until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.

                                On the economy, BoE expects UK GDP to have bee over -20% lower in Q2, comparing with Q4 2019. GDP is not expected to exceed Q4 2019 level until the end of 2021. Risks to GDP outlook are skewed to the downside. High-frequency indicators imply that “spending has recovered significantly” since April. Though, business investment is “likely to have fallen markedly in Q2” and investment intentions remain “very weak”.

                                Unemployment rate is projected to “rise materially” to around 7.5% by year end, “consistent with a material degree of spare capacity. CPI is expected fall further below the 2% target and average around 0.25% in the latter part of the year. But CPI is still expected to return to around 2% in two years’ time.

                                Full statement here.

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                                Australia Morrison: Victoria lock to shrink GDP further by AUD 7B to 9B in Q1

                                  Australian Prime Minister Scott Morrison said Victoria’s stage 4 lockdown could shrink GDP between AUD 7B and AUD 9B in Q3. Overall impacts together with prior imposed restrictions in Melbourne could cost between AUD 10B to AUD 12B, an impact of around 2.5% of GDP. “Treasury’s assessed the impact of these new restrictions and notes there’s a high degree of uncertainty in relation to any of these estimates,” Morrison said. “This is a heavy blow.”

                                  Also, headline unemployment could peak at close to 10%, with real unemployment rate at 13%. “It is estimated — the increase in effective unemployment — to be between 250,000 and 400,000,” Morrison said. “That isn’t necessarily people who have lost their employment, it also includes those whose employment has been reduced to zero hours.”

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                                  Fed Kaplan: Continuation of the unemployment benefits needed

                                    Dallas Fed President Robert Kaplan said “the issue with the resurgence in the virus is it slowed down or somewhat muted the recovery we’ve been expecting”. Hence, “the better again we manage the virus, the better we’ll recover.”

                                    “I believe the economy needs a continuation of the unemployment benefits,” Kaplan told CNN. “It may not need to be in the same form as it currently is, but we need a continuation.”

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                                    Fed Mester: Reopening may be more protracted than anticipated

                                      Cleveland Fed President Loretta Mester said in a speech that “the increase in virus cases that we’ve seen in recent weeks has raised the downside risks to the outlook and is a stark reminder that there are several different scenarios that could play out”. The reopening phase maybe “more protracted than many had anticipated when it started”.

                                      It’s “clear that more fiscal support is needed to provide a bridge for households, small businesses, and state and local municipalities that have borne the brunt of the economic shutdown until the recovery is sustainably in place”, she added.

                                      On Fed’s side, even though policy rate is “already at its effective lower bound”, there are tools to provide additional accommodations, including “forward guidance about the future path of policy and purchases of longer-term Treasuries and agency mortgage-backed securities”.

                                      Mester’s full speech here.

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                                      Fed Clarida expects rebound in activity in Q3, but course of economy is a complex picture

                                        Fed Vice Chair Richard Clarida said he forecast the US to have a “rebound in economic activity in the third-quarter data”. However, “the course of the economy is going to depend on the course of the virus, and it’s a complex picture”.

                                        “It will take some time I believe before we get back to the level of activity we were at in February before the pandemic hit,” he added. “My baseline view is that we could get back to the level of activity perhaps towards the end of 2021.”

                                        Also, ‘”there are a lot of moving parts with the virus and the global outlook.” One being additional fiscal support which the Congress and the White House are still struggling to reach an agreement. “The longer this drags on, the greater risk there is to long-term damage to the economy,” Clarida said. “I don’t think we’re at that point yet.”

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                                        US oil inventories dropped -7.4m barrels, WTI firm above 42 key resistance

                                          US commercial crude oil inventories dropped -7.4m barrels in the week ending July 31, much larger than expectation of -3.4m barrels fall. At 518.6m barrels, inventories are about 16% above the five year average for this time of year. Gasoline inventories rose 419k barrels. Distillate rose 1.6m barrels. Propane/propylene rose 2.3m barrels. Commercial petroleum dropped -2.1m barrels.

                                          WTI crude oil surged to as high as 43.38 earlier today and remains firm after the release. Key resistance level at 42.05 is taken out finally. Near term outlook will remain bullish as long as 38.58 support holds. Focus is now on whether there will be upside acceleration to 55 month EMA (now at 54.28). This is the next key level to overcome to reverse the long term down trend.

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