Fri, Sep 20, 2019 @ 06:05 GMT
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Live Comments

Chinese officials to visit US farms next week to build good will

    Deputy level US-China trade talks stated yesterday in Washington in preparation for the top level meeting next month. It’s reported that agriculture was having a disproportionate amount of time in the discussions. But there is not official confirmation of the news. Yet separately, Agriculture Department Secretary Sonny Perdue said yesterday that Chinese officials will visit American farms next week as part of efforts to “build goodwill.” But he wasn’t sure if China will announcement any purchases during the visit.

    At the same time, Commerce Secretary Wilbur Ross reiterated that the administration is pushing for something “more complicated than just buying a few more soybeans.” He told Fox Business Network that “what we need is to correct the big imbalances, not just the current trade deficit, but also the structural imbalances, the impediments to market access, disrespect for intellectual property, forced technology transfers.”

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    US-China deputy level trade talks to focus heavily on agricultural purchases

      Chinese Vice Finance Minister Liao Min is leading a delegation of around 30 Chinese officials to meet with US Deputy Trade Representative Jeffrey Gerrish at the USTR office near White House today. It’s reported that the discussions will focus heavily on agricultural purchases, with some focuses on intellectual property protections and forced technology transfer.

      US Commerce Secretary Wilbur Ross said today that “we will find out very, very shortly in the next couple of weeks” on what China exactly wants. But he emphasized that “what we need is to correct the big imbalances, not just the current trade deficit… It’s more complicated than just buying a few more soybeans.”

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      Philadelphia Fed Manufacturing index dropped to 12, prices increased notably

        Philadelphia Fed Manufacturing Business Outlook Survey Current Index dropped from 16.8 to 12.0 in September, above expectation of 10.8. The survey’s indicators were mixed as the indexes for general activity and new orders fell, while the indexes for shipments and employment increased. Meanwhile, price indexes increased notably.

        On the cost side, nearly 38 percent of the firms reported increases in the prices paid for inputs this month, up from 25 percent in August. The prices paid index increased 20 points to 33.0, its highest reading since December 2018. With respect to prices received for firms’ own manufactured goods, 26 percent of the firms reported higher prices, up from 16 percent in August. The diffusion index for prices received increased 8 points to 20.8, its highest reading since March.

        Full release here.

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        US initial jobless claims rose 2k to 208k

          US initial jobless claims rose 2k to 208k in the week ending September 14, slightly below expectation of 210k. Four-week moving average of initial claims dropped -0.75k to 212.25k. Continuing claims dropped -13k to 1.661m in the week ending September 7. Four-week moving average of continuing claims dropped -3.75k to 1.678m.

          Full release here.

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          Ireland Coveney hasn’t seen any credible proposal on Irish backstop alternatives yet

            Irish Foreign Minister Simon Coveney emphasized that EU needs to get “credible proposal” on Irish backstop alternatives. But “we simply haven’t seen yet”, he added. He also said the meeting between Prime Minister Leo Varadkar and DUP’s Arlene Foster was “positive and friendly”. But he emphasized “it is important that its not interpreted as some sort of breakthrough, because I don’t think it is.”

            Separately, a European Commission spokesperson said that there is not precise deadline for UK regarding Brexit proposals, but “every day counts”. She added, “we mentioned the European Council in October as a milestone in our calendar so in order to properly prepare a European Council the sooner we make progress the better, but I don’t have a precise date to give you”.

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            BoE kept rate unchanged at 0.75% by unanimous votes

              BoE kept bank rate unchanged at 0.75% and held asset purchase target at GBP 435B as widely expected. Both decisions were made by unanimous votes.

              The central bank noted that since last meeting US-China trade war has “intensified” and global growth outlook has “weakened”. Monetary policy has been “loosened” in major many economics. Domestically, Brexit developments are making data “more volatile”. Underlying growth has “slowed” but remains “slightly positive”. Brexit uncertainties continued to “weigh on business investment”. But consumption growth has remained “resilient”.

              BoE also reiterated that “monetary policy response would not be automatic and could be in either direction.”. In case of smooth Brexit, “increases in interest rates, at a gradual pace and to a limited extent, would be appropriate”.

              Full release here.

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              Swiss Franc rebounds on SNB’s less dovish than expected hold

                Swiss Franc notably after SNB left policy rate unchanged at -0.75%. The central bank reiterated the commitment to “intervene in the foreign exchange market as necessary, while taking the overall currency situation into consideration”. The so-called exemption threshold for negative interest rates was raised from 20 times of minimum reserve to 25 times. The overall announcement is seen as much less dovish than expected.

                Both GDP and CPI forecasts were lowered. GDP growth is expected to reach 0.5-1% this year, down from 1.5% projected in June. CPI is revised lower to 0.4% for this year, down from 0.6% previously. Inflation is expected to ease further to 0.2% in 2020 (previous: 0.7%) before recovering to 0.6% in 2021 (previous 1.1%).

                More in SNB Raises Exemption Threshold for Negative Rate; CHF Rises on No Rate Cut, SNB’s statement

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                BoJ stands pat, global downside risks increasing

                  BoJ left monetary policy unchanged as widely expected. Under the yield curve control framework, short-term policy rate is kept at -0.1%. The central bank will continue JGB purchases to keep 10-year yield at around 0%. Annual monetary base expansion will be kept at around JPY 80T.

                  On the outlook, BoJ expects that the economy is “likely to continue on a moderate expanding trend, despite being affected by the slowdown in overseas economies”. Domestic demand is “expected to follow an uptrend”. Exports are “projected to show some weakness”, but still be on a “moderate increasing trend”. CPI is likely to increase “gradually toward 2 percent”.

                  Risks include US macroeconomic policies, protectionism, emerging markets, global adjustments in IT goods, Brexit and geopolitical risks. BoJ warned that “downside risks concerning overseas economies seem to be increasing, and it also is necessary to pay close attention to their impact on firms’ and households’ sentiment in Japan.”

                  Full statement here.

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                  New Zealand GDP grew 0.5%, services led

                    New Zealand GDP grew 0.5% qoq in Q2, above expectation of 0.4% qoq. Services industries grew 0.7%, accelerated from 0.3%. Services growth was also wide-spread, in 8 out of 11 industries. Primary industries expanded 0.7%, rebound from two consecutive declines. However, goods-producing industries fell -0.2%, following 1.9% rise back in Q1.

                    NZD/USD stays soft after the release even though reaction was relatively muted. The decline was mainly due to the hawkish Fed cut overnight. Corrective recovery from 0.6269 should have completed at 0.6450 already. As long as 0.6362 minor resistance holds, further fall should be seen to retest 0.6269 next.

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                    Australia employment grew 34.7k, unemployment rate rose to 5.3%

                      Australian employment grew 34.7k in August, well above expectation of 20k. Full-time employment rose 7.2k while part-time employment added 14.7k. Unemployment rate rose 0.1% to 5.3%, above expectation of 5.2%. At the same time, participation rate rose 0.1% to 66.2%.

                      In seasonally adjusted terms, from July 2019 to August 2019, the largest increases in employment were in Victoria (up 20,300 persons) and New South Wales (up 16,700 persons). The largest decrease was in Queensland (down 7,200 persons). The seasonally adjusted unemployment rate increased by 0.4 pts in South Australia (7.3%) and Tasmania (6.4%), and by 0.1 pts in Victoria (4.9%). Decreases were recorded in New South Wales (down 0.2 pts to 4.3%) and Western Australia (down 0.1 pts to 5.8%), with Queensland recording no change.

                      Full release here.

                      AUD/USD drops notably after the release as the rise in unemployment rate adds to the case for more RBA rate cut this year. The break of 0.6807 minor support now suggests that corrective rise from 0.6677 has completed with three waves up to 0.6894. Further fall should now be seen back to retest 0.6677 next.

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                      Dollar higher after Fed’s hawkish cut, upside limited so far

                        Dollar rises broadly after Fed’s “hawkish” rate cut, with projections and dot plot signaling that the “mid-cycle” adjustment is completed. The rally is trying to gather steam after Fed chair Jerome Powell’s “balanced” press conference. Most importantly, he noted that the rate are not on a pre-set course, which is clearly seen in the decision today. While today’s cut is insurance again uncertainties, economic outlook remains favorable.

                        Overall reactions from the markets are relatively “mild” indeed. DOW is currently down just around 0.5%. 10-year yield is down -0.030 at 1.78. There is no committed buying in Dollar yet 0.9975 resistance in USD/CHF and 0.6807 support in AUD/USD will be immediate focuses.

                        Additionally, spot gold is worth a watch to confirm Dollar’s upside momentum. break of 1479.56 resistance will complete a head and shoulder top pattern. And in that case, deeper fall would be seen back to 1400.53 structure support, at least.

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                        Fed downgrades median rate projections to 1.9% in 2019, dot plot shows no more cut

                          The new economic projections were largely unchanged, except for federal funds rate. The median projections of federal funds rate are at 1.9% in 2019 and 2020, then rises to 2.1% in 2021. Just based on this median figure, with federal funds rate at 1.75-2.00%, Fed is already done with it’s “mid-cycle” adjustments.

                          However, based on the dot plot, it’s not totally certain and here is still risk of further rate cut this year. 7 members have penciled in another cut to 1.50-1.75% this year. 10 members have penciled in rate between 1.75 and 2.25%. Some of the “hawks” might could switch if outlook worsens.

                          GDP projections (median):

                          • 2019, up from 2.1% to 2.2%.
                          • 2020, unchanged at 2.0%.
                          • 2021, up from 1.8 % to 1.9%.

                          Unemployment rate projections (median):

                          • 2019, up from 3.6% to 3.7%.
                          • 2020, unchanged at 3.7%.
                          • 2021, unchanged at 3.8%.

                          Core PCE projections (median):

                          • 2019: unchanged at 1.8%.
                          • 2020: unchanged at 1.9%.
                          • 2020: unchanged at 2.0%.

                          Federal funds rate (median):

                          • 2019, down from 2.4% to 1.9%.
                          • 2020, down from 2.1% to 1.9%.
                          • 2021, down from 2.1% to 2.4%.
                          • 2020, 2.4% (new).

                          Full projections here.

                           

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                          Fed cut by -25bps with 7-3 vote, Bullard wants -50bps cut

                            Fed cut federal funds rate by -25bps to 1.75-2.00% as widely expected. The decision was made by 7-3 vote. But note that James Bullard wanted to cut -50bps to 1.50-1.75%. Esther L. George and Eric S. Rosengren preferred to stand pat.

                            Full statement below.

                            Federal Reserve Issues FOMC Statement

                            Information received since the Federal Open Market Committee met in July indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports have weakened. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.

                            Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-3/4 to 2 percent. This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2 percent objective.

                            In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

                            Voting for the monetary policy action were Jerome H. Powell, Chair, John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles. Voting against the action were James Bullard, who preferred at this meeting to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent; and Esther L. George and Eric S. Rosengren, who preferred to maintain the target range at 2 percent to 2-1/4 percent.

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                            WTI crude oil inventories rose 1.1m barrels

                              US commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) rose by 1.1m barrels in the week ending September 13, versus expectation of -2.1m barrels decline. At 417.1mbarrels, crude oil inventories are about 2% below the five year average for this time of year.

                              WTI surged to as high as 63.04 earlier this week after Saudi Arabia’s production facilities disruption. But it has largely pared back this week’s gains. For now, further rise remains in favor as long as 4 hour 55 EMA (now at 57.74) holds. Break of 63.04 will target 66.49 resistance next. But even in that case, we don’t expect a break there, until we seen noticeable pickup in upside momentum.

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                              Canada CPI slowed to 1.9%, but stays firm with labor market strength

                                Canada CPI slowed to 1.90% yoy in August, down fro 2.0% yoy and missed expectation of 2.0%. Nevertheless, Statistics Canada noted: The CPI has grown by 1.9% or more on a year-over-year basis for six consecutive months, after reaching a low of 1.4% in January of this year. The broad-based gains in the CPI over the past two quarters have coincided with strength in Canadian labour market conditions.:

                                CPI Core Common slowed to 1.8% yoy, down from 1.9% yoy and missed expectation of 1.9% yoy. CPI Core Media was unchanged at 2.1% yoy, matched expectations. CPI Core Trim was also unchanged at 2.1% yoy, matched expectations.

                                Full release here.

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                                EU warns risk of no-deal Brexit is very real

                                  European Commission President Jean-Claude Juncker warned that there is very little time left and the risk of no-deal Brexit is “very real”. He added he’s “not emotionally attacked to the Irish backstop” and he has asked UK Prime Minister Boris Johnson “to make, in writing, alternatives”.

                                  EU’s chief Brexit negotiator Michel Barnier also urged “everyone not to underestimate the consequences, clearly for the United Kingdom first of all but also for us, of the absence of a deal.” He also emphasized that the issue of Irish border was a precursor to an agreement. And, “if the United Kingdom leaves without a deal, I want to remind you that all these questions will not just disappear… Some three years after the Brexit referendum we should not be pretending to negotiate.”

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                                  Eurozone CPI finalized at 1.0%, highest contribution from services

                                    Eurozone CPI was finalized at 1.0% yoy in August, unchanged from July’s reading. Core CPI was finalized at 0.9% yoy. In August, the highest contribution to the annual Eurozone inflation rate came from services (0.60%), followed by food, alcohol & tobacco (0.40%), non-energy industrial goods (0.08%) and energy (-0.06%).

                                    EU 28 CPI was also stable at 1.4% yoy. The lowest annual rates were registered in Portugal (-0.1%), Greece (0.1%) and Spain (0.4%). The highest annual rates were recorded in Romania (4.1%), Hungary (3.2%), the Netherlands and Latvia (both 3.1%). Compared with July, annual inflation fell in nine Member States, remained stable in six and rose in twelve.

                                    Full release here.

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                                    UK CPI slowed to 1.7%, core CPI to 1.5%, GBP dips

                                      UK CPI slowed notably to 1.7% yoy in August, down from 2.1% yoy and missed expectation of 1.8% yoy. That’s also the lowest rate since December 2016. Core CPI also dropped to 1.5% yoy, down from 1.8% yoy and missed expectation of 1.9% yoy. RPI dropped to 2.6% yoy, down from 2.8% yoy but beat expectation of 2.4% yoy.

                                      PPI came in at -0.1% mom, -0.8% yoy versus expectation of -0.6% mom, -1.0% yoy. PPI output was at -0.1% mom, 1.6% yoy versus expectation of 0.1% mom, 1.7% yoy. PPI output core was at 0.2% mom, 2.0% yoy versus expectation of 0.1% mom, 1.9% yoy. House price index rose 0.7% yoy in July versus expectation of 0.8% yoy.

                                      GBP/USD dips notably after the release and struggles to sustain above 38.2% retracement of 1.3381 to 1.1958 at 1.2502. From intraday point of view 1.2392 minor support is first line of defense. Break will be the first indication of rejection by 1.2505 fibonacci level and turn focus to 1.2283 support for confirmation of completion of rebound from 1.1958.

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                                      Fed still expected to cut even markets are paring bets, some previews

                                        Traders continued to pare back their bets on another Fed cut, just ahead of the announcement later today. As of now, fed fund futures are only indicating 54.2% chance of a -25bps to 1.75-2.00%. That’s notably lower than 87.7% chance just a week ago. Trade tensions seemed to be easing a with a US-Japan deal in sight. Also, there is prospect of de-escalation in US-China tariff war. Additionally, oil prices surged this week after an historic disruption in production facilities in Saudi Arabia. Inflation might come back earlier than originally expected.

                                        Though, for now, the rate cut is still generally expected. Updated economic projections would be a major focus, include rate path and dot plots. Additionally, Chair Jerome Powell’s press conference will be closely watched too. The question is whether Powell would signal the end of the so-called “mid-cycle” adjustment.

                                        Here are some suggested readings:

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                                        BoE Carney might be asked to extend his term again in case of Brexit delay

                                          According to a Financial Times report, in case of another Brexit delay, BoE Governor Mark Carney might be asked to extend his term once again, beyond the planned departure date of January 31. Ensuring smooth Brexit transition, in whatever form, is a top priority of the central bank. Additionally, UK might face another elections in the coming months. Any proposed successor for Carney could be easily rejected by the next government.

                                          Carney, who took over the job from Mervyn King on July 1 on 2013, originally planned to serve a five-year term only. He had been asked to extend his term before by former Chancellor of Exchequer Philip Hammond.

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