Tue, Jul 23, 2019 @ 07:51 GMT
Live Comments

Live Comments

RBA Kent: Without rate cuts, Aussie dollar might have been higher

    RBA Assistant Governor Kent said in the Q&A of a speech that the exchange rate transmission from interest rate cuts have been “broadly working as you would expect.” Though, the Australian Dollar exchange rate was supported by a “welcome” increase in commodity prices, as well as dovish turn in other major central banks. That came even after the central bank’s back-to-back rate cuts in June and July.

    Kent emphasized that “doesn’t mean the reductions in the cash rate here have not had their effect on the exchange rate in the normal way, it’s just that there have been other forces.” And, “you could say well, absent reductions in the cash rate, the Aussie dollar might have been higher.”

    On monetary policy, he said RBA is “a long way away from something like” quantitative easing. He noted elsewhere, QE was started “in the depths of the financial crisis when the credit system was quite impaired”. But “that’s not the sort of thing I think people have at the back of their minds here.” And monetary policies should be tailored to “your own economic circumstances”.

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    Japan FM Aso: We won public trust for sales tax hike

      In Japan, Kyodo news reported today that Chief Cabinet Secretary Yoshihide Suga and Finance Minister Taro Aso will likely retain their posts in a cabinet reshuffle . Prime Minister Shinzo Abe said he has noted decided on the cabinet yet, after winning a solid majority in the upper house election on Sunday. The new cabinet will likely be announced in September.

      Separately, Aso said after a cabinet meeting that the election gave the ruling coalition a stable political footing. Hence, he said, “I believe we won public trust for the sales tax hike”.

      This somewhat echoed Abe’s comment yesterday that based on a stable political basis, the Abe cabinet will take more aggressive and bold economic measures than ever.”

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      US trade delegation said to visit China for negotiations next week

        A Hong Kong newspaper SCMP reported today that US trade delegation will likely visit China next week, for the first face-to-face meeting since G20. US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will be on the US side as expected. Vice Premier Liu He will lead the Chinese team.

        According to unnamed source, the initial arrangements for the meeting would include exemptions to 110 Chinese products, including medical equipment and key electronic components, from import tariffs. on the other hand, several Chinese companies would finally start buying American agricultural products.

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        EU ready to work with any new UK PM

          European Commission spokesperson Natasha Bertaud said that EU is ready to work with “any new prime minister of the United Kingdom”. Boris Johnson, who’s favorite to take over from Theresa May, has repeatedly said he’s prepared for a no-deal Brexit.

          Also, the commission reiterated that it’s ready to “engage with the member states that would be most affected” by no-deal Brexit. The measures include programs for emergency support. Additionally, contingency plans include a scenario in which “the UK also fails to pay what is envisaged” under the current EU budget.

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          NIESR: 25% chance UK in technical recession already, 40% chance of no-deal Brexit

            According to the latest “prospect for the UK economy”, NIESR said there is around a one-in-four chance that the country is already in a “technical recession”. The outlook beyond the October 31 Brexit date is “very murky indeed” with possibility of a “severe downturn” in case of a disorderly no-deal Brexit.

            The think thank also assign a 40% chance of no-deal Brexit, versus 60% for deal/delay. Even if a no-deal Brexit is avoided, the economy is forecast to growth at around only 1% in 2019 and 2020, as “uncertainty continues to hold back investment and productivity growth remains weak”.

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            Most economists expect RBA to stand pat in August

              According to a Reuters’ poll, 39 of 40 surveyed economists surveyed over the past week expect RBA to keep interest rate unchanged at 1.00% at the August 6 meeting.

              By the end of the year, 13 of 40 expect RBA to be on hold through this year. 25 expect another rate cut to 0.75% by year-end. Only two banks, Standard Chartered and Goldman Sachs, predict two cuts to 0.50%.

              RBA delivered two back-to-back cuts in June and July to 1.00%. The central bank’s research indicates such rate cut would boost GDP growth by 0.25-0.40% over two years. However, inflation would be lifted by 0.1% only.

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              Japan Abe pledges to take more aggressive and bold economic measures than ever

                Japanese Prime Minister Shinzo Abe’s ruling coalition kept a solid majority in the upper house election. He said today that “based on a stable political basis, the Abe cabinet will take more aggressive and bold economic measures than ever.”

                Abe said “uncertainty remains over the global economic outlook such as trade frictions and Britain’s exit from the European Union… We’ll respond to downside risks without hesitation and take flexible and all possible steps.”

                The Japanese government has designated JPY 2T in stimulus measures to offset the impact of the planned sales tax hike, from 8% to 10% in October. Abe also noted “we will underpin domestic consumption which accounts for the bulk of the economy by taking sufficient measures.”

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                Trump continues his pressure on Fed

                  Trump continued his pressure on Fed, ahead on July 30-31 FOMC meeting. In his tweet, he blamed that “Because of the faulty thought process we have going for us at the Federal Reserve, we pay much higher interest rates than countries that are no match for us economically.”

                  Also, he praised New York Fed President John Williams’ as 100% correct that “Fed raised far too fast and too early”. Trump urged Fed to “stop with the crazy quantitative tightening”. And “This is our chance to build unparalleled wealth and success for the U.S., GROWTH, which would greatly reduce % debt. Don’t blow it!”

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                  Canada retail sales dropped -0.1%, ex-auto sales dropped -0.3%

                    Canada retail sales dropped -0.1% mom in May, much worse than expectation of 0.3% mom. Ex-auto sales dropped -0.3% mom, also much worse than expectation of 0.4% mom. Sales were down in 4 of 11 subsectors, representing 39% of retail trade. Sales also dropped in eight provinces.

                    Full release here.

                    USD/CAD rebounds strongly after the Canadian data disappointment. Though, upside is limited below 1.3143 resistance. There is no confirmation of short term bottoming yet and another fall remains mildly in favor.

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                    Chance of no-deal Brexit jumped to highest since Oct 2017

                      According to a Reuters July 15-18 poll, the median forecasts of no-deal Brexit happening was 30%, up from 25% in June and 15% in May. That’s also the highest number since October 2017. Analysts perceive that Boris Johnson is likely to win the Conservative leadership race and get the job of UK Prime Minister. And his rhetoric during the campaign suggests that no-deal Brexit is more than than before.

                      According to the same poll, the chance of recession was 30% in the coming year and 35% over the new two years, up from June’s 25% and 30%. Also, expectation of BoE rate hike also receded and bank rate is forecast to stay at 0.75% until 2021 at the earliest. Only 27 to 76 economists expected a hike before the end of 2020, down from 36 of 69. 9 of 76 are expecting a cut be end-2020, up from 5 of 69 in June.

                      Jeremy Hunt and Boris Johnson are the two remaining candidates in the leadership race. Winners will be selected by a postal ballot of around 160k Conservative members. Voting will close on July 22 and new leader would be announced on July 23.

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                      Gold resumed up trend, targeting 1568/86 next

                        Gold finally broken out of consolidation and hit as high as 1452.94. 100% projection of 1160.17 to 1346.71 from 1266.26 at 1452.80 is breached but there is no sign of topping yet.

                        Near term outlook will stay bullish as long as 1414.62 minor support holds. Firm break of 1452.80 will target 161.8% projection at 1568.08. Though, break of 1414.62 will bring consolidations again.

                        The 1568.08. projection level is also in proximity to 61.8% retracement of 1920.70 to 1046.37 at 1586.70. Thus, strong resistance will likely be seen there to limit upside, at least on first attempt.

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                        Japan CPI core slowed to 0.6%, lowest since July 2017

                          Japan CPI core (ex-fresh food) slowed to 0.6% yoy in June, down from 0.8% yoy and matched expectations. All items CPI was unchanged at 0.7% yoy, while CPI core-core (ex-fresh food and energy) was also unchanged at 0.5% yoy.

                          CPI core was the lowest reading since July 2017. No turnaround is expected in the near term. Instead, CPI core could be further dragged down by policy related factors, including mobile phone charges and education costs.

                          The dim inflation outlook highlights the pressure for BoJ to ramp up monetary stimulus. In particular, both Fed and ECB are expected to loosen up policy again later this week.

                          Full release here.

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                          Fed Clarida: Don’t wait until data turns decisively before cutting rates

                            Fed Vice Chair Richard Clarida also reinforced New York Fed President John Williams’ dovish comments. Clarida told Fox Business Network that “you don’t need to wait until things get so bad to have a dramatic series of rate cuts.” And, “you don’t want to wait until data turns decisively if you can afford to.”

                            Clarida reiterated that the US economy is “in a good place”. But “we’ve had mixed data” and “disinflationary pressures, if anything, are more intense than I thought six weeks ago.” He added, “we need to make a decision based on where we think the economy may be heading and, importantly, where the risks to the economy are lined up.”

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                            Bet on 50bps Fed cut surged after New York Fed Williams’ comments

                              Dollar tumbled broadly as markets took New York Fed President John William’s speech as indication of aggressive rate cut in the upcoming FOMC meeting on July 31. Fed fund futures now indicate 46.2% chance of -50bps cut, comparing to 34.3% a day ago and 19.9% a week ago. Overall, markets are still pricing 100% chance of easing then.

                              Williams said in a speech “Living Life Near the ZLB” (Zero Lower Bound), that when interest rates are in the vicinity of the ZLB, policymakers shouldn’t “keep your powder dry”. That is, they should “move more quickly to add monetary stimulus” to “vaccinate against further ills”.

                              Also, he said “it’s better to take preventative measures than to wait for disaster to unfold”. And, “when you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress.”

                              Later, in an unusual step, a New York Fed spokesperson “clarified” Williams’ comments. She said, “this was an academic speech on 20 years of research. It was not about potential policy actions at the upcoming FOMC meeting.”

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                              Fed Bullard: Trump moved trade uncertainty to front burner and thus an insurance cut is needed

                                In a CNN interview, St. Louis Fed President James Bullard said trade uncertainty used to be an issue that was on the “back burner”. However, “the president moved it to the front burner”. And now, “trade uncertainty is high and I don’t see that declining anytime soon”.

                                Bullard added that the economy is “slowing down” and warned “what if it slows more than we think, possibly because of a trade war?”. A rate cut would “provide a bit of insurance against that”.

                                Nevertheless, regarding a 50bps cut, Bullard said “I don’t think we need to go that far” adding that “the critical thing here is to get inflation and inflation expectations better centered.”

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                                Philadelphia Fed manufacturing index rose sharply to 21.8

                                  In the Philadelphia Fed manufacturing business outlook survey, the diffusion index for current general activity jumped sharply to 21.8 in July, up from 0.3 and beat expectation of 5.0. Current shipment index rose 8 points while new orders index rose 11 pts.

                                  Overall, the responses to the survey suggest “an improvement in regional manufacturing conditions compared with last month. The new orders index, which reflects demand for manufactured goods, showed improvement this month, and more firms added to their payrolls. The survey’s future indexes indicate that respondents continue to expect growth over the next six months.”

                                  Full release here.

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                                  US initial jobless claims rose to 216k, matched expectations

                                    US initial jobless claims rose 8k to 216k in the week ending July 13, matched expectations. Four-week moving average of initial claims dropped -0.25k to 218.75k. Continuing claims dropped -42k to 1.686m in the week ending July 6. Four-week moving average of continuing claims rose 5k to 1.701m.

                                    Full release here.

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                                    Into US session: Euro weakest on ECB rumor, Sterling lifted by retail sales

                                      Entering into US session Euro is trading as the weakest one for today. The common currency is weighed down by a Bloomberg report saying that ECB staff have begun studying a revamp of their inflation target. Lowering the “below, but close to, 2%” inflation objective  could embolden policy makers to pursue monetary stimulus for longer. On the other hand, Sterling is boosted strongly higher by much better than expected UK retail sales.

                                      Looking ahead, US data are the major focuses in the upcoming session Initial jobless claims and leading indicator will be featured. But more attention could be on Philadelphia Fed business outlook. It’s be repeated said by Fed officials that consumer spending remained strong. But businesses turned more cautious in investment, due to uncertainties on trade and global slowdown. Fed’s insurance cut, if any, is directed to this uncertainty issue.

                                      In Europe, currently:

                                      • FTSE is down -0.40%.
                                      • DAX is down -0.51%.
                                      • CAC is up 0.12%.
                                      • German 10-year yield is down -0.022 at -0.310.

                                      Earlier in Asia:

                                      • Nikkei dropped -1.97%.
                                      • Hong Kong HSI dropped -0.46%.
                                      • China Shanghai SSE dropped -1.04%.
                                      • Singapore Strait Times dropped -0.11%.
                                      • Japan 10-year JGB yield dropped -0.011 to -0.136.
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                                      EU Barnier: Current Brexit agreement the only way to leave in an orderly manner

                                        In a BBC interview, EU chief negotiator Michel Barnier insisted that the current, thrice defeated Withdrawal Agree is the “only way to leave the EU in an orderly manner”. And, UK will “have to face the consequences” of no-deal Brexit if it’s the chosen path. Additionally, he said EU has “never been impressed” by a no-deal Brexit threat.

                                        In another interview, European Commission First Vice President Frans Timmermans complained the UK ministers “haven’t got a plan” in Brexit negotiations. “We thought they are so brilliant,” he added. “that in some vault somewhere in Westminster there will be a Harry Potter-like book with all the tricks and all the things in it to do.”

                                        Conservative Party leadership contender Jeremy Hunt said the fact the EU “never believed that no deal was a credible threat” was “one of our mistakes in the last two years”.

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                                        UK retail sales rose 1% in June, way over expectations

                                          UK retail sales in June came in much better than expected. Sales including auto and fuel rose 1.0% mom, 3.8% yoy, versus expectation of -0.3% mom, 2.6% yoy. Sales excluding auto and fuel rose 0.9% mom, 3.6% yoy, versus expectation of -0.2% mom, 2.6% yoy.

                                          Over the month, all four main sectors contributed positively the growth, including fuel, non-store retailing, non-food stores and food stores. Non-food stores provided the largest contribution to the month-on-month growth, with both the amount spent and quantity bought at 0.7 percentage points.

                                          Full release here.

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