RBNZ quarterly survey showed inflation expectation for a year ahead dropped from 2.09% to 1.82%. One-year house price expectations dropped sharply from 2.86% to 1.91%. One-year rolling annual GDP expectation dropped slightly from 2.44% to 2.38%. Regarding RBNZ monetary policy, a net 75.6% of respondents believe monetary conditions in one year’s time will be easier than neutral.
Swiss KOF Economic Barometer rose notably to 102.2 in September, up 3.3 pts from 98.9. It also beat expectation of 100.1. KOF noted the this may imply that the downward trend, which has been visible since the beginning of 2018, might have come to a halt.
The strongest positive contributions came from manufacturing sector. And among manufacturing, “positive development can be attributed mainly to the metal processing industry, followed by the machine building and the food processing as well as the textile industries and finally the chemical industry.” Meanwhile, overall improvement in manufacturing is driven by “a more optimistic assessment of employment, followed by the assessments of production and the overall business situation”.
Asian markets open generally higher, following the strong rebound in US stocks overnight. Though, strength is relatively limited as none of the major indices are gaining over 1% at the time of writing. Yen is also paring some of yesterday’s losses and recover broadly. It would take more time to see the real implications of US announcement to delay some tariffs on Chinese imports. The move was generally well received by industry groups. But some analysts criticized that it’s merely an incremental positive sign. It’s too late and insufficient.
In short, the tariffs on a 21-page list of products would be delayed until December, subject to further negotiations between US and China. Both sides are continuing telephone conversations in preparation for a meeting in Washington in September. According to Wells Fargo‘s estimation, the tariff delay involves around 60%, or roughly USD 155B worth of goods. The products range from cellphones, laptops and other consumer goods including baby monitors and strollers, microwaves, instant print cameras, doorbells, high chairs, musical instruments, ketchup dispensers, baby diapers, fireworks, sleeping bags, nativity scenes, fishing reels, paint rollers and food products.
In response to the news, Retail Industry Leaders Association said “removing some products from the list and delaying additional 10% tariffs on other products, such as toys, consumer electronics, apparel and footwear, until Dec. 15 is welcome news as it will mitigate some pain for consumers through the holiday season.”
The Consumer Technology Association also welcomed the the delay on some items, but added: “Next month, we’ll begin to pay more for some of our favorite tech devices – including TVs, smart speakers and desktop computers. The administration should permanently remove these harmful tariffs and find another way to hold China accountable for its unfair trading practices.”
In such a day of global stock market selloff, it’s unsurprising that AUD/JPY is the top mover so far.
But we’d like to point out that, as in EUR/JPY and even USD/JPY, Yen bulls seem refusing to commit for now. AUD/JPY breached 79.05 support but quickly recovered. It could take more time for them to make up their mind.
For AUD/JPY specifically, it might be because it’s now close to key long term fibonacci level of 61.8% retracement of 72.39 to 90.29 at 79.22.
But after all, outlook in AUD/JPY is rather bearish as it’s staying comfortably below falling 55 day EMA and falling 55 week EMA. So, as long as 80.48 resistance holds, we’d expect further downside ahead. Break of 78.67 low should be seen next. And in that case, next target will be 78.6% retracement of 72.39 to 90.29 at 76.22.
A batch of data is released from Japan today. Tokyo CPI slowed to 0.6% yoy in April, down from 0.8% yoy and missed expected of 0.8% yoy. Industrial production rose 1.2% mom in March, well above expectation of 0.5% mom. Retail sales rose 1.0% yoy in March, below expectation of 1.5% yoy. Unemployment rate was unchanged at 2.5%.
JPY showed little reaction to the set of mixed data and recovers broadly today.
While JPY remains the third weakest for the week, today’s recovery can be attributed to the retreat in US yields. 10 year yield closed down -0.034 at 2.990 overnight. back below 3% handle.
BoJ will announce rate decision today and there is no expectation of any changes. Here are some previews:
US initial jobless claims jumped 53k to 253k in the week ending January 26, well above expectation of 210k. That’s also the highest level since September 30, 2017. Four-week moving average of initial claims rose 5k to 220.25k.
Continuing claims rose 69k to 1.782M in the week ending January 19. It’s also the highest level since April 28, 2018. Four-week moving average of continuing claims rose 8k to 1.738M, highest since August 4, 2018.
Also from US, employment cost index rose 0.7% in Q4, below expectation of 0.8%.
BoJ board member Takako Masai said in a speech that “outcome of protectionist moves in the United States as the downside risk that is of greatest concern”. In the short term, “growing uncertainty over U.S. trade policy will likely lead to a sharp rise in volatility in global financial markets”. This could lead to “adverse effects on the sentiment of firms and households.”
In the medium-to-long term, “if such protectionist moves were to increase globally, this may significantly affect the business strategies of global firms, and the subsequent impact on the capital flow of trade and investment cannot be ignored. ” Masai added he will closely monitor “whether the protectionist moves entail the risk of causing any imbalances in the global capital allocation.”
Entering into US session, Dollar is back under broad based selling pressure as trade war fear receded. It’s taking turn to be the weakest one with Japanese Yen. Sterling and Australian are not doing much better. Both are somewhat left behind in the general sell-off against the greenback. Swiss Franc overtakes Euro to be the strongest one today, followed by Canadian Dollar and then Euro. While the Loonie is strong on “NAFTA” progress, its fate will very much lies on the result of Foreign Minister Chrystia Freeland’s visit to Washington today.
In other markets, Gold’s upside momentum has apparently weakened somewhat. But its, nevertheless, staying in the rebound from 1160.36. It’s on course for 1238.62 fibonnaci level. European stocks open higher today but apparently lost momentum quickly. FTSE hit as high as 7636.72, but it’s now at 7601, up 0.32%. DAX reached 1259702 but is now back at 12550, up 0.10% only. CAD reaches 5494.53 stays firm at 5490, but it’s just up 0.2%. European investors are not as excited on the US-Mexico trade deal as American traders.
At the same time, we’d also like to point to the developments in Asia too. Nikkei jumped to 23006.77 in initial trading and almost touched 23050.39 key resistance. But the index the turned south to close at 22417.23, just up 0.06%. It seems like after some impulsive stimulus, investors were quick to calm down.
Here are some comments from two EU officials on US mid-term elections.
European Commission First Vice President Frans Timmermans, “Inspired by voters in the US who chose hope over fear, civility over rudeness, inclusion over racism, equality over discrimination. They stood up for their values. And so will we.”
Inspired by voters in the US who chose hope over fear, civility over rudeness, inclusion over racism, equality over discrimination. They stood up for their values. And so will we.
— Frans Timmermans (@TimmermansEU) November 7, 2018
European Commissioner for Economic and Financial Affairs Pierre Moscovici, “The Democrats won the House of Representatives for the first time in eight years, despite a mighty Republican Gerrymandering. Donald Trump is right: “Tremendous success Tonight”
Les Démocrates gagnent la Chambre des représentants pour la première fois depuis 8 ans, malgré un puissant Gerrymandering républicain. Donald Trump a raison: « tremendous success tonight »😀
— Pierre Moscovici (@pierremoscovici) November 7, 2018
Masayoshi Amamiya, another BoJ deputy nominee said in confirmation hearing at lowe house:
In the post policy meeting, BoJ Governor Haruhiko Kuroda indicated that the central bank has already taken a step forward to further monetary easing. And, the tools include cutting short-, long-term interest rates, increasing asset buying or accelerate the pace of base money expansion.
Kuroda said, “today, we went a step forward by saying we’ll take additional easing steps without hesitation if there is a risk the economy will lose momentum for hitting our price target”. And, “previously, we said only that we will consider acting if the economy loses momentum for hitting our price goal.”
Nevertheless, Kuroda also noted “I don’t think Japan has lost momentum to hit the BOJ’s price goal, or that there is an imminent risk of this happening.”. While, policymakers need to pay attention to downside risks, for now, “we expect the economy to continue expanding moderately, and that it is sustaining momentum for hitting our price goal.”
Boston Fed President Eric Rosengren sounded hawkish in his comments today. Referring to Fed’s projection of two more hikes this year, Rosengren said that “somewhat more tightening may end up being needed”. He expected a “somewhat stronger” economy ahead than the already “quite positive” FOMC projections. He also pointed to solid performance in job creation, falling unemployment and inflation close to Fed’s 2% target.
However, Rosengren also pointed out short-run and long-run risks to the positive outlook.
For the short run risks, he pointed to trade tension. He noted that “it would take a significantly broader set of trade actions than those reported to date to materially reduce the roughly $2.4 trillion in annual U.S. exports.” But still “spillover effects are possible.”
Another run risk is an overheated “boom-bust” scenario. Particularly, “periods in which unemployment dipped significantly and persistently below the estimated natural rate historically have tended to generate conditions that resulted in a recession.”
In the long run, he expressed his concern regarding the narrowing of fiscal and monetary buffers. He said “by using up so much fiscal capacity now – by which I mean the ability to lower tax rates or boost federal spending to offset economic weakness – the country risks not having sufficient fiscal capacity in the future when it might be needed.”
There would be also be little room for monetary policy to respond to a large adverse shocks considering the median forecast among FOMC members for longer-run interest rates is 2.9 percent – “quite low” by historical standards
Entering into US session, Swiss Franc and Euro remain the strongest one for today. However, Sterling is starting to lag behind.
Indeed, the Pound is suffering some heavy selling on Brexit under certainties. UK Prime Minster Theresa May is yet to unify his cabinet on the backstop plan over Irish border. Ahead of their meeting today, it’s widely reported that May is at odds with Brexit secretary David Davis, who threatened to quit.
EUR/GBP is showing some strength by breaking 0.8808 resistance. H and 6H action bias have both turned upside blue. But they can be force signal in ranging consolidation markets.
Hence, we’d wait for a firm break of 0.8844 resistance to confirm resumption of rise from 0.8620 to go long. Target is 0.8967 key resistance level.
It’s widely reported that, despite objection by French President Emmanuel Macron, EU27 leaders were already circulating the draft texts of granting UK a three month Brexit extension to January 31, 2020. But Brexit could happen earlier on November 30 or December 31 if both sides were able to ratify the agreement in respective parliament in time.
The draft noted: “The period provided for in article 50 (3) TEU as extended by the European council decision (EU) 2019/584 is hereby further extended until 31 January 2020. In the event that the parties to that agreement complete their respective ratification procedures and notify the depositary of the completion of these procedures in November 2019, in December 2019 or in January 2020, the withdrawal agreement will enter into into force respectively on [the first of the month of the relevant month].”
EU diplomats will meet in Brussels to discuss the proposal today, a few hours before UK Commons section on general election. Prime Minister Boris Johnson called for generally election on December 12 but it’s believed that he wouldn’t secure two-thirds majority support for the motion.
In a Quora.com post, San Francisco Fed Mary Daly said the US is not headed towards a recessions right not. She saw “solid domestic momentum that points to a continued economic expansion:. Also, “the labor market is strong, consumer confidence is high, and consumer spending is healthy.”
But “considerable headwinds”, including global slowdown and trade uncertainties, contributed to fear that a “downturn is right around the corner”. Hence, she’s closely look at whether “fear of recession becomes a self-fulfilling prophecy”.
Daly added that recent rate cut was “appropriate recalibration” of policy in response to the headwinds. And, her support was “not because I see an impending downturn on the horizon.”
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.”
Japan’s Cabinet Office projects the economy to grow just 0.9% in the fiscal year ending March 2020. That’s a notable downgrade from prior forecast of 1.3%. For the following year, growth is forecast to pick up to 1.2%, though.
For the current fiscal year, exports growth is forecast to slow to just 0.5%, sharply lower than January’s projection of 3.0%. That would be the weakest growth since fiscal 2012. On the other hand, robust corporate investment and private consumption should help offset some of the drag from exports.
On prices, the Cabinet office forecasts over CPI to be at 0.7% in this fiscal yet, and 0.8% next. Both figures are well below BoJ’s 2% target.
Separately, Economy Minister Toshimitsu Motegi said he would hold ministerial-level talks with US Trade Representative Robert Lighthizer on August 1-2 in Washington for trade negotiations.
In April, Australia employment rose 28.4k, more than expectation of 15.2k. However, the growth was mainly driven by 34.7k growth in part-time jobs. Full-time employment contracted -6.3k. Unemployment rate rose to 5.2%, up from 5.1% and above expectation of 5.0%. That’s also an eight-month high. But participation rate also rose 0.2% to record high of 65.8%.
Looking at some details, in seasonally adjusted terms, the largest increase in employment was in New South Wales (up 25.1k), followed by Western Australia (up 6.4k) and Queensland (up 5.4k). The only decrease was in Victoria (down 7.6k).
The seasonally adjusted unemployment rate increased in New South Wales (up 0.2 pts to 4.5%), Victoria (up 0.2 pts to 4.9%), South Australia (up 0.2 pts to 6.1%), Western Australia (up 0.1 pts to 6.1%) and Tasmania (up 0.1 pts to 6.8%). The only decrease was observed in Queensland (down 0.2 pts to 5.9%).
AUD/USD dipped notably after the release but quickly recovered. While the set of job data isn’t stellar, it’s actually not too bad.
San Francisco Fed President Mary Daly said the economy is slowing faster than she expected. And, tighter financial conditions, slower growth abroad, and rising uncertainty are also threatening to slow US growth. Though, she added that “there’s nothing on the radar that says we’re slipping into recession.”
Daly also said interest rates are now within a “hair’s breadth” of neutral. And she support a pause in rate hikes until there are signs of overheating. At the same time, she said Fed should align the balance sheet policy with the “patient” interest rate stance. “Those two are meant to work together and not at cross purposes,” she said.
UK Fox backs Hunt to be PM, dealmaking is part of his DNA
UK Trade Minister Liam Fox said he’s backing Foreign Minister Jeremy Hunt in the race to be the next Prime Minister. He told BBC radio, “in this contest I’ll be backing my friend Jeremy Hunt who is an impressive foreign secretary, an entrepreneur by background, where dealmaking is part of his DNA,”
Fox added, “he understands that we have to message to Europe that we will leave if we cannot get an appropriate deal, but we’ll try to get a deal.” Meanwhile, Fox also warned of “the prospect of a no deal might well be used by those who seek to break up the UK, to use that as a weapon in that particular battle, both I think in Northern Ireland and potentially in Scotland.”