Chinese Yuan nosedives to year low amid deepening property sector concerns

    The Chinese Yuan nosedived to its lowest mark this year, echoing growing anxieties that spread from the real estate domain to the financial sector. Fueling this downturn, JPMorgan Chase & Co. rang alarm bells today, highlighting heightened liquidity strains for debt-ridden developers and their non-bank stakeholders. This follows a notable hiccup by a subsidiary of Zhongzhi Enterprise Group Co., which stands among China’s premier private wealth management entities. The said unit stumbled in ensuring timely payments across multiple products.

    These defaults in the trust sector could potentially trigger a detrimental cycle impacting the onshore debt of privately-owned enterprise developers. The escalating apprehensions regarding potential developer defaults have soured the investment climate. Consequently, trust entities may either find it challenging or may express reluctance in rolling over existing products tied to real estate.

    USD/CNH’s break of 7.2853 resistance confirms resumption of whole rally from 6.6971 (Jan low). Purely technically speaking, current rise should target 7.3745 resistance first (2022 high), and then 61.8% projection of 6.8100 to 7.2853 from 7.1154 at 7.4091. However, market watchers are most intrigued by a looming question: When will China’s authoritative bodies intervene to arrest the Yuan’s descent?

    Australia AiG manufacturing rose to 54.8, grew more decisively

      Australia AiG Performance of Manufacturing Index rose 4.4 pts to 54.8 in November. Looking at some details, production rose 4.7 to 52.5. Employment rose 2.0 to 50.0. New orders rose 1.0 to 59.3. Supplier deliveries rose 12.2 to 53.4. Input prices dropped -3.5 to 78.3. Selling prices rose 4.2 to 68.1. Average wages dropped -1.3 to 62.4.

      Ai Group Chief Executive Innes Willox said: “The Australian manufacturing industry grew more decisively in November after a few flat months during which the south-east corner of the country was held back by the delta outbreaks and associated activity restrictions and while the states and territories tightened barriers to the movement of people.”

      Full release here.

      AmCham survey showed US China trade war already negatively impacting US companies

        A joint survey by AmCham China and AmCham Shanghai showed that over nearly two-thirds of survey respondents experienced negative impact from US-China tariff war. Moreover, for additional US tariffs, 74.3% expected negative impact and 47.2% expected “strong negative impact. For additional China tariffs, 67.6% expected negative impact and 38.2% expected “strong negative impacts”. Increased cost of manufacturing (47.1) and decreased demand for products (41.8%) were the to most significant downside of the tariffs.

        William Zarit, Chairman of AmCham China said “the White House has threatened to fire the next barrage of tariffs at $200 billion more Chinese goods, expecting with this onslaught, or subsequent ones, China will wave a white flag. But that scenario risks underestimating China’s capability to continue meeting fire with fire.”

        Eric Zheng, Chairman of AmCham Shanghai warned that “tariffs are already negatively impacting U.S. companies and the imposition of a proposed $200 billion tranche will bring a lot more pain”. And “if almost a half of American companies anticipate a strong negative impact from the next round of U.S. tariffs, then the U.S. administration will be hurting the companies it should be helping.”

        The survey was conducted between August 29 and September 5, 2018. Over 430 companies responded.

        Press release here and survey results here.

        SNB stands pat, upgrades inflation forecasts slightly

          SNB kept sight deposit rate unchanged at -0.75% today. Also, it remained “remains willing to intervene in the foreign exchange market as necessary, in order to counter upward pressure on the Swiss franc.” It also reiterated that “the Swiss franc remains highly valued”.

          The new conditional inflation forecast for 2021 is raised to 0.5% in 2021 (up from June’s 0.4%). For 2022, it’s raised to 0.7% (from 0.6%). For 2023, it’s kept unchanged at 0.6%. SNB said it’s “primarily due to somewhat higher prices for oil products as well as for goods affected by supply bottlenecks.”

          SNB also said, in the baseline scenario, it anticipated a “continuation of the economic recovery”, assuming pandemic containment measures will not need to be tightened significantly again. GDP is expected to grow around 3% in 2021, downwardly revised, attributable to “less dynamically than expected” development of consumer-related industries. GDP is expected to return to pre-crisis level in H2. But overall production capacity will “remain underutilised for some time yet”.

          Full release here.

          Canada GDP grew 0.8% mom in Sep, still -5% below pre-pandemic level

            Canada GDP grew 0.8% mom in September, slightly below expectation of 0.9% mom. That’s, nonetheless, still the fifth consecutive monthly increase. Overall total economic activity was also still -5% below February’s pre-pandemic level. Both goods-producing (0.7%) and services-producing (0.8%) industries were up as 16 of 20 industrial sectors posted increases in September.

            Looking ahead, preliminary information indicates just around 0.2% increase in real GDP for October.

            Full release here.

            Eurozone unemployment dropped to 7.3% in Feb, EU unchanged at 6.5%

              Eurozone unemployment rate dropped to 7.3% in February, down from 7.4%, beat expectation of 7.4%. That’s the lowest level since March 2008. EU unemployment was unchanged at 6.5%, lowest since the start of the series in 2000.

              Among the Member States, the lowest unemployment rates in February 2020 were recorded in Czechia (2.0%), the Netherlands and Poland (both 2.9%). The highest unemployment rates were observed in Greece (16.3% in December 2019) and Spain (13.6%).

              Full release here.

              China posts mixed economic data in Jan-Feb period

                China’s economic data for the first two months of 2023 showed mixed results, with industrial production growth falling short of expectations but retail sales and fixed asset investment exceeding them.

                According to China’s National Bureau of Statistics, industrial production grew by 2.4% yoy, below the forecasted 2.6% yoy. Retail sales, on the other hand, rose by 3.5% yoy, slightly above expectations of 3.4% yoy.

                Fixed asset investment also exceeded expectations, growing by 5.5% yoy, compared to the forecasted 4.5% yoy. Infrastructure investment saw a rise of 9.0% yoy. However, property investment showed a decline of -5.7% yoy, indicating a slowdown in the real estate sector.

                The NBS released a statement that highlighted the challenges facing China’s economy. “The external environment is even more complex, inadequate demand remains prominent and the foundation for economic recovery is not solid yet,” the statement said.

                The economic data for January and February is combined to smooth out the impact of the Lunar New Year holiday, which falls at different times during the two months in different years.

                Asian business sentiment sank to decade low, not just uncertainty but true slowdown

                  The Thomson Reuters/INSEAD Asian Business Sentiment Index dropped sharply from 63 to 53 in Q2. Worries over US-China trade war sent sentiments down to the worst reading since Q2 of 2009. The index tracks companies’ six-month outlook. The survey interviewed 95 companies in 11 Asia-Pacific countries that together contribute about a third of GDP and are home to 45% of the world’s population. It was conducted from May 31 to June 14.

                  Antonio Fatas, professor at global business school INSEAD said “it was the uncertainty about the trade war and people were worried about the future”. And, “after four quarters of low numbers that now, it’s not just uncertainty. This is a true slowdown in growth. We see activity declining — it’s not just the expectation that activity will decline.”

                  Full release here.

                  Fed Cook: Appropriate to move in smaller steps while staying the course

                    Fed Governor Lisa Cook said, “data are telling a pretty clear story of a historically strong labor market, with still elevated inflation.” But, Fed is “starting to seem some improvement in inflation data.”

                    She expects that inflation will “continue falling this year and next, though progress may be uneven.”

                    It’s “appropriate now to move in smaller steps as Fed assesses cumulative impact of rate increases so far,” She added. “Fed will stay the course until inflation is contained.”

                    Overall, the path of policy rates “will depend on how quickly inflation moves towards the 2% goal.”

                    NZ exports down -14% yoy in Jul, imports down -16% yoy, China leads the falls

                      July 2023 has been a challenging month for New Zealand’s trade scenario, as the island nation witnessed a steep fall in both goods exports and imports. Data released depicted a substantial decline, with exports plunging by NZD -890m or -14% yoy, concluding at NZD 5.5B. Concurrently, imports saw a -16% yoy decline, falling NZD -1.2B to settle at NZD 6.6B for the month. This decrease in trade volumes culminated in a monthly trade deficit of NZD -1.1B. This significantly overshadows market expectations of NZD -0.05B.

                      Zooming in on the country-by-country trade details, China conspicuously led the downturn in both exports and imports. New Zealand’s exports to the Asian giant dipped by -24% yoy, translating to a decline of NZD -407m while imports reduced by a staggering NZD -427m, down -25% yoy.

                      However, not all trade relations showed a contraction. Australia the US emerged as silver linings, with their exports experiencing an upward trajectory. Exports to Australia saw an 8.9% yoy growth, adding NZD 59m to the tally, and US followed suit with a 16% yoy rise, upping the figure by NZD 105m.

                      Yet, as New Zealand engaged with its other major trade partners, the news wasn’t all positive. European Union and Japan both registered a decrease in exports, declining by -16% yoy (NZD -73m) and -21% yoy (NZD -84m) respectively. On the import front, while USA and South Korea posted a rise of 24% (NZD 166m) and 18% (NZD 71m), both European Union (up 1.9% yoy) and Australia (down -2.7% yoy) experienced mixed results.

                      Full NZ trade balance release here.

                      Impact of new US tariffs controllable, China not keen to resume trade talks

                        The National Development and Reform Commission of China said it’s the overall impact of the latest 25% tariff on around US 300B in Chinese goods is “controllable”. The government has implemented and will continue to carry forward measures to keep growth in a “reasonable range”. And the measures will target to stabilize areas such as consumption, investment and employment. Also, NDRC noted the government will also keep bettering its business environment and leveling the playing field, to ensure the sustainability of investments.

                        Separately, Bloomberg reported that China is not very keen in resuming trade negotiations with US, quoting a mysterious blog Taoran Notes (陶然笔记). The blog is believed to be backed by the government and is one of the few voices on China’s negotiations strategy in a censored internet world in the country. The blog piece noted: “We can’t see the U.S. has any substantial sincerity in pushing forward the talks. Rather, it is expanding extreme pressure… If the U.S. ignores the will of the Chinese people, then it probably won’t get an effective response from the Chinese side,” it added.

                        Italy to response to EU on budget today, Di Maio pledged to stay in Euro

                          Italian Deputy Prime Minister Luigi Di Maio said the government is going to send EU a formal response on the “serious concerns” over its draft budget today. The response will provide explanations on raising budget deficit to 2.4% of GDP next year. Di Maio hoped that would provide “over a long discussion process … could lead the Commission to share the goals we have set.”

                          Di Maio, leader of the 5-star movement, reiterated that there is a concern of Italy leave the Euro or the EU, based on the jump in yield spreads. But he emphasized that “there is no Plan B (to leave Europe) but only Plan A which is to change Europe.” And he pledged that “As long as I’m head of this movement and a minister of this government I’ll always guarantee that Italy remains within the euro and in Europe.”

                          Nonetheless, European Commission is expected to formal reject Italy’s budget tomorrow, and ask for a resubmission. In a letter to Italy last week, EU described Italy’s draft budget as an “obvious significant deviation” of the recommendations adopted by the European Council” and “size of the deviation (a gap of around 1.5% of GDP) are unprecedented”.

                          NIESR expects 0.1% UK GDP growth in Q4, Q1 risk on the downside

                            After today’s UK GDP release, NIESR forecasts that GDP in December will fall relative to November. But overall, service-driven GDP growth of 0.1% in Q4 is estimated.

                            Paula Bejarano Carbo, Associate Economist, NIESR, said: “Given that PMIs for services, manufacturing and construction all posted below the neutral 50 for December, we expect to see a slight fall in GDP in December relative to November; but this means a rise in quarterly GDP, possibly a sign that households are enjoying a last hurrah before they tighten their belts in 2023.

                            ” Looking towards the first quarter of 2023, the risks to GDP seem to remain on the downside, driven by anaemic growth in the major sectors, fragile consumer and business confidence and a widespread fall in real incomes.”

                            Full release here.

                            German factory orders rose 5.5%, strongest since 2014

                              Germany factory orders rose 5.5% mom in January well above expectation of 1.5% mom. It’s also the biggest monthly rise since July 2014. However, over the year, factory orders dropped -1.4% mom.

                              Looking at some details, domestic orders rose 1.3% mom while foreign orders rose 10.5% mom. New orders from Eurozone were up 15.1% mom. New orders from other countries rose 7.8% mom.

                              Full release here.

                               

                              RBA stands pat, maintains easing bias, outlook little changed

                                RBA left cash rate unchanged at 0.75% as widely expected. In the accompanying statement, it noted that rate cuts since June are supporting employment, income growth and return of inflation to target. But given global developments and domestic spare capacity, ” it is reasonable to expect that an extended period of low interest rates will be required”. The central bank also maintained it’s “prepared to ease monetary policy further if needed”.

                                Outlook for the Australian economy is “little changed” from three months ago. The central scenario is for the economy to growth by 2.25% in 2019 (slight downgrade from 2.5% as mentioned in August), and then gradually pick up to 3% in 2021. Unemployment rate is expected to remain at around 5.25% for some time, before gradually declining to a little below 5% in 2021.

                                Inflation data were “broadly as expected”. Central scenario remains for inflation to pick up, “but do so so only gradually”. It’ expected to be close to 2% in 2020 and 2021. Back in August, RBA said “inflation is expected to be a little under 2 per cent over 2020 and a little above 2 per cent over 2021.”

                                Full statement here.

                                Fed Clarida: US economy begins 2020 in a good place

                                  Fed Vice Chair Richard Clarida said the US economy begins 2020 “in a good place”. PCE price inflation is “running somewhat below” the 2% target. But Fed projects that inflation will “rise gradually” back to the 2% symmetric objective. Meanwhile, there is no evidence that a strong labor market is “putting excessive cost-push pressure on price inflation”.

                                  Over the course of 2019, FOMC shifted the monetary stance to “offset some significant global growth headwinds and global disinflationary pressures.” Such shift was “well timed” and has helped keep the outlook on track. ” As long as incoming information about the economy remains broadly consistent with this outlook, the current stance of monetary policy likely will remain appropriate.”

                                  Monetary policy is “not on a preset course”, he added. “if developments emerge that, in the future, trigger a material reassessment of our outlook, we will respond accordingly.

                                  Clarida’s full speech here.

                                  UK retail sales volume rose 0.3% mom in Jul

                                    In volume term, UK retail sales rose 0.3% mom in July, better than expectation of -0.2% mom. Ex-auto sales rose 0.4% mom. Comparing to a year ago, retail sales dropped -3.4% yoy while ex-auto sales dropped -3.0% yoy.

                                    In value term, retail sales rose 1.3% mom, 7.8% yoy. Ex-auto sales rose 1.4% mom, 5.7% yoy.

                                    Full release here.

                                    Trump to insist on auto tariffs, Euro bothered but not too bothered

                                      Euro seems to be troubled by a Washington Post story that Trump insists on, ignoring the outcries from Republicans and business executives, pushing through 25% auto tariffs. That came just ahead of the meeting with EU Juncker. Earlier today, there was an ABC story saying that Juncker is bringing offers to Trump to avert a trade war. But that’s on condition that Trump has to drop tariffs on steel and aluminum first.

                                      As we pointed out before, there is no common ground for negotiation between Trump and the EU. From his recent tweets and talks, Trump will continue to play victim and request EU to act before he drops the tariff threats. EU, on the other hand, will insist on Trump dropping the gun first before starting the talk.

                                      But most importantly, Trump, and to a certain extent his supporters, views BOTH EU and China as threat to the US hegemony. When national security can be used as an excuse to impose tariffs on the closest allies in Canada, tariffs can be also used as a excuse for some agenda other than trade. It’s widely known that tariffs won’t solve global imbalances. The economists know it. Trump’s advisors and himself certainly know it. So, it’s totally unsurprising for Trump to insist on auto tariffs.

                                      But after all, we’d like to emphasize that while EUR/USD’s dip may look wild in a 1 min chart, but it’s peanut, nothing, in an hourly chart, not to mention a 4H chart. Always look at the big picture. EUR/USD is in consolidation. And anything goes inside a corrective pattern.

                                      EUR/JPY’s is an extension of the decline from 131.97. We’ve mentioned in the technical outlook that EUR/JPY is heading back towards 127.13 support because the rebound form 124.61 has completed with three waves up to 131.97, on bearish divergence condition in 4 hour MACD. So the decline is not a surprise neither.

                                      And, EUR/GBP is just having some jitters!

                                      Canada retail sales rose 18.7% in May, expected to rise further 24.5% in June

                                        Canada retail sales rose 18.7% mom to CAD 41.8B in May, below expectation of 21.0% mom rise. It’s also insufficient to recover April’s -26.4% mom decline. Additionally, sales were also -20% below February’s pre-pandemic level. Sales were up in 10 out of 11 sub sectors, Motor vehicle and parts dealers, general merchandise stores, as well as clothing and clothing accessories stores were the main contributors to the rebound.

                                        Statistics Canada also said that in advance estimate of June, retail sales would increase 24.5% mom. But owing to its preliminary nature, the figure should be expected to be revised.

                                        Also from Canada, new housing price index rose 0.1% mom in June, below expectation of 0.2% mom.

                                        Into US session: Dollar weakens further as Trump meets Putin

                                          Entering US session, European majors are generally strong today, led by Swiss Franc, followed by Sterling. On the other hand, both Yen and Dollar are extending last week’s selloff. The financial markets are generally quiet though.

                                          After some weaker than expected economic data, China SSE closed down -0.61% at 2814.04, holding safely above 2800. Hong Kong HSI was up 0.05%, Singapore Strait Times ended lower by -0.85%. Nikkei is on holiday.

                                          Major European indices are also trading lower. FTSE is losing -1.02% at the time of writing, DAX is down -0.15%, CAC is down -0.40%.

                                          Trump is meeting Putin in Helsinki now but we’re no expecting anything ground-breaking there. EU Tusk and Juncker, though, seemed to have done something positive with China earlier today. And they’ll travel to Japan tomorrow.

                                          For the session ahead US retail sales is a major focus. Headline sales is expected to rise 0.4% mom in June, with ex-auto sales up 0.4%. Empire State Manufacturing index is expected to drop from 25 to 20.3 in July. Business inventories are expected to rise 0.4% in May. Canada will release International Securities Transactions.