SNB: Currency intervention not aimed at bringing advantage for Switzerland

    After a statement by the Swiss Finance Ministry, the SNB also issued a statement in response to US putting Switzerland into currency manipulation watchlist.

    SNB said, “the SNB’s interventions in the currency market are motivated purely by monetary policy considerations”. “They are not aimed at bringing an advantage for Switzerland by making the franc undervalued.”

    ECB lowered 2019 growth and inflation forecast, continuing confidence with increasing caution

      In the post meeting press conference, ECB President Mario Draghi said the assessment of risks was a focal point in the discussion during the meeting. And he’d summarize the discussions with “continuing confidence with increasing caution”.

      ECB lowered both 2018 and 2019 growth forecast. Growth is now projected to be at 1.9% in 2018 (prior 2.0%), 1.7% in 2019 (1.8% prior), 1.7% in 2020 (unchanged) and 1.5% in 2021 (new). Draghi said that risks are “broadly balanced” but balance of risks is “moving to the downside”. He noted “persistence uncertainties” related to geopolitical factors, the threat of protectionism, vulnerabilities in emerging markets and financial market volatility”, as reasons.

      On HICP inflation, it’s now projected to be at 1.8% in 2018 (1.7% prior), 1.6% in 2019 (1.7% prior), 1.7% in 2020 (unchanged), 1.8% in 2021 (new). ECB noted that headline inflation is likely to fall over the coming months “On the basis of current futures prices for oil”. Underlying inflation remains “generally muted”. Though, “domestic cost pressures are continuing to strengthen and broaden”.

      Full introductory statement and press conference live stream here.

      Japan starts verbal intervention as USD/JPY surges pass 140

        The steep decline in Japanese Yen in Asian session trigger verbal intervention by a top government official. Chief Cabinet Secretary Hirokazu Matsuno said at a press conference, “It is important for foreign exchange markets to move in a stable manner reflecting fundamentals, and excessive changes are undesirable.”

        “There is no change to the government’s stance that we will closely monitor movements in the currency market and take appropriate steps if necessary,” he added.

        USD/JPY surges pass 140.90 resistance to resume whole rally from 127.20 (Jan low). 61.8% retracement of 151.93 Further rise should be seen to 127.20 at 142.48. But the pair might start to feel heavy above there, as the government could step up rhetorics on intervention further.

        Sterling lifted mildly as domestic data gave Carney some confidence

          BoE Governor Mark Carney delivers a speech titled “From Protectionism to Prosperity” where he also talked about monetary policy. He noted that the current path the economy is going is “consistent with the MPC’s current projection”, with the assumption of a relatively smooth Brexit.

          Since the May meeting “international data have been mixed” with robust growth in the US and fading momentum in Eurozone. And there were marked loss of momentum in some merging markets. However, domestically, Carney said “the incoming data have given me greater confidence that the softness of UK activity in the first quarter was largely due to the weather, not the economic climate.”

          He pointed to some “number of indicators of household spending and sentiment have bounced back strongly” erratic Q1. Labor market has “remained strong” and there is “widespread evidence that slack is largely used up.” Pay and domestic cost growth have “continued to firm up broadly. And headline inflation is still “expected to rise in the short term” due to energy prices.

          The overall impressions from Carney is that he’s rather confidence that economy developed as expected. And that would add to the case for an August rate hike.

          Sterling is limited mildly against Dollar and Yen after the speech.

          Full speech here.

          New Zealand ANZ business confidence rose to 11.8, no more RBNZ cut expected

            New Zealand ANZ Business Confidence rose to 11.8 in February’s preliminary reading, up from December’s 9.4. Own activity outlook rose to 22.3, up from 21.7. Looking at some more details, employment intensions rose to 10.6, up from8.8. Investment intentions improved notably to 17.8, up from 8.56. But export intensions dropped to 6.3, down from 10.3.

            ANZ said: “We are forecasting wobble in demand in the first few months of this year as the true cost of the closed border for the tourism industry starts to become apparent. But it’s fair to say there’s not much sign of it yet, with the roaring housing and construction sectors filling the void, albeit fuelled by credit rather than foreign exchange earnings. Further monetary stimulus is looking less necessary by the week, and we no longer expect any more OCR cuts this cycle.”

            Full release here.

            UK-EU planning instensive talk on Irish border, after completing the transition deal

              UK Brexit Secretary David Davis is targeting to complete the legal text of the transition deal at the two-day summit from March 22. Most of the differences would likely be bridged on the following days. But the criteria of avoiding a hard Irish border remains a key showstopper. EU proposed a fall back option in its own draft published earlier this month. That is, should there be no compromisable solution, Norther Ireland would stay in the customs union along side Republic of Ireland. But UK Prime Minister Theresa May has instantly and bluntly rejected that idea. Intensive talk is now planned between March 26 and April 18 on the issue. There is some optimism on completing the transition agreement among UK officials. But businesses in UK would definite request a deal with full clarity. Any conditions in the deal attached to the outcome of Irish border issue would dissatisfy UK businesses and markets.

              UK Q3 GDP growth fastest since 2016, but September weakness clouds

                UK Q3 GDP growth accelerated to 0.6% qoq, matched market expectations. That’s also the fastest rate since Q4 2016.

                Head of National Accounts Rob Kent-Smith noted that “The economy saw a strong summer, although longer-term economic growth remained subdued. There are some signs of weakness in September with slowing retail sales and a fall-back in domestic car purchases. However, car manufacture for export grew across the quarter, boosting factory output. Meanwhile, imports of cars dropped substantially helping to improve Britain’s trade balance.”

                However, it should be noted that the rolling three month growth rate slowed from 0.7% in both May-Jul and Jun-Aug periods. This is in line with the above comment that there were some weakness in September. Indeed, monthly GDP growth in September was at 0.0% mom, missed expectation of 0.1% mom.

                Full GDP release here.

                Also released from UK

                • Trade deficit narrowed to GBP -9.7B in September versus expectation of GBP -11.4B.
                • Industrial production rose 0.0% mom, 0.0% yoy in September versus expectation of 0.1% mom, 0.5% yoy.
                • Manufacturing production rose 0.2% mom, 0.5% yoy versus expectation of 0.1% mom 0.4% yoy.
                • Construction output rose 1.7% mom in September versus expectation of 0.2% mom.

                Overall, Sterling turns a bit weaker after the batch of data release.

                Fed’s Barkin: We’ve got some time to be patient

                  Richmond Fed President Thomas Barkin highlighted the strength of the labor market and the encouraging trend of decreasing inflation in a Bloomberg TV interview. The cautious yet optimistic outlook grants Fed a period of watchful waiting before starting interest rate cuts.

                  “It’s a very strong labor market still, and so gratified to see inflation coming down, hoping it continues to come down,” Barkin remarked.

                  Barkin further indicated willingness to adopt a patient approach in the coming months. “I think we’ve got some time to be patient,” he stated. Fed will get “a few more months” of inflation data and he desires “to see that trend continue and broaden”.

                  France goods consumption volume dropped -0.8% mom in Jul, CPI slowed to 5.8% yoy in Aug

                    France household consumption in goods, in volume, dropped -0.8% mom in July. The decline was mainly due to further decrease of consumption of manufactured goods (–1.4% after –0.7%). Food consumption also decreased further (–0.4% after –0.3%). Energy consumption fell back (–0.4% after +2.7% in June).

                    All item CPI slowed from 6.1% yoy to 5.8% yoy in August. Food inflation rose from 6.8% yoy to 7.7% yoy. Energy inflation slowed from 28.5% yoy to 22.2% yoy. Manufactured products inflation rose from 2.7% yoy to 3.5% yoy. Services inflation was unchanged at 3.9% yoy.

                    BoJ opinions: Important not to tighten prematurely

                      In the Summary of Opinions of July 15-16 meeting, BoJ noted that it should “continue to support financing, mainly of firms, and maintain stability in financial markets by conducting monetary easing through the three measures”

                      Even though core CPI is likely to increase on the back of rise in commodity prices, there is “a long way to go” to achieve target in a stable manner. Hence, it is “important not to tighten monetary policy prematurely”. Also, the “deflationary mindset is strongly entrenched in Japan”.

                      Full Summary of Opinions here.

                      South Korea, Japan and China to meet next week on trade and tensions

                        South Korea said that top diplomats of the country, Japan and China are planning to meet in Beijing next week for trade and history tensions.

                        The meeting will be led by Foreign ministers Kang Kyung-wha of South Korea, Taro Kono of Japan and Wang Yi of China, from Tuesday to Thursday. That would be the first gathering of such kind in three years.

                        South Korean Foreign ministry said “we expect the meeting will help reinforce the institutionalization and substantiate the foundation of the three-way cooperative scheme.”

                        China’s PBoC lowers RRR by 1% for most banks to release CNY 400b funding support to small and micro businesses

                          In a move to increase support for small and micro businesses, the People’s Bank of China lowered Reserve Requirement Ratio for most commercial and foreign banks by 1%, effective April 26. On the same day, those banks included could use the funds released by RRR reduction to repay borrowing from the PBoC, on the basis of “borrowed first, repaid first”.

                          PBoC went further to explain that China’s small and micro businesses still face difficulties in financing and expensive financing. Lowering the RRR for some banks could release funding to support these businesses. The move could also increase long terming funding and lower costs of the funds. CNY 400B in funds will be released and these funds are required to be used mainly for loans to small and micro businesses

                          Australia GDP contracted record -7.0% in Q2, significant fall in household spending

                            Australia GDP contracted -7.0% qoq in Q2, worst than expectation of -6.0% qoq. That’s the largest quarterly decline on record since 1959. Combined with Q1’s -0.3% qoq decline, technical recession is confirmed for the country. Looking at some details, private demand detracted -7.9% from GDP, driving by -12.1% decline in household final consumption expenditure. Services spending dropped -17.6% too. Net trade contributed 1.0% to GDP. Public demand contributed 0.6%.

                            Full release here.

                            After the release, Treasurer Josh Frydenberg said “Today’s national accounts confirm the devastating impact on the Australian economy from COVID-19… Our record run of 28 consecutive years of economic growth has now officially come to an end. The cause? A once-in-a-century pandemic.”

                            Nevertheless, “Australia’s economic performance sits among the top of those developed nations as a result of our health and our economic plan to fight the virus,” he added. “Our priority has and will continue to be saving lives and ensuring that Australia’s healthcare system has the capacity to test, trace and treat coronavirus cases.”

                            ECB Lagarde: Second arm of the V a little bit more shaky

                              ECB President Christine Lagarde said Europe’s recovery is ” incomplete, uncertain, uneven.” Policymakers now “fear that “the containment measures that have to be taken by authorities will have an impact on this recovery”. So, instead for a V-shape rebound, “we fear that it might have that second arm of the V a little bit more shaky.”

                              Lagarde also said ECB is “very attentive” to exchange rate developments. But she reiterated that ECB does not target the Euro exchange rate.

                              US GDP grew 2.3% in Q1, beat expectations. USDJPY and USDCAD still holding in tight range

                                USD buying is picking up again after stronger than expected data. US GDP grew 2.3% annualized in Q1. While that was a slowdown from 2.9% growth in Q4, it beat expectation of 2.0%. The figure is also realistically well that could be sustained. Price index rose 2.0%, below expectation of 2.2%. Employment cost index rose 0.8%, above expectation of 0.7%.

                                EUR/USD is on track for 1.2 handle while USD/CHF is also heading to parity. GBP/USD is within touching distance to 1.3711 key support after post UK GDP selloff.

                                But it should also be noted that USD/JPY and USD/CAD are somewhat stuck in very tight range despite rally attempt. 109.50 in USD/JPY and 1.2900 in USD/CAD will now be the focus in the current US session.

                                Eurozone retail sales falls -1.2% mom in Aug, EU down -0.9% mom

                                  Eurozone retail sales fell -1.2% mom in August, well below expectation of -0.5% mom. Volume of retail trade decreased by -3.0% for automotive fuels, by -1.2% for food, drinks and tobacco and by -0.9% for non-food products.

                                  EU retail sales was down -0.9% mom. Among Member States for which data are available, the largest monthly decreases in the total retail trade volume were registered in the Portugal (-3.0%), France (-2.8%) and Belgium (-1.5%). The highest increases were observed in Luxembourg (+1.9%), Poland (+1.7%) and Denmark (+1.6%).

                                  Full Eurozone retail sales release here.

                                  New Zealand Q1 CPI in Focus, NZD/USD in decline with weak momentum

                                    Attention will turn to New Zealand’s Q1 in the upcoming session. Consensus expectations suggest that CPI will slow from Q4’s 7.2% yoy, with the majority of forecasts range from 6.9% to 7.1% yoy. Realizing such figures would present a downside surprise for RBNZ, which had projected a Q1 inflation rate of 7.3% yoy. With further slowing expected in subsequent quarters, the case for the RBNZ to pause at a terminate rate of 5.50% rate after another 25bps hike in May would strengthen if inflation indeed begins to cool.

                                    From a technical perspective, NZD/USD’s decline from its February high of 0.6537 is viewed as a correction to the uptrend originating from the 2022 low of 0.5511. The corrective structure of the bounce from 0.6083 to 0.6381 suggests the decline isn’t over yet. As long as the 0.6313 resistance holds, a deeper fall remains favored.

                                    However, it’s worth noting that downside momentum has been relatively weak thus far. Consequently, even if the rate dips below 0.6083, strong support could emerge around 50% retracement of 0.5511 to 0.6537 at 0.6024, potentially completing the correction and forming a base.

                                    US Mnuchin: China made very strong commitments to stop forced technology transfer

                                      US Treasury Secretary Steven Mnuchin told CNBC that the “first step” regarding trade deal with China is “really focusing on enforcement”. There will be additional tariff rollbacks in Phase 2. “This gives China a big incentive to get back to the table and agree to the additional issues that are still unresolved”.

                                      On the details, he added, “China has agreed to put together very significant laws to change rules and regulations and have made very strong commitments to our companies that there will not be forced technology going forward.”

                                      President Donald Trump and Chinese Vice Premier Liu He scheduled to sign the trade deal at a ceremony at the White House today, at 11:300am EST.

                                      US ISM services dropped to 51.2, sharp decline in new orders

                                        US ISM Services PMI dropped from 55.1 to 51.2 in March, below expectation of 54.5. Looking at some details, business activity/production dropped from 56.3 to 55.4. New orders tumbled sharply from 62.6 to 52.2. New export orders dived from 61.7 to 43.7. Employment dropped from 54.0 to 51.3. Prices dropped from 65.6 to 59.5.

                                        Anthony Nieves, Chair of ISM Services Business Survey Committee: “There has been a pullback in the rate of growth for the services sector, attributed mainly to (1) a cooling off in the new orders growth rate, (2) an employment environment that varies by industry and (3) continued improvements in capacity and logistics, a positive impact on supplier performance. The majority of respondents report a positive outlook on business conditions.”

                                        “The past relationship between the Services PMI and the overall economy indicates that the Services PMI for March (51.2 percent) corresponds to a 0.5-percent increase in real gross domestic product (GDP) on an annualized basis.”

                                        Full ISM Services release here.

                                        Swiss CPI unexpectedly slowed to 3.3% yoy, EUR/CHF extends rebound

                                          Swiss CPI dropped -0.2% mom in September, below expectation of 0.1% mom. The decrease of 0.2% compared with the previous month can be explained by several factors including falling prices for fuels, heating oil, hotels and supplementary accommodation. In contrast, prices for clothing and footwear increased.

                                          Comparing with the same month a year ago, CPI slowed to 3.3% yoy, down from 3.5% yoy, below expectation of 3.5% yoy. Core CPI (excluding fresh and seasonal products, energy and fuel) was flat mom, up 2.0% yoy (unchanged from August). Domestic product prices rose 1.8% yoy (unchanged from August). Imported product prices rose 7.8% yoy (down from 8.6% yoy in August).

                                          Full release here.

                                          EUR/CHF rises further as Swiss CPI unexpectedly slowed. Immediate focus is now on 0.9712 resistance. Firm break there will raise the chance of larger bullish reversal, and target 0.9864 structural resistance for confirmation.