Mon, Sep 27, 2021 @ 01:53 GMT

Fed Powell: Another sharp increase in business debt could increase vulnerabilities appreciably

    In a speech delivered yesterday, Fed Chair Jerome Powell said that “business debt has clearly reached a level that should give businesses and investors reason to pause and reflect.”  He pointed to corporate borrowing which hit record level of 35% of assets. And, he warned “another sharp increase…could increase vulnerabilities appreciably”.

    Though, Powell also emphasized the debt problem is not at the level of systemic threat as the sub-prime mortgage markets. “As of now business debt does not present the kind of elevated risks to the stability of the financial system that would lead to broad harm,” he said.

    Responding to some questions, Powell said “today’s inflation dynamics are very different from even 25 years ago. Globalization and technology may be playing a role”. Also, it was premature to make a judgement about the impact trade and tariff issues could have on monetary policy.

    Powell’s speech on Business Debt and Our Dynamic Financial System.

    Ifo: Germany inflation to hit 3% this year, fall back to 2-2.5% next

      Ifo said inflation in Germany could hit as high as 3% this year. That could be explained by “accelerated increase in prices over the course of 2021” in apparent in energy, food, and some service industries.

      Inflation is expected to slow to 2.0-2.5% next year. But Head of Forecasts Timo Wollmershäuser said: “At the beginning of 2022, the special factors that have been driving inflation will peter out: it will be a year since the reduction in VAT was reversed and energy prices reached their pre-crisis levels,”

      Separately, ECB Governing Council member Pablo Hernandez de Cos said, “ECB is monitoring the inflation performance closely but we are not seeing any second-round impacts.”

      Into US session: Dollar fails to hold gains, Yen stays firm

        Entering into US session, Dollar turned weak earlier today and failed to sustain gains. On the other hand, the Japanese Yen is holding broadly firm. Australian Dollar and New Zealand Dollar turned the corner. Much focus will be on US treasury yields and some solid gain there is needed to give the greenback some support. Otherwise, recent correction will likely continue with some more downside potential in the greenback.

        In other markets, Europe indices are trading generally higher, with DAX up 1.34%, CAC up 0.81% and FTSE up 0.81% at the time of writing. That follows the strong rally in Asian equities. China Shanghai Composite jumped 1.61% to 2905.56 as boosted by the governments stimulus policies. While the announce measures are just fine-tunings and are hardly anything dramatic, that’s seen as a sign of the director where the Chinese government is heading towards. That is do more to support growth.

        The SSE’s rebound is set to extend to 55 day EMA (now at 2944.64) and above. But for now, we’re seeing no reason for it to regain 3000 handle.

        Nikkei also rose 0.51% to close at 22510.48 and pared back much of Monday’s loss. However, the day high was seen at the open at 22555.05 and there was no follow through momentum back then. Overall strength of support from the 55 day EMA is rather weak. We’ll keep monitor this level, which will decide whether Nikkei would head for test on 21462.94 support before an upside breakout.

        ECB Villeroy: Aim of PEPP is not to invest a certain amount each month

          ECB Governing Council member Francois Villeroy de Galhau  told BFM Business radio the aim of the  Pandemic Emergency Purchase Programme (PEPP) was not “to invest a certain amount each month, but rather a result”. “We will do less if the financing conditions remain favorable like today. If the opposite is needed, we will do more,” he said.

          ECB announced yesterday to raise the envelop of the PEPP by EUR 500B, and extend the program by 9 months through March 2022.

          Villeroy also reiterated that “we do not have an exchange rate target … but we have a strong vigilance about the effects of the exchange rate on inflation. We are ready as a result of this vigilance to use all our instruments.”

          EU Barnier: Opposing no-deal Brexit won’t stop no-deal Brexit

            EU chief Brexit negotiator Michel Barnier  said today that no-deal Brexit is now the default, and “Preparing for a no-deal scenario is more important now than ever, even though I still hope that we can avoid this scenario.”

            He also warned that “Opposing no-deal will not stop no-deal from happening at the end of March. To stop no-deal, another majority will have to emerge.” And he added, “This is the objective of the political consultations that Theresa May has started and we hope, sincerely, we hope that this process will be successful”.

            Meanwhile, he also pointed out there are two possible ways to leave the EU. “Number one, an orderly withdrawal based on the agreement that we have built step by step with the UK over the last 18 months.” Or, “Number two, a disorderly withdrawal, leaving the EU without a deal, is a default scenario and there appears to be a majority in the House of Commons to oppose a no-deal.”

            RBNZ keeps OCR at 0.25%, launches new stimulus with FLP

              RBNZ decided to keep the Official Cash Rate unchanged at 0.25% today while the Large Scale Asset Purchase Programme will continue, up to NZD 100B. The central bank introduced additional stimulus through a Funding for Lending Programme, commencing December, to lower banks’ funding costs and lower interest rates.

              RBNZ also “reaffirmed that an FLP, a lower or negative OCR, purchases of foreign assets, and interest rate swaps remain under consideration.” The banking system is also “on track to be operationally ready for negative interest rates by year end.”.

              Full statement here.

              UK GDP grew 1.0% mom in June, 4.8% qoq in Q2

                UK GDP grew 1.0% mom in June, matched expectations. That’s the fifth consecutive month of growth, GDP remained -2.2% below it’s pre-pandemic level in February 2020. Services was the main contributor, growing 1.5% mom. Production, on the other hand, dropped -0.7% mom while contraction also dropped -1.3% mom.

                For Q2 as a whole, GDP grew 4.8% qoq, still -4.4% below the pre-pandemic level in Q4, 2019. ONS said, “there were increases in nearly all main components of expenditure apart from “trade”, with the largest contribution from household consumption”.

                Full release here.

                White House adviser Hassett: Powell’s 100% safe, Trump very happy with Mnuchin

                  Kevin Hassett, chairman of the Council of Economic Advisers of the US, said in an interview yesterday that Fed Chair Jerome Powell’s job is 100% safe. He told the WSJ that “The president has voiced policy differences with Jay Powell, but Jay Powell’s job is 100% safe. The president has no intention of firing Jay Powell”.

                  In addition to Trump’s dissatisfaction on Powell, there were also reports that he has turned his anger to Treasury Secretary Steven Mnuchin. Mnuchin is the one whose’s meeting Powell once a week regularly. And it’s said that Trump is considering to add one of his advisers to the regular meetings. But Hassett said “I am highly confident that the president is very happy with Secretary Mnuchin.”

                  ECB: Global recovery projected to be shallow

                    ECB said in its monthly economic bulletin that more recent information “points to a stabilisation in global growth”. In particular, survey-based data like PMI point to a “moderate recovery in manufacturing output growth and some moderation in services output growth”. Nevertheless, global recovery is projected to be “shallow”, reflecting moderation of growth in advanced economies and sluggishness in some emerging markets.

                    For Eurozone, however, ongoing weakness of international trade continues to weigh on manufacturing sector and is dampening investment growth. Survey-based data, while remaining weak overall, point to some stabilization of slowdown too.

                    Measures of underlying inflation in Eurozone “generally remained muted”. ECB added, that “market-based indicators of longer-term inflation expectations have remained at very low levels, while survey-based expectations also stand at historical lows.

                    Full ECB Monthly Bulletin here.

                    GBP/CHF up trend continues towards 1.2840 projection target

                      GBP/CHF’s rally is accelerating again today and hits as high as 1.2484 so far. Current rise form 1.1683 is the third leg of the whole rally from 1.1102. Next target is 100% projection of 1.1102 to 1.2259 from 1.1683 at 1.2840 next. Outlook will now stay bullish as long as 1.2352 minor support holds, even in case of retreat.

                      IMF Lagarde: Global economy increasingly unsettled, 70% to experience a slowdown this year

                        IMF Managing Director Christine Lagarde warned that the global economy is “increasingly unsettled” after two years of good time. She noted that the the economy has “lost further momentum” since the January forecast and hinted at downgrade in the updated forecast next week. Back in January, IMF projected  global growth for 2019 and 2020 at around 3.25%.

                        Lagarde also said 70% of the global economy will experience a “slowdown” this year. That’s a drastic change from two year ago, when 75% experienced an “upswing”. Though, she still emphasized that “we do not see a recession in the near term”. But there will be pickup in H2 2019 and into 2020.

                        She outlined three areas of policy actions needed.: (a) Domestic Policies to Build More Resilient and Inclusive Economies; (b) Cross-Border Efforts to Provide a More Level Playing Field; (c) Partnership to Address Global Challenges. In particular, she said tariffs between US and China went up by 25% and “that alone would reduce annual GDP by up to 0.6 percent in the US and by up to 1.5 percent in China.” She urged that “these are potentially self-inflicted wounds that should be avoided.”

                        Her full speech here.

                        BoJ: GDP to contract -5% to -3% in fiscal 2020, return to deflation

                          In the Outlook for Economic Activity and Prices, BoJ said the economy is “likely to remain in severe situation for the time being” due to the impact of the coronavirus pandemic. GDP could shrink as much as -5.0% to -3.0% in fiscal 2020. Japan could also return to deflation with core CPI down -0.7 to -0.4%. BoJ added that “future developments are extremely unclear” and risks to both economic activity and prices are “skewed to the downside”.

                          GDP growth forecast:

                          • Fiscal 2019 at -0.4% to -0.1% (down from 0.8% to 0.9%).
                          • Fiscal 2020 at -5.0 to -3.0% (down from (0.8 % to 1.1%).
                          • Fiscal 2021 at 2.8% to 3.9% (up from 1.0% to 1.3%).
                          • Fiscal 2020 at 0.8% to 1.6%.

                          Core CPI forecast (excluding sales tax hike effects):

                          • Fiscal 2019 at 0.4% (vs 0.4% to 0.5%).
                          • Fiscal 2020 at -0.7% to -0.4% (down from 0.9% to 1.0%).
                          • Fiscal 2021 at 0.0% to 0.7% (down from 1.2% to 1.6%).
                          • Fiscal 2022 at 0.4% to 1.0%.

                          Full release here.

                          EUR/GBP rally drags down GBP/JPY and GBP/USD

                            EUR/GBP spikes higher in early European session, after clearing 0.8750. A major reason is believed to be Bundesbank’s monthly purchase for UK’s contribution to EU membership. Today’s move could be exaggerated by thinner holiday liquidity. Also EUR/GBP bearish could be finally giving up after the cross failed to sustain below 0.8686 last week. But it’s worth a watch to see if the rebound is turning into something sustainable. For now, based on current momentum, it could be heading back to 61.8% retracement of 0.8967 to 0.8666 at 0.8852 with a short term based formed.

                            The move in EUR/GBP is also affecting other pairs. GBP/JPY dip notably lower after hitting 150.48.

                            GBP/USD also dips after hitting 1.4243.

                            On other hand, EUR/USD is staying firm after edging higher to 1.2475.

                            China Xi to Trump: History has proven cooperation is best for both sides

                              In his New Year address, Chinese President Xi Jinping reminded US President Donald Trump that “history has proved that cooperation is the best choice for both sides.” Xi added that “I attach great importance to the development of China-U.S. relations and am willing to work with President Trump to summarize the experience of the development of China-U.S. relations and implement the consensus we have reached in a joint effort to advance China-U.S. relations featuring coordination, cooperation and stability so as to better benefit the two peoples as well as the people of the rest of the world.”

                              The official Xinhua new agency also echoed in the commentary that “At a time when the world is undergoing unprecedentedly profound changes and is fraught with risks and uncertainties, the global community expects even closer collaboration between the two largest economies.”

                              Trump tweeted on December 29 that “Just had a long and very good call with President Xi of China. Deal is moving along very well. If made, it will be very comprehensive, covering all subjects, areas and points of dispute. Big progress being made!”. China’s state media also said Xi believed both sides wanted “stable progress”, and China-US ties had reached a “vital stage” on its 40th anniversary.

                              It’s believed that Deputy U.S. Trade Representative Jeffrey Gerrish will lead a delegation including Treasury Under Secretary for International Affairs David Malpass, to travel to China in the week of January 7 for face-to-face meeting on trade negotiations.

                              US durable goods orders dropped -1.1% in Feb, ex-transport orders down -0.9%

                                US durable goods orders dropped -1.1% mom to USD 254.0B in February, much worse than expectation of 1.0% mom rise. That’s also the first decrease following nine months of growth. Ex-transport orders dropped -0.9% mom, versus expectation of 0.5% mom. Ex-defense orders dropped -0.8% mom. Transportation equipment, down following month months of increase, dropped -1.6% mom.

                                Full release here.

                                WTI oil back above 60 as Saudi Arabia cuts oil exports starting Dec

                                  WTI crude oil opened the week higher and is back above 60. Saudi Arabia announced during the weekend to cut oil exports by 500k bpd in December. Its Energy Minister Khalid Al-Falih said on Sunday that demand for Saudi oil is “tapering off” partly due to seasonal factors. And, he pledged that “we as responsible producers are going to work, and work hard, to balance the market within a reasonable corridor.”

                                  The OPEC+ also said in a post-meeting statement that it might need new strategies onwards. It said “the committee reviewed current oil supply and demand fundamentals and noted that 2019 prospects point to higher supply growth than global requirements.” And, weaker global economic growth “could lead to widening the gap between supply and demand.”

                                  WTI crude oil topped at 77.06 back in early October but then persistently dropped to as low as 59.37 last week. A key factor driving the free fall was the erratic sanction policy of the US on Iran. Trump initially insisted to restrict all Iranian exports to the world. But it turned out that waivers were granted to eight countries on oil trade with Iran, including Taiwan.

                                  Technically, today’s recovery is so far not strong enough to warrant a change in near term down trend.

                                  Australia PMI composite rose to 56.2, rounds off a strong quarter, but inflation a concern

                                    Australia PMI Manufacturing rose slightly to 57.0 in March, up from 56.9. PMI Services jumped to 56.2, up from 53.4. PMI Composite also rose to 56.2, up from 53.7.

                                    Pollyanna De Lima, Economics Associate Director at IHS Markit, said: “The latest results rounded off a strong quarter for the private sector, the best since the second quarter of 2017… Inflation remains an area of concern, with March data showing the strongest rise in input costs in the survey history…. Supply-chain disruption was cited by panellists as the main driver of inflation, a factor that also restricted business optimism towards growth prospects.”

                                    Full release here.

                                    UK Hammond: The governor will not vote for no-deal Brexit

                                      More from Chancellor of the Exchequer Philip Hammond. He told BBC radio that “The government is very clear where the will of parliament is on this. Parliament will vote not to leave the European Union without a deal,” and he had “a high degree of confidence about that.”

                                      At the same time, he also warned that voting against Prime Minister Theresa May’s deal, the UK “will then be in unknown territory where a consensus will have to be forged across the House of Commons and that will inevitably mean compromises being made.”

                                      Eurozone GDP contracted -0.7% qoq in Q4, EU down -0.5%

                                        Eurozone GDP contracted -0.7% qoq in Q4, smaller than expectation of -1.8% qoq. Over the year, GDP contracted -6.8% yoy. EU GDP contracted -0.5% qoq. Over the year, EU GDP contracted -6.4% yoy.

                                        Among the Member States, for which data are available for the Q4, Austria (-4.3%) recorded the highest decrease compared to the previous quarter, followed by Italy (-2.0%) and France (-1.3%) while Lithuania (+1.2%) and Latvia (+1.1%) recorded the highest increases. The year on year growth rates were still negative for all countries.

                                        Full release here.

                                        Fed Bowman looking at very robust growth and tapering this year

                                          Fed Governor Michelle Bowman said yesterday, “even though some of the recent data may have been less strong than we expected, we are still looking at very robust economic growth.”

                                          “If the data comes in as I expect that it will, it will likely be appropriate for us to begin the process of scaling back our asset purchases this year,” she added.

                                          “It is important not to take too much signal from a single data point as we might have seen last week from the labor market,” Bowman said.