Australia retail sales rose 2.0% mom to AUD 36.5B in November, above expectation of 1.2% mom. That followed a fell of -0.4% mom in October.
Robert Ewing, ABS head of business statistics, attributed this surge to the impact of Black Friday sales. He noted, “Black Friday sales were again a big hit this year, with retailers starting promotional periods earlier and running them for longer, compared to previous years.”
Ewing further explained: “The strong rise suggests that consumers held back on discretionary spending in October to take advantage of discounts in November.” Additionally, he observed that shoppers might have advanced some of their Christmas shopping to November, which typically occurs in December.
NIESR said the 0.5% mom growth in UK GDP in October “largely reflects the weakness in September” resulting from additional Bank Holiday for the State Funeral of HM Queen Elizabeth II. The risks of GDP contraction in Q4 “remains elevated”. It expects GDP to remain flat in Q4.
Paula Bejarano Carbo Associate Economist, NIESR said:
“Monthly GDP grew by 0.5 per cent in October, in line with our forecast last month, driven by a strong pick-up in wholesale and retail trade, and repair of motor vehicles and motorcycles, which seem to have been strongly affected by the additional September bank holiday.
“Despite this positive outlook from the monthly growth figure, there are still strong downside risks to GDP in the fourth quarter of this year due to high inflation and interest rates –which continue to suppress demand –and supply chain disruptions, as well as work backlogs due to industrial action and a tight labour market –which continue to weigh on business growth. We still expect GDP to remain flat in the fourth quarter of this year.”
DOW hit near record high overnight, with help from retreat in bond yields, as well as passage of the USD 1.9T economic stimulus package. The bill was parted in the House by 220 to 221, after going through the Senate with 50.49 on Saturday. The bill will now head to the White House for signature of President Joe Biden.
DOW closed up 1.46% or 464.28 pts at 32297.02. The bullish outlook was retained after drawing support form 55 day EMA earlier. It’s also staying well inside near term rising channel. The up trend is on course to 61.8% projection of 18213.65 to 29199.35 from 26143.77 at 32932.93.
As there is no clear sign of upside acceleration for now, we’d be cautious from strong resistance from this projection level. But still, break of 30547.53 support is needed to indicate topping. Or outlook will remain bullish.
Eurozone Economic Sentiment Indicator rose slightly from 117.6 to 117.8 in September, above expectation of 116.9. Employment Expectation Indicator rose 0.8 pts to 113.6, highest since 2018. Industrial confidence rose from 13.8 to 14.1. Services confidence dropped from 16.8 to 15.1. Consumer confidence rose from -5.3 to -4.0. Retail trade confidence dropped from 4.6 to 1.3. Construction confidence rose from 5.5 to 7.5.
EU ESI was unchanged at 116.6 while EEI rose 1 pt to 113.6 (highest since 2018). Amongst the largest EU economies, the ESI rose in Spain (+1.7), Germany (+0.8), the Netherlands and Poland (both +0.6), while it worsened in France (-1.3) and Italy (-0.9).
DOW gapped down yesterday and eventually closed down -631.56 pts, or -2.67%, at 23018.88. The development raises the chance that corrective rebound from 18213.65 has completed after rejection by 55 day EMA. Immediate focus is back on 22595.06 resistance turned support. Break will add more credence to this case and target next support level at 20735.02.
In case of another rise, it now looks like upside would be limited by 61.8% retracement of 29568.57 to 18213.65 at 25230.99.
Sterling recovers notably on short covering as UK Prime Minister Theresa May is scheduled to announce her new Brexit deal at 1500GMT.
Her spokesman said that “Cabinet discussed the new deal which the government will put before parliament in order to seek to secure the UK’s exit from the European Union.
The discussions included alternative arrangements, workers’ rights, environmental protections and further assurances on protecting the integrity of the UK in the unlikely event that the backstop is required.
The prime minister said that “the withdrawal agreement bill is the vehicle that gets the UK out of the European Union and it is vital to find a way to get it over the line.”
And the prime minister will be setting out further details on the way forward in a speech this afternoon.”
US retail sales rose 0.3% to USD 529.8B in January, matched expectations. Ex-auto sales rose 0.3% mom, below expectation of 0.4% mom. Ex-gasoline sales rose 0.3% mom. Ex-auto, ex-gasoline sales rose 0.4% mom.
Import price index rose 0.0% mom in January, above expectation of -0.2% mom.
In a Bloomberg TV interview, ECB President Christine Lagarde said, “we’re moving (deposit rate) very likely into positive territory at the end of the third quarter.”
“When you’re out of negative (rates) you can be at zero, you can be slightly above zero. This is something that we will determine on the basis of our projections and … forward guidance,” she explained.
Still, Lagarde emphasized the graduality and ECB’s policy adjustments. “I don’t think we are in a situation of surging demand at the moment,” Lagarde said. “It’s definitely an inflation that is driven by the supply side of the economy.”
Japanese Foreign Ministry spokesman Masato Ohtaka reiterated the target to sign a trade agreement with US by the end of this month. He noted that “we still have some time and all my colleagues in the government are making their best efforts to actually meet this target”. Separately, Japanese Chief Cabinet Secretary Yoshihide Suga also said that “With the U.N. General Assembly meeting in mind, we are accelerating the remaining work, including the wording of a trade agreement.”
Japan officials and business executives have expressed concern of signing a trade deal with assurance from the US on not imposing tariffs on Japanese cars. That’s the key issue that might drag the negotiations through the self-imposed deadline. However, Japanese Foreign Minister Toshimitsu Motegi, said alongside US Trade Representative Robert Lighthizer, that he had no concern on the auto tariff threats. Motegi expected no much of a delay on the trade agreement.
Reuters reported that EU leaders believe that progress in Brexit negotiation with the UK is “still not sufficient” for an agreement. The decision wold be confirmed at the EU summit on Thursday and Friday. Also, the leaders would ask chief negotiator Michel Barnier to intensify the talks and implement an agreement from January 1, 2021. At the same time, EU would step up no-deal preparations.
Separately, Commissioner for the EU’s single market, Thierry Breton, told BFM business radio “We prefer a deal but not at any price and if there is no deal, we are ready… our customs are ready for a no-deal and it is urgent that British customs also prepare for it.”
ECB President Christine Lagarde emphasized that the central bank is not yet ready to initiate rate cuts, underscoring the need for comprehensive data analysis
In a CNN interview overnight, she stated, “We are not there yet,” added that the decision to loosen monetary policy hinges on “all sorts of data”. She also singled out the significance of wage data as “critically important.”
Despite acknowledging a clear disinflationary trend, Lagarde noted that ECB requires a deeper understanding and progression into this trend to make a well-informed decision. “We are on a disinflationary trend — no question about it,” she confirmed, “But we need to be further into that process.”
Lagarde’s remarks also touched upon the consensus within the ECB regarding the direction of the next policy move. “I think we all agree that the next move” will be a cut, she said, aligning with the general anticipation of eventual rate reductions. However, the timing remains uncertain and subject to thorough examination of upcoming economic data.
A key factor in the timeline for interest rate cuts is the availability of wage growth data, which is not expected until after ECB’s April meeting. This positions the June meeting as a more likely juncture for the consideration of rate cuts.
European Council President Donald Tusk reiterated today that the EU wants a post-Brexit relationship with UK that is “as close and special as possible”. And he added “From the very beginning, the EU offer has been not just a Canada deal, but a Canada plus plus plus deal. Much further-reaching on trade, on internal security and on foreign policy cooperation.”
But at the same time he also dismissed UK rejection of EU’s proposal of keeping Northern Ireland inside EU economic rules. Tusk said “Emotional arguments that stress the issue of dignity sound attractive but they do not facilitate agreement. Every actor in this process has their dignity and confrontation in this field will not lead to anything good.” And, “No one can expect that because of Brexit, the EU will give up its fundamental values and key interests.”
He urged UK Prime Minister Theresa May to “get down to business” after having concluded the Conservative Party conference.
In March, Japan industrial production dropped -0.9% mom, below expectation of 0.0% mom. For the whole of Q1, industrial production contracted -2.6% yoy. The overall contraction in industrial production in Q1 was the largest in nearly five years, since Q2 2014. The data suggested that Japanese economy could have suffered a mild recession as external demand was hurt by US-China trade war.
Also released, unemployment rate also rose to 2.5%, up from 2.3% and was higher than expectation of 2.4%. Nevertheless, retail sales rose 1.0% yoy, above expectation of 0.8% yoy. In April, Tokyo CPI accelerated to 1.3% yoy, up from 1.1% yoy and beat expectation of 1.1% yoy.
Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council.
Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.
Regarding non-standard monetary policy measures, we will continue to make net purchases under the asset purchase programme (APP) at the current monthly pace of €30 billion until the end of September 2018. We anticipate that, after September 2018, subject to incoming data confirming our medium-term inflation outlook, we will reduce the monthly pace of the net asset purchases to €15 billion until the end of December 2018 and then end net purchases. We intend to reinvest the principal payments from maturing securities purchased under the APP for an extended period of time after the end of our net asset purchases, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
While uncertainties, notably related to the global trade environment, remain prominent, the information available since our last monetary policy meeting indicates that the euro area economy is proceeding along a solid and broad-based growth path. The underlying strength of the economy confirms our confidence that the sustained convergence of inflation to our aim will continue in the period ahead and will be maintained even after a gradual winding-down of our net asset purchases. Nevertheless, significant monetary policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term. This support will continue to be provided by the net asset purchases until the end of the year, by the sizeable stock of acquired assets and the associated reinvestments, and by our enhanced forward guidance on the key ECB interest rates. In any event, the Governing Council stands ready to adjust all of its instruments as appropriate to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner.
Let me now explain our assessment in greater detail, starting with the economic analysis. Quarterly real GDP growth moderated to 0.4% in the first quarter of 2018, following growth of 0.7% in the previous three quarters. This easing reflects a pull-back from the very high levels of growth in 2017 and is related mainly to weaker impetus from previously very strong external trade, compounded by an increase in uncertainty and some temporary and supply-side factors at both the domestic and the global level. The latest economic indicators and survey results have stabilised and continue to point to ongoing solid and broad-based economic growth, in line with the June 2018 Eurosystem staff macroeconomic projections for the euro area. Our monetary policy measures, which have facilitated the deleveraging process, continue to underpin domestic demand. Private consumption is supported by ongoing employment gains, which, in turn, partly reflect past labour market reforms, and by growing household wealth. Business investment is fostered by the favourable financing conditions, rising corporate profitability and solid demand. Housing investment remains robust. In addition, the broad-based expansion in global demand is expected to continue, thus providing impetus to euro area exports.
The risks surrounding the euro area growth outlook can still be assessed as broadly balanced. Uncertainties related to global factors, notably the threat of protectionism, remain prominent. Moreover, the risk of persistent heightened financial market volatility continues to warrant monitoring.
Euro area annual HICP inflation increased to 2.0% in June 2018, from 1.9% in May, reflecting mainly higher energy and food price inflation. On the basis of current futures prices for oil, annual rates of headline inflation are likely to hover around the current level for the remainder of the year. While measures of underlying inflation remain generally muted, they have been increasing from earlier lows. Domestic cost pressures are strengthening and broadening amid high levels of capacity utilisation and tightening labour markets. Uncertainty around the inflation outlook is receding. Looking ahead, underlying inflation is expected to pick up towards the end of the year and thereafter to increase gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion, the corresponding absorption of economic slack and rising wage growth.
Turning to the monetary analysis, broad money (M3) growth increased to 4.4% in June 2018, up from 4.0% in May. M3 growth continues to benefit from the impact of the ECB’s monetary policy measures and the low opportunity cost of holding the most liquid deposits. The narrow monetary aggregate M1 remained the main contributor to broad money growth.
The recovery in the growth of loans to the private sector observed since the beginning of 2014 is proceeding. The annual growth rate of loans to non-financial corporations rose to 4.1% in June 2018, after 3.7% in the previous month, while the annual growth rate of loans to households remained unchanged at 2.9%. The euro area bank lending survey for the second quarter of 2018 indicates that loan growth continues to be supported by easing credit standards and increasing demand across all loan categories.
The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households, access to financing – in particular for small and medium-sized enterprises – and credit flows across the euro area.
To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed that an ample degree of monetary accommodation is still necessary for the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.
In order to reap the full benefits from our monetary policy measures, other policy areas must contribute more decisively to raising the longer-term growth potential and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. Regarding fiscal policies, the ongoing broad-based expansion calls for rebuilding fiscal buffers. This is particularly important in countries where government debt remains high. All countries would benefit from intensifying efforts towards achieving a more growth-friendly composition of public finances. A full, transparent and consistent implementation of the Stability and Growth Pact and of the macroeconomic imbalance procedure over time and across countries remains essential to increase the resilience of the euro area economy. Improving the functioning of Economic and Monetary Union remains a priority. The Governing Council urges specific and decisive steps to complete the banking union and the capital markets union.
Entering into US session, CAD, EUR and GBP are trading as the strongest ones, while USD, AUD and JPY are the strongest. Some note that USD is the strongest one. Yes, admitted it is. But considering the USD/JPY is lacking follow through buying through 109.50, and AUD/USD is also held in tight range, it should be more about the weaknest of CAD, EUR and GBP, rather than strength of USD.
CAD is clearly weighed down by falling oil price as WTI drops below 70 handle on talk that OPEC and Russia are going to raise production. USD/CAD would soon be retesting 1.2996 resstance.
Meanwihle, we believe that the free falls in German and UK yields are the reasons dragging EUR and GBP down. Data from both countries together are not bad and won’t add to more dovish ECB or BoE expectation.
Instead, we’ve noticed that Italian 10 year yield has another day of strong rally today to 2.481, up 0.081 at the time of writing. German 10 year bund yield is down -0.048 at 0.426. The Italy-German yield spread surpassed 200 pts level for the first time since last June. The decline in German bund yield is particularly serious if we consider that it it as high as 0.583 earlier this week. Concerns over the new Italian government is the driving force in the markets.
UK 10 year gilt yields also dropped -0.50 to 1.351 so far.
Bundesbank President Joachim Nagel described inflation as a “greedy beast” that’s “stubborn. And it’s a “first order error” to give up the fight early.
During his remarks, Nagel noted “there’s still a way to go,” to bring inflation down to the 2% target, and “we have to slow economic activity to bring inflation down.”
Nagel used vivid language to underline the ongoing challenge: “Inflation to me is like a greedy beast and we do have to fight against this very greedy beast.”
“As inflation fighters we have to be very stubborn because inflation is so stubborn,” added.
Nagel cautioned against conceding the fight too early. “It would be a first order error to give up too early,” he warned.
Dollar turned mixed this week and extends the correction that started last Friday. In particular, USD/JPY was under heavy selloff on risk aversion and falling treasury yields overnight. 30-year yield hit record low at 1.811 before closing at 1.837, down -0.081. 10-year yield also hit 3-year low at 1.352 before closing at 1.377, down -0.094.
Traders are quickly increasing their bets that global coronavirus outbreak would eventually force Fed to cut interest rate again this year. Fed fund futures are now pricing in more than 80% chance of a cut by July meeting. It was 50-50 chance just a month ago.
Dollar index tumbled to as low as 99.11 on Fed cut speculations. But there is no change in the view that it’s merely in consolidation from 99.91 near term top. The index might gyrate lower for the near term. But we’d expect strong support from 38.2% retracement of 96.35 to to 99.91 at 98.55 to contain downside to bring rebound. medium term up trend is expected to resume through 99.91 at a later stage.
European Commission President Ursula von der Leyen said at the London School of Economics that the relationship between EU and UK will be different after Brexit. She also warned that there is not enough time to complete negotiations by the end of this year. She said, “the European Union is ready to negotiate a truly ambitious and comprehensive new partnership with the United Kingdom”. However, “without an extension of the transition period beyond 2020, you cannot expect to agree on every single aspect of our new partnership.”
She explained, “we are ready to design a new partnership with zero tariffs, zero quotas, zero dumping. A partnership that goes well beyond trade and is unprecedented in scope. Everything from climate action to data protection, fisheries to energy, transport to space, financial services to security. And we are ready to work day and night to get as much of this done within the timeframe we have.” But “none of this means it will be easy, but we start this negotiation from a position of certainty, goodwill, shared interests and purpose. And we should be optimistic.”
UK Prime Minister Boris Johnson made himself clear that he would not seek transition period extension. His spokesperson said yesterday that ” having waited for over three years to get Brexit done, both British and EU citizens rightly expect negotiations on an ambitious free trade agreement (FTA) to conclude on time… “There will be no extension to the Implementation Period, which will end in December 2020 as set out in the Political Declaration,” the spokesperson added.
San Francisco Fed President Mary Daly acknowledged that while inflation appears to be slowing, it remains far too elevated. In an interview held at the Brookings Institution in Washington, D.C., Daly indicated the need for further measures to counteract inflationary pressures.
She affirmed, “I think it’s a very reasonable projection to say a couple of more rate hikes will be necessary.”
Daly reflected on the resilience of the U.S. economy, which has shown surprising strength despite ongoing economic challenges. The robust data, according to Daly, signal a clear need for intervention: “We need to raise rates to bridle that economy more.”
“With labor market still strong, inflation high, risks of doing too little are outweighing risks of doing too much,” she added.
Nevertheless, “It’s appropriate to slow the pace of rate hikes.”
Pound’s selloff resumes today and it’s for now the second weakest, just next to Canadian. The decline is rather unrelated to today’s main theme of Trump’s tariff on Mexico. Rather, Sterling is on its own downward trajectory on Brexit uncertainty. Prime Minister Theresa May will step down on June 7. Nominations will start in the week on June 10. That’s the week we’ll finally know who are the real runners.
EUR/GBP breaks out of this week’s sluggish range and hits as high as 0.8866 so far. With 0.8840 resistance now firstly taken out, next stop will be 0.9101 key resistance.
GBP/USD is also on track for 1.2391 low.
GBP/JPY is also targeting 131.51 low even that flash crash low looks a bit far.
Australia’s retails sales rises 2.0% mom in Nov on Black Friday boost
Australia retail sales rose 2.0% mom to AUD 36.5B in November, above expectation of 1.2% mom. That followed a fell of -0.4% mom in October.
Robert Ewing, ABS head of business statistics, attributed this surge to the impact of Black Friday sales. He noted, “Black Friday sales were again a big hit this year, with retailers starting promotional periods earlier and running them for longer, compared to previous years.”
Ewing further explained: “The strong rise suggests that consumers held back on discretionary spending in October to take advantage of discounts in November.” Additionally, he observed that shoppers might have advanced some of their Christmas shopping to November, which typically occurs in December.
Full Australia retail sales release here.