Tue, May 30, 2023 @ 11:55 GMT

Irish PM Varadkar: The Brexit instrument agreed put assurances on a legal footing

    Irish Prime Minister Leo Varadkar hailed that the agreement between UK PM May and EU Juncker was positive. He added that I” hope and trust the withdrawal agreement will now be endorsed by the House of Commons.”

    He noted that the “documents are complementary to the withdrawal agreement and political declaration and aim to provide an additional layer of interpretation, clarification and elaboration to the United Kingdom ahead of a further vote in Westminster …”

    And, the “instrument agreed yesterday puts those assurances on a legal footing and represents an unambiguous statement by both parties of what has been agreed.” At the same time “it does not re open the withdrawal agreement or undermine the backstop or its application.”

    ISM manufacturing dropped to 59.3, but price surged as Trump’s tariffs triggered panic buying

      ISM manufacturing index rose dropped to 59.3 in March, down from 60.8 and was slightly below expectation of 60.0. Prices paid component surged to 78.1, up from 74.2, beat expectation of 72.5. Employment component dropped to 57.3, down from 59.7.

      Overall, despite slight deterioration in the headline index and employment component, the set of data remained solid. However, there were some concerns expressed regarding the newly announced tariffs. As noted in the “What respondents are saying section…” section of the release:

      • “Much concern in the industry regarding the steel and aluminum tariffs recently [imposed]. This is causing panic buying, driving the near-term prices higher and [leading to] inventory shortages for non-contract customers.” (Machinery)
      • “New tariffs are causing concern across the supply chain. Full impact will take a few weeks to reveal itself.” (Miscellaneous Manufacturing)
      • “Significant price increases in the steel commodity due to 232 [the tariffs]. The price increases will begin to impact our company’s performance.” (Primary Metals)

      The release itself also noted that “the Prices Index registered 78.1 percent in March, a 3.9 percentage point increase from the February reading of 74.2 percent, indicating higher raw materials prices for the 25th consecutive month.”

      This could be the reason why dollar is trying to have a positive response to the release while stocks extends initial weakness.

      Also released in US session, US construction spending rose 0.1% mom in February. Manufacturing PMI was revised down to 55.6 in March. Canada manufacturing PMI rose 0.1 to 55.7 in March.

      EUR/USD recovered earlier after drawing support form 1.2283. But such recovery lost momentum after hitting 1.2344. But so far, there is no follow through selling on the dip from 1.2344 yet. Hourly chart suggests that the fall from 1.2475 is going to resume after finishing the recovery from 1.2283. But we’d point to 1.2285 as an important near term support. Hence, it has to be firmly broken to confirm underlying momentum.

      Japan Aso: We’ve succeeded in putting a floor on the economy

        Japan Finance Minister Taro Aso told the parliament today that “we’ve succeeded in putting a floor on the economy, which seems to have hit bottom. Looking ahead, “how strong the recovery will be depends not just on domestic conditions but overseas developments.”

        For now, the conditions surrounding the economy will remain “severe” for the time being. However, Aso rebuffed the idea of another set of fiscal stimulus. He said, “we first have to see how the measures we’ve taken so far affect the economy.”

        Canada GDP grew 0.4% mom in Aug, to be flat in Sep

          Canada GDP rose 0.4% mom in August, below expectation of 0.7% mom. Overall 15 of 20 industrial sectors were up. Services-producing industries rose 0.6%. Goods-producing industries dropped -0.1% Preliminary information suggests that real GDP was essentially unchanged in September. Advance estimate points to an approximate 0.5% rise in real GDP in Q3.

          Full release here.

          Australia Westpac consumer sentiment dropped -4.5%, still healthy

            Australia Westpac Consumer Sentiment dropped -4.5% to 107 in January, down from 112.0. The fall came in where there was domestic border closures, emergence of coronavirus clusters in some states and the sharp upswing in infections globally. Overall, “it still points to healthy consumer sentiment”.

            Regarding RBA’s next meeting on February 2, Westpac said the board “seems almost certain to maintain its current policy stance”. The central bank decided in November the intention to purchase AUD 100B in government and semi-government bonds. Markets would be interested in any guidance in respect to the program, which is set to end at the end of April. Westpac expects a second program of AUD 100B afterwards.

            Full release here.

            NY Fed: 1-yr inflation expectation unchanged at 4.8%, 3-yr rose to 3.7%

              According to the July Survey of Consumer Expectations by the New York Fed, median one-year-ahead inflation expectations were unchanged at record 4.8%. Also, 3-year inflation expectation rose further from 3.6% to 3.7%, hitting the highest level since August 2013.

              Full release here.

              UK PMI services rose to 54.0, up the odds of BoE August hike

                UK PMI services rose to 54.0 in May, up from April’s 52.8, above expectation of 52.9.

                Chris Williamson, Chief Business Economist at IHS Markit, which compiles the survey:

                “The improvement in service sector activity adds to evidence that the economy is on course to rebound in the second quarter but, like the earlier manufacturing and construction surveys, raises questions about the outlook. So far, the three PMI surveys indicate that GDP looks set to rise by 0.3-0.4% in the second quarter.

                “However, disappointing inflows of new work suggest that growth could wane in coming months as Brexit-related uncertainty continues to weigh on spending decisions and dampen business confidence. Measured across all major parts of the economy, new orders growth in the second quarter so far is running at the weakest since the third quarter of 2016.

                “Meanwhile, costs are being pushed higher by rising oil prices and wages, although subdued demand means firms are struggling to pass these higher costs onto customers. Average selling prices for goods and services showed the smallest rise for 11 months in May.

                “The signs of economic growth rebounding in the second quarter will likely up the odds of the Bank of England hiking interest rates again in coming months, likely August, but with the forward looking indicators suggesting that the economy could relapse, a rate rise is by no means assured.”

                Full release here.

                Eurozone Sentix investor confidence dropped to 13.5, risks are increasing

                  Eurozone Sentix Investor Confidence dropped from 18.3 to 13.5 in December, missed expectation of 15.9. That’s also the lowest level since April. Current Situation Index dropped for the third straight month from 23.5 to 13.3, lowest since May. Expectation Index, on the other hand, improved slightly from 13.3 to 13.8.

                  Sentix said that hopes of an end to the economic slowdown “have been abruptly dampened” by the latest Sentix data. Lockdown measures in Germany and Austria are “putting a considerable damper on current economic activity”.

                  It added: “Our basic scenario of a ‘mid-cycle slowdown’, i.e. a consolidation in the middle of a cycle, does not have to be abandoned yet. But the risks are increasing! It is also interesting that our thematic analysis reveals an increasingly negative influence of central bank policy. While a continued expansionary monetary policy is likely to fuel inflation in particular, a shift to a restrictive course would obviously be burdened by liquidity constraints. The ECB thus seems to be definitively ‘behind the curve’. The risks for markets and the economy are increasing.

                  Full release here.

                  Kuroda: BoJ’s framework already quite similar to Fed’s average inflation targeting

                    BoJ Governor Haruhiko Kuroda said the central bank already has a framework that’s “quite similar” the Fed’s average inflation targeting. That is, to allow inflation to overshoot the 2% target. “We have no intention to change our inflation targeting policy and forward guidance,” he added.

                    On the economy, he remained fairly upbeat. “Japan’s economic activity is gradually bottoming out” as exports, output and private consumption pick up, Kuroda noted. “The lessons learnt from the current crisis will contribute to strengthening (Japan’s) growth potential”.

                    BoJ will announce monetary policy decision again on October 29. Most analysts expect no change but some argue that BoJ could extend the time frame of the pandemic measures beyond next March. Also, there might be a slight downward revision in growth outlook to reflect that the world is still facing risks of returning to lockdown.

                    Eurozone PMI composite dropped to 66-month low, both the manufacturing and service close to stagnation

                      Eurozone PMI manufacturing dropped to 50.5 in January, down from 51.4, missed expectation of 51.3. That’s the lowest in 50 months. PMI services dropped to 50.8, down from 51.2, missed expectation of 51.5. That’s the lowest in 65 months. PMI composite dropped to 50.7, down from 51.1. That’s the lowest in 66 months.

                      Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

                      “The Eurozone economy slipped closer to stall speed in January, with companies reporting the first drop in demand for over four years. The disappointing survey data indicate that GDP is rising at a quarterly rate of just 0.1%.

                      “Both the manufacturing and service sectors are close to stagnation, highlighting the broad-based nature of the current slowdown. Ongoing auto sector weakness, Brexit worries, trade wars and the protests in France were again widely cited as factors dampening growth, but the survey responses indicate that a deeper malaise has set in at the start of the year. Companies are concerned about a wider economic slowdown gathering momentum, with rising political and economic uncertainty increasingly affecting risk appetite and demand.

                      “The ‘yellow vest’ protests led to the steepest downturn in the French economy since November 2014, consistent with GDP falling in the first quarter if these levels continue in coming months. But German businesses are also reporting their toughest spell for four years, led by the manufacturing sector slipping into decline for the first time since 2014, in turn reflecting the largest drop in exports for six years.

                      “The survey’s output and price gauges have both now fallen into territory more associated with the ECB loosening rather than tightening policy, raising pressure on the central bank to acknowledge that downside risks to the outlook now predominate.”

                      Full release here.

                      China’s export shrank for 4th straight month in Nov, trade surplus narrowed to USD 38.7B

                        In November, in USD terms, China’s exports dropped -1.1% yoy, below expectation of 1.0% yoy growth. Imports rose 0.3% yoy versus expectation of -1.8% yoy fall. Trade surplus narrowed to USD 38.7B, down from USD 42.8B and missed expectation of USD 44.5B.

                        As the 17-month trade war with US drags on, it was indeed the fourth consecutive of contraction in exports. On the other hand, the surprised growth in imports argued that the government’s stimulus might be in play in supporting domestic demand.

                        The upcoming Sunday, is the “natural deadline” for the phase one US-China trade deal. If nothing happens between now an then, a new round of tariffs on USD 156B of essentially all untaxed Chinese imports will take effect. US President Donald Trump said last week that talks were “moving right along”. Yet, he didn’t object to the idea of waiting until after 2020 election to seal the deal.

                        Canada CPI slowed to 7% yoy in Aug

                          Canada CPI dropped -0.3% mom in August, below expectation of -0.1% mom. That’s the largest monthly decline since early months of the pandemic.

                          For the 12-month period, CPI slowed from 7.6% yoy to 7.0% yoy, below expectation of 7.3% yoy. That’s also the second consecutive slowdown in the year-over-year rate, largely driven by lower gasoline prices. CPI excluding gasoline slowed from 6.6% yoy to 6.3% yoy, first deceleration since June 2021.

                          CPI common rose from 5.5% yoy to 5.7% yoy, above expectation of 5.6% yoy. CPI median dropped from 5.0% yoy to 4.8% yoy, below expectation of 5.1% yoy. CPI trimmed dropped from 5.4% yoy to 5.2% yoy, below expectation of 5.5% yoy.

                          Full release here.

                          Gold selloff accelerates, corrective rise from 1160.36 likely completed

                            Gold drops to as low as 1215.57 so far today, breaking 1219.90 support firmly. The development suggests rejection by 38.2% retracement of 1365.24 to 1160.36 at 1238.62, despite brief breach. And it’s in line with our view that rebound from 1160.36 is a correction only.

                            Immediate focus is on 55 day EMA (now at 1215.20). Sustained break will pave the way to retest 1160.36 low. In case of another recovery, we’d expect strong resistance from 1238.62 fibonacci level to limit upside again. Eventually, the down trend from 1365.24 is expected to extend through 1160.36 after the corrective pattern from 1160.36 completes.

                            UK PMI services rose to 50.0, overall PMIs suggest -0.1% GDP contraction

                              UK PMI Services rose to 50.0 in October, up from 49.5 and beat expectation of 49.6. It’s now back at 50.0 no-change market. However, new business falls for second month running. Expectations pick up slightly but remain subdued. All Sector PMI rose to 49.5, up from 48.8, but stayed below 50.

                              Chris Williamson, Chief Business Economist at IHS Markit, which compiles the survey:

                              “The UK PMI surveys collectively indicated a further overall decline in private sector output in October. Contractions have now been recorded in four of the past five months, marking the worst spell since 2009 during the global financial crisis.

                              “The seasonally adjusted IHS Markit/CIPS ‘all-sector’ Output Index rose from 48.8 in September to 49.5 in October, signalling a weaker rate of contraction, but the volume of new business fell at a pace similar to that seen in September.

                              “The October reading is historically consistent with GDP declining at a quarterly rate of 0.1%, similar to the pace of contraction in GDP signalled by the surveys in the third quarter. While official data may indicate more robust growth in the third quarter, the PMI warns that some of this could merely reflect a pay-back from a steeper decline than signalled by the surveys in the second quarter, and that the underlying business trend remains one of stagnation at best.”

                              Full release here.

                              Australia retail sales rose 2.4% in June

                                Preliminary data from Australia showed retail sales rose 2.4% mom in June, slowed from May’s 16.9% mom rise. Rises in Cafes, restaurants and takeaway food services exceeded 20% mom for the second consecutive month, but will remain -17% below the levels of June 2019, while Clothing, footwear and personal accessory retailing rose around 19% mom, remaining -6% below June 2019 levels.

                                There was also some evidence of stockpiling at the end of June too, most evident in Victoria, which is now back in lockdown as coronavirus cases rose to new high.

                                Full release here.

                                EU- Japan free trade agreement will create a trade zone of 1/3 world GDP

                                  More on the EU-Japan summit in Tokyo today.

                                  Main results

                                  EU and Japanese leaders signed two landmark agreements to increase their cooperation at the 25th EU-Japan summit:

                                  1) The EU-Japan free trade agreement will remove 99% of tariffs paid by EU companies exporting to Japan. It sends a clear message that the EU and Japan stand together against protectionism.

                                  2) The EU-Japan strategic partnership agreement will boost cooperation between both sides on a wide range of issues beyond trade, such as:

                                  • security and defence
                                  • energy and climate
                                  • people-to-people exchanges

                                  On trade

                                  Leaders signed the EU-Japan free trade agreement (FTA), the largest trade deal ever negotiated by the EU. It will create a trade zone covering 600 million people and nearly a third of global GDP.

                                  Once fully implemented, the free trade agreement will remove most of the duties that EU companies pay annually to export to Japan. It will also eliminate several regulatory barriers.

                                  In addition, both sides reaffirmed their commitment to fight protectionism and to defend the rules-based international trading system. They committed to modernise the World Trade Organisation in line with the conclusions of the Charlevoix G7 Summit.

                                  On cooperation

                                  The EU-Japan strategic partnership agreement was also signed at the summit. This agreement will take the EU’s longstanding partnership with Japan to a new level, with deeper and more strategic cooperation:

                                  Both sides reaffirmed their strong commitment to implement the Paris agreement on climate change by focussing on emission reduction and improving energy efficiency.

                                  Leaders also welcomed the conclusion of the talks on an adequate level of data protection by the EU and Japan. This should create the world’s largest area of safe data transfers with a high level of data protection.

                                  On foreign and security policy

                                  EU and Japanese leaders discussed a range of regional and international issues, including the denuclearisation of the Korean Peninsula:

                                  Both sides also reiterated their support to the Iran nuclear deal (JCPOA) as well as to Ukrainian sovereignty, independence and territorial integrity.

                                  More information here.

                                  Canada employment dropped -30.6k in Jul, unemployment rate unchanged at 4.9%

                                    Canada employment dropped -30.6k in July, much worse than expectation of 25.0k growth. Services-producing jobs dropped -53k or -0.3% while goods-producing jobs rose 23k or 0.6%.

                                    Unemployment rate was unchanged at 4.9%, below expectation of 5.0%, but matched the historic low reached in June. Total hours worked were down -0.5%. Average hourly wages was up 5.2% yoy.

                                    Full release here.

                                    US non-farm payroll grew 273k, wage growth matched expectations

                                      US non-farm payrolls rose 273k in February, well above expectation of 178k. Unemployment rate dropped to 3.5%, down from 3.6%, as it continues to gyrate between 3.5-3.6% for the past six months. Participation rate remained unchanged at 63.4%. Average hourly earnings rose 0.3% mom, matched expectations. Also from the US, trade deficit narrowed to USD -45.3B in January versus expectation of USD -48.8B.

                                      Australia retail sales dropped -4.2% mom in Dec, Victoria down -7%

                                        Australia retail sales dropped -4.2% mom in December, much worse than expectation of -1.5% mom. Over than year, sales rose 9.4% yoy. Victoria led the falls by state, down -7% following a 22% rise in November, while New South Wales fell -5% as localized restrictions in Sydney impacted turnover. All states and territories, except for the Northern Territory, fell this month.

                                        Full release here.

                                        Fed Bostic: Recent data consistent with one more rate hike

                                          In a recent interview with Reuters, Atlanta Fed President Raphael Bostic discussed the implications of this week’s slowing consumer price increases and falling producer price inflation. According to Bostic, these developments are in line with the possibility of one more rate hike, as momentum suggests a trajectory towards 2% inflation.

                                          Bostic expressed that the aggressive rate increases over the past year are just beginning to “bite” the economy, justifying a pause after one more rate increase. This pause would allow for an assessment of the economy and inflation’s progression while aiming to minimize the impact on growth and employment.

                                          Despite the current economic landscape, Bostic remains optimistic, believing that unemployment won’t need to surpass 4% and that the economy can continue to grow, albeit at a slower pace. He attributes the persistent consumer demand and robust hiring to the economic distortions caused by the trillions of dollars in government support provided during the COVID-19 pandemic.