US, UK, France struck Assad’s chemical weapons facilities in one-time shot

    US, UK and France launched attack in Syria in retaliation for a chemical weapon attack outside Damascus by Bashar al-Assad’s regime. US Defence Secretary Jim Mattis said more than 100 missiles were fired, and struck three of Syria’s main chemical weapons facilities. Mattis also said that is a “one-time shot” to send a “very strong message” to Assad to “dissuade him, to deter him”. And no attack is planned for now. Russia’s Defence Ministry said the majority of missiles fired were intercepted by Syrian government air defence systems.

    Anatoly Antonov, Russia’s ambassador to the US responded by writing on Facebook that “Our worst apprehensions have come true. Our warnings have been left unheard.” And, “we warned that such actions will not be left without consequences.” He also condemned that “insulting the President of Russia is unacceptable and inadmissible” apparently referring to US President Donald Trump’s mention of Russian President Vladimir Putin is his speech.

    In Trump’s televised speech, he said “in 2013 President Putin and his government promised the world that they would guarantee the elimination of Syria’s chemical weapons. Assad’s recent attack and today’s response are the direct result of Russia’s failure to keep that promise. Russia must decide if it will continue down this dark path, or if it will join with civilized nations as a force for stability and peace.”

    US holds off tariff hike on EU, to start new negotiations instead

      The US held off from a threatened tariff hike on EU products regarding the 16-year Airbus subsidies dispute, and signal its willingness to go back to negotiation table. The amount of products subject to the tariffs are kept unchanged at USD 7.5B, with 15% rate for aircraft and 25% on for other products.

      “The EU and member states have not taken the actions necessary to come into compliance with WTO decisions,” Trade Representative Robert Lighthizer stated. “The United States, however, is committed to obtaining a long-term resolution to this dispute. Accordingly, the United States will begin a new process with the EU in an effort to reach an agreement that will remedy the conduct that harmed the U.S. aviation industry and workers and will ensure a level playing field for U.S. companies. ”

      “The Commission acknowledges the decision of the U.S. not to exacerbate the ongoing aircraft dispute by increasing tariffs on European products,” an EU official said in response. “The EU believes that both sides should now build on this decision and intensify their efforts to find a negotiated solution to the ongoing trade irritants.”

      Eurozone PMI services finalized at 47.9, Q3 GDP to contract -0.1%

        Eurozone is grappling with weakening economic indicators, as PMI Services for August (final) slipped to a 30-month low of 47.9, down from July’s reading of 50.9. Composite PMI, which combines services and manufacturing data, also sank to a 33-month low of 46.7, down from July’s 48.6.

        The fall in PMI scores was particularly evident in Germany (44.6) and France (46.0), which reported 39-month and 33-month lows, respectively. On the other hand, Ireland managed to score a 4-month high of 52.6, showing some resilience amid the general downturn.

        Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, provided a sobering analysis. “The disappointing numbers contributed to a downward revision of our GDP nowcast, which stands now at -0.1% for the third quarter,” he said. According to de la Rubia, the services sector, a stabilizer for Eurozone economy, has turned into a “drag”.

        Furthermore, he noted that input price increases have surprisingly accelerated, questioning the outlook for rapidly decreasing inflation. Employers are also becoming cautious about expanding their workforces, hinting that job cuts could be on the horizon.

        Full Eurozone PMI services release here.

        Fed’s Daly: Inflation hedge unnecessary, dismisses rate cuts notion

          San Francisco Fed President Mary Daly, in an interview with Germany’s Börsen-Zeitung newspaper, expressed confidence in the current state of monetary policy, stating that “policy is in a very good place” as Fed has “raised the key interest rate significantly.”

          She further mentioned, “We don’t need an insurance mentality now, where we hedge against rising inflation. We should simply be patient and remain vigilant.”

          Regarding future rate adjustments, Daly clarified, “I’m not thinking about rate cuts at all right now.” She emphasized her current focus on evaluating whether the current level of monetary tightening is sufficient to restore price stability.

          Daly also provided an optimistic view of the economy, noting, “Our inflation data are improving and our real economy has not stalled.” She added, “I don’t see a recession on the horizon at the moment.”

          EU Breton: Obviously we are expecting a recession this year

            EU’s internal market Commissioner Thierry Breton told BFM Business radio that due to the coronavirus pandemic “obviously we are expecting a recession during the year 2020.” “We are at war with the virus. An economic war.”

            He noted before before the crisis, EU were expectation around 1.4% growth for the whole continent. But, “now we expect a negative impact of between 2% and 2.5%”.

            US ISM non-manufacturing dropped to 53.9, sharp fall in production

              US ISM Non-Manufacturing Composite dropped to 53.9 in November, down from 54.7, missed expectation of 54.5. Looking at some details, production dropped sharply by -5.4 to just 51.6. However, new orders rose 1.5 to 57.1. Employment also rose 1.8 to 55.5.

              ISM’s Anthony Nieves said: “The non-manufacturing sector had a slight pullback in November. The respondents hope for a resolution on tariffs and continue to be hampered by constraints in labor resources.”

              Full release here.

              ECB President Lagarde speaks at EPC Thought Leadership Forum

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                Japan PMI manufacturing dropped to 51.8, underlying trend skewed to the downside

                  Japan PMI manufacturing dropped to 51.8 in November, down from 52.9 and missed expectation of 53.0. That’s also a two-year low.

                  Commenting on the Japanese Manufacturing PMI survey data, Joe Hayes, Economist at IHS Markit, which compiles the survey, said:

                  “October’s six-month peak seems to have been just a transitory month-to-month rebound following September’s weather-hit dip. The November PMI dropped to a two-year low as the rate of output growth weakened and new orders for goods declined for the first time since September 2016.

                  “The underlying trend appears to be skewed to the downside. Indeed, the fall in new orders is a worrying development as easing global growth momentum coupled with a weak domestic backdrop could spell further demand woes for Q4. In fact, survey data suggests that manufacturers have already begun to pare back expectations, as confidence fell for a sixth consecutive month.”

                  Full release here.

                  Australia PMI composite rose to 50.5, but rebound might lack legs forward

                    Australia PMI Manufacturing rose to 55.5 in September, up from 53.6, hitting a 29-month high. PMI Services also improved slightly to 50.0, up from 49.0. PMI Composite rose to 50.5, up from 49.4, back in expansion.

                    Bernard Aw, Principal Economist at IHS Markit, said: “The latest PMI data showed signs of stabilisation in Australia’s private sector business conditions during September, with activity and sales increasing marginally after falling in August amid tightening containment measures to contain a surge in new infection cases. However, other survey indicators suggest that the rebound may lack legs going forward. The absence of capacity pressure led to a further and sharper decline in workforce numbers, highlighting the prospect of rising unemployment.”

                    Full release here.

                    RBA kept cash rate at 0.25%, expand and extend term funding facility

                      RBA left cash rate unchanged at 0.25% as widely expected. The target for 3-year AGS was also kept at 0.25%. On the other hand, it decided to increase the size of the Term Funding Facility to around AUD 200B. Also, the access to facility will also be extended. It also pledged to maintain “highly accommodative settings as long as is required”. It “will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band.”

                      On the economy, RBA reiterated that the downside is “not as severe as earlier expected”. But recovery is “both uneven and bumpy” with outbreak in Victoria having a “major effect” of the state’s economy. Unemployment and underemployment “remain high” and it’s “likely to be some months” before a meaningful recovery in labor market takes place. Wages and price prices pressures also “remain subdued” and “likely to continue for some time”.

                      RBA also acknowledged that “US dollar has depreciated against most currencies over recent months. Given this and higher commodity prices, the Australian dollar has appreciated, to be around its highest level in nearly two years.”

                      Full statement here.

                      Downside potential limited in Bitcoin after breaking 30k, recovery should follow soon

                        Bitcoin’s freefall intensifiies again today after China’s central bank warned against engagement of virtural currency transactions by businesses in the country. A document read, “recently, crypto currency prices have skyrocketed and plummeted, and speculative trading of cryptocurrency has rebounded, seriously infringing on the safety of people’s property and disrupting the normal economic and financial order.”

                        Bitcoin dived through cluster support at 41964 (38.2% retracement of 4000 to 64828 at 41591) today, and hit as low as 29563. It’s now trying to draw support from 28989 support, which is in proximity to 61.8% retracement at 27236. We’d believe that downside potential is limited for now. A corrective recovery should following soon, but there is little prospect of break through 47112 resistance turned support any time soon. We’ll take note of the structure of the recovery to gauge what the next move would be.

                        US CPI surged to 5.4% yoy in June, core CPI jumped to 4.5% yoy

                          US CPI rose 0.9% mom in June, well above expectation of 0.5% mom. That’s the largest monthly rise since June 2008. CPI core rose 0.9% mom, also above expectation of 0.5% mom.

                          Over the last 12 months, headline CPI accelerated to 5.4% yoy, up from 4.0% yoy, above expectation of 4.9% yoy. That’s the highest annual rate since August 2008. CPI core jumped to 4.5% yoy, up from 3.8% yoy, above expectation of 4.0% yoy.

                          Full release here.

                          BoE Tenreyro: QT won’t have material impact on economy

                            BoE MPC member Silvana Tenreyro said “I wouldn’t expect the effect of the unwind, of QT (quantitative tightening), to have a material impact on the economy. So far our experience with the beginning of the shrinking of the portfolio is consistent with that.”

                            “We have been shocked by the biggest shock imaginable. Not only the pandemic but the build up to the war, the war itself, new waves of Covid affecting supply. These are called shocks because they are not anticipated. They are deviations from the model,” she noted.

                            “Even if it would have been possible to predict the evolution of the pandemic, the war and so on I would not have thought we would have struck a materially different policy. Policy has to address the trade off.”

                            Eurozone PMI composite finalized at 50.6, suggests just 0.1% GDP growth in Q4

                              Eurozone PMI Services was finalized at 51.9 in November, down from October’s 52.2. PMI Composite was finalized at 50.6, unchanged from last month’s reading. Looking at some member states, Germany PMI Composite was finalized at 49.4, hitting a 2-month high but stayed below 50. Italy PMI Composite dropped to 49.6, 7-month low. France PMI Composite dipped to 2-month low of 52.1 but stayed comfortably above 50.

                              Chris Williamson, Chief Business Economist at IHS Markit said:

                              “The final eurozone PMI for November came in slightly ahead of the earlier flash estimate but still indicates a near-stagnant economy. The survey data are indicating GDP growth of just 0.1% in the fourth quarter, with manufacturing continuing to act as a major drag. Worryingly, the service sector is also on course for its weakest quarterly expansion for five years, hinting strongly that the slowdown continues to spread.

                              “New orders have not shown any growth since August, underscoring the recent weakness of demand, with sharply declining orders for manufactured goods accompanied by substantially weaker gains of new business into the service sector. Expectations are also among the lowest since the tail end of the sovereign debt crisis in 2013, as firms worry about trade wars, Brexit and slowing economic growth both at home and globally.

                              “The near-stalling of the economy has been accompanied by some of the weakest price pressures we’ve seen in recent years, which threatens to keep inflation well below the ECB’s target in coming months and adds to the likelihood of further policy stimulus early next year.”

                              Full release here.

                              WTI breaks near term support, correction could target 34.46 eventually

                                WTI crude oil’s decline today and break of 41.13 support should confirm short term topping at 43.50. That came after rejection by 55 week EMA (now at 43.78). Bearish divergence condition is also seen in daily MACD. Considering these two factors, the current corrective fall should be relatively sizeable. Sustained trading below 55 day EMA (now at 40.45) should affirm this view. WTI should have a test on 34.46 support before completing the pull back.

                                ECB Makhlouf: Ukraine war likely to have material impact on economic activity and inflation

                                  ECB Governing Council member Gabriel Makhlouf said today, “as for the economic consequences of the war in Ukraine, it is too early to give a definitive view. It clearly represents a significant challenge to the outlook for inflation and growth and adds new uncertainty to what had started to become a less uncertain picture.”

                                  “The war is likely to have a material impact on economic activity and inflation in the euro area. But in some countries, including Ireland, the effects will be more indirect than for others although that does not mean they will be insignificant,” he added.

                                  BoJ Kuroda: Economy in increasingly severe situation, likely to remain the case

                                    In the Semiannual Report on Currency and Monetary Control, BoJ Governor Haruhiko Kuroda said the “powerful monetary easing measures” will support economic and financial activities, together with the government’s coronavirus measures. He also reiterated the pledge to monitor the coronavirus impacts and BoJ “will not hesitate to take additional easing measures if necessary.”

                                    He noted again that the economy has been in an “increasingly severe situation” and is “likely to remain the case”. But thereafter. the economy is “likely to improve” supported by accommodative financial conditions and government’s measures, as well as through the “expected materialization of pent-up demand and a projected recovery in production from the decline brought about by the spread of COVID-19.”

                                    Still, outlook is “extremely unclear” depending on ” the timing of the spread of COVID-19 subsiding and on the magnitude of the impact on domestic and overseas economies”. Risks are “skewed to the downside.

                                    Kuroda’s full statement here.

                                    Fed Bostic: Let data shows if 25bps or 50bps hike is appropriate

                                      Atlanta Federal Reserve President Raphael Bostic said today on CNBC, “in terms of hikes for the interest rates, right now I have three forecast for this year. I’m leaning a little towards four, but we’re going to have to see how the economy responds as we take our first steps through the first part of this year.”

                                      “For me, I’m thinking very much of a 25-basis-point perspective,” he said. “But I want everyone to understand that every option is on the table, and I don’t want people to have the view that we’re locked into a particular trajectory in terms of how our rates have to move over time. We’re really going to let the data show us to what extent a 50 basis point or 25 basis point move is appropriate.”

                                      Australia retail sales rose 1.8% mom in Jan, above expectation

                                        Australia retail sales rose 1.8% mom in January, above expectation of 0.4% mom.

                                        Director of Quarterly Economy Wide Statistics, Ben James said: “The emergence of the Omicron variant and rising COVID-19 case numbers, combined with an absence of mandated lockdowns has resulted in a range of different consumer behaviours. We have seen the type of spending previously associated with lockdowns occurring simultaneously with those associated with the easing of lockdown conditions.”

                                        “This had led to variations across the industries with Food retailing recording a rise in sales consistent with previous COVID-19 outbreaks as consumers exercise caution amidst surging case numbers. However, the absence of lockdowns meant that other discretionary industries which would usually see a fall during the pandemic have recorded mixed results.”

                                        Full release here.

                                        Asian update: GBP lifted by Brexit extension, AUD digests gains, EUR and USD mixed

                                          Asian markets are in mild risk aversion today as dragged down by pull back in Chinese and Hong Kong stocks. But such sentiments is not much reflected in the currency markets, except that Australian Dollar retreats broadly after this week’s rally run. Sterling is one of the strongest for today as UK was granted “medium” flexible Brexit delay till October 31. But still it’s unsure how the government could achieve the needed consensus in the parliament to get a withdrawal agreement through. More time might just mean more torture and fatigue.

                                          Dollar is mixed for now after FOMC minutes solidified Fed’s patience stance. It’s a consensus among policy makers Fed will stand pat for the rest of the year. Inflation is close to target without little sign of heating up. Fed indeed has a lot of room to keep interest rates at current level for longer. At the same time, several members noted their openness to rate cut should development warrants it. It could depend on how the risks play out. Euro is mixed too. The dovish ECB meeting yesterday triggered some knee jerk reactions. But the common currency quickly found its footing.

                                          For the week, Aussie is the far the strongest one, followed by Yen. While risk aversion is not apparent, both seem to be lifted by falling treasury yields elsewhere. US 10-year yield is back at 2.477 while Germany 10-year yield is negative. There was no extra bearish development in Australia to push RBA to deliver a rate cut yet. Swiss Franc is the weakest one, thanks to rally in oil prices. Dollar follows as second weakest.

                                          Released in Asian session:

                                          • UK RICS house price balance improved to -24 in March, above expectation of -29.
                                          • Japan M2 rose 2.4% yoy in March, matched expectations.
                                          • Australian consumer inflation expectation slowed to 3.9% in April, down from 4.1%.
                                          • China CPI accelerated to 2.3% yoy in March, matched expectations. PPI also rose to 0.4% yoy, matched expectations.

                                          Looking ahead: Germany CPI, Canada new housing price index, US PPI and jobless claims will be featured. A number of Fed officials will speak today, including Clarida, Williams, Bullard and Bowman.

                                          In Asia, currently:

                                          • Nikkei is down -0.12%.
                                          • Hong Kong HSI is down -0.96%.
                                          • China Shanghai SSE is down -0.95%.
                                          • Singapore Strait Times is up 0.23%.
                                          • Japan 10-year JGB yield is down -0.0044.

                                          Overnight:

                                          • DOW rose 0.03%.
                                          • S&P 500 rose 0.35%.
                                          • NASDAQ rose 0.69%.
                                          • 10-year yield dropped -0.022 to 2.477.