Fri, Aug 23, 2019 @ 15:30 GMT

China MOFCOM confirms USTR Lighthizer’s visit on Mar 28-29

    China Commerce Ministry spokesman Gao Feng confirmed in a regular press briefing that US delegation is traveling to Beijing next week to continue trade negotiation. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will visit China on March 28-29. After that Vice Premier Liu He will travel to the Washington in early April for more talks.

    Gao also noted that the decline is import and expect during the first two months of the year was mainly due to Chinese New Year. He noted the typical pattern of “concentrated export pre CNG, concentrated import post CNY”. Though, he also said trade rebounded strongly during the first half of March. And, Q1 trade will remain stability.

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    Swiss KOF Economic Barometer rose to 105.3, “tiny” but “broadly visible” improvements

      Swiss KOF Economic Barometer rose to 105.3 in April, up from 105.1 but missed expectation of 106.0.

      KOF noted in the release that “although the Barometer currently does not reach the positive values seen at the turn of the year 2017/2018, the current value is clearly above long-term average.” And, “the Swiss economic outlook remains favourable.”

      Also KOF said that even though the 0.2 pts rise was “tiny”, “it is broadly visible in the economic sectors included.” It noted that “the indicator bundles for manufacturing, accommodation and food service activities, banking, construction and consumption all showed slight increases in April.”

      However, “an exception is the indicator set for export prospects; it deteriorated in April.”

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      CHF and JPY firmer as German 10-yr yield turns negative, US 10-yr yield dives

        Swiss Franc and Yen are both strong today, helped by decline in treasury yields. At the time of writing, German 10-year bund yield is down -0.0555 at -0.011. It turned negative for the first time since April 12.

        US 10-yer yield is down -0.050 at 2.520. More importantly, today’s sharp fall suggests that TNX is rejected by 55 day EMA, as well as long term channel support turned resistance. Focus would be back on 2.463 support for the near term. Strong support from this level will retain near term bullish, for at least another rebound to 2.759 resistance. However, decisive break of 2.463 will likely resume larger decline from 3.248 through 2.356 low.

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        Into US session: Canadian higher on oil rebound, Yen softer in consolidation

          Selloff in risk markets halted today but trading has been rather subdued. Following general recovery in European stocks and yields, except Italy, Yen and Swiss Franc trade mildly lower. As usual, Dollar move in tandem with the two when trade war is the main theme. Canadian Dollar is the strongest one for today, following rebound in oil prices. Euro follows as second strongest so far.

          The hard line rhetorics from China are getting a bit boring as they just repeated what have been said. Bloomberg reported that China has halted the goodwill soy bean purchases from US already but that’s hardly a surprise. China has been claiming that impact of trade war is manageable. But figures speak louder than words. We’ll finally see how sentiments turned with PMIs to be released in next Asian session.

          In Europe, currently:

          • FTSE is up 0.40%.
          • DAX is up 0.26%.
          • CAC is up 0.30%.
          • German 10-year yield is up 0.0062 at -0.169.

          Earlier in Asia:

          • Nikkei dropped -0.29%.
          • Hong Kong HSI dropped -0.44%.
          • China Shanghai SSE dropped -0.31% to 2905.81, holding on to 2900 handle.
          • Singapore Strait Times dropped -0.64%.
          • Japan 10-year JGB yield rose 0.0114 to -0.081.
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          BoE Saunders: Rates may need to go up a little faster

            BoE policymaker Michael Saunders warned the markets that their the central bank’s tightening path could be faster then they expected. Saunders is known hawk that started voting for a hike since March meeting. He refers to market pricing of a little bit more than one hike over the next twelve months, and said “if the economy plays out as I expect, it may be that rates need to go up a little faster than that.”

            He also laid out his expectations for the developments in UK. On the condition that “Brexit unfolding in sort of a smooth and gradual way”, “the economy will continue to grow at around the pace we have seen over the last couple of years … (I) expect the jobless rate to fall a little further; and pay growth will pick up a bit.”

            Against that background, Saunders believed that “rates might need to rise a little faster”. Still he emphasized that “the general picture is still limited and gradual, not too far and not too fast.”

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            Mid-US update: Dollar can’t ride on strong ISM, US yield surges at the long ened

              Dollar remains the strongest one today , followed by Yen and then Sterling. On the other hand, New Zealand Dollar is the weakest one, followed by Canadian Dollar and then Swiss Franc. The greenback attempted to extend recent rise after super strong ISM manufacturing index. However, firstly, EUR/USD managed to rebound after touching 1.529 minor support. USD/JPY showed no reaction and stays in range of 110.68/111.82. USD/CHF is also held blow 0.9775 minor resistance. For now, there is no confirmation of underlying strength in the greenback yet. More is needed to trigger a decisive rally, possibly NFP later this week.

              In other markets, a notable development in the surge in US treasury yields. At the time of writing, 30 year yield is up 0.051, 10 year yield up 0.044, and five year yield is up 0.035. That is, yields rise more in the long end. That’s a development that Fed hawk would like to see. in the stock markets, US indices are in red with DOW down -0.34%, S&P 500 down -0.4% and NASDAQ down -0.56%. Declines in the European markets were much more serious, with CAC down -1.13%, DAX down -1.1% and FTSE down -0.62%.

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              South Korean Moon approved the result of Kim-Trump summit

                South Korean President Moon Jae-in met with US Secretary of State Mike Pompeo today and gave a nod to what the US has done in the Kim-Trump summit.

                Moon said that “there have been many analyses on the outcome of the summit but I think what’s most important was that the people of the world, including those in the United States, Japan and Koreans, have all been able to escape the threat of war, nuclear weapons and missiles.”

                Pompeo said that “we’re hopeful that we can achieve that in the 2-1/2 years,” referring the major nuclear disarmament in North Korea. And he tweaked the meaning of “complete” and said it “encompasses verifiable and irreversible” denuclearization. But no one asked him when the word “complete” started including those extra meaning.

                In Japan, the Yomiuri newspaper reported that Prime Minister Shinzo Abe is arranging a meeting with North Korean Leader Kim Jong-un, possibly in Pyongyang around August.

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                USTR Lighthizer: A breakthrough in NAFTA talks in the next several days

                  US Trade Representative Robert Lighthizer said yesterday that he’s “hopeful” that there will be a “breakthrough” in NAFTA talks with Mexico in the “next several days”. But he didn’t offer any details. It’s reported that the two sides have largely agreed on the new rules regarding auto trade. And Lighthizer appeared to be willing to ease on the request of sunset clause in exchange for some concessions from Mexico.

                  On the other hand, Mexican Economy Minister Ildefonso Guajardo urged that “everybody has got to show some flexibility. And he added that “we have everything on the table, there are no preconditions and we’ll see at the end how the whole thing falls into place.” Also, Guajardo said the sunset clause will be among the “very last times” to be dealt with.

                  While there appears to be some progresses, it should be noted that Canada is not involved in the bilateral talks between the US and Mexico. And is unsure how Canada would be reengaged.

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                  Fed Daly favors gradual pace of monetary policy normalization

                    New San Francisco Fed President Mary Daly expressed her support to continued gradual rate hikes in her first remarks as monetary policy maker. She said the labor market is “booming” and inflation at the at 2% target. And, she explained that Fed might not want to go too slowly on rates and risking falling behind the curve. Her approach is consistent with Fed’s and she favors “a gradual pace of normalization.”

                    Daly also used the analogy that “you put a toe in the water and see how much of a ripple it makes”. And, “the FOMC just raised rates in September, and we’re now in the watching phase — what’s going on in the economy, how does it react.”

                    She also tried to talk down last week’s stock market crash. She said “a correction in the stock market where it comes down a little bit is not necessarily a worrisome thing.”

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                    US retail sales rose 0.4%, ex-auto sales rose 0.4%, far above expectations

                      US retail sales rose 0.4% mom in June, above expectation of 0.1%. Ex-auto sales also rose 0.4%, above expectation of 0.1%. Also from US, import price index dropped -0.9% mom in June, worse than expectation of -0.7% mom. From Canada, international securities transactions rose CAD 10.2B in May, above expectation of USD 5.0B.

                      Dollar rises notably after the release. EUR/USD is possibly now heading back to 1.1193 temporary low.

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                      New Zealand recorded highest monthly trade deficit on record

                        New Zealand trade deficit widened sharply to NZD -1.484m in August versus expectation of NZD -930m. That’s also the largest monthly deficit on record.

                        Exports rose 9.9% yoy to NZD 4.1B. However, imports jumped sharply by 14% yoy to NZD 5.5B, the third highest total on record. It’s also the fourth straight month of imports above NZD 5B.

                        Exports to China rose 20% yoy to NZD 870M, to EU rose 12% to NZD 462M, to USA rose 14% yoy to NZD 371m and to Japan rose 28% yoy to NZD 302m. However, export to Australia was down -7.4% yoy to NZD 791m.

                        Petroleum and products led the imports rise, up NZD 186m (50%) to NZD 563m.

                        Full release here.

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                        UK passed non binding vote to reject no-deal Brexit

                          Sterling spiked higher after UK Commons passed yesterday a non-binding motion to reject no-deal Brexit under any circumstances. But the Pound quickly retreated again as focus will turn to vote today on whether to ask the EU for Article 50 extension. Also, question is on whether there would be a short extension of a long extension.

                          The final motion was voted for by 321 to 278, a majority of 43. The motion reads: “This House rejects the United Kingdom leaving the European Union without a Withdrawal Agreement and a Framework for the Future Relationship”.

                          The original motion was changed after the Spelman/Dromey amendment was narrowly passed by 312 to 308, just a mere majority of 4. The original motion reads: “This House declines to approve leaving the European Union without a Withdrawal Agreement and a Framework for the Future Relationship on 29 March 2019; and notes that leaving without a deal remains the default in UK and EU law unless this House and the EU ratify an agreement.”

                          Prime Minister Theresa May, however insisted that the votes do not change the fundamental problem. And the only way to rule out no-deal is to vote for a deal. She also warned that if MPs do not vote for a Brexit deal soon, she will have to seek a long article 50 extension, which would mean the UK having to take party in the European elections.

                          A European Commission spokesperson quickly responded:: “There are only two ways to leave the EU: with or without a deal. The EU is prepared for both. To take no deal off the table, it is not enough to vote against no deal – you have to agree to a deal. We have agreed a deal with the prime minister and the EU is ready to sign it.”

                          GBP breached recent resistance briefly but settles back in established range quickly.

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                          New Zealand Treasury: Consumption and business confidence pose downside risks to growth

                            New Zealand Treasury’s Monthly Economic Data report noted that the 0.5% real GDP growth in Q1 was below the forecast set in the Budget Economic and Fiscal Update (BEFU). Terms of trade fell by -6.7% due to  a slight fall in export prices and an increase in import prices, contributing to -0.4% decline in nominal GDP.

                            Consumption indicators were soft. Business confidence deteriorated further in June, hitting post-election lows. Combined they suggest “there is a little less momentum in the economy and poses some downside risk to our BEFU GDP forecast in the near-term.”

                            The report also warned that “risks around trade continue to escalate with tariffs affecting a range of trade between the US and China, and a growing number of other countries.”

                            Full report here.

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                            Into US session: Yen & Dollar weakest on trade optimism

                              Entering into US session, Yen and Dollar remain the weakest major currencies today, on optimism that US and China could deliver a draft trade memorandum of understanding this week. But it should be noted that while Asian stocks closed sharply higher, European stocks are just mixed. Investors are not overwhelmingly convinced. With US on President’s Day holiday, the markets could turn quiet for the result of the day.

                              Staying in the currency markets, Euro and Sterling are the strongest one so far. With a lack of economic data, Euro’s strength is merely seen a technical rebound, paring recent losses. Bundesbank suggested that German economy will remain subdued in H1. With the assumption of normalization in the car industry, there is prospect of a rebound. But then, there is risk of US auto tariffs. Any, Euro will first look into ECB meetings and PMIs this week first. Sterling also look into employment data tomorrow.

                              In Europe, currently:

                              • FTSE is down -0.11%.
                              • DAX is down -0.22%.
                              • CAC is up 0.14%.
                              • German 10-year yield is up 0.0111 at 0.117.

                              Earlier in Asia:

                              • Nikkei rose 1.82%.
                              • Hong Kong HSI rose 1.60%.
                              • China Shanghai SSE rose 2.68%.
                              • Singapore Strait Times rose 0.81%.
                              • Japan 10-year JGB yield rose 0.002 to -0.019.
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                              EU kept 2019 growth forecasts unchanged, downgraded 2020 slightly

                                Comparing to Spring projections, European Commission kept 2019 Eurozone growth forecast unchanged at 1.2%. But for 2020, growth projection was lowered slightly from 1.5% to 1.4%. For EU28, 2019 and 2020 growth forecasts were kept unchanged at 1.4% and 1.6% respectively.

                                On prices, Eurozone 2019 inflation forecast was lowered from 1.4% to 1.3%. Similarly, 2020 inflation projection was lowered from 1.4% to 1.3% too. For EU28, 2019 and 2020 inflation forecasts were lowered to 1.5% and 1.6%, down from 1.6% and 1.7%.

                                Looking at some major countries, Germany forecast was kept unchanged at 0.5% in 2019, downgraded from 1.5% to 1.4% in 2020. France growth forecast was kept unchanged at 1.3% in 2019, downgraded from 1.5% to 1.4% in 2020. Italy growth forecasts were held unchanged at 0.1% in 2019 and 0.7% in 2020.

                                European Commission Vice President Valdis Dombrovskis said: “The resilience of our economies is being tested by persisting manufacturing weakness stemming from trade tensions and policy uncertainty. On the domestic side, a “no deal” Brexit remains a major source of risk.”

                                Commissioner Pierre Moscovici urged: “Given the numerous risks to the outlook, we must intensify efforts to further strengthen the resilience of our economies and of the euro area as a whole.”

                                Full release here.

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                                US initial jobless claims rose 3k to 215k

                                  US initial jobless claims rose 3k to 215k in the week ending May 25, slightly above expectation of 214k. Four-week moving average of initial claims dropped -3.75k to 216.75k.

                                  Continuing claims dropped -26k to 1.657M in the week ending May 18. Four-week moving average of continuing claims dropped -3.5k to 1.673M.

                                  Full release here.

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                                  Trump said China devaluating Yuan while PBoC is lifting it

                                    Trump complained in a Bloomberg interview that China is trying to devalue it’s currency, and his administration is studying whether to name China as a currency manipulator. Additionally, he’s looking into the “formula” for deciding who’s doing currency manipulation. Separately, it’s reported that Trump is ready to impose 25% tariffs on USD 200B in Chinese goods as soon as public hearing ends next week. And he told Bloomberg that, “we are a much stronger country,” and “nobody’s waiting us out. Our country is stronger than it’s ever been financially.”

                                    At the same time, the People’s Bank of China set the reference rate stronger than estimates for 17 days in a row, to slow the Yuan’s decline. The currency’s fixing was 0.1% stronger than the average forecast in a Bloomberg survey. It’s a consensus among traders and analysts that the market doesn’t want to bet against PBoC for now, as the central bank and the government are ready to deploy further “manipulative” policies to support Yuan’s exchange rate and stabilize it.

                                    Trump is either living in an alternative world, or his compulsive lying is again in effect.

                                    Btw, here a report of a former top treasury official blasting Trump as woefully wide of the mark on Yuan manipulation.

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                                    North Korea quiet on meeting with US

                                      North Korea leader Kim Jong-un is set to meet with Trump by the end on May on the topic of denuclearization. It’s reported that Kim would want to have a peace treaty with the US. But other than that, the country is so far very quiet on the topic. South Korea’s Ministry of Unification spokesman Baik Tae-hyun said today that “we have not seen nor received an official response from the North Korean regime regarding the North Korea-U.S. summit.” And, “I feel they’re approaching this matter with caution and they need time to organize their stance.”

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                                      SNB Jordan: Swiss Franc and Yen appreciated as safe havens as US-China trade tensions escalated

                                        In the post meeting press conference, SNB Chairman Thomas Jordan noted that “when the trade dispute between the US and China escalated again in May, the Swiss franc and the Japanese yen appreciated” as safe havens. And, “in light of the high valuation of the franc and the fragility of the situation, our willingness to intervene remains necessary, as does the negative interest rate.

                                        Jordan also, noted decline in long term rates in US, Swiss and Eurozone since December meeting. And, “the global decline in long-term interest rates reflects the heightened risks. Inflation expectations in Swiss “declined slightly” but “remain within the range of 0% to 2% that we equate with price stability.”

                                        Full remarks here.

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                                        BoE revised down growth and inflation forecast, may only hike once through Q1 2022

                                          In BoE Quarterly Inflation Report, the overall economic projections are rather dovish with downgrade in growth and inflation forecasts. Unemployment rate projections were revised higher. Meanwhile, the projected Bank rate was also revised lower across the forecast horizon. It’s now suggested that BoE may only hike once, within the forecast horizon, possibly in 2020.

                                          Four-quarter GDP growth:

                                          • 1.5% in 2019 Q1, down from November forecast of 1.8%
                                          • 1.3% in 2020 Q1, down from 1.7%
                                          • 1.7% in 2021 Q1, unchanged
                                          • 2.0% in 2022 Q1, new

                                          CPI:

                                          • 1.8% in 2019 Q1, down from 2.2%.
                                          • 2.3% in 2020 Q1, down from 2.4%.
                                          • 2.1% in 2021 Q1, unchanged.
                                          • 2.1% in 2022 Q1.

                                          Unemployment rate:

                                          • 3.9% in 2019 Q1, unchanged.
                                          • 4.1% in 2020 Q1, up from 3.9%
                                          • 4.1% in 2021 Q1, up from 3.9%
                                          • 3.8% in 2022 Q1.

                                          Bank rate:

                                          • 0.7% in 2019 Q1, down from 0.8%.
                                          • 0.9% in 2020 Q1, down from 1.1%
                                          • 1.0% in 2021 Q1, down from 1.3%.
                                          • 1.1% in 2022 Q2, new

                                           

                                          Full Inflation Report here.

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