Mon, Feb 18, 2019 @ 16:22 GMT

China MOFCOM: Consumption faces more challenges in 2019 after slowdown last year

    Chinese Commerce Department’s Deputy Director of the Market Operation Wang Bin admitted that consumption growth in 2018 has slowed down. In particular, growth in products related to automobiles and housing have been weak. Additionally, there will be more challenges for consumption growth in 2019 than expected.

    Wang added that there will be measures to boost consumption in five aspects. Those include polices on urban consumptions, rural consumptions, service consumptions, product circulations and consumption environments.

    MOFCOM’s briefing here (in simplified Chinese).

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    Fed Kaplan: Inflation to stay around target next year and fiscal stimulus fades

      Dallas Fed President Robert Kaplan said Fed is reaching its dual mandate of price stability and full employment. He saw strong GDP growth this year. Nonetheless, he also pointed to recent surged in 10-year Treasury yield and said it’s “telling me that prospects for future U.S. growth are somewhat sluggish (and) that outward growth is looking a little more uncertain.”

      Besides also expected inflation to just stay around Fed’s target as the impact of fiscal stimulus fades in 2019. He added “to the extent that (inflation) gets above our target, our base case is that that move will be more gradual than something more sudden or substantial.”

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      RBA Debelle discussed low inflation in a speech

        RBA Deputy Governor Guy Debelle discussed “Low Inflation” in a speech today. In short, he attributed low inflation to “include increased competition in the retail sector, historically low rental growth, the slow pace of wages growth and developments in some administered prices”. Utility prices boosted inflation for “a number of years” but are expected to reduce in the period ahead.

        Debelle reiterated RBA’s forecast of a temporarily slow down in inflation in Q3. But beyond the September quarter, “we continue to expect inflation to be around 2¼ per cent over the next couple of years as above-trend GDP growth reduces spare capacity in the labour market and there is an associated pick-up in wages growth.” Most of the others forces are expected to abut even though “there is uncertainty about how much longer they will persist”.

        Full speech here.

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        German PMI composite at 48-month low, reduced optimism, lack of momentum into new year

          Germany PMI manufacturing dropped to 51.5, down from 51.8, missed expectation of 51.7. It’s a 33-month low. PMI services dropped to 52.5, down from 53.3, missed expectation of 53.5. It’s the lowest in 7 months. PMI composite dropped to 52.2, down from 52.3, a 48-month low.

          Commenting on the flash PMI data, Phil Smith, Principal Economist at IHS Markit said:

          “The PMI data disappointed again in December, indicating the continuation of only a modest rate of underlying growth across Germany’s private sector. Furthermore, with new orders close to stalling in December and firms reporting reduced optimism towards the outlook, there’s a lack of momentum heading into the New Year.

          “It’s a stark contrast from the situation this time last year. Reports of an economy close to overheating have been supplanted by concerns about an increasingly uncertain political backdrop, trade wars and a struggling autos industry.

          “The survey’s measures of output and new orders diverged further from that of employment as December saw another solid – and slightly accelerated – round of job creation across both manufacturing and services. With firms now eating into backlogs of work at a faster rate, the indication is that a renewed slowdown in hiring is increasing likely.”

          Full release here.

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          Dallas Fed Kaplan: It’s three hikes this year

            Dallas Fed President Robert Kaplan on rate hikes:

            • “It’s three for this year. I think we should get started sooner rather than later, though.”
            • “Unemployment rate is going into the 3s during 2018.”
            • “We are either at or below full employment right now.”
            • “But the thing I’ll be watching is the history of overshooting full employment in the United States and having a soft landing is not a long history. So the reason I want to start removing accommodation, raising the fed funds rate, is I think that will give us the best chance to extend this expansion for longer.”
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            EU Juncker: No Brexit renegotiation, only determination to avoid the backstop

              European Commission President Jean-Claude Juncker will meet UK Prime Minister Theresa May later today, with the latter seeking for changes in the Brexit agreement so as to pass UK parliament. Juncker said ahead of the meeting that, “The deal we achieved is the best possible. It’s the only deal possible. There is no room whatsoever for renegotiation.”

              Nevertheless, he added “there is room enough to give further clarifications and further interpretations without opening the withdrawal agreement”. But he reiterated that “the withdrawal agreement will not be reopened.”

              Regarding the backstop, Juncker somewhat echoed what May has said before. That is, “We have a common determination to do everything to be not in a situation one day to use that backstop but we have to prepare. It’s necessary for the entire coherence of what we have agreed. It’s necessary for Britain and it’s necessary for Ireland. Ireland will never be left alone.”

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              Into US session: Dollar tries to rally ahead of FOMC, China SSE dec

                Entering into US session, Dollar and, to a lesser extent, Yen are lifted. The are trying to overtake Aussie and Kiwi as the best performers. On the other hand, Swiss Franc is trading as the weakest one for today and suffers fresh selling just now. Still Dollar’s fate will largely depend on new Fed projections. More on FOMC here.

                In other markets, major European indices are mixed. FTSE is up 0.06% at the time of writing. DAX is down -0.20% and CAC is up 0.31%. German 10 year bund yield drops a little by -0.0114 for now, but is solid at 0.535, well above 0.5 handle. Earlier today, Nikkei closed up 0.39%, Singapore Strait Times up 0.09%, Hong Hong HSI up 1.15%. China Shanghai SSE rose 0.92% to 2806.81, closed above 2800 psychological level.

                 

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                Into US session: Sterling pares loss, risk appetite returns as China mulls auto tariff cut to 15%

                  Entering into US session, Sterling is trading as the strongest one for today, paring some of yesterday’s steep losses. Strong wage growth is a positive factor for the pound. Also, traders are awaiting the results of Prime Minister Theresa May’s EU tour. Both European Council President Donald Tusk and European Commission President Jean-Claude Juncker are clear that they won’t renegotiate the Brexit agreement. But they’re willing to give further assurance to help May secure parliamentary approval. We’ll see what they’re going to offer. Separately May’s spokesman also said the Brexit deal vote will happen before January 21, 2019.

                  Meanwhile, Australian Dollar follows as the second strongest on return of risk appetite. Sentiments are lifted by renewed optimism on US-China trade negotiation. So far, Chinese authorities and even media are distancing the arrest of Huawei’s executive to trade talks. Vice Premier Liu He had a telephone conversation with US Trade Representative Robert Lighthizer on timetable and roadmap for the next stage of negotiations. China dove Treasury Secretary Stephen Mnuchin was also present. Additionally, Bloomberg reports that China is considering to bring down auto tariffs from the current 40% to 15%. And a proposal has been submitted for review by the cabinet in the coming days. The news give solid boost to European stocks and US futures.

                  Quick update: Trump also just tweeted “Very productive conversations going on with China! Watch for some important announcements!”

                  In Europe, at the time of writing:

                  • FTSE is up 1.58%
                  • DAX is up 1.97%
                  • CAC is up 1.99%
                  • German 10 year yield is up 0.0182 at 0.264
                  • Italian 10 year yield is up 0.033 at 3.130

                  Earlier in Asia:

                  • Nikkei dropped -0.34%
                  • Hong Kong HSI rose 0.07%
                  • China Shanghai SSE rose 0.37%
                  • Singapore Strait Times dropped -0.43%
                  • 10 year JGB yield rose 0.0057 to 0.047
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                  Into US session: Stocks in risk aversion, forex in range

                    Entering into US session, the forex markets are relatively calm today with major pairs and crosses are back inside Thursday’s ranges. Though, risk aversion is clearly seen in other markets. Worries over US-China trade tension escalation resurfaced after Trump said he will not meeting Chinese President Xi this month. This came despite Trump’s schedule to meet North Korean leader Kim Jong-Un on February 27-28 in Vietnam, just next to China. Re-escalation in trade tension would drag on the already weakened global recovery.

                    For today so far, Australian Dollar is the weakest one after dovish RBA economic projections. But there is no follow through selling yet. Dollar also weakens mildly as it’s paring this week’s gain. Sterling is the strongest one, followed by Swiss France. Both are consolidating this week’s moves. Canadian Dollar is also steady but some volatility is envisaged after job data release.

                    For the week, Dollar is overwhelmingly the strongest one, followed by Yen and then Swiss Franc. Commodity currencies are the weakest, led by Aussie.

                    In other markets:

                    • DOW futures are down more than -100 pts right now.
                    • FTSE is down -0.25%.
                    • DAX is down -0.51%.
                    • CAC is down -0.25%.
                    • German 10-year yield is down -0.0149 at 0.102. Decline in German yield is quite serious this week.

                    Earlier in Asia:

                    • Nikkei closed down -2.01%.
                    • Hong Kong HSI dropped -0.16%.
                    • Singapore Strait Times rose 0.04%.
                    • Japan 10-year JGB yield dropped -0.0185 to 0.027.
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                    US stocks extended historic rebound, but no follow through in Asia, Yen pares loss

                      After initial weakness, US indices reversed and resumed the post Christmas historic rebound. DOW ended up 260pts or 1.14% at 23138.82. S&P 500 rose 0.86% while NASDAQ gained 0.38%. Asian markets are mixed though. At the time of writing, Nikkei is down -0.47%, Hong Kong HSI is up 0.10%, China Shanghai SSE is up 0.38% and Singapore Strait Times is up 0.74%.

                      In the currency markets, Dollar and Canadian are the weakest ones for today so far. Yen is trading to pare back some of yesterday’s losses and is the strongest one for the moment.

                      For the week, Canadian Dollar is overwhelmingly the weakest one. Dollar, Aussie and Kiwi are also among the weakest. On the other hand, Swiss Franc and Euro are the strongest, followed by Yen.

                      The key for DOW will lie in the resistance zone between 100% projection of 21712.52 to 22877.09 from 22267.42 at 23431.98, and 38.2% retracement of 26951.81 to 21712.53 at 23713.93. Failure to break through this zone decisively will keep the rebound rebound 21712.53, corrective in nature, and a relatively short one.

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                      Italian PM Conte: No exchange of concession with EU on budget talks

                        Italian Prime Minister Giuseppe Conte warned in a newspaper interview that it’s “unreasonable and profoundly unfair” to blame the current government for weak economic data. He referred to GDP data released on Tuesday which showed 0% growth in Q3. Also, Conte emphasized that budget talk with EU will not be an “exchange of concession”. He insist on sticking to the deficit target of 2.4% of GDP in 2019 despite EU rejection.

                        Indeed, Conte also said earlier this week that the weak economic performance is the reason for the “expansionary budget”. This was echoed by Deputy Prime Minister Matto Salvini who said “the slowing GDP is another reason to go full steam ahead with the budget.”

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                        ECB Constancio: Technical factors can greatly amplify initial market movements

                          ECB Vice President Vitor Constancio commented on financial stability at the conference. He noted that “the sharp movements that took place in the U.S. equity market in February 2018 demonstrated how sentiment can change very quickly — and market participants should be well aware of this risk.” And, “in an environment characterized by search for yield and depressed volatility, technical factors can greatly amplify initial market movements.”

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                          Fed’s Beige Book: Contacts had become less optimistic

                            According to Fed’s Beige Book economic report, 8 of 12 districts reported modest to moderate growth in the period through January 7. Two districts reported flat or slight growth. Another two reported slower pace of growth.

                            The report noted that “outlooks generally remained positive, but many districts reported that contacts had become less optimistic in response to increased financial market volatility, rising short-term interest rates, falling energy prices and elevated trade and political uncertainty”.

                            On prices, most Districts indicated that firms’ input costs had risen due to :rising materials and freight prices”. And, “a number of Districts said that higher tariffs were also a factor.”

                            Full Beige Book here.

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                            Trump unsure if he regrets on Fed Powell

                              Trump repeated his attack on Fed and its Chair Jerome Powell again yesterday. He told WSJ that “I’m very unhappy with the Fed because Obama had zero interest rates”. And, referring to Powell, Trump added, “every time we do something great, he raises the interest rates”, and Powell “almost looks like he’s happy raising interest rates.”

                              Asked if he regrets nominating Powell, Trump said it’s “too early to tell, but maybe”. Further, when asked on what circumstances would lead him to remove Powell, Trump said “I don’t know”. That’s already a shift in stance from “I’m not going to fire him” on October 11.

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                              Swiss government raised growth forecast after stronger than expected Q2 GDP

                                Swiss GDP grew faster than expected by 0.7% qoq in Q2, versus expectation of 0.5% qoq. The government also raised growth forecast for this year.

                                A government economist Ronald Indergand said that “for the year as a whole we could be looking at a growth rate much nearer to the 3 percent rate than 2 percent, which would be above the long-term average.”

                                In the prior forecast, the government projected Swiss GDP to grow 2.4% in 2018, comparing to 1.6% in 2017.

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                                ECB Hansson: Rather risky to be more precise in forward guidance now

                                  ECB Governing Council member Ardo Hansson said urged not to be more specific on forward guidance yet. He said “To be any more precise than that, to lock in a date, to tie our hands would be rather risky”. Instead, “when we get closer, we can have another discussion if we need to adjust the language again, but this is not a debate we are going to have just yet.”

                                  Separately, another Governing Council member Olli Rehn “core inflation is still rather weak in the euro zone at around 1 percent, as it has been for the last couple of years, so an accommodative monetary policy is still needed in Europe.”

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

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

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

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                                    Asian update: Commodity currencies lower despite steady market sentiments

                                      Commodity currencies are trading broadly lower today even though Asian markets show no sign of risk aversion. Australian Dollar turns lower after solid but un-encouraging job data. New Zealand Dollar is paring yesterday’s CPI triggered gains. Canadian Dollar is follow oil prices low as WTI is back at 52.3 after brief recovery.

                                      For now, European majors are the strongest ones today, led by Swiss Franc. Euro will look into PMIs, ECB rate decision and press conference.

                                      For the week, Sterling is the strongest one on receding chance of no-deal Brexit. Kiwi is the second strongest on lower chance of RBNZ rate cut after solid CPI. Australian and Canadian Dollar are the weakest, followed by Dollar.

                                      In Asia:

                                      • Nikkei is currently down -0.14%.
                                      • Hong Kong HSI is up 0.16%.
                                      • China Shanghai SSE is up 0.40%.
                                      • Singapore Strati Times is up 0.42%.
                                      • Japan 10-year JGB yield is up 0.0009 at 0.006.

                                      Overnight:

                                      • DOW rose 0.70%.
                                      • S&P 500 rose 0.22%
                                      • NASDQ rose 0.08%.
                                      • 10-year yield rose 0.025 to 2.744.
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                                      Australian NAB business conditions: Largest fall since global financial crisis

                                        Australia NAB Business Confidence was unchanged at 3 in December. However, Business Conditions dropped sharply by -9 pts from 11 to 2. That’s the largest monthly fall since the global financial crisis. And the deterioration was “relatively broad-based across states and industries”.

                                        NAB also noted that “at face value, the fall over the past 6 months suggests a significant slowing in the momentum of activity in the business sector – especially from the highs seen earlier in the year.”

                                        Full release here.

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                                        UK Brexit Minister Barclay: No deal Brexit likely if MPs reject the deal

                                          UK Brexit Minister Stephen Barclay warned that “no deal will be far more likely if MPs reject the PM’s Brexit deal later this month.” And, he urged fellow MPs to “put the national interest first and vote for this deal so we can get on with delivering Brexit and building the UK’s prosperous future as an outward-looking global trading nation, outside the EU.” And he also emphasized that people “people did not vote for the disruption and uncertainty of no deal.”

                                          Foreign Minister Jeremy Hunt also said “there will be some tough negotiations to follow in the years ahead but I think getting this clearer language on the backstop will help to get it through Parliament.” And, there will be “devastating social consequences” if a second EU referendum was triggered.

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