Fri, Aug 23, 2019 @ 16:02 GMT

Eurozone PMI composite finalized at 51.5, suggests around 0.2% GDP growth in Q2

    Eurozone PMI services was finalized at 52.8 in April, up from March reading of 53.3. Eurozone PMI composite was revised up to 51.5, down from March reading at 51.6. Looking at the members states, Italy PMI composite dropped to 49.5, 3-month low. Improvements were seen in France and Germany, as PMI composites hit 50.1 and 52.2 respectively, both at 3 month high.

    Chris Williamson, Chief Business Economist at IHS Markit said:

    “The final eurozone PMI for April came in slightly higher than the flash estimate, though still indicated that the economy lost a little momentum at the start of the second quarter and that growth remains worryingly lacklustre. The survey is indicative of the economy growing at a quarterly rate of approximately 0.2%, but manufacturing remained mired in its steepest downturn since 2013 and service sector growth slipped lower.

    “In a month in which oil prices continued to rise, it was no surprise to see input cost inflation accelerating for the first time in six months. It is therefore disappointing to see average selling prices for goods and services showing the smallest monthly rise since August 2017, strongly hinting at weakened pricing power and lower core inflationary pressures as firms were often unable to pass higher costs on to customers.

    “Weak demand remains the key to the lack of inflationary pressures. Although inflows of new orders for goods and services picked up further from the low-point reached back in January, the increase was among the smallest seen since late 2014. Worryingly, growth of output continues to run ahead of that of new orders, meaning even the modest current growth of business activity is only being sustained by firms eating into orders placed in prior months. Demand clearly needs to improve further to generate faster economic growth and give firms greater pricing power.”

    - advertisement -

    EU: Should be fully and permanently exempted by US steel tariffs

      Some responses from Europe regarding US extension of temporary exemptions on steel and aluminum tariffs.

      European Commission criticized that the extension prolongs market uncertainty, which is already having an impact of business decisions. It also reiterated in a statement that “the EU should be fully and permanently exempted from these measures, as they cannot be justified on the grounds of national security.”

      UK Department for International Trade spokesman welcomed the “positive decision”. And the government said in a statement that “We will continue to work closely with our EU partners and the US government to achieve a permanent exemption, ensuring our important steel and aluminum industries are safeguarded.” But, “we remain concerned about the impact of these tariffs on global trade and will continue to work with the EU on a multilateral solution to the global problem of overcapacity, as well as to manage the impact on domestic markets.”

      - advertisement -

      Chinese trade delegation still preparing to travel to US, but no indication on timeline

        In wake of Trump’s new tariff threats, Chinese Foreign Ministry spokesman Geng Shuang said a Chinese delegation was still preparing to travel to the US for another round of trade negotiations. However, there was no indication on the date of the trip, nor whether Vice Premier Liu He will lead the team.

        Geng said in a press briefing that “we are now trying to get more information on the relevant situation.” And, “what I can tell you is that the Chinese team is preparing to travel to the U.S. for trade talks.”

        “What is of vital importance is that we still hope the United States can work hard with China to meet each other half way, and strive to reach a mutually beneficial, win-win agreement on the basis of mutual respect,” Geng added.

        - advertisement -

        Eurozone PMI manufacturing finalized at 46.5, monetary policy could do little to address headwinds

          Eurozone PMI Manufacturing is finalized at 46.5 in July, revised up from 46.4, down from June’s final of 47.6. Markit said output and orders were both down markedly as confidence hit lowest since December 2012. Also, there was sharpest recorded reduction in employment for over six years.

          Looking at the member states, Germany PMI manufacturing hit 84-month low at 43.2. Austria hit 57-month low of 47.0. Italy and Spain recovered slightly to 48.5 and 48.2 respectively. Ireland hit 75-month low of 48.7. France hit 7 month low of 49.7.

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

          “The Eurozone PMI dashboard is a sea of red, with all lights warning on the deteriorating health of the region’s manufacturers. July saw production and jobs being cut as the fastest rates for over six years as order books continued to decline sharply. Prices fell at the sharpest rate for over three years as firms increasingly competed via discounting to help limit the scale of sales losses.

          “Forward indicators also deteriorated. Input buying fell to an extent not seen since 2012 as firms prepared for weaker production in the short term, and expectations for the year ahead likewise fell to the lowest in over six-and-a-half years.

          “The downturn is being led by Germany, reflective of a further worsening conditions in the auto sector and falling global demand for business equipment. However, output is also falling in Italy, France, Spain, Ireland and Austria and is close to stalling in the Netherlands. Greece notably bucked the deteriorating trend.

          “Rising geopolitical concerns, including trade wars and Brexit, and worries about slower economic growth both domestically and internationally were all widely reported as having subdued current demand and hit confidence in the outlook. The concern is that, while policymakers have become increasingly alarmed at the deteriorating conditions, there may be little that monetary policy can do to address these headwinds.”

          Full release here.

          - advertisement -

          US embassy denies statement of release of pastor Brunson

            Lira has a quick dip in early US session while Yen crosses recover in general. The trigger is a social media report that American pastor Andrew Brunson, will be released from house arrest by August 15.

            The U.S. Embassy in Ankara, Turkey, quickly comes out and denies that it released related statement.

            While the rumor is denied, the reactions in the markets argue that traders are ready to take any positive news to close out their positions. The worst of Turkish crisis might be temporarily over.

            - advertisement -

            IMF lowers 2019 global growth forecast to 3.3%, but expects pick up in H2

              In the World Economic Outlook report, IMF revised down global growth forecasts as weakness in the second half of 2018 is expected to persist into the first half of 2019. IMF expects slowdown in 70% of world economy. Global growth would dropped from 3.6% in 2018 to 3.3% in 2019, revised down by -0.2%. There were negative revisions for several major economies including the euro area, Latin America, the United States, the United Kingdom, Canada, and Australia.

              Nevertheless, IMF still expects growth to pickup again in second half of the year. There will be support from “significant monetary policy accommodation by major economies”. Fed, ECB, BoJ and BoE have “all shifted to a more accommodative stance”. Meanwhile, China has ramped up its fiscal and monetary stimulus. Outlook for US-China trade tensions has also “improved as the prospect of a trade agreement take shape”. “Global recession is not in the baseline projections,

              However, IMF maintained “there are many downside risks”, including trade tensions that could “could flare up again and play out in other areas (such as the auto industry), with large disruptions to global supply chains.: Growth in Eurozone and China “may surprise on the downside”. Brexit risks remain “heightened”.

              Here is a summary of the growth forecasts (comparing with January forecasts):

              • World in 2019 at 3.3% (down -0.2%)
              • World in 2020 at 3.6% (unchanged).
              • US in 2019 at 2.3% (down -0.2%)
              • US in 2020 at 1.9% (up 0.1%)
              • Eurozone in 2019 at 1.3% (down -0.3%)
              • Eurozone in 2020 at 1.5% (down -0.2%).
              • Japan in 2019 at 1.0% (down -0.1%).
              • Japan in 2020 at 0.5% (unchanged).
              • China in 2019 at 6.3% (up 0.1%).
              • China in 2020 at 6.1% (down -0.1%).

              Full report here.

              - advertisement -

              Into US session: CHF weakest in quiet markets, Brexit plan B awaited

                Swiss Franc’s selloff pick up momentum in a rather quiet day today. USD/CHF has broken 0.9963 resistance while EUR/CHF is pressing 1.1348. More downside is in favor in the Franc. But it’s just the second weakest one, next to New Zealand Dollar. Australia Dollar and Canadian Dollar follow even though there is no clear sign of risk aversion. WTI crude oil is also staying firm at around 54. Meanwhile, Yen is the strongest one in very tight range, followed by Euro and Sterling. Overall, the forex markets are mixed except for that weakness in Franc.

                The US markets are on Martin Luther King Day holiday today. Main focus is across the Atlantic on UK Prime Minister Theresa May’s Brexit plan B. She’s due to make a statement in the parliament at 1530 GMT. Her spokesman said the Brexit will have to be changed if it’s to be approved by lawmakers. And there were talks going on to understand what exact changes are needed.

                Currently in European markets:

                • FTSE is up 0.13%.
                • DAX is down -0.45%.
                • CAC is down -0.16%.
                • German 10 year yield is down -0.013 at 0.251.

                Earlier in Asia:

                • Nikkei rose 0.26%.
                • Hong Kong HSI rose 0.39%.
                • China Shanghai SSE rose 0.56%.
                • Singapore Strait Times dropped -0.12%.
                • Japan 10-year JGB yield dropped -0.0099 to 0.004, stayed positive.
                - advertisement -

                China Caixin PMI manufacturing rose to 50.2, domestic demand improved, overseas demand subdued

                  China Caixin PMI rose 0.1 to 50.2 in November, slightly above expectation of 50.1. Markit noted in the release that production is unchanged for the second month running. There is further in crease in total new work, but export trends remains subdued. Meanwhile, input cost inflation softens to seven-month low.

                  Commenting on the China General Manufacturing PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:

                  “The Caixin China General Manufacturing PMI inched up to 50.2 in November from the previous month. The subindex for new orders continued to rise, pointing to improved demand, which may be due to a recent raft of government policies aiming to support the private sector. The gauge for new export orders dropped further into contractionary territory in November, indicating the impact of the Sino-U.S. trade friction on exports.

                  “The employment subindex likewise dipped further into negative territory. The output subindex dropped to the dividing line of 50 that separates expansion from contraction, marking its lowest level since June 2016, which implied production was facing a slowing trend. One key reason for the slowdown may be the obvious increase in stocks of finished goods.

                  “The subindex for stocks of purchased items remained unchanged and stayed in positive territory. The measure for future output, which reflects manufacturers’ production outlook over the next year, stayed in positive territory and rose modestly, suggesting business confidence was relatively stable. The subindex for suppliers’ delivery times picked up marginally despite remaining in negative territory, implying capital turnover among goods producers slightly improved slightly.

                  “The gauges for output charges and input costs both dropped significantly, in line with the weakening domestic commodities market, which was impacted by plummeting oil prices across the globe, expectations about the loosening of restrictions on factory production that governments impose on the grounds of environmental protection, and weakening demand. Upward pressure on prices of industrial products was eased somewhat.

                  “Overall, domestic demand across the manufacturing sector improved in November, while overseas demand was still subdued. Production slowed, confidence was relatively stable, capital turnover was improved, and upward pressure on industrial product prices eased. China’s economy was weak, but did not show significant signs of deterioration.”

                  Full release here.

                  - advertisement -

                  Mid-US update: Stock rally losing momentum, treasury yield jumps

                    US stocks surge in initial trading, with S&P 500 and NASDAQ extending recent record run. The moves seem to have exhausted their momentum. No follow through buying is seen after S&P 500 hit 2903.77 and NASDAQ hit 8046.31. Both indices have indeed turned red at the time of writing and DOW is up only 0.06%.

                    In the currency markets, Canadian Dollar is now the strongest one, followed by Swiss Franc and then Euro. The US seems to be optimistic in the trade negotiations with Canada. Treasury Secretary Mnuchin said today that “the U.S. market and the Canadian markets are very intertwined.” And, ‘it’s important for them to get this deal and it’s important for us to get this deal.” He said the agreement could be concluded within this week.

                    On the other hand, Sterling suffers fresh selling in US session, in particular against Euro and Swiss Franc. Yen follows as the second weakest. Dollar is the third weakest even though data showed consumer confidence rose to highest since October 2000.

                    One development to note is the strong rally in treasury yields. It’s believed to have started from Germany as 10 year bund yield jumps 0.10 to 0.38. The move is on the back on news that Germany is considering to extend financial aid to Turkey, to prevent knock-on effect from deterioration in the latter’s economy. But the WSJ report also noted that the discussions are in very early stage, and the talk could eventually fall apart.

                    Nevertheless, the over developments help lift 10 year US yield sharply higher. At the time of writing it’s up 0.27 at 2.875. The rebound also marks strong support from 2.811 and focus is back of 55 day EMA (now at 2.892). Break there will bring 3% handle back in radar.

                    - advertisement -

                    Chinese ambassador to EU: Without a Brexit deal, there’s nothing to talk about with UK

                      Chinese ambassador to EU Zhang Ming told UK that a Brexit deal with EU is a prerequisite to trade talk with China. He said “if the EU and the U.K. fail to reach agreement in the first place, the U.K.’s agreements with other parties may have to face great uncertainties.” He added that “only with an EU-U.K. deal can the U.K. be in a better position to have more detailed discussions with other players of the international community.”

                      Zhang noted that is a “solid basis” in place for trade engagement and “not everything will start from zero after Brexit.” And, “if Brexit goes well, I believe there will not be a big impact on U.K.’s cooperation with other members of the international community.”

                      - advertisement -

                      Juncker and Tusk: EU commits in solemn manner to avoid triggering Irish backstop

                        European Commission President Jean-Claude Juncker and European Council President Donald Tusk sent a joint letter to UK Prime Minister Theresa May. That’s for hoping to provide the "assurances" to help May get the agreed Brexit deal through the UK Parliament tomorrow.

                        In short, Juncker and Tusk pledged to try to reach the agreement regarding post-Brexit EU-UK relationship by the end of next year so as to avoid using the Irish backstop. They also emphasized that a commitment to speedy trade deal made by EU leaders had “legal value” which committed the Union “in the most solemn manner”.

                        If the target date couldn’t be met, UK will have an option to extend a status-quo transition period, also for avoiding to trigger the backstop. They also pledged that “If the backstop were nevertheless to be triggered, it would only apply temporarily, unless and until it is superseded by a subsequent agreement that ensures that a hard border is avoided.” 

                        Below is the full letter:

                        Dear Prime Minister,

                        Thank you for your letter of 14 January 2019.

                        As you are well aware, we regret but respect the decision of the United Kingdom to leave the European Union. We also consider that Brexit is a source of uncertainty and disruption. In these challenging times, we therefore share with you the determination to create as much certainty and clarity as possible for citizens and companies in a situation where a Member State leaves the European Union after more than four decades of closest economic and political integration. That is why the Withdrawal Agreement that you and the Leaders of the 27 EU Member States agreed after long negotiations is so important. It represents a fair compromise and aims to ensure an orderly withdrawal of the United Kingdom from the European Union, thereby limiting the negative consequences of Brexit. That is also why we wish to establish as close as possible a relationship with the United Kingdom in the future, building on the Political Declaration, which the Leaders of the 27 EU Member States agreed with you. It is also why we want negotiations to this effect to start as soon as possible after the withdrawal of the United Kingdom from the European Union.

                        As you know, we are not in a position to agree to anything that changes or is inconsistent with the Withdrawal Agreement, but against this background, and in order to facilitate the next steps of the process, we are happy to confirm, on behalf of the two EU Institutions we represent, our understanding of the following points within our respective fields of responsibility.

                        A. As regards the President of the European Council:

                        On the 13 December, the European Council (Article 50) decided on a number of additional assurances, in particular as regards its firm commitment to work speedily on a subsequent agreement that establishes by 31 December 2020 alternative arrangements, so that the backstop will not need to be triggered.

                        The European Council also said that, if the backstop were nevertheless to be triggered, it would only apply temporarily, unless and until it is superseded by a subsequent agreement that ensures that a hard border is avoided, and that the European Union, in such a case, would use its best endeavors to negotiate and conclude expeditiously a subsequent agreement that would replace the backstop, and would expect the same of the United Kingdom, so that the backstop would only be in place for as long as strictly necessary.

                        In this context, it can be stated that European Council conclusions have a legal value in the Union commensurate to the authority of the European Council under the Treaties to define directions and priorities for the European Union at the highest level and, in the specific context of withdrawal, to establish, in the form of guidelines, its framework. They may commit the European Union in the most solemn manner. European Council conclusions therefore constitute part of the context in which an international agreement, such as the Withdrawal Agreement, will be interpreted.

                        As for the link between the Withdrawal Agreement and the Political Declaration, to which you make reference in your letter, it can be made clear that these two documents, while being of a different nature, are part of the same negotiated package. In order to underline the close relationship between the two texts, they can be published side by side in the Official Journal in a manner reflecting the link between the two as provided for in Article 50 of the Treaty on European Union (TEU).

                        B. As regards the President of the European Commission:

                        The Political Declaration agreed at the November Special European Council (Article 50) describes a future relationship of unprecedented depth and breadth, reflecting the continuing strength of our shared values and interests. The Withdrawal Agreement and the Political Declaration represent a fair balance of European Union and United Kingdom interests. They will ensure a smooth withdrawal and a strong future relationship in the interests of all our citizens.

                        As the European Council has already stated, it will embark on preparations for a future partnership with the United Kingdom immediately after signature of the Withdrawal Agreement. As regards the European Commission, we will set up the negotiating structure for these negotiations directly after signature to ensure that formal negotiations can start as soon as possible after the withdrawal of the United Kingdom, having in mind the shared ambition of the European Union and the United Kingdom to have the future relationship in place by the end of the transition. Should national ratifications be pending at that moment, the Commission is ready to propose provisional application of relevant parts of the future relationship, in line with the legal frameworks that apply and existing practice. The Commission is also ready to engage with you on a work program as soon as the United Kingdom Parliament has signaled its agreement in principle to the Withdrawal Agreement and the European Parliament has approved it.

                        There is an important link between the Withdrawal Agreement and the Political Declaration, reflecting Article 50 of the Treaty on European Union. As stated in Article 184 of the Withdrawal Agreement and reflected also in Paragraph 138 of the Political Declaration, the European Union and the United Kingdom have committed to use best endeavors, in good faith and in full respect of their respective legal orders, to take necessary steps to negotiate expeditiously the agreements governing their future relationship referred to in the Political Declaration.

                        In light of your letter, the European Commission would like to make the following clarifications with regard to the backstop:

                        The Withdrawal Agreement including the Protocol on Ireland/Northern Ireland embodies the shared commitment by the European Union and the United Kingdom to address the unique circumstances on the island of Ireland as part of ensuring the orderly withdrawal of the United Kingdom from the European Union. The Commission can confirm that, just like the United Kingdom, the European Union does not wish to see the backstop enter into force. Were it to do so, it would represent a suboptimal trading arrangement for both sides. The Commission can also confirm the European Union’s determination to replace the backstop solution on Northern Ireland by a subsequent agreement that would ensure the absence of a hard border on the island of Ireland on a permanent footing.

                        The European Commission can also confirm our shared understanding that the Withdrawal Agreement and the Protocol on Ireland/Northern Ireland:

                        – Do not affect or supersede the provisions of the Good Friday or Belfast Agreement of 10 April 1998 in any way whatsoever; they do not alter in any way the arrangements under Strand II of the 1998 Agreement in particular, whereby areas of North-South cooperation in areas within their respective competences are matters for the Northern Ireland Executive and Government of Ireland to determine;

                        – Do not extend regulatory alignment with European Union law in Northern Ireland beyond what is strictly necessary to avoid a hard border on the island of Ireland and protect the 1998 Agreement; the Withdrawal Agreement is also clear that any new act that the European Union proposes should be added to the Protocol will require the agreement of the United Kingdom in the Joint Committee;

                        – Do not prevent the United Kingdom from facilitating, as part of its delegation, the participation of Northern Ireland Executive representatives in the Joint Committee, the Committee on issues related to the implementation of the Protocol on Ireland/Northern Ireland, or the joint consultative working group, in matters pertaining directly to Northern Ireland.

                        The European Commission also shares your intentions for the future relationship to be in place as quickly as possible. Given our joint commitment to using best endeavors to conclude before the end of 2020 a subsequent agreement, which supersedes the Protocol in whole or in part, the Commission is determined to give priority in our work program to the discussion of proposals that might replace the backstop with alternative arrangements. In this context, facilitative arrangements and technologies will be considered. Any arrangements which supersede the Protocol are not required to replicate its provisions in any respect, provided that the underlying objectives continue to be met.

                        Should the parties need more time to negotiate the subsequent agreement, they could decide to extend the transition period, as foreseen in the Withdrawal Agreement. In that case, the Commission is committed to redouble its efforts and expects the same redoubled efforts from your negotiators, with the aim of concluding a subsequent agreement very rapidly. Were the backstop to enter into force in whole or in part, it is intended to apply only temporarily, unless and until it is superseded by a subsequent agreement. The Commission is committed to providing the necessary political impetus and resources to help achieving the objective of making this period as short as possible. To this end, following the withdrawal of the United Kingdom, and until a subsequent agreement is concluded, the Commission will support making best use of the high level conference foreseen in the Political Declaration to meet at least every six months to take stock of progress and agree the appropriate actions to move forward.

                        Finally, in response to your concern about the timetable, we would like to make it clear that both of us will be prepared to sign the Withdrawal Agreement as soon as the meaningful vote has passed in the United Kingdom Parliament. This will allow preparations for the future partnership with the United Kingdom immediately thereafter to ensure that negotiations can start as soon as possible after the withdrawal of the United Kingdom from the European Union.

                        Yours sincerely,

                        Donald Tusk, Jean-Claude Juncker

                        - advertisement -

                        Swiss KOF dropped to 95.0, negative developments in manufacturing and services

                          Swiss KOF Economic Barometer dropped for he fourth time in a row to 95.0 in January, below expectation of 98.1. It’s now 5pts below its long term average.

                          KOF noted that “The downward tendency that emerged at the end of last year continues. The economic outlook for Switzerland continues to dampen at the beginning of 2019”. And, “this renewed decline is especially attributable to negative developments within the manufacturing industry and the service industry. In addition, export prospects cloud over.”

                          Full release here.

                          - advertisement -

                          Euroarea Q4 GDP finalized at 0.6% qoq, unrevised

                            Euroarea (EA19) Q4 GDP: 0.6% qoq, 2.7% yoy, 2.3% over 2017

                            EU28 Q4 GDP growth: 0.6% qoq, 2.6% yoy, 2.4% over 2017

                            In Q4, Estonia ranked top at +2.2%, followed by Slovenia at +2.0% and Lithuania at +1.4%

                            Greece and Croatia were both at bottom at +0.1%, followed by Italy and Latvia at +0.3%

                            Regarding the components:

                            • EA19: Household consumption expenditure +0.2%, gross fixed capital formation +0.9%, exports +1.9%, imports +1.1%
                            • EU28: Household consumption expenditure +0.2%, gross fixed capital formation +0.9%, exports +1.7%, imports +1.3%
                            - advertisement -

                            ECB President Mario Draghi’s press conference live stream

                              Introductory statement.

                              - advertisement -

                              Yuan’s decline resumes, Would China allow it to break 7 handle?

                                USD/CNH’s decline resumed overnight and hit as high as 6.9446 so far. For now, the selloff in Yuan looks unstoppable as there is no end in sight in US-China trade war, which just escalated. But Reuters reported, based on unnamed source, that the PBoC won’t allow USD/CNH to break through 7 handle.

                                The source was quoted saying “at present, rest assured they will certainly not let it break 7… Breaking 7 is beneficial to China because it can reduce some of the effects of tariff increases, but the impact on our renminbi confidence is negative and funds will flow out.”

                                We remain doubtful on whether China will intervene this time given that they’re been generally refrained in both currency and stock markets in the past few months. Barring any government intervention, we maintain the view that, based on current momentum, USD/CNH should surge bass 6.9800 and 7.000 handle with relative ease. Next target is 61.8% projection of 6.2354 to 6.9800 from 6.6699 at 7.1306.

                                - advertisement -

                                Asian markets calm, DOW to face pressure again after another comeback

                                  While there is extreme volatility in the currency markets, stocks were relatively calm though. DOW again staged animpressive comeback overnight. It initially dipped to as log as 22928.59 but closed up 18.78pts or 0.08% at 23346.24. S&P 500 rose 0.13% and NASDAQ gained 0.46%. In Asia, Japan is still on holiday. China Shanghai SSE is currently flat. Hong Kong HSI is down -0.44% while Singapore Strait Times is down -0.73% only.

                                  DOW future is currently down over -300 pts in Asia. And we’ll have to wait and see how US stocks would react to Apple’s cutting of revenue outlook later in the day. But technically, we’d like to reiterate that while DOW’s post Christmas rebound was strong and impressive, it has yet to take out and important resistance zone yet.

                                  That is, 100% projection of 21712.53 to 22877.09 from 22267.42 at 23431.98, the projection level for the corrective rebound. Also, there is 38.2% retracement of 26951.81 to 21712.53 at 23713.93. As long as this resistance zone holds, the long term corrective fall from 26951.81 is still more likely to head to 20000 handle or not.

                                  US treasury will be another key factor to watch ahead. 30-year yield finally closed below 3% handle at 2.982 overnight, down -0.038. 10-year yield dropped -0.025 to 2.661. More importantly, after the Apple news, 10-year yield is now down to 2.620 in Asia. It’s very close to 1-year yield at 2.616.

                                  - advertisement -

                                  BoJ Minutes: Global economy to grow firmly on whole with increasing disparities

                                    In the minutes of October 30/31 BoJ meeting, there consensus that the global economies continued to grow “firmly on the whole” However, there had been “increasing disparities of growth” among countries and regions. Some members urged to pay attention to slowing pace of improvement in business sentiments, as seen in PMIs in “declining trend”. One member noted due to trade friction and rising US interest rates, overseas economies were “beginning to level off”.

                                    On Japan’s price developments, members believed that the “continued relatively weak developments in prices compared to the economic expansion and the labor market tightening largely had been affected by the deeply entrenched mindset and behavior”. But year-on-year change in CPI was “likely to increase gradually toward 2 percent, mainly on the back of the output gap remaining positive and medium- to long-term inflation expectations rising. ”

                                    On risks to baseline scenario of economic activity and prices, the minutes pointed to four upside and downside risk factor : (1) developments in overseas economies; (2) the effects of the scheduled consumption tax hike; (3) firms’ and households’ medium- to long-term growth expectations; and (4) fiscal sustainability in the medium to long term. On specific risks to prices, members pointed to the following three factors: (1) developments in medium- to long-term inflation expectations; (2) the responsiveness of prices to the output gap; and (3) developments in foreign exchange rates and international commodity prices.

                                    Full minutes here.

                                    - advertisement -

                                    Germany and France jointly urged China to open market with concrete and systematic measures

                                      In a rare joint  op-ed  article in Caixin magazine, French Ambassador Jean-Maurice Ripert and German Ambassador Clemens von Goetze  urged China to do more to open its markets. They said “French and German companies are looking forward to China demonstrating that it will not waver and will deepen its opening-up and reform policy in order to create a level playing field for foreign businesses in China.” And, “European businesses should have the same opportunities in China as Chinese industries enjoy in Europe.”

                                      And, China should “go beyond tariff adjustments” but address the issues through “concrete and systematic measures”. For example:

                                      • China should enhance its reputation as an open and reliable export destination for producers, in additional to reducing import taxes.
                                      • China should abolish joint venture requirements across all sectors to stimulate foreign direct investment
                                      • China should ensure implementation of cybersecurity legislation follows the principle of proportionality but not lead to market access barriers or discriminatory practices
                                      • China should  replace provisions in technology import-export and joint venture regulations that restrict foreign ownership and freedom to exert IP rights
                                      • China should continue with reform of state-owned enterprises regarding their preferential treatment they received and competitive disadvantages for private companies.

                                      The article also pledged that “together with China, the European Union is firmly committed to a strong multilateral trading system.”

                                      Full article here.

                                      - advertisement -

                                      US jobless claims rose 12k to 214k, headline durables jumped 4.5% but ex-transport missed

                                        A batch of mixed data is released from the US today. Initial jobless rose 12k to 214k in the week ended September 22, above expectation of 208k but stayed low. Four-week moving average of initial claims rose 250 to 206.25k. Continuing claims rose 16k to 1.611m in the week ended September 15. Four-week moving average of continuing claims dropped -12.25k to 1.6915m, lowest since November 10, 1973.

                                        Headline durable goods order jumped sharply by 4.5% in August, above expectation of 1.5%. But ex-transport orders rose only 0.1%, missed expectation of 0.3%. Wholesale inventories rose 0.8% mom in August, above expectation of 0.3% mom. Q2 GDP was finalized at 4.2% annualized, unrevised. Trade deficit widened to USD -75.8B in August.  GDP price index was revised up to 3.3%, from 3.0%.

                                        - advertisement -

                                        Fed Mester supports gradual rate hike, against a steep path

                                          Cleveland Fed President Loretta Mester she supports gradual rate hike “this year and next year”. At the same time, she’s “against a steep path” in tightening because “we want to give inflation time to move back to goal”. She sounds optimistic saying that “this year is shaping up to be another good year for the economy.” And for monetary policymakers, the task is to “calibrate policy to this healthy economy so that the expansion is sustained.”

                                          The government’s tax cut poses “some upside risk” to the forecast, and Mester expects a better read on household spending “over the next several months”. Globally, she noted that “for the first time in many years, economic activity around the world is picking up and forecasts for global growth are being revised up.” And, “this should have a positive feedback effect on the U.S. economy via exports.”

                                          Meanwhile, she warned that trade developments are a “risk to the forecasts”. And the uncertainty “may not be resolved quickly”. But it didn’t change her outlook for the over economy yet.

                                          - advertisement -
                                          - advertisement -