Mon, Apr 22, 2019 @ 04:33 GMT

St. Louis Fed Bullard hearing full-throated angst about trade disputes

    St. Louis Fed President James Bullard said he’s “hearing full-throated angst” regarding escalating trade disputes across his district. He added that “all aspects of the economy are affected, but agriculture is certainly” being hit.

    He pointed to some suppliers using threat of new tariffs to raise prices, even though their businesses are not directly targeted. And to Bullard, “that shows you how uncertainty over trade policy can feed back” into business decision-making.”

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    US PPI slowed to 1.9%, core PPI to 2.5%. Durable goods rose 0.4% but core dropped -0.1%

      US PPI rose 0.1% mom, 1.9% yoy in February, versus expectation of 0.2% mom, 1.9% yoy. Core PPI rose 0.1% mom, 2.5% yoy, versus expectation of 0.2% mom 2.6% yoy.

      Durable goods orders rose 0.4% in January, above expectation of -0.5%. Ex-transport orders dropped -0.1%, below expectation of 0.1%.

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      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.

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        Today’s top mover: More medium term bearishness in GBP/AUD with today’s free fall

          At the time of writing, GBP/AUD is the top mover today, rightly so. Pound is pressured by political turmoil in the UK. Everybody knows it. Aussie is boosted by strong employment data, and optimism over US-China trade negotiation.

          Following up on our last note on GBP/AUD here. The rebound off 61.8% retracement of 1.7282 to 1.8726 at 1.7863 was out of our expectations. But GBP/AUD failed to take out 1.8156 resistance anyway and maintained bearishness. And finally, this 1.7863 fibonacci support is taken out firmly today.

          The development now adds to the case of medium term bearish reversal. That is, whole “corrective” up trend from 1.5626 (2016 low) has completed at 1.8726 on after missing 50% retracement of 2.2382 to 1.5626 at 1.9004. This is also supported by bearish divergence condition in weekly MACD.

          Deeper decline should be seen back to 1.7282 key support level first. Decisive break there will pave the way back to 1.5626 in medium term. And there is prospect of even resuming the down trend from 2.2382 (2015 high) through 1.5626 low in the long term. For now, this will be the preferred case as long as 1.7824 support turned resistance holds.


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          UK PM May: Hold our nerve and deliver Brexit on time

            UK Prime Minister Theresa May is going to make a statement on Brexit in the parliament today. According to her office, May is expected to say “the talks are at a crucial stage.” And she’ll urge that “we now all need to hold our nerve to get the changes this House has required and deliver Brexit on time.”

            Also, May will say “By getting the changes we need to the backstop; by protecting and enhancing workers’ rights and environmental protections; and by enhancing the role of Parliament in the next phase of negotiations I believe we can reach a deal that this House can support.”

            But just yesterday, EU chief Brexit negotiator Michel Barnier reiterated that “It’s clear from our side that we are not going to reopen the withdrawal agreement but we will continue our discussion in the coming days.”

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            BoJ Masai: US protectionist moves are downside risk of greatest concern

              BoJ board member Takako Masai said in a speech that “outcome of protectionist moves in the United States as the downside risk that is of greatest concern”. In the short term, “growing uncertainty over U.S. trade policy will likely lead to a sharp rise in volatility in global financial markets”. This could lead to “adverse effects on the sentiment of firms and households.”

              In the medium-to-long term, “if such protectionist moves were to increase globally, this may significantly affect the business strategies of global firms, and the subsequent impact on the capital flow of trade and investment cannot be ignored. ” Masai added he will closely monitor “whether the protectionist moves entail the risk of causing any imbalances in the global capital allocation.”

              Full speech here.

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              US Treasury denies rumors that Mnuchin mulls China tariff rollback

                WSJ reported yesterday that US Treasury Secretary Steven Mnuchin was considering the idea of lifting some of even all of extra tariffs on Chinese imports to facilitate trade negotiation with China. But a Treasury spokesman quickly denied.

                The spokesman said “neither Secretary Mnuchin nor Ambassador Lighthizer have made any recommendations to anyone with respect to tariffs or other parts of the negotiation with China.” And, “this an ongoing process with the Chinese that is nowhere near completion.”

                Mnuchin is widely considered a dove in the trade war with China, and he has rather good relationship with Chinese Vice Premier Liu. So we won’t be surprised if Mnuchin has considered or even brought out such idea. But he is often seen as isolated by others in the team on the issue. So, it doesn’t really mean a thing even if he did make that suggestion.

                Liu has confirmed his scheduled to visit Washington on January 30-31. The result of the meeting with USTR Robert Lighthizer then is the real key and the whole negotiation.

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                Italy Di Maio: Markets not concerned with budget, but false storytelling of Euro exit

                  Italian Deputy Prime Minister, leader of the Five-Star Movement, Luigi Di Maio reiterates today the government will not change its 2019 budget deficit target of 2.4% despite rejection by the European Commission. He added, “in the following weeks we’ll discuss our budget with the European Union and it will be possible to read out the details of our fiscal plan.”

                  He also tried to play down recent surge in German-Italian spread, which is a serious sign of investor nervousness. Di Maio said “Markets are not concerned about Italy not respecting the EU budget rules. Investors are worried about false storytelling according to which Italy wants to leave the euro and the European Union. That is not the case.”

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                  German unemployment rate hit record low, but no support to Euro

                    German unemployment dropped -19k to 2.373m in March, more than expectation of -15k.

                    Unemployment rate dropped from 5.4% to 5.3%, met expectation. That’s also the lowest level on record.

                    EUR, however, receives no support from the data. It’s trading down against all major current in the current 4H bar. And for the week, EUR is also reversing much of the earlier gains and is turning mixed.

                    The only exception is against CHF, which is trading as the second weakest one for the week, next to JPY. EUR/CHF is still on track to test 1.1832 resistance.

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                    Trump trying to re-escalate trade tension with his tweets

                      Trump complains WSJ and said the US is under no pressure to make a deal with China. Instead he claims that China is the one who’s under pressure. And he added “we will soon be taking in biliions in tariffs & making products at home.”

                      So now, Trump tries to re-escalate trade tension? But anyway, we don’t quite understand. If Americans are going to “make products at home”, that means, they import way less from China. Then, how can he take billions in tariffs? He want tariffs to cover the deficit he creates? Or he wants jobs to move back to the US? You can’t have both.


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                      US Treasury Mnuchin: Four or five years of 3% growth ahead

                        US Treasury Secretary Steven Mnuchin said in an interview with Fox News Sunday that the growth momentum is a not just a “one- or two-year phenomenon”. And, he added “we definitely are in period of four or five years of sustained 3 percent growth at least”. The comments came after US Q2 GDP released on Friday showed 4.1% growth, highest since Q4 2014.

                        Mnuchin also said Trump’s administration “absolutely support” Fed’s independence. Regarding Trump’s attack on the Fed, Mnuchin said “these are really more just comments saying, as interest rates are going up, it’s something that the president has a concern.” He also said “we think the Fed will be very careful in managing the economy.”

                        Trump tweeted earlier this month that “we go up and every time you go up they want to raise rates again. I don’t really – I am not happy about it.” Vice President Mike Pence echoed such comments on Sunday that “we don’t want policies out of Capitol Hill or elsewhere that diminish the tremendous energy that we have in this economy today.”

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                        UK CPI release given more significance after Brexit transition deal

                          According to a Bloomberg survey, majority of economists expected BoE to vote 9-0 to keep interest rate unchanged at 0.50% later this week on Thursday. And, 54% of economists expected BoE to hike interest rate in May. That’s a slight adjustment from 51% at prior survey. However, the data was taken as of March 19. And it’s unsure how much regarding the Brexit transition deal was taken into consideration. And that could only be reflected in the next survey.

                          The BoE rate decision this Thursday becomes lively as the transition deal is done. UK CPI data to be released today will be the first key factor. Headline CPI is expected to slow from 3.0% yoy to 2.8% yoy in February. Core CPI is expected to slow from 2.7% yoy to 2.5% yoy.

                          On the one hand, the deal should give BoE policymakers some comfort to restart lifting interest rate from the current ultra low level at 0.50%. On the other hand, any upside surprise in today’s inflation data would indeed give some pressure for BoE to act again.

                          And for the meeting, ahead, while BoE is still expected to stand pat, the statement could turn more relaxed and optimistic given that the Brexit picture is slightly clearer. And more importantly hawks like Ian McCafferty and Michael Saunders might come back to vote for rate hike.

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                          Into US session: Sterling weakest on Brexit deadlock, Dollar and Yen firm

                            Entering into US session, Sterling is once again the weakest one for today as Brexit uncertainty continues. But still, the Pound is holding above near term support levels against Dollar, Euro and Yen. And thus, it’s just experience volatility in tight range. After rejecting all four alternatives in the Commons, there remains no majority on the way forward regarding Brexit. And it’s reported that Conservative MP Oliver Letwin might be a abandoning attempts to use indicative votes to find a consensus.

                            Meanwhile, Prime Minister Theresa May is maintaining the firm opposition to second referendum and a long Article 50 extension. The Financial Times even reported that May would rather go for a no-deal Brexit than revocation. It’s also reported that May is still considering to bring back her deal for a fourth vote. But Speaker John Bercow is said to reject it. After all, it seems no one knows what’s next.

                            Staying in the currency markets, New Zealand Dollar is currently the second weakest, followed by Australian Dollar. Aussie dropped notably earlier today after RBA loosen up its monetary policy stance and hinted the next move is data-dependent. But there is no follow through selling yet. Meanwhile, Dollar and Yen are the strongest ones for today

                            In Europe, currently:

                            • FTSE is up 1.08%.
                            • DAX is up 0.64%.
                            • CAC is up 0.50%.
                            • German 10-year yield is down -0.011 at -0.036.

                            Earlier in Asia:

                            • Nikkei closed down -0.03%.
                            • Hong Kong HSI rose 0.21%.
                            • China Shanghai SSE rose 0.20%.
                            • Singapore Strait Times rose 0.90%.
                            • Japan 10-year JGB yield is up 0.0101 at -0.068.
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                            Trump to announce tariffs on Chinese goods on Thursday, but will seek industry input before finalizing

                              US President Donald Trump is set to announce the package of tariffs against Chinese goods on Thursday, a day earlier than rumored. It’s believed that the total amount of targeted goods adds up to USD 30-60b. We believe that it will be on the higher side on the range. Additionally, there will be new restrictions on Chinese investments in the US. Treasury will be directed to outline the rules regarding Chinese investments.

                              But, it’s reported that the tariffs won’t take effect immediately. Instead, businesses are given a chance to comment on the list of tariffed products. The final decision will come after industry input. This is seen as an act of Trump bowing down to pressure from business leaders. Earlier this week, 45 of largest American trade groups wrote an open letter to Trump, warning Trump not to respond to unfair Chinese practices and policies by measures that will “harm U.S. companies, workers, farmers, ranchers, consumers, and investors.”

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                              EU: No-deal Brexit is now a likely scenario on April 12

                                After UK Prime Minister Theresa May’s Brexit Withdrawal Agreement was rejected by the House once again, European Commission issued a swift statement noting that no-deal Brexit is now a likely scenario on April 12.

                                It noted: No-deal” scenario on 12 April is now a likely scenario. The EU has been preparing for this since 12/2017. Now fully prepared. We will remain united. Benefits of WA, including transition period, will not be replicated in “no-deal” scenario. Sectoral mini-deals are not an option.

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                                IMF: Global growth a little slower than October forecast due to trade war

                                  IMF Director of Asia and Pacific department Changyong Rhee indicated that US-China trade war is already having an impact on business confidence and investment in Asia. And there could be global growth forecasts downgrades in the next update in January. In particular, he said Japan and South Korea could be among the those hardest hit due to reliance on exports to China.

                                  He noted that “Investment is much weaker than expected. My interpretation is that the confidence channel is already affecting the global economy, particularly Asian economies”. And, “we see global growth a little bit slower than we forecast in October.” He also added that “Uncertainty is so large … uncertainty means you have upside potential as well as downside risk. At this moment, we believe the downside risk is a little bit higher.”

                                  Regarding China, Rhee said “They aren’t accelerating (stimulus) yet but taking the foot from the brake for the time being. But that doesn’t exclude the possibility that if the trade tension escalates, if growth goes down, they are ready to use stimulus.” But at the same time, IMF is concerned with China’s medium term goals including deleveraging And Rhee urged that “when they actually try to use stimulus, we hope they can use more fiscal policy rather than credit expansion.”

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                                  An update on GBP/CHF short

                                    Based on the position trading strategy noted in the weekly report, we’ve sold GBP/CHF on break of 1.2971 this week.

                                    Overall outlook is unchanged with the cross staying well below falling 55 day EMA. It’s also held well inside medium term falling channel from 1.3854. This decline fall from 1.3854 is expected extend to 61.8% projection of 1.3854 to 1.3049 from 1.3265 at 1.2768 as first target.

                                    There is prospect of further decline to 100% projection at 1.2460 before bottoming. But we’ll monitor downside momentum in the current fall to gauge the chance.

                                    Stop will be put slightly above today’s high at 1.3040.

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                                    Into US session: Euro strongest as Italian budget deal made, Dollar soft ahead of FOMC

                                      Entering US session, Euro is trading as the strongest one today. European Commission finally agreed with Italy on its 2019 budget, thus the so called “Excessive Deficit Procedure”. Italian 10 year yield tumble to as low as 2.778. German-Italian spread also narrowed to 253. Swiss Franc is, as a result of relief rally in European stocks too, trading as the weakest one for today. Dollar is the second weakest as markets await FOMC rate decision.

                                      In short, Fed is widely expected to raise federal funds rate by 25bps to 2.25-2.50% today. The question is on the rate path in 2019 after all the political pressures Fed policymakers faced. The new economic projections will provide the key guidance to market expectations. More on the projections here.

                                      Also, here are some suggested readings on FOMC:

                                      In European markets, at the time of writing:

                                      • FTSE is up 1.00%
                                      • DAX is up 0.73%
                                      • CAC is up 0.72%
                                      • German 10 year yield is down -0.004 at 0.243
                                      • Italian 10 year yield is down -0.169 at 2.778

                                      Earlier in Asia:

                                      • Nikkei dropped -0.60%
                                      • Hong Kong HSI rose 0.20%
                                      • China Shanghai SSE dropped -1.05%
                                      • Singapore Strait Times rose 0.43%
                                      • Japan 10 year JGB yield rose 0.0048 to 0.033
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                                      Dow shrugs off yield rise, heading to 25000

                                        DOW opens higher on some optimism over US-China trade talk. Rise in treasury yields is shrugged off by investors. 10 year yield is back above 2.99 and hit at high as 2.997 so far. But there is no impact on stocks so far.

                                        For now 25000 is the next handle to overcome. But based on current momentum, the real hurdle is between 25800.35 resistance and 78.6% retracement of 26616.71 to 23360.29 at 25919.83. We’ll keep monitoring the momentum to see if rise from 23531.31 is developing into an impulsive move to resume the larger up trend. For now, it’s early to tell.

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                                        All Brexit alternatives voted down while May gains support for her deal

                                          The UK Parliaments once again expressed what they don’t want about Brexit, without saying what they want. With April 12 cliff-edge looming, there is still no sign of a breakthrough.

                                          All eight Brexit alternatives were defeated in the UK House of Commons on Wednesday. That means no majority emerged support any options including no deal, a referendum, a customs union and a Norway-style deal. The closet results was for a “permanent and comprehensive UK-wide customs union with the EU”, which was voted down by 264 to 272. The call for confirmatory referendum was voted down by 268 to 295.

                                          Meanwhile, Prime Minister Theresa May offered to resign if her Brexit deal gets approved by the parliament in a third meaningful vote. She told the Conservative 1922 Committee that “I know there is a desire for a new approach – and new leadership – in the second phase of the Brexit negotiations, and I won’t stand in the way of that.” She added “I am prepared to leave this job earlier than I intended in order to do what is right for our country and our party.”

                                          With May’s offer, more hard-line Brexiteers turned to support her deal. A key consideration is that the change in leadership for the most important of next phase in negotiations. Trade negotiations and futures relationship will be on the line, which Brexiteers would be eager to get a firmer control on. However, it remains uncertain how May could get enough votes as Northern Ireland’s DUP repeated its objection to the deal.

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