UK May: Not far apart with EU; EU Tusk: No-deal Brexit more likely than ever

    UK Prime Minister Theresa May told the parliament yesterday that they’re not “far apart” with the EU. And she urged not to let the disagreement on Irish backstop “derail the prospects of a good deal” and leave the UK with no-deal Brexit. But at the same time, she insisted that Northern Ireland must not be treated differently from the rest of the UK.

    European Council President Donald Tusk, however, warned that the remaining 27 states “must prepare the EU for a no-deal scenario, which is more likely than ever before.” And he added the Brexit negotiation has “proven to be more complicated than some may have expected.”

    May will meet other EU leaders in Brussels at the summit on Wednesday and hopes to resolve a few “critical issues”. EU leaders will then listen to the recommendation by chief negotiator Michel Barnier for the way forward.

    WTI crude oil eyes 67 support as selling intensifies

      Oil prices trade deeply lower today as the impact of Russian supply recovery was more than enough to offset Saudi Arabia production cut. Indeed, Goldman Sachs has lowered its WTI forecast for December from 89 to 81 (above current level at around 68 though).

      Technically speaking, WTI crude oil was clearly rejected by falling 55 D EMA repeatedly, keeping outlook bearish. Immediate focus is now on 67.05 support. Firm break there could prompt downside acceleration through 63.67 low to 61.8% projection of 83.46 to 63.67 from 74.38 at 62.14. Also,l outlook will stay bearish as long as 74.38 resistance holds, in case of another recovery.

      Sterling knocked down as German government spokesman cleared Bloomberg fake news on Brexit

        Ok. So Bloomberg reported fake news? Sterling is hammered down as a German government spokesman cleared the air and said the position on Brexit is unchanged. Also, the spokesman said Germany has full trust in EU chief negotiator Michel Barnier.

        Here is a quick glance on GBP/USD, EUR/GBP and GBP/JPY.

        BoJ’s Himino signals readiness for further rate hikes if economic confidence grows

          BoJ Deputy Governor Ryozo Himino reaffirmed the central bank’s commitment to adjusting its monetary policy if confidence in the economic outlook strengthens. In a speech, Himino stated that if BoJ gains “growing confidence” in its economic and price forecasts, it “will adjust the degree of monetary accommodation,” signaling readiness for rate hikes ahead.

          Himino outlined the baseline scenario for fiscal 2025 and 2026, describing it as a “reasonably balanced state” where inflation aligns with the price stability target, and economic growth “slightly above cruising speed”. However, he cautioned against two risk scenarios: one where inflation remains above 2% and another where it falls well below 2% and fails to recover.

          Addressing recent financial market volatility, Himino noted that Yen’s appreciation might ease the import cost pressures faced by small and medium-sized enterprises, though it could reduce yen-denominated profits for export industries. He reassured that Japanese firms have developed competitive strengths. Stock price volatilities, while influential, should not significantly undermine business sentiment.

          Full speech of BoJ’s Himino here.

          US trade deficit narrowed to USD 70.6B in Jul

            US exports rose USD 0.5B to USD 259.3B in July. Imports dropped USD -9.7B to USD 329.9B. Trade deficit narrowed from USD -79.6B to USD -70.6B, versus expectation of USD -70.2B. The decrease in goods and services deficit reflected a decreased in goods deficit to USD -91.1B, and an increase of service surplus to USD 20.4B.

            Goods deficit with EU decreased USD 5.7B to USD -11.9B. Deficit with China decreased USD 3.9B to USD -33.0B. Deficit with Mexico increased USD 2.0B to USD -11.7B.

            Full release here.

            US Q3 GDP growth finalized at 2.3% annualized

              US Q3 GDP growth rate was finalized at 2.3% annualized, revised up from 2.1%. The update primarily reflects upward revisions to personal consumption expenditures (PCE) and private inventory investment that were partly offset by a downward revision to exports. Imports, which are a subtraction in the calculation of GDP, were revised down.

              Full release here.

              Germany PMI services finalized at 49.9 in Apr, recovery stopped in its tracks

                Germany PMI Services was finalized at  49.9 in April 49.9 in April, down from March’s 51.5, back below the 50 no-change threshold. PMI Composite stayed strong at 55.8, despite retreating from March’s 37-month high of 57.3.

                Phil Smith, Economics Associate Director at IHS Markit said: “The tightening of COVID-19 lockdown measures in April stopped the service sector’s recovery in its tracks… The continued strong performance seen in manufacturing is spilling over to services, notably supporting a rise in activity for transport & storage businesses…. April’s survey highlighted a continued rise in cost pressures across the service sector, albeit at nothing like the same rate as seen in manufacturing.”

                Full release here.

                Eurozone CPI finalized at 8.1% yoy in may, core CPI at 3.8% yoy

                  Eurozone CPI was finalized at 8.1% yoy in May, up from April’s 7.4% yoy. All-items excluding energy rose from 4.1% yoy to 4.6% yoy. All-item excluding energy, food, alcohol and tobacco rose from 3.5% yoy to 3.8% yoy. Energy prices accelerated from 37.5% yoy to 39.1% yoy. Food, alcohol and tobacco prices accelerated from 6.3% yoy to 7.5% yoy.

                  EU CPI was finalized at 8.8% yoy, up from April’s 8.1% yoy. The lowest annual rates were registered in France, Malta (both 5.8%) and Finland (7.1%). The highest annual rates were recorded in Estonia (20.1%), Lithuania (18.5%) and Latvia (16.8%). Compared with April, annual inflation fell in one Member State and rose in twenty-six.

                  Full release here.

                  China cuts FX reserve ratio by 100bps to stabilize Yuan

                    China’s PBOC announce to cut foreign exchange reserve ratio of financial institutions by 100 basis point, from 9.00% to 8.00%. The move is to improve the ability of financial institutions to use foreign exchange funds, and thus help stabilize Yuan from recent free fall.

                    USD/CNH retreats mildly after the release. But after all, break of 6.5214 support is needed to be the first sign of short term topping. Otherwise, USD/CNH’s recent rally is still expected to continue. That is, Yuan’s decline is not finished yet.

                    China orders closure of US Chengdu consulate as Pompeo called for free world against CCP, HSI down

                      Additionally, Sentiments in Asia were weighed down by intensifying US-China tensions. In a furious speech titled “Communist China and the Free World’s Future“, US Secretary of State Michael Pompeo warned “if the free world doesn’t change Communist China, Communist China will change us,” He called for American’s allies to “triumph over this new tyranny” of the Chinese Communist Party. Separately, President Donald Trump also said the trade deal with China “means less to me now than when I made it”.

                      On the China’s side, it ordered the US to close the consulate general in city of Chengdu. It said in a statement, “the Ministry of Foreign Affairs of China informed the U.S. Embassy in China of its decision to withdraw its consent for the establishment and operation of the U.S. Consulate General in Chengdu. This is the long awaited response to US’s order to close China’s consulate general in Houston earlier this week.

                      Hong Kong HSI is down -461.31 pts, or -1.83% at noon. It’s now reversed all of the earlier gains this week and breaks the 55 day EMA. This EMA would be the focus for next week’s trading. Sustaining below there would be the first sign of completion of whole corrective rebound from 21139.26. Deeper fall would then be seen back towards 22519.73 support. Selling could spread to other Asian markets if that happens.

                      China’s Caixin PMI manufacturing rises to 50.7, back to growth amidst challenges

                        China’s Caixin PMI Manufacturing index climbed from 49.5 to 50.7 in November, surpassing the expected 49.3. According to Caixin’s release, this improvement is attributed to sustained rise in total new work, which helped push production back into growth territory. Additionally, there was softer reduction in employment and uptick in business confidence, reaching a four-month high.

                        Wang Zhe, Senior Economist at Caixin Insight Group, noted, “Overall, the manufacturing sector improved in November.” He cited several factors contributing to this improvement: expansion in supply and demand, stable prices, improved logistics, increased purchasing quantities, and a more optimistic outlook among manufacturers. However, he also pointed out some ongoing challenges, such as sluggish external demand, weak employment, and cautious inventory management by manufacturers.

                        Wang also commented on the broader macroeconomic context, stating, “The macro economy has been recovering.” He observed improvements in household consumption, industrial production, and market expectations. Despite these positive signs, he cautioned that both domestic and foreign demand remain insufficient, employment pressures are high, and the economic recovery is still searching for a solid footing.

                        Full China Caixin PMI Manufacturing release here.

                        Eurozone CPI finalized at 6.1% yoy in May, core at 5.3% yoy

                          Eurozone CPI was finalized at 6.1% yoy in May, down from April’s 7.0% yoy. CPI core (all-items ex energy, food, alcohol & tobacco) was finalized at 5.3% yoy, down from prior month’s 5.6% yoy.

                          The highest contribution to the annual Eurozone inflation rate came from food, alcohol & tobacco (+2.54%), followed by services (+2.15%), non-energy industrial goods (+1.51%) and energy (-0.09%).

                          EU CPI was finalized at 7.1% yoy, down from prior month’s 8.1% yoy. The lowest annual rates were registered in Luxembourg (2.0%), Belgium (2.7%), Denmark and Spain (both 2.9%). The highest annual rates were recorded in Hungary (21.9%), Poland and Czechia (both 12.5%). Compared with April, annual inflation fell in twenty-six Member States and rose in one.

                          Full Eurozone CPI release here.

                          US PMI manufacturing dropped to 119-month low, contractionary at 49.9

                            US PMI Manufacturing dropped to 49.9 in August, down from 50.4 and missed expectation of 50.5. That’s the lowest level in 119 months. PMI Services dropped to 50.9, down from 53.0 and missed expectation of 52.8. PMI Composite dropped to 50.9, down from 52.6.

                            Commenting on the flash PMI data, Tim Moore, Economics Associate Director at IHS Markit said:

                            “August’s survey data provides a clear signal that economic growth has continued to soften in the third quarter. The PMIs for manufacturing and services remain much weaker than at the beginning of 2019 and collectively point to annualized GDP growth of around 1.5%.

                            “The most concerning aspect of the latest data is a slowdown in new business growth to its weakest in a decade, driven by a sharp loss of momentum across the service sector. Survey respondents commented on a headwind from subdued corporate spending as softer growth expectations at home and internationally encouraged tighter budget setting.

                            “Manufacturing companies continued to feel the impact of slowing global economic conditions, with new export sales falling at the fastest pace since August 2009.

                            “Business expectations for the year ahead became more gloomy in August and remain the lowest since comparable data were first available in 2012. The continued slide in corporate growth projections suggests that firms may exert greater caution in relation to spending, investment and staff hiring during the coming months.”

                            Full release here.

                            Australia retail sales rose 1.6% mom to new record in Mar

                              Australia retail sales rose 1.6% mom to new record AUD 33.6B in March, well above expectation of 0.5% mom. Over the 12-month period, sales rose 9.4% yoy.

                              Director of Quarterly Economy Wide Statistics, Ben James, said the result was up 0.8% on the previous record level set in November 2021. This follows a 1.8% rise in February 2022, a 1.6% rise in January 2022 and a fall of -4.1% in December 2021.

                              “Rising prices, combined with the continued easing of restrictions across the country has led to rises in turnover in all three months of the March quarter.

                              Full release here.

                              New Zealand ANZ Business Confidence rose to -41.8, recovery going to be a long haul

                                New Zealand ANZ Business Confidence improved to -41.8 in May, up from May’s prelim reading of -45.6, and April’s -66.6. All industry stayed negative, worst in Agriculture at -82.1. Activity Outlook improved to -38.7, up from May’s prelim reading of -42.0, and April’s -55.1. Retail activity was worst at -45.3. Also, with the Activity Outlook stayed well below 2008.09 lows, and would “need to rise another 17 points just to reach its lows from the 2009 recession”.

                                ANZ also noted, “it’s a long way back to normality” while “the recession is just starting to make itself felt”. The economy needs to “reshape to face to the new reality”, in particular, the loss of international tourists “completely for now, but likely still at a hugely significant scale for years”. “Fiscal and monetary policy are doing what they can to cushion the blow and sow the seeds of recovery, but it’s going to be a long haul.”

                                Full release here.

                                BoE Saunders: Safer to err on the side of easing somewhat too much

                                  BoE policymaker Michael Saunders, a known dove, warned of the risks of a “vicious circle whereby the economy gets stuck in a self-feeding loop of weak activity, pessimistic expectations and low investment.”

                                  “The searing experience of such a dramatic drop in incomes, jobs and profits is likely to have lasting behavioural effects, as after previous crises,” he said.

                                  He maintained he dovish stance and urged, “it is safer to err on the side of easing somewhat too much, and then if necessary tighten as capacity pressures eventually build, rather than ease too little and find the economy gets stuck in a low inflation rut.”

                                  Canada’s retail sales rises 0.7% mom in Oct, led by motor vehicle and parts

                                    Canada’s retail sales rose 0.7% mom to CAD 66.9B in October, below expectation of 0.8% mom. Core retail sales—which exclude gasoline stations and fuel rose 1.2% mom.

                                    Sales were up in seven of nine subsectors and were led by increases at motor vehicle and parts dealers (+1.1%).

                                    Advance estimates suggest that sales were relatively unchanged in November.

                                    Full Canada retail sales release here.

                                    Into US session: Sterling extends rally, Swiss Franc strong on Pakistan/India tensions

                                      Entering US session, Sterling is back in the driving seat again and is extending this week’s rally on fading chance of no-deal Brexit. Swiss Franc follows as the second strongest, lifted by escalating Pakistan/India tensions after both shot down each others’ fighter jets. Canadian Dollar is now the third strongest, as oil price rebound. WTI is back above 56.7 as the impact of Trump’s tweet fades. Meanwhile, Aussie and Kiwi are the weakest ones.

                                      Focus will now turn to Canadian CPI first. US will also release trade balance pending home sales and factory orders. Fed chair Jerome Powell will have the second day of Congressional testimony. But testimony of USTR Robert Lighthizer’s testimony will catch more attention. Lighthizer might reveal some of the little known substantial progress in trade talks with China.

                                      In Europe, currently:

                                      • FTSE is down -0.70%.
                                      • DAX is down -0.37%.
                                      • CAC is down -0.15%.
                                      • German 10-year yield is down -0.0127 at 0.107.

                                      Earlier in Asia:

                                      • Nikkei closed up 0.50%.
                                      • Hong Kong HSI dropped -0.05%.
                                      • China Shanghai SSE rose 0.42%.
                                      • Singapore Strait Times dropped -0.36%.
                                      • Japan 10-year JGB yield rose 0.0019 to -0.024.

                                      Japan’s core machinery orders decline -4.9% mom in Nov

                                        Japan’s core private-sector machinery orders fell notably by -4.9% mom in November, significantly below expectation of -0.8% mom. This decline marks the first downturn in three months and points to a potential slowdown in business investment. On a year-on-year basis, core machinery orders decreased -4.0% yoy, falling short of the anticipated 0.2% yoy increase.

                                        The Japanese government has maintained its assessment that machinery orders have “stalled” for 13 consecutive months. This continued stagnation in machinery orders is particularly concerning as they are often regarded as a leading indicator of capital spending over the next six to nine months. The implication is that businesses might be exercising caution in their investment decisions, possibly due to uncertainty in the economic outlook or other external factors impacting their spending plans.

                                        Breaking down the orders by sector, manufacturing industry saw substantial reduction in orders, with -7.8% mom drop. Service sector also recorded a slip in orders, down -0.4% mom.

                                        Full Japan machine order release here.

                                        Abe to announce Japan style lockdown in seven prefectures tomorrow

                                          Japanese Prime Minister Shinzo Abe indicated that he could formally announce a month-long state of emergency as soon as on Tuesday. The seven prefectures include Tokyo, Osaka, Kanagawa, Saitama, Chiba, Hyogo and Fukuoka. Though, he insisted that “we are not changing Japan’s policy, but strengthening it and asking for full cooperation.”

                                          “Japan won’t, and doesn’t need, to take lockdown steps like those overseas,” he added. “Trains will be running and supermarkets will be open. The state of emergency will allow us to strengthen current steps to prevent an increase in infections while ensuring that economic activity is sustained as much as possible.”

                                          Additionally, Abe is planning to boost virus testing capacity to 20,000 a day, with increased number of hospital beds and ventilators. There will also be cash handouts of JPY 200m to small and midsize businesses.