US initial jobless claims dropped to 229k, slightly below expectations

    US initial jobless claims dropped -3k to 229k in the week ending June 11, slightly better than expectation of 230k. Four-week moving average of initial claims rose 3k to 219k.

    Continuing claims rose 3k to 1312k in the week ending June 4. Four-week moving average of continuing claims dropped slightly by -750 to 1317.5k, lowest since January 10, 1970, when it was 1311k.

    Full release here.

    BoJ Suzuki: Very difficult to achieve price stability once financial system destabilizes

      BoJ board member Hitoshi Suzuki said while there are risks from heightening overseas uncertainties, there was no sign of recession yet. He emphasized that “if the BOJ were to consider and implement specific monetary easing measures, it will take action deemed appropriate at the time while weighing the benefits and demerits of each step.”

      He further pointed out, “if bank deposit rates effectively turn negative, it could hurt the economy by cooling consumer sentiment”. And excessively low interest rates could also discourage lending and lower the impact of monetary easing. He added, “once the financial system destabilizes, it will become very difficult to achieve price stability.”

      China foreign currency reserves rose 0.05% in June

        China’s foreign currency reserves rose USD 1.5B in June to USD 3.1121T, up 0.05%. The State Administration of Foreign Exchange spokesperson said that the China’s foreign exchange market was “generally stable”. Due to strength in the US Dollar and change in asset pricing, the overall currency reserve rose slightly.

        SAFE also noted that since the start of the year, China’s economy has “maintained a steady trend”. But there were “divergence” in global recovery, heightened trade friction, capital out-flow and currency depreciation pressure in emerging markets. Though, China’s cross-border capital flowed remained stable.

        Today’s top mover: A very interesting picture in EUR/NZD

          At the time of writing, EUR/NZD is the biggest loser for today. Just an hour or two ago, it should be GBP/NZD. But thanks to the current recovery, GBP/NZD is relegated to the second place.

          Nevertheless, EUR/NZD does give us an interesting picture to study.

          It’s clear that 1.7928 is a medium term top. Firstly, the up trend from 1.4534 has completed a five-wave sequence. Secondly, bearish divergence conditions are seen in both daily and weekly MACD. EUR/NZD is now approaching a key support zone between 1.6569 and 38.2% retracement of 1.4534 to 1.7928 at 1.6631. Could this cluster support zone hold? Based on current momentum, it’s rather hard to say.

          Instead of predicting whether 1.6569/6631 would hold, we’ll look at the implication of break or hold instead. Strong rebound from 1.6569/6631 and break of 1.7060 minor resistance will indicate completion of the decline 1.7928. More improtantly, with the end of wave four at 1.6569 defended, it will suggest that price actions from 1.7928 are merely forming a corrective pattern. That is, EUR/NZD is still in a medium to long term up trend and break of 1.7928 should be seen afterwards.

          However, another possible interpretation is that price actions from 1.3881 (2015 low) could have just completed a three wave corrective pattern at 1.7928. And being the third leg of the pattern, rise from 1.4534 to 1.7928 is correct as an impulsive move. Sustained break of 1.6569/6631 will shift favor this very bearish case that could see EUR/NZD revisiting 1.3381/4534 zone in medium to long term.

          Fundamentally, the latter bearish case got its arguements too. Markets were rather bearish on New Zealand Dollar due to dovish RBNZ outlook. RBNZ has just reiterated last week that it expected to keep OCR unchanged at 1.75% “through 2019 and into 2020”. And, the next move could both be a hike or cut.

          However, it should also be reminded that New Zealand just posted last week a stellar Q3 job data, which saw unemployment rate dropped to decade low. The data has already had some positive impact on Kiwi. Should improvement in employment and inflation persist, markets would continue to pare back bet on RBNZ cut or even turn to bet on a hike. And if situation in Eurozone worsen, ECB might keep interest unchanged even after summer of 2019. Flips in sentments on both sides could indeed set up a free fall in EUR/NZD back to 1.38/45.

          Well, admittedly, it’s really too far-fetched for now. But it would be an interesting pair to watch in the coming months.

          UK Barclay denied discussing Article 50 extension on Brexit

            UK Brexit Minister Stephen Barclay denied the Daily Telegraph report that they’re discussing the possibility f withdrawal request with EU. He told BBC radio that “I’ve had no discussions with the European Union in terms of extension.”

            When he’s explicitly asked if he could deny the report, Barclay said “Yes, because I can be very clear that the government’s policy is to leave on March 29, the prime minister has made that clear on numerous occasions to parliament.”

            Separately, Irish Prime Minister Leo Varadkar pledged to try to give UK the reassurances needed for getting the Brexit agreement through the parliament. Varadkar said “We don’t want to trap the UK into anything – we want to get on to the talks about the future relationship right away,” And, “I think it’s those kind of assurances we are happy to give.”

            Fed Waller: Two more 25bps hikes this year necessary

              In a speech, Fed Governor Christopher Waller expressed his support for the additional tightening to combat inflation. Despite this week’s data showing a decrease in core CPI in June, Waller remains cautious, maintaining that “one data point does not make a trend.”

              Arguing for a proactive stance, Waller voiced his view that “two more 25-basis-point hikes” this year would be “necessary to keep inflation moving toward our target.”

              Waller believe there is “no reason why” the first hike should not occur this month. “If inflation does not continue to show progress and there are no suggestions of a significant slowdown in economic activity,” he added”, “then a second 25-basis-point hike should come sooner rather than later, but that decision is for the future.”

              Furthermore, Waller anticipates a need to keep policy restrictive for a while to encourage inflation to settle around the 2% target. “I am going to need to see this improvement sustained before I am confident that inflation has decelerated,” he warned, calling for sustained evidence of improvement before he’s fully convinced of any deceleration in inflation.

              Full speech of Fed Waller here.

              May’s new Brexit plan received terrible responses

                Sterling was lifted briefly by UK Prime Minister Theresa May’s “new” Brexit plan. But recovery in Pound quickly faded as the plan was terribly received by MPs across the House. In short, under the new 10-point plan, the most important part is guaranteeing a vote on whether to call a second referendum on the Brexit deal. However, the pre-condition for the vote on referendum is the passage of the Brexit deal itself in the Commons.

                Labour leader Jeremy Corbyn was quick to reject the proposal as “largely a rehash” and pledged “we won’t back a repackaged version of the same old deal”. Former foreign minister Boris Johnson and ex Brexit minister Dominic Raab said they’d oppose the deal. Pro-Brexit Cabinet ministers including Michael Gove, Andrea Leadsom and Chris Grayling opposed the idea of a “free vote”. Northern Ireland’s Democratic Unionist Party was concerned that “fatal flaws” of the original Brexit deal remained, which could split Northern Ireland with the rest of UK.

                Despite the desperate final gamble, there is still practically no chance for May to get her Brexit deal through Commons in the June. A fourth humiliating defeat is more likely than not.

                Sterling surges as Conservative on track to massive election victory

                  Sterling strengthens broadly as exit poll suggested that Conservative Party is on course for a thumping 86-seat majority after the landslide win in the elections. Boris Johnson is expected to push his Brexit deal through the parliament, with a second reading before Christmas. UK would then be on track to finally leave the EU in an orderly manner on January 31.

                  Labour Party leader Jeremy Corbyn said he will stand down after the worst defeat since 1935. The party would lost 61 seats since the 2017 elections, finishing on just 201 MPs.

                  US initial jobless claims falls to 235k vs exp 238k

                    US initial jobless claims fell -10k to 235k in the week ending July 20, slightly below expectation of 238k. Four-week moving average of initial claims was relatively unchanged at 236k.

                    Continuing claims fell -9k to 1851k in the week ending July 13. Four-week moving average of continuing claims rose 5k to 1854k, highest since December 4, 2021.

                    Full US jobless claims release here.

                    UK PMI manufacturing finalized at 46.2, suffered a further decline

                      UK PMI Manufacturing was finalized at 46.2 in October, down from September’s 48.4. That’s the lowest level in 29 months, and the reading has been below 50 mark for three consecutive months.

                      S&P Global noted that output, new orders and new export business all declined. Job cuts were registered for the first time in almost two years. Input cost and selling price inflation eased slightly.

                      Rob Dobson, Director at S&P Global Market Intelligence, said: “UK manufacturing production suffered a further decline at the start of the fourth quarter, with the sector buffeted by weak demand, high inflation, supply-chain constraints and heightened political and economic uncertainties…. The darkening situation also knocked business optimism down to a two-and-a-half year low… On current form manufacturing is in no position to help prevent the broader UK economy from sliding into recession.”

                      Full release here.

                      Fed Evans: Policy will stay accommodative after interest rate liftoff

                        Chicago Fed President Charles Evans said there is no “strict numerical formula” to determine the time of “liftoff” of interest rate, and “how long to keep policy accommodative after liftoff”. He added that the work on inflation is “unlikely to be complete when we first begin to raise rates”. That means, Fed will “maintain accommodative monetary conditions until our inflation averaging goal is met”. Even though,

                        Evans also said Fed has the “capacity to do more asset purchases” but he currently doesn’t see the need. At some point, Fed will need to give explicit guidance on future pace or type of asset purchases. Nevertheless, “that’s not where we are, and it’s probably going to be the Spring until I have a better sense”

                        NATO pledged to spend more, but Trump wants double the target

                          In a NATO summit statement “Brussels Declaration on Transatlantic Security and Solidarity”, the alliance pled to “share fairly the responsibilities of defending each other. ” It noted that “Real progress has been made across NATO since our last Summit in Warsaw, with more funding by all Allies for defence, more investment in capabilities, and more forces in operations.”

                          And, “even if we have turned a corner, we need to do more, and there will be further progress.  We are committed to the Defence Investment Pledge agreed in 2014, and we will report annually on national plans to meet this Pledge.”

                          That seemed to be a unified answer to Trump’s call for more spending from other NATO members.

                          Separately, Bulgaria’s President Rumen Radev told reporters that “President Trump, who spoke first, raised the issue not only to achieve 2 percent, today, but (set) a new barrier – 4 percent.” Reuters also reported an unnamed UK official saying
                          “He certainly said that he wanted more money to be spent on defense”, referring to Trump.

                          Here is full NATO statement.

                          Brussels Declaration on Transatlantic Security and Solidarity

                          1. NATO guarantees the security of our territory and populations, our freedom, and the values we share – including democracy, individual liberty, human rights and the rule of law.  Our Alliance embodies the enduring and unbreakable transatlantic bond between Europe and North America to stand together against threats and challenges from any direction. This includes the bedrock commitment to collective defence set out in Article 5 of the Washington Treaty.  NATO will continue to strive for peace, security and stability in the whole of the Euro-Atlantic area, in accordance with the purposes and principles of the UN Charter.
                          2. We face a prolonged period of instability. Russia is challenging the rules-based international order by destabilising Ukraine including through the illegal and illegitimate annexation of Crimea; it is violating international law, conducting provocative military activities, and attempting to undermine our institutions and sow disunity.  At the same time, a multitude of threats emanate from NATO’s Southern periphery. While significant progress has been made in defeating ISIS/Daesh, terrorism, in all its forms and manifestations, continues to threaten Allies and the international community and to undermine stability. Instability contributes to irregular migration, trafficking and other challenges for our countries. Allies stand firmly in unity and solidarity in the fight against terrorism.
                          3. We will share fairly the responsibilities of defending each other.  Real progress has been made across NATO since our last Summit in Warsaw, with more funding by all Allies for defence, more investment in capabilities, and more forces in operations.  But even if we have turned a corner, we need to do more, and there will be further progress.  We are committed to the Defence Investment Pledge agreed in 2014, and we will report annually on national plans to meet this Pledge.
                          4. Today we are strengthening further our deterrence and the collective defence of all NATO territory and populations, building on our Forward Presence and consistent with the decisions taken in Warsaw. Our deterrence and defence is based on an appropriate mix of nuclear, conventional and missile defence capabilities, which we continue to adapt.  We will increase the readiness of our forces and improve our ability to reinforce each other within Europe and across the Atlantic. As part of that, we have agreed an adapted and strengthened NATO Command Structure. We are also further reinforcing the cyber defence capabilities of Allies and of NATO itself.
                          5. We are strengthening our capacity to prepare against, deter and respond to hybrid threats. Hybrid tactics increasingly target our political institutions, our public opinion and the security of our citizens.  Allies are making our societies more resilient against them, and we will respond with resolve when necessary.
                          6. NATO poses no threat to any country. All these measures are defensive, proportionate and transparent, and within NATO’s legal and political commitments.  We remain fully committed to arms control, disarmament and non-proliferation.
                          7. We remain ready for a meaningful dialogue with Russia to communicate clearly our positions and, as a first priority, to minimize risk from military incidents, including through reciprocal measures of transparency.  We continue to aspire to a constructive relationship with Russia, when Russia’s actions make that possible.
                          8. We are boosting NATO’s contribution to the international fight against terrorism. We have decided, on request of the Iraqi Government and in coordination with the Global Coalition to Defeat ISIS, to establish a training mission in Iraq.  We will increase our assistance to the Afghan Security Forces, providing more trainers and extending financial support, as the Government makes an unprecedented political effort to seek a peaceful resolution to the conflict.   NATO will do more to help Allies, on their request, to tackle terrorism at home; to provide advice and support to partners, including through the new Hub for the South; and will continue to contribute to the Global Coalition.
                          9. We are strengthening NATO’s contribution to projecting stability, because we know that our security is best assured if it is shared beyond our borders. We have agreed a Package on the South to deepen our political dialogue and practical cooperation with our partners in the region, including Jordan and Tunisia.  We provide tailored support to our eastern partners Georgia, the Republic of Moldova and Ukraine, as well as to Bosnia and Herzegovina.  We will also boost NATO’s cooperation with Finland and Sweden in the Baltic Sea, as well as with our partners in the Black Sea, Western Balkans and Mediterranean regions, each of which is important to Alliance security.  We are maintaining our important operation in Kosovo. And while remaining a transatlantic Alliance, NATO will retain its global perspective.
                          10. The NATO-EU strategic partnership is essential for the security and prosperity of our nations and of the Euro-Atlantic area.  The European and North American Allies contribute significantly to European security and defence. We recognize that a stronger and more capable European defence will lead to a stronger NATO. We therefore welcome the Joint Declaration signed by the NATO Secretary General and the Presidents of the European Council and Commission, which sets out the unprecedented progress being made in NATO-EU cooperation, including on military mobility. We welcome the significant contributions of the members of both organisations to Euro-Atlantic security.
                          11. We are committed to NATO’s Open Door policy because it strengthens the Alliance and contributes to Euro-Atlantic security, in keeping with the Bucharest Summit.  We warmly welcome the agreement between Athens and Skopje; this success will benefit both countries, the region and NATO.  We have decided to invite the Government in Skopje to begin accession talks to join the Alliance once the terms of the agreement are met.
                          12. We continue to modernize the Alliance. To face evolving security challenges, we have taken steps to ensure that NATO can continue to act at the speed required. Our new policies on NATO’s support for Women, Peace and Security, and for the protection of civilians and children in armed conflict, demonstrate our determination to step up NATO’s role in these areas.
                          13. We pay tribute to all the men and women who serve, and who have served, in NATO operations and missions.  Their service and sacrifice has been essential to keep our territories and populations safe.

                          BoE Pill: A case can be made for measured rather than activist approach to policy decisions

                            BoE Chief Economist Huw Pill said in a speech even though the voted for a 25bps hike last week, “given the inflationary pressures we currently face, I can certainly understand why colleagues on the MPC voted for a 50bp hike”.

                            But, “a case can be made for a measured rather than activist approach to policy decisions, with a focus on more persistent developments in the data that have lasting implications for the outlook for price stability,” he said.

                            “That is what I would label a ‘steady handed’ approach to monetary policy. Even if it does not provide guidance in all circumstances, I hope it can help explain why I voted for a 25bp hike – rather than something larger – last week.”

                            Full speech here.

                            Italian eurosceptic Savona urged to be ready for all eventualities on Euro membership

                              Italian European Affairs Minister Paolo Savona warned today that the country had to be ready for “all eventualities” on its Eurozone membership. He told a panel in the Senate that “we may find ourselves in a position where it’s not we who decide but others.” Hence, “my position regarding a Plan B … is that we have to be ready for all eventualities.”

                              Savona is a known eurosceptic who’s nomination as Economy Minister was veto by President President Sergio Mattarella earlier this year. That led to academic Giovanni Tria taking up that post to solve the political and constitutional crisis.

                              Bank of Italy Governor Ignazio Visco warned today that the country is now much more vulnerable than 10 years ago should another financial crisis hit. Visco urged “prudence and far-sightedness are needed to avoid (market) tensions and to avoid leaving Italians with a higher debt and lower income in the future.” Visco added that “there is certainly a need for public investments, to be chosen and implemented with maximum efficiency, just as there is a need for a broad and balanced tax reform.”

                              US initial jobless claims rose 4k to 870k, above expectation

                                US initial jobless claims rose 4k to 870k in the week ending September 19, above expectation of 850k. Four-week moving average of initial claims dropped -35k to 878k.

                                Continuing claims dropped -167k to 12580k in the week ending September 12. Four-week moving average of continuing claims dropped -478k to 13041k.

                                Full release here.

                                Eurozone Sentix investor confidence dropped to 19.2, lowest since Feb 2017

                                  Eurozone Sentix investor confidence dropped to 19.2 in May, down from 19.6, missed expectation of 21.0. That’s the 4th decline in a row, and hit the lowest level since February 2017. Current situation index dropped 0.2 to 42.8, lowest since October 2017. Expectations dropped to -2, lowest since October 2014.

                                  Quotes from the release:

                                  “Uncertainties about the introduction of punitive US tariffs and the danger that this could lead to an expansion of protectionist measures are weighing on us.”

                                  Overall Germany investor confidence index dropped 0.9 to 24.4, lowest since September 2016. Current situation index dropped 2.2 to 59.8, lowest since April 2017. Expectation index was unchanged at -7.8.

                                  Full release here

                                  Japan GDP suffered worst contraction in 6 years, sentiments pessimistic

                                    Japan GDP contracted -1.6% qoq in Q4, much worse than expectation of -0.9% qoq. In annualized term, GDP contracted -6.3%, biggest contraction in six years. Looking at some details, private consumption dropped -2.9% in response to the sales tax hike in October. Capital expenditure dropped -3.7%. External demand contributed to 0.5% point to GDP growth, in sufficient to offset -2.1% negative contribution from domestic demand. With impact from China’s coronavirus outbreak, contraction might extend into Q1, making it a technical recession.

                                    Outlook is pessimistic too based on a Reuters survey that tracks BoJ’s Tankan. The Reuters Tankan manufacturer sentiments index rose from -6 to -5 in February. Services index rose from 14 to 15. Business confidence is not too much lifted by the US-China trade deal. The government might be forced to launch another around of fiscal stimulus soon to support growth.

                                    RBA Lowe: No strong case for near term hike

                                      RBA Governor Philip Lowe said:

                                      • Australian economy expected to be stronger in 2018.
                                      • “Businesses are reporting stronger business conditions than at any time since before the financial crisis.”
                                      • Economy is “moving in the right direction and interest rates still quite low, it is likely that the next move in interest rates in Australia will be up, not down.”
                                      • But “the board does not see a strong case for a near-term adjustment of monetary policy”, thanks to slow progress in unemployment and inflation.

                                      Regarding the steel and aluminum tariffs of the US, Lowe slammed it as “highly regrettable and bad policy”.

                                      • “History is very clear here. Protectionism is costly. It’s costly to the country that implements the protectionism, and it’s costly to everyone else. It’s just not the right thing to do.”
                                      • “How damaging will this be remains open. If it’s just confined to the current higher tariffs on steel and aluminium, then I think it’s manageable for the world economy.”
                                      • However, “this could turn very badly, though, if it escalates.”

                                      RBA is generally expected to keep rates on hold throughout 2018, except that NAB predicts one hike. Slowing growth in Q4 and risk of trade wars would add to the case for RBA to stand pat.

                                      ECB’s Kazimir strongly believe that latest hike was last

                                        ECB Governing Council member Peter Kazimir said today, “I strongly believe that our rate hike at the last meeting was the last one” The focus, he outlined, now shifts to the upcoming December and March forecasts, as “only real data can persuade us that we’re at the peak.”

                                        Kazimir addressed inflation concerns, observing that, “We see the overall inflation and also core inflation on a downward trend, though this is lasting a bit longer than we’d wanted.” He further highlighted the ripple effects of past rate hikes, pointing out that they “have an increasingly significant impact on the real economy.”

                                        Shedding light on the broader economic repercussions, he mentioned that “Financing conditions are tightening and are weakening demand for investments, in production and affecting overall economic growth.” With this context, Kazimir emphasized the urgency to manage inflation effectively and swiftly.

                                        On the topic of ECB’s PPEP reinvestments, Kazimir treaded cautiously, suggesting the bank was “ready for debate” but reiterated the importance of maintaining balance. The topic of altering the balance sheet’s reduction pace will be broached only when the Council is confident further rate hikes won’t be necessary.

                                        MOFCOM: China and US working towards removing all “raised” tariffs

                                          Chinese Commerce Ministry spokesman Gao Feng repeated in a regular press briefing that the meeting between Xi and Trump in Argentina was “very successful and has reached important consensus on economic and trade issues.” He added both countries have “high degree of interest in economic and trade issues and have natural and complementary structural need”. And team from both sides are working closely to reach an agreement within the next 90 days. He also added the “ultimate goal” is to cancel all “raised” tariffs. (He didn’t say all tariffs).

                                          Gao also explained that the agreement will start with agricultural products, energy, automobiles, etc. And both sides would “immediately implement specific issues that the two sides have reached consensus.” During the 90 days period, there will be “conduct consultations on issues such as intellectual property protection, technical cooperation, market access, and trade balance”, in accordance with a clear timetable and roadmap.

                                          Besides, “in the fields of protecting intellectual property rights, promoting fair competition, and relaxing market access” Gao said “China and the United States and enterprises of both countries share common demands, which is also in line with China’s consistent direction of deepening reform and opening up”.

                                          The press release in simplified Chinese.