US commercial crude oil inventories rose 1.9m barrels in the week ending March 19, versus expectation of 1.4m. At 502.7m barrels, US crude oil inventories are about 6% above the 5-year average for this time of year. Gasoline inventories rose 0.2% barrels. Distillate rose 3.8m barrels. Propane/propylene rose 0.2% barrels. Total commercial petroleum inventories rose 4.8m barrels.
WTI recovered after dipping to 57.29, as it’s tentatively drawing support from 55 day EMA (now at 58.23). Rebound form the current level, followed by break of 62.08 minor resistance will indicate completion of the pull back from 67.83. Retest of this high should be seen next.
Nevertheless, sustained break of the 55 day EMA will indicate that WTI is in a medium term correction. Deeper fall should be seen to 38.2% retracement of 33.50 to 67.83 at 54.71 at least, before the correction completes.
Minutes of BoJ’s July 14/15 meeting showed policymakers are concerned with resurgence of coronavirus in Japan. A few board members noted, “infection numbers are increasing at a faster pace globally, so we need to be on alert of the possibility of a re-insurgence including in Japan”. Another member warned, “if infection numbers rise again, the timing of an economic recovery will be delayed.”
Overall, members agreed “the economy, with economic activity resuming, was likely to improve gradually from the second half of this year; however, the pace of improvement was expected to be only moderate while the impact of COVID-19 remained worldwide.”
Eurozone GDP grew 0.6% qoq in Q1, revised up from prior estimate of 0.3% qoq. EU GDP grew 0.7% qoq. Ireland (+10.8%) recorded the highest increase of GDP compared to the previous quarter, followed by Romania (+5.2%) and Latvia (+3.6%). Decreases were observed in Sweden (-0.8%), France (-0.2%) and Denmark (-0.1%).
Eurozone employment grew 0.6% qoq while EU employment grew 0.5% qoq. In the first quarter of 2022, Estonia (+3.5%), Latvia (+2.1%) and Portugal (+1.7%) recorded the highest growth of employment in persons compared with the previous quarter. Employment declined in Poland (-0.6%) and Croatia (-0.1%).
US Conference Board Consumer Confidence rose to 129.1 in July, up from 128.9, above expectation of 123.9. Present Situation index rose from 159.6 to 160.3. Expectations index ticked lower from 108.5 to 108.4.
Consumer confidence was flat in July but remains at its highest level since February 2020 (132.6),” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Consumers’ appraisal of present-day conditions held steady, suggesting economic growth in Q3 is off to a strong start. Consumers’ optimism about the short-term outlook didn’t waver, and they continued to expect that business conditions, jobs, and personal financial prospects will improve. Short-term inflation expectations eased slightly but remained elevated. Spending intentions picked up in July, with a larger percentage of consumers saying they planned to purchase homes, automobiles, and major appliances in the coming months. Thus, consumer spending should continue to support robust economic growth in the second half of 2021.”
UK PMI Services was finalized at 62.9 in May, up from April’s 62.9, fastest growth in 24 years. PMI Composite was finalized at 62.9, up from April’s 60.7, record high since 1998.
Tim Moore, Economics Director at IHS Markit: “UK service providers reported the strongest rise in activity for nearly a quarter-century during May as the roll back of pandemic restrictions unleashed pent up business and consumer spending. The latest survey results set the scene for an eye-popping rate of UK GDP growth in the second quarter of 2021, led by the reopening of customer-facing parts of the economy after winter lockdowns.”
RBNZ Governor Adrian Orr said today that monetary easing bias remains in place for now. And softer economic conditions in US, Europe and China are having a role in the dovish tone.
Also, Orr added that “possibilities of first quarter inflation numbers being undershot have already being factored in the RBNZ’s dovish bias”. The comments came just ahead of New Zealand’s CPI release tomorrow. Headline inflation is expected to slow from 1.9% yoy to 1.7% yoy in Q1.
NZD/USD is a touch lower after the comments. However, Orr said that inflation undershot was already factored in. Thus, there is prospect of a mild rebound should tomorrow’s CPI release meets expectations.
UK Prime Minister Theresa May is going to face tough challenges on her Brexit Plan and even her political survival this week. The Brexit Taxation (Cross-Border Trade) Bill will return to the Commons today. Hard-line Brexiteers are planning to show their strength in support with new amendments, which May is expected to defend. For now it’s unlikely for May to be defeated on the amendments. But the debates and vote could reveal the extend of objections to the compromised Brexit plan made at the Chequers. Then the Brexit Trade Bill will come to the commons for third reading on Tuesday. Wednesday is seen as an informal deadline to hold a no-confidence vote in May or there won’t be enough time before parliament breaks up for the summer.
Ex-Brexit Minister David Davis blasted May’s plan in an article in the Sunday Times, saying it was an “astonishingly dishonest claim” to said there is no worked-out alternative. And he warned that “be in no doubt: under the government’s proposal our fingers would still be caught in this mangle and the EU would use it ruthlessly to punish us for leaving and handicap our future competitiveness.”
US commercial crude oil inventories rose 0.1m barrels in the week ending April 23. At 493.1m barrels, oil inventories are at the five year average for this time of year. Gasoline inventories rose 0.1m barrels. Distillate dropped -3.3m barrels. Propane/propylene rose 0.5m barrels. Total commercial petroleum inventories dropped -1.6m barrels.
WTI rebounded strongly after hitting 60.62 earlier this week. Today’s breach of 64.34 suggests that choppy rebound form 57.31 is resuming. But after all, the structure still suggests that it’s the second leg of the corrective pattern from 67.83. Hence, while strong rise might be seen, up side should be limited by 67.83 high. Meanwhile, break of 60.62 will extend the corrective pattern with another falling leg, towards 57.31 support.
New Zealand BusinessNZ Performance of Manufacturing Index rose 1.6 to 53.3 in October, indicating faster expansion rate. That’s also the highest level since May. BusinessNZ noted “the October result was a welcome change from where the survey has sat for the previous four months.” And, while “the improvement in the PMI is not large, but we see it as important to the broader economic narrative”.
Looking at the details, the key sub-indicators of production (52.8) and new orders (56.7) both improved with their highest results since May and April respectively. Also, after dipping into contraction during various times in 2018, employment (52.4) improved for a second consecutive month. The proportion of positive comments (58.3%) also increased, with demand for products from offshore customers noted throughout.
SNB rate decision will be a focus in the markets today. It’s widely expected to keep expansionary monetary policy unchanged. Sight deposit rate should be held at -0.75%. It will also reiterate that “negative interest and interventions are necessary to reduce the attractiveness of Swiss franc investments and thus counteract the upward pressure on the currency.”
Ahead of the policy decision, SNB also released the Financial Stability Report today. it’s noted that “economic and financial conditions for the Swiss banking sector deteriorated markedly during the last few months of the reporting period:. The coronavirus pandemic “triggered a significant correction on financial markets and a sharp drop in global economic activity”. Economic and financial outlook “has worsened considerably” and is “subject to unusually high uncertainty”.
Australia retail sales rose 3.2% mom in July, slightly below expectation of 3.3% mom. All state and territories reported growth in sales, except Victoria which was down -2.1% mom due to stage four lockdown.
“Turnover in clothing, footwear and personal accessory retailing (7.1 per cent) and cafes, restaurants, and takeaway food services (4.9 per cent) rose across the country, with the exception of Victoria, where the reintroduction of Stage 3 stay-at-home restrictions in July partially offset these rises. As was the case in April, restrictions led to significant falls in these industries in Victoria” said Director of Quarterly Economy Wide Surveys Ben James.
Just days after its formation, the new Italian eurosceptic government is starting the clash with EU. Interior Minister Matteo Salvini, head of the right-wing League and a deputy prime minister too, declared that the “party is over” for migrants.
Salvini said in a radio interview that Italy “can’t be transformed into a refugee camp”. And he added that it’s “clear and obvious that Italy has been abandoned” by the EU.
Later Salvini tweeted that “either Europe gives us a hand in making our country secure, or we will choose other methods.”
It’s reported that US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will travel to Beijing for the another round of trade talks next week, following the Lunar New Year break. The scope of discussions extended beyond trade balance to intellectual property theft, forced technology transfer and China’s state own enterprises. And Lighthizer has repeatedly emphasized the word “enforcement”, regarding the implementation of the agreement.
Trump is expected to meet with Chinese President Xi Jinping to seal the deal before March 1 dead line. But for now, there is no set dates for the meeting yet. In his state of Union Address, Trump said China has target US industries for their intellectual property for years. And, he emphasized the new trade deal must end trade practices, reduce our chronic trade deficit, and protect American jobs.
Also, Trump announced to meet North Korean leader Kim Jong Un again in Vietnam on February 27 and 28.
US commercial crude oil inventories rose 7.7m barrels in the week ending March 6, way above expectation of 2.0m. At 451.8m barrels, oil inventories are about 2% below the five year average for this time of year.
Earlier today, OPEC slashed said global demand will rise by just 60k barrels a day this year, a sharp a reduction of 920,000 bpd from its previous forecast. It said, “considering the latest developments, downward risks currently outweigh any positive indicators and suggest further likely downward revisions in oil demand growth should the current status persist.”
WTI crude oil is staying in consolidation above 27.50 low for now. Some more sideway trading is expected until certain breakthrough in Saudi Arabia-Russia oil price war, on either side. We’re not expecting a firm break of 27.69 (2016 low. Meanwhile, rebound attempt should be capped by 42.05 support turned resistance.
In the Beige Book economic report, Fed said that “economic growth downshifted slightly to a moderate pace in early July through August”. The deceleration in activity was “largely attributable to a pullback in dining out, travel, and tourism in most Districts, reflecting safety concerns due to the rise of the Delta variant, and, in a few cases, international travel restrictions.” Other sectors were “constrained by supply disruptions and labor shortages, as opposed to softening demand”
All Districts continued to report “rising employment overall”. All Districts noted “extensive labor shortages that were constraining employment”. A number of Districts reported an “acceleration in wages”, with several noted “particularly brisk wage gains among lower-wage workers”. Inflation was “steady at a elevated pace”. Several Districts indicated that businesses anticipate “significant hikes in their selling prices in the months ahead”.
ECB Chief Economist Philip Lane said that even though debt levels surged due to fiscal spending across Europe to counter pandemic impacts, they would remain sustainable.
He pointed out, “in the context of very low interest rates, in the context of the macroeconomic environment, the assessment should be that this is something that is sustainable”.
“There is no reason to believe that this has some kind of intrinsic dynamic that will lead us to a return of the conditions of ten years ago,” Lane added. “The cost of making the payments on this debt in the years to come will be quite contained.”
German CPI dropped -0.8% mom in January, matched expectation. But annual rate slowed sharply to 1.4% yoy, down from 1.7% yoy, and missed expectation of 1.6% yoy. Today’s German CPI miss should weigh on expectation for Eurozone CPI reading to be released later in the week, it’s expected to slow to 1.4% yoy.
Euro shrugs off the data, nevertheless. In particular, EUR/CHF’s rally is accelerating after taking out 1.1347 resistance yesterday.
Mario Draghi, President of the ECB,
Luis de Guindos, Vice-President of the ECB,
Frankfurt am Main, 13 September 2018
INTRODUCTORY STATEMENT
Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Dombrovskis.
Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.
Regarding non-standard monetary policy measures, we will continue to make net purchases under the asset purchase programme (APP) at the current monthly pace of €30 billion until the end of this month. After September 2018, we will reduce the monthly pace of the net asset purchases to €15 billion until the end of December 2018 and we anticipate that, subject to incoming data confirming our medium-term inflation outlook, we will then end net purchases. We intend to reinvest the principal payments from maturing securities purchased under the APP for an extended period of time after the end of our net asset purchases, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
The incoming information, including our new September 2018 staff projections, broadly confirms our previous assessment of an ongoing broad-based expansion of the euro area economy and gradually rising inflation. The underlying strength of the economy continues to support our confidence that the sustained convergence of inflation to our aim will proceed and will be maintained even after a gradual winding-down of our net asset purchases. At the same time, uncertainties relating to rising protectionism, vulnerabilities in emerging markets and financial market volatility have gained more prominence recently. Significant monetary policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term. This support will continue to be provided by the net asset purchases until the end of the year, by the sizeable stock of acquired assets and the associated reinvestments, and by our enhanced forward guidance on the key ECB interest rates. In any event, the Governing Council stands ready to adjust all of its instruments as appropriate to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner.
Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.4%, quarter on quarter, in the second quarter of 2018, following growth at the same rate in the previous quarter. Despite some moderation following the strong growth performance in 2017, the latest economic indicators and survey results overall confirm ongoing broad-based growth of the euro area economy. Our monetary policy measures continue to underpin domestic demand. Private consumption is supported by ongoing employment gains, which, in turn, partly reflect past labour market reforms, and by rising wages. Business investment is fostered by the favourable financing conditions, rising corporate profitability and solid demand. Housing investment remains robust. In addition, the expansion in global activity is expected to continue, supporting euro area exports.
This assessment is broadly reflected in the September 2018 ECB staff macroeconomic projections for the euro area. These projections foresee annual real GDP increasing by 2.0% in 2018, 1.8% in 2019 and 1.7% in 2020. Compared with the June 2018 Eurosystem staff macroeconomic projections, the outlook for real GDP growth has been revised down slightly for 2018 and 2019, mainly due to a somewhat weaker contribution from foreign demand.
The risks surrounding the euro area growth outlook can still be assessed as broadly balanced. At the same time, risks relating to rising protectionism, vulnerabilities in emerging markets and financial market volatility have gained more prominence recently.
According to Eurostat’s flash estimate, euro area annual HICP inflation was 2.0% in August 2018, down from 2.1% in July. On the basis of current futures prices for oil, annual rates of headline inflation are likely to hover around the current level for the remainder of the year. While measures of underlying inflation remain generally muted, they have been increasing from earlier lows. Domestic cost pressures are strengthening and broadening amid high levels of capacity utilisation and tightening labour markets, which is pushing up wage growth. Uncertainty around the inflation outlook is receding. Looking ahead, underlying inflation is expected to pick up towards the end of the year and thereafter to increase gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion and rising wage growth.
This assessment is also broadly reflected in the September 2018 ECB staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 1.7% in 2018, 2019 and 2020, which is unchanged from the June 2018 Eurosystem staff macroeconomic projections.
Turning to the monetary analysis, broad money (M3) growth declined to 4.0% in July 2018, from 4.5% in June. Apart from some volatility in monthly flows, M3 growth is increasingly supported by bank credit creation. The narrow monetary aggregate M1 remained the main contributor to broad money growth.
The recovery in the growth of loans to the private sector observed since the beginning of 2014 is proceeding. The annual growth rate of loans to non-financial corporations stood at 4.1% in July 2018, while the annual growth rate of loans to households stood at 3.0%, both unchanged from June.
The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households, access to financing – in particular for small and medium-sized enterprises – and credit flows across the euro area.
To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed that an ample degree of monetary accommodation is still necessary for the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.
In order to reap the full benefits from our monetary policy measures, other policy areas must contribute more decisively to raising the longer-term growth potential and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. Regarding fiscal policies, the broad-based expansion calls for rebuilding fiscal buffers. This is particularly important in countries where government debt is high and for which full adherence to the Stability and Growth Pact is critical for safeguarding sound fiscal positions. Likewise, the transparent and consistent implementation of the EU’s fiscal and economic governance framework over time and across countries remains essential to bolster the resilience of the euro area economy. Improving the functioning of Economic and Monetary Union remains a priority. The Governing Council urges specific and decisive steps to complete the banking union and the capital markets union.
USD surged broadly overnight as boosted by the strong rally in treasury yields. But still, it’s just trading as the second strongest major currency this week, following EUR. And because of that, the dollar index is still bounded in recently established range, held below 55 day EMA.
Taking a look at 10 year yield, TNX’s strong rise yesterday now suggests that the pull back from Feb’s high at 2.943 has completed and the medium term up trend is resuming. Focus will be on this 2.943 resistance today, if not taken out, early next week. A firm break there should likely push TNX through 2013 high at 2.036. That will be an important signal of reversal of the multi decade down trend.
For dollar index, we maintained our view that a breakout is imminent as it’s close to medium term falling trend line. If the break out is accompanied by surge in treasury yield, then favor will be on the case of an upside breakout for bullish reversal. And in that case, we would likely see EUR/USD dropping through 1.22 handle. Let’s see how it’s going to play out.
US personal income rose 0.3% mom or USD 66.5B in February, below expectation of 0.4% mom. Personal spending rose 0.8% mom or USD 145.5B, above expectation of 0.8% mom.
PCE price index rose 0.3% mom below expectation of of 0.4% mom. Core PCE price index (excluding food and energy) rose 0.3% mom, matched expectations. Goods prices increased 0.1% mom while services index surged 0.6% mom. Food prices rose 0.1% mom and energy prices increased 2.3% mom.
Over the 12-month period, PCE price index accelerated from 2.4% yoy to 2.5% yoy, matched expectations. Core PCE price index slowed from upwardly revised 2.9% yoy to 2.8% yoy, matched expectations. Goods prices were up 0.2% yoy while services prices increased 3.8% yoy. Food prices were up 1.3% yoy while energy prices decreased -2.3% yoy.
US oil inventories rose 1.9m, WTI recovery capped below 60
US commercial crude oil inventories rose 1.9m barrels in the week ending March 19, versus expectation of 1.4m. At 502.7m barrels, US crude oil inventories are about 6% above the 5-year average for this time of year. Gasoline inventories rose 0.2% barrels. Distillate rose 3.8m barrels. Propane/propylene rose 0.2% barrels. Total commercial petroleum inventories rose 4.8m barrels.
WTI recovered after dipping to 57.29, as it’s tentatively drawing support from 55 day EMA (now at 58.23). Rebound form the current level, followed by break of 62.08 minor resistance will indicate completion of the pull back from 67.83. Retest of this high should be seen next.
Nevertheless, sustained break of the 55 day EMA will indicate that WTI is in a medium term correction. Deeper fall should be seen to 38.2% retracement of 33.50 to 67.83 at 54.71 at least, before the correction completes.