Fri, Nov 15, 2019 @ 08:19 GMT

China Caixin PMI manufacturing: Economy has not seen obvious improvement

    China Caixin PMI manufacturing rose 0.1 to 50.1 in October, matched expectations. Markit noted there was only “marginal increase in total new work amid further drop in export sales”.

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

    “The Caixin China General Manufacturing PMI edged up to 50.1 in October from the month before. The subindexes for new orders and employment both edged higher, with the former remaining in expansionary territory and the latter in contractionary territory. The subindex for new export orders also recovered despite staying in negative territory, just off a more than two-year low in September.

    “However, the output subindex dropped for the second straight month despite remaining in positive territory, which was in line with the recent significant drop in value-added industrial output despite the rise in manufacturing investment. This may indicate that investment was largely driven by demand related to environmental protection or technological transformation instead of capacity expansion. The subindex for future output, which reflects manufacturers’ production outlook over the next 12 months, stayed in positive territory but dipped further, suggesting ongoing low business confidence.

    “The subindexes for output charges and input costs both stayed in positive territory, with the former falling and the latter climbing, indicating that upward pressure on the prices of industrial products remained. The subindexes for stocks of finished items and those of purchased items both rose marginally, with the former in negative territory and the latter in positive territory, pointing to a stable demand for manufactured goods. The subindex for suppliers’ delivery times fell in October following a rise in the previous month and stayed in negative territory, implying ongoing pressure on capital turnover among goods producers.

    “Overall, expansion across the manufacturing sector was still weak. Production and business confidence continued to cool despite stable demand. The pressure on production costs didn’t ease. China’s economy has not seen obvious improvement.”

    Full release here.

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    Australian manufacturing PMI dropped to 58.3, expansion to continue into 2019

      Australia AiG Performance of Manufacturing index dropped to 58.3, seasonally adjusted, in October, down from 59.0. The Australian Industry Group noted in the release that the PMI now indicated twenty-five months of uninterrupted recovery and expansion, “longest run of recovery or expansion in this data series since 2005”. The broad based expansion was led by the wood and paper and the food & beverages sectors. And, the details suggested that manufacturing will “continue to expand for the rest of 2018 and into 2019.”

       

      Full release here.

      Also from Australia, trade surplus widened to AUD 3.02B in September.

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      SNB Jordan: Swiss among hardest hit in full-scale trade war

        SNB Chair Thomas Jordan warned yesterday that Switzerland could be heavily hit if full-scale trade war broke out. He said “All countries would feel the detrimental effect of a global trade war, but small, open economies such as Switzerland would be among those hardest hit.”

        Additionally, the current trade tensions have already made it more difficult to conduct monetary policy. He noted, “a wave of protectionism would create a lot of uncertainty, be it with regard to the short-term development of the real economy and prices, or with regard to the longer-term macroeconomic context.” And, “the risk of monetary policy mistakes would increase, at least while the economy is in the process of adapting to the changed market conditions.”

        Jordan also asked the question that the Swiss Franc could be “sought as a safe haven in the event of a trade war”, and Swiss could “face particularly strong exposure to a severe contraction in world trade”.

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        White House Kudlow: Additional tariffs on China not set in stone

          White House economic adviser Larry Kudlow said the additonal tarrifs on China are not “set in stone right now”. He added, “if some kind of amicable deal with China were to happen, then a lot of tariffs might be pulled back.” Also, “The policy talks determine this, not an arbitrary timetable. If the policy talks go well, then we’ll have a much better situation. If the policy talks don’t, it may deteriorate.”

          Kudlow also said Trump mentioned in a recent interview that if there are “promising policy discussions, I don’t know about a full fledged deal, but if things go well, maybe some tariffs get withdrawn and maybe not.” However, Kudlow didn’t specify which interview he referred to. Instead, the only know one is with Fox News Channel’s “The Ingraham Angle” which Trump said he expects a “great deal” with China, without mentioning withdrawing tariffs.

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          Pound rally extends as UK seals Brexit deal on financial services with EU

            Pound rallies further today on more positive Brexit news. The Times reported that a tentative deal is agreed between UK and the EU on all aspects of a future partnership on services. Most importantly, that would grant access of EU markets to for British financial services companies. Prime Minister Theresa May’s senior advisor Oliver Robbins is handling the negotiations in Brussels and is expected to complete it within three weeks.

            The news came on top of reports that Brexit Minister Dominic Raab told MPs in a letter dated October 24 that November 21 is the date to conclude the Brexit negotiation. The letter was published on the Commons Brexit committee yesterday. But three hours after that, Raab’s office, Department for Exiting the European Union, backtracked and said there was “There is no set date for the negotiations to conclude. The 21st November was the date offered by the Chair of the Select Committee for the Secretary of State to give evidence.”

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            Mid-US update: Sterling jumps on Brexit optimism, but Dollar strength more convincing

              Sterling is trading as the strongest major currency for today as boosted by Brexit optimism. It’s revealed that Brexit Minister Dominic Raab has told MPs November 21 is the date to close the deal with EU. It’s unsure how certain Raab was but the Pound is lifted anyway. Though, we’d like to emphasize that firstly, Pound’s strength is most apparent against Euro and Swiss Franc only. And it’s actually staying mixed for the week. Sterling’s rebound could also be due to repositioning ahead of BoE Super Thursday tomorrow.

              On the other hand, Dollar appears to be doing rather well after stronger than expected ADP employment report. USD/CHF’s break of 1.0067 key resistance is a solid sign of strength. EUR/USD is going to test 1.1300 key support. USD/CAD could also be extending recent rally. Yen also jumps broadly today despite strong stock markets rebound. That could at least be partly attributed to the rebound in JGB yields. On the other hand, commodity currencies are generally pressured.

              In European markets:

              • FTSE closed up 1.31% at 7128.10
              • DAX closed up 1.42% at 11447.51
              • CAC closed up 2.31% at 5093.44, reclaimed 5000 handle.
              • German 10 year yield rose 0.0185 to 0.388, staying below 0.40.
              • Italian 10 year yield dropped -0.0398 to 3.432. German Italian spread remains above 300. It’s a reason for Euro’s sluggishness

              In the US, at the time of writing:

              • DOW is up 1.43%
              • S&P 500 up 1.58%
              • NASDAQ up 2.38%
              • 10 year yield up 0.034 at 3.144
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              Sterling surges further as Raab told MPs Nov 21 is the date for Brexit deal

                Sterling’s rally extends in further in US session. And it’s appears to be boosted by news that Brexit deal is less than a month away. Brexit Minister Dominic Raab told MPs in a letter dated October 24 that November 21 is the date to conclude the deal. It’s published on the Commons Brexit committee this morning.

                The key sentence in the letter is: “I would be happy to give evidence to the committee when a deal is finalized, and currently expect 21 November to be suitable.” Also, “The end is now firmly in sight and, while obstacles remain, it cannot be beyond us to navigate them. We have resolved most of the issues and we are building up together what the future relationship should look like and making real progress.”

                Here is the full letter

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                Canada GDP grew 0.1%, oil and gas extraction, finance, insurance led

                  Canada GDP grew 0.1% mom in August, above expectation of 0.0% mom. 12 of 20 industrial sectors declined. But the concentred growth in oil and gas extraction and finance and insurance, was more than enough to offset. In the main industries, mining and oil and gas extraction grew 0.07%, utilities grew 0.02%, finance and concentrated grew 0.07%, public sector grew 0.03%. Manufacturing suffered most by dropped -0.06%.

                  Full release here.

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                  US ADP employment grew 227k, significant gains across all industries

                    US ADP report showed private sector employment grew 227k in October, higher than expectation of 190k. ADP vice president Ahu Yildirmaz noted in the release that there were “significant gains across all industries with trade and leisure and hospitality leading the way”. Also, “larger employers benefit in this environment as they are more apt to provide the competitive wages and strong benefits employees desire.”

                    Moody’s Analytics chief economist Mark Zandi said “The job market bounced back strongly last month despite being hit by back-to-back hurricanes. Testimonial to the robust employment picture is the broad-based gains in jobs across industries. The only blemish is the struggles small businesses are having filling open job positions.”

                    Full release here.

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                    Into US session: Sterling strikes back, Dollar firm after ADP

                      Entering into US session, Sterling is the strongest one for today, striking a come back. Dollar is also firm even though there is no new buying after stronger than expected ADP employment yet. Swiss Franc is the third strongest one. Commodity currencies’ fortune reversed with Canadian Dollar leading the way down. Though, the Loonie might try to draw some support from GDP data.

                      In other markets, major European indices are all trading in black:

                      • FTSE is up 1.35%
                      • DAX is up 1.18%
                      • CAC is up 2.02%
                      • German 10 year yield is up 0.019 at 0.389
                      • Italian 10 year yield is down -0.043 at 3.429. That is, spread is still above 300

                      Earlier in Asia:

                        • Nikkei closed up 2.16% at 21920.46
                        • Hong Kong HSI rose 1.6% to 24979.69
                        • China Shanghai SSE rose 1.35% to 2602.78, back above 2600
                        • Singapore Strati Times rose 1.76% to 3018.8, back above 3000
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                      ECB Hansson talks down Q3 GDP slow down

                        ECB Governing Council member Ardo Hansson urged not to read too much in to the weaker than expected Q3 GDP figure (0.2% qoq released yesterday). He said, “these were preliminary numbers, maybe they were a bit slower than some expected.” And, “we have to wait and see what was behind this.” Also, he said “as there have been no significant, material change in one way or the other I would not make major conclusions” regarding monetary policy or economic outlook. He also emphasized the need to look at ECB’s own staff projections to be updated in December instead.

                        Separately, Daniele Nouy, chair of the Supervisory Board of the ECB, said that Eurozone has “reduced risks enough for the European Deposit Insurance Scheme to start.”. And it’s the right time to set it up and “consider some solidarity”. Nouy also added creating cross border consolidation in the banking said can be a solution to the top risks of low profitability. She said “such cross-border mergers would also create a few large European banks – let us call them `European champions’ – which could then successfully compete on the global stage.”

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                        Eurozone CPI accelerated to 2.2%, core up to 1.1%, unemployment rate unchanged at 8.1%

                          Eurozone CPI accelerated to 2.2% yoy in October, up from 2.1% yoy and matched expectations. Core CPI accelerated to 1.1% yoy, up from 0.9% yoy and beat expectation of 1.0% yoy. Among the components, energy jumped 10.6% yoy (accelerated from 9.5%). Food, alcohol & tobacco rose 2.2% yoy (slowed from 2.6%). Services rose 1.5% yoy (accelerated from 1.3%). Non-energy industrial goods rose 0.3% yoy (up from 0.3%).

                          Eurozone (EA19) unemployment rate was unchanged at 8.1% in September, matched expectations, staying as the lowest since November 2008. EU28 unemployment rate was unchanged at 6.7%, lowest since January 2000. Among EU member states, lowest unemployment rate is found in Czechia at 2.3%, then Germany and Poland at 3.4%. Highest unemployment rate is observed in Greece at 19.0%, then Spain at 14.9% and then Italy at 10.1%.

                          EUR/USD breached 1.1335 temporary low a hour ago. While there is no follow through selling yet, bias is tentatively on the downside for 1.1300 key support.

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                          Gold selloff accelerates, corrective rise from 1160.36 likely completed

                            Gold drops to as low as 1215.57 so far today, breaking 1219.90 support firmly. The development suggests rejection by 38.2% retracement of 1365.24 to 1160.36 at 1238.62, despite brief breach. And it’s in line with our view that rebound from 1160.36 is a correction only.

                            Immediate focus is on 55 day EMA (now at 1215.20). Sustained break will pave the way to retest 1160.36 low. In case of another recovery, we’d expect strong resistance from 1238.62 fibonacci level to limit upside again. Eventually, the down trend from 1365.24 is expected to extend through 1160.36 after the corrective pattern from 1160.36 completes.

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                            BoJ stands pat, lowers inflation forecasts once again

                              BoJ left monetary policy unchanged today as widely expected, by 7-2 vote again. Short term policy interest rate is held at -0.1%. On long term interest rate, BoJ will continue with asset purchases to keep 10 year JGB yield at around 0%. G. Kataoka dissented again, pushing for more monetary easing due to “heightening uncertainties regarding development in economic activity and prices”. Y. Harada dissented because “allowing the long-term yields to move upward and downward to some extent was too ambiguous”.

                              In the Outlook for Economic Activity and Prices report, BoJ noted that the economy is likely to continue to grow above potential in fiscal 2018. For fiscal 2019 and 2020, the economy is expected to continue on an “expanding trend”, partly supported by “external demand”. But growth is projected to decelerate due to a “cyclical slowdown” in business fixed investments and the scheduled sales tax hike.

                              CPI continued to show “relatively weak developments” comparing to growth and labor market. Though, BoJ maintained that “further price rises are likely to be observed widely and then medium- to long-term inflation expectations are projected to rise gradually”. Thus, CPI will gradually increase towards 2% target. On risks, BoJ said both economic and prices risks are “skewed to the downside”.

                              In the updated economic projects, fiscal 2018 growth forecast was downgraded from 1.5% to 1.4%. Growth forecasts for 2018 and 2019 were kept unchanged at 0.8%. Fiscal 2018 core CPI projection was lowered notably to 0.9%, down from 1.1%. For fiscal 2019 and 2020, ex-sales-tax-hike core CPI projections were also lowered, to 1.4% and 1.5%, down from 1.5% and 1.6% respectively.

                              Also, note that the ex-sales-tax-hike core CPI projections are notably lower than April’s forecasts, at 1.8% in fiscal 2019 and fiscal 2020 respectively.

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                              Australia CPI slowed to 1.9% yoy in Q3, AUD/USD dips briefly

                                Australia CPI rose 0.4% qoq, 1.9% yoy in Q3, versus expectation of 0.5% qoq, 1.9% yoy. The annual rate slowed quite notably from 2.1% yoy. Trimmed mean CPI was unchanged at 1.8% yoy. Weighted median CPI was also unchanged at 1.7% yoy.

                                Chief Economist for the ABS, Bruce Hockman said: “Annual growth in the CPI fell back below 2 per cent in the September quarter 2018. Modest rises in housing costs, including rents, utilities and property rates, and a fall in child care out-of-pocket expenses, saw a subdued rise in the CPI this quarter.”

                                Full release here.

                                AUD/USD dips after the release but quickly recovered.

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                                New Zealand ANZ business confidence rose to -37.1, next RBNZ move more likely a cut

                                  New Zealand ANZ Business Confidence improved to -37.1 in October, up from -38.3. Confidence is weakest in agriculture (-62.8) and best in construction (-14.8). Activity Outlook index dropped -0.4 to 7.4. Manufacturing (16.2) is the strongest, possibly due to lower New Zealand Dollar exchange rate. Services ranks second (12.6). Retail (-7.8) and agriculture (-2.3) are weakest.

                                  On monetary policy, ANZ noted that “The Reserve Bank argued in the August Monetary Policy Statement that ticking along wasn’t going to do the job, in terms of getting CPI inflation sustainably back to target. We therefore continue to believe that while the impacts of higher wage growth, higher oil prices, and the weaker currency certainly mean there’s no hurry, it remains the case that an eventual OCR cut is more likely than a hike.

                                  Full release here.

                                  Also from New Zealand, building permits dropped -1.5% mom in September.

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                                  BoC Poloz: Interest rate hike to continue to neutral at 2.5-3.5%

                                    Bank of Canada Governor Stephen Poloz reiterated the central bank’s stance to continue with rate hike to the House of Commons Standing Committee on Finance yesterday. In his prepared remarks, Poloz noted that there were “some very positive developments” in the Canadian economy, with “solid momentum” and it “continues to operate near its capacity”. Also, growth is “relatively broad-based across sectors and regions”. He expected the economy to “growth at a rate slightly above its potential over the projection horizon”. And “while there could be further volatility in inflation in coming months, our core measures remain firmly around 2 per cent”. He also highlighted “trade and household indebtedness” as two main risks.

                                    Overall, Poloz said even with last week’s rate hike to 1.75% “monetary remains stimulative”. BoC’s policy rate is “still negative in real terms”. The current estimated neutral is in range of 2.5-3.5%. Poloz said “policy rate will need to rise to neutral to achieve our inflation target.” Though, the ” appropriate pace of increases will depend on our assessment at each fixed announcement date of how the outlook for inflation and related risks are evolving”. BoC will take into account how the economy adjusts to higher rates, as well as global trade policy developments and their implications on inflation outlook.

                                    His full remarks here.

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                                    Today’s top mover: GBP/AUD again, building up medium term bearish reversal

                                      GBP/AUD is once again a top mover today.

                                      Sterling’s weakness is not too much of a surprise based on the lack of progress of any form in Brexit negotiation. But Australian Dollar’s resilience is rather impressive, considering that US-China trade war is ready to enter a full-blown stage any time. Nonetheless, Aussie’s strengthen is also somewhat in correlation to resilience in Chinese stocks as well as iron ore prices. So, at least, it’s explainable.

                                      With today’s downside acceleration, focus is now, immediately, on 61.8% retracement of 1.7282 to 1.8726 at 1.7863. Based on current downside momentum, this level could be easily taken out. And that will in turn be a stronger sign of medium term trend 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. For now, near term outlook will stay bearish as long as 1.8156 resistance holds. Sustained break of 1.7863 will turn focus to 1.7282 key support for confirming this medium term bearish case. GBP/AUD could be a very good candidate for medium term position trading.

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                                      US consumer confidence rose to 137.9, consumers expect strong growth to carry over into early 2019

                                        US Consumer Confidence rose to 137.9 in October, up from revised 135.3, beat expectation of 135.0. That’s also the higest level in 18 years since September 2000. Present Situation Index improved from 169.4 to 172.8. Expectations Index rose from 112.5 to 114.6.

                                        Conference Board noted in the release that “Consumers’ assessment of present-day conditions remains quite positive, primarily due to strong employment growth. The Expectations Index posted another gain in October, suggesting that consumers do not foresee the economy losing steam anytime soon. Rather, they expect the strong pace of growth to carry over into early 2019.”

                                        Full release here.

                                        US stocks appear to be lifted by the stronger than expected release. DOW initially hesitated today but it’s now up 1%.

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                                        Into US session: Euro soft on weak GDP, Sterling and Yen even worse

                                          Entering into US session, Sterling, Yen and Euro are the weakest ones today while commodity currencies are generally firm. Sterling’s weakness is clearly due to Brexit negotiation impasse. And it’s facing more tests from PMIs and BoE’s Super Thursday later in the week. Euro is weighed down by weak economic data. Eurozone GDP growth halved to 0.2% qoq in Q3. Confidence indicators deteriorated more than expected this month. Italy GDP stalled in Q3 too, giving the coalition government more reason to stick with its expansive budget plan for 2019.

                                          On the other hand, Australian Dollar leads other commodity currencies higher. US stocks staged a stunning bearish reversal yesterday on talks that Trump is going to impose more tariffs on China. But Chinese stocks somehow shrugged, ended up 1%. European indices are mixed at the time of writing. The calm markets provided support to commodity currencies and weighed down on Yen.

                                          In Europe, at the time of writing:

                                          • FTSE is up 0.21%
                                          • DAX down -0.27%
                                          • CAC down -0.21%
                                          • German 10 year yield is down -0.0001 at 0.379
                                          • Italian 10 year yield is up 0.088 at 3.426. Spread back above 300.

                                          Earlier today in Asia:

                                          • Nikkei closed up 1.45% at 21457.29
                                          • Singapore Strait Times closed down -0.51% at 2966.45
                                          • Hong Kong HSI closed down -0.91% at 24585.53
                                          • But China Shanghai SSE rose 1.02% to 2568.05
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