Thu, Jun 20, 2019 @ 03:14 GMT

UK Industrial production 1.3%, 1.6% yoy; Manufacturing production 0.1% mom, 2.7% yoy

    European session data update:

    UK visible trade balance (GBP) Jan: -12.3b vs exp -12.0b vs prior -13.6b

    UK industrial production Jan: 1.3% mom vs exp 1.5% mom vs prior -1.3% mom

    UK industrial production Jan: 1.6% yoy vs exp 1.8% yoy vs prior 0.0% yoy

    UK manufacturing production Jan: 0.1% mom vs exp 0.2% mom vs prior 0.3% mom

    UK manufacturing production Jan: 2.7% yoy vs exp 2.8% yoy vs prior 1.5% yoy

    UK construction output Jan: -3/4% mom vs exp -0.5% mom vs prior 1.6% mom

    German trade balance Jan: 21.3b vs exp 21.1b vs prior 2.14b

    German industrial production -0.1% mom vs exp 0.6% mom vs prior -0.6% mom

    Dollar pares some gain as traders turn cautious ahead NFP. AUD, NZD, CAD are the strongest ones. JPY and GBP the weakest.

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    IMF Obstfeld: Some governments pursue reforms, trade disputes divert others

      In the new World Economic Outlook released today IMF kept global growth forecast unchanged at 3.9% in 2018 and 3.9% in 2019.

      For advanced economies, growth projections for 2018 were generally revised up except Japan and Canada. For 2019, projections were largely unchanged with upward revision in US, France and Spain.

      China’s growth projection was kept unchanged at 6.6% in 2018 and 6.4% in 2019.

      Here is the summary table.

      Full IMF report here

      In a blog post by Maurice Obstfeld, Economic Counsellor and Director of Research at the IMF, it’s noted that “the world economy continues to show broad-based momentum. Against that positive backdrop, the prospect of a similarly broad-based conflict over trade presents a jarring picture.”

      Obstfeld said that “prospect of trade restrictions and counter-restrictions threatens to undermine confidence and derail global growth prematurely.” And, without naming who, he added that “while some governments are pursuing substantial economic reforms, trade disputes risk diverting others from the constructive steps they would need to take now to improve and secure growth prospects.”

      Referring to intensification of trade tensions since US announcement of steel and aluminum tariffs, Obstfeld said “these initiatives will do little, however, to change the multilateral or overall U.S. external current account deficit, which owes primarily to a level of aggregate U.S. spending that continues to exceed total income.”

      The full blog post can be found here. Global Economy: Good News for Now but Trade Tensions a Threat

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      Fed Kashkari: We misread faulty labor market signals, but cutting rates won’t help inflation expectations

        Minneapolis Fed President Neel Kashkari said in a speech in Santa Barbara that Fed could have misread faulty signals from the labor markets. And current situation suggests monetary policy was too tight in this recovery. Fed should be patient and allow inflation to overshoot target. Yet, he doesn’t see cutting rates offer any help. Overall, he advocates a wait-and-see with patience approach.

        Kashkari said Fed could have “misread” the labor market and feared that “if we hit maximum employment, inflation might suddenly accelerate”. Thus, “we would then have to raise rates quickly to contain it”. However, the “headline unemployment rate has been giving a faulty signal”. Considering inflation “somewhat too low” and job market “still showing capacity”, he added, “the only reasonable conclusion I can draw is that monetary policy has been too tight in this recovery”.

        On monetary, policy, Kashkari said “for our current framework to be effective and credible, we must walk the walk and actually allow inflation to climb modestly above 2 percent in order to demonstrate that we are serious about symmetry”. However, he also told reporters that “I am not sure that cutting rates would do much to inflation expectations.”

        Kashkari’s full speech here.

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        US GDP grew 4.1% in Q2, only a near 4 year high

          US GDP grew 4.1% annualized in Q2, much better than prior quarter’s 2.0% but slightly missed expectation of 4.2%. GDP price index rose 3.0%, way above expectation of 2.3%. The growth was was highest since Q4 2014. But it’s way off the 5% finalized annual rate in Q3 2014, and can’t even match the 4.6% rate back in Q2 2014.

          It’s noted in the release that “The acceleration in real GDP growth in the second quarter reflected accelerations in PCE and in exports, a smaller decrease in residential fixed investment, and accelerations in federal government spending and in state and local spending.” But “these movements were partly offset by a downturn in private inventory investment and a deceleration in nonresidential fixed investment. Imports decelerated.”

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          China-US trade talks enter into unscheduled third day with good progress

            Global stocks are lifted by news that China-US trade talks in Beijing are extending into an unscheduled third day, with signs of good progress. It’s confirmed by a US Trade Representative spokesperson who said “a statement will likely follow then.” Nevertheless, the extension itself is affirmative as both sides need time and efforts to full exchange their views before getting close to an agreement by 90-day deadline on March 2.

            Trump tweeted yesterday that “Talks with China are going very well!” Reuters also reported quoting unnamed source saying “Overall the talks have been constructive. Our sense is that there’s good progress on the purchase piece.” However, it’s unknown how China is going to address a key issue of intellectual property theft.

            But at least, this week, China issued long-awaited approvals for import of five genetically modified crops which would boost import of US grains. There was also another larger purchase of US soybeans. These are widely seen as gestures of good will.

            Separetely, the China Daily said in an editorial China “will not seek a solution to the trade frictions by making unreasonable concessions, and any agreement has to involve give and take from both sides,”

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            GBP/CHF resuming medium term up trend quietly as traders focus on trade war

              NZD and AUD are trading among the strongest ones today, with the help of recovery in US stocks. While DOW did suffer at initial trading, there ain’t no crash. CAD, however doesn’t share the same fortune as markets are back in concern over NAFTA renegotiation. CHF follows as the second weakest one.

              A quick glance at the action bias tables for each currency reveals that CHF is trading with rather broad based downside bias.

              GBP/CHF is a clear example with upside Action Bias across time frames. The patterns suggests that it has just finished a near term consolidation and is ready for further rally.

              GBP/CHF has indeed taken out 1.3194 key near term resistance today and is resuming the medium term up trend. Next target will now be 61.8% projection of 1.2219 to 1.3419 from 1.2861 at 1.3647.

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              UK Commons to vote on Brexit Withdrawal Agreement again, without the part on future relationships

                UK Prime Minister Theresa May will put her Brexit Withdrawal Agreement for meaningful vote in the Commons again today. However, this time, the part regarding future relationship with the EU is taken out. Hence, it’s technically no a repeat of the prior two meaningful votes.

                Commons Speaker John Bercow confirmed that it’s a “new” motion from the government. And that complied with his no-repeat votes ruling. Meanwhile, according to the European Council statement, UK only needs to pass the Withdrawal Agreement by March 29 to get Article 50 extension to May 22. There was no mention of the Political Declaration on future relationship.

                However, it remains highly uncertain whether there are enough votes to pass the Withdrawal Agreement. Back it January, the packaged was defeated by 432 to 202. After some additional assurances, it’s defeated 391 to 242 again.

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                Swiss SECO raised 2019 growth forecasts to 1.2%, still below average

                  Swiss State Secretariat for Economic Affairs expects growth to remain “below average” this year on subdued outlook and high uncertainty. But growth forecasts for 2019 was revised slightly up to 1.2%, from 1.1%. For 2020, growth projection was kept unchanged at 1.7%.

                  SECO noted that “declining momentum in the international economy, the development of world trade is weak and demand for Swiss products is flattening out, slowing down the export economy.” And, “downside risks continue to predominate for the global economy”.

                  It warned that with the recent tariff increases between US and China, the trade dispute has taken an “unfavourable turn”. Swiss economy would “cool off more strongly” if situation were to intensify further, particularly if EU and Germany were to be significantly affected. Meanwhile, “political uncertainty remains high in Europe”, including Brexit and Italy.

                  Full release here.

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                  Eurozone economic sentiment dropped to -0.2, business climate unchanged at 0.69

                    Eurozone Economic Sentiment Indicator dropped -0.2 to 106.1 in February, slightly above expectation of 106.0. The broadly unchanged reading resulted from “weaker industry and construction confidence in combination with more upbeat signals from the services sector, as well as, to a lesser extent, retail trade and consumers”. Meanwhile the ESI dropped in Franc (-0.9%) and Italy (-1.6), practically flat in Germany (-0.1) and Spain (0.0), but improved in the Netherlands (+3.0).

                    Eurozone Business Climate Indicator is flat at 0.69 in February, slightly above expectation of 0.67. Eurostats noted “Managers’ production expectations, as well as their assessments of the stocks of finished products, overall- and export order books clouded over. Meanwhile, the appraisals of past production rebounded from last month’s sharp drop.”

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                    Eurozone PMI manufacturing finalized at 55.1, slowdown reflects worries on trade wars, tariffs and rising prices


                      Eurozone manufacturing PMI is finalized at 55.1 in July, unrevised. That was a touch higher than June’s final reading of 54.9. Market noted in the release that growth of both output and new orders remain
                      subdued compared to earlier in the year. Also, new export order growth at near-two year low amid concerns about tariffs and trade wars.

                      Among the countries, the Netherlands scored 58.0, but hit a 14 month low. Germany came second at 56.9 (revised down from 57.3). Italy hit a 21-month low at 51.5.

                      Commenting on the final Manufacturing PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

                      “A marginal uptick in the PMI provides little cause for cheer given it is the second weakest number for more than one-and-a-half years. The past two months have seen the most subdued spell of factory output growth since late-2016. Worse may be to come. Even this reduced rate of output growth continued to outpace order book growth, resulting in the smallest rise in order book backlogs for two years. The clear implication is that manufacturers may have to adjust production down in coming months unless demand revives.

                      “Clues to the current soft patch lie in the export growth trend, which has deteriorated dramatically since the start of the year across all member states to reach a near-two year low, with France and Austria seeing exports fall into decline in July.

                      “The survey responses indicate that the slowdown likely reflects worries about trade wars, tariffs and rising prices, as well as general uncertainty about the economic outlook. Optimism about the future remained at one of the lowest levels seen over the past two years.”

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                      IMF forecasts slower Eurozone growth in 2018, 2019. Urges fiscal reforms

                        IMF forecasts Eurozone growth to slow to 2.3% this year, from 2017’s 2.4%, and drop further to 2.0% in 2019. IMF noted that “with economic prospects continuing to improve in the short term but medium-term prospects less bright, policymakers should seize the moment to rebuild room for fiscal manoeuvre and push forward with reforms to boost growth potential”

                        And it pointed out that “policymakers should strive to bring fiscal deficits within range of balance over the next few years.:” With that ” automatic stabilizers and fiscal stimulus can be deployed again, should downside risks materialize.”

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                        Swiss CPI rose 0.4% mom, 0.6% yoy. No market reaction

                          Swiss CPI:

                          • 0.4% mom vs exp 0.3% mom vs prior -0.1% mom
                          • 0.6% yoy vs exp 0.6% yoy vs prior 0.7% yoy

                          Quote from release

                          “The 0.4% increase compared with the previous month can be explained by several factors including rising prices for air transport. Foreign package holidays also recorded an increase, as did clothing and footwear due to the end of the seasonal sales. In contrast, prices for heating oil, coffee and overnight stays in hotels decreased.”

                          Full release: Consumer prices increased by 0.4% in February

                          Comments: No impact on the markets, nor would it change SNB’s neutral stance

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                          Japan real wages grew at fastest pace since 1997

                            Japan nominal labor cash earnings rose strongly by 3.6% yoy in June versus expectation of 1.7% yoy. Real wages grew 2.8% yoy, the fastest pace in 21 years since January 1997. Looking at the details, regular pay grew 1.5% yoy. One-off payment including bonuses jumped an impressive 7.0% yoy. Overtime pay also rose 3.5% yoy, a notable acceleration of 2.0% yoy in May. The set of data should be welcomed by BoJ. Nonetheless, persistent strength is needed to eventually change the “social mode” of deflation mind set, which suppresses inflation pressures. Also from Japan, overall household spending dropped -1.2% yoy in June, matched expectations.

                            Elsewhere, UK BRC retail sales monitor rose 0.5% yoy in July, below expectation of 1.3% yoy. Australia AiG performance of construction index rose to 52.0 in July, up from 50.6.

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                            Fed Clarida: Baseline economic projections see growth somewhat above trend in 2019

                              Fed Vice Chair Richard Clarida said “the current economic expansion almost certainly will become the longest on record”. But ” incoming data have revealed signs that U.S. economic growth is slowing somewhat from 2018’s robust pace”. Also, “prospects for foreign economic growth have been marked down, and important international risks, such as Brexit, remain.” On inflation, core PCE, a “better gauge of underlying inflation pressures”, has been muted. And, “some indicators of longer-term inflation expectations remain at the low end of a range” of price-stability.

                              Clarida reiterated that federal funds rate is now “in the broad range of estimates of neutral”. The baseline economic projections see growth in 2019 “running somewhat above” trend and core PCE inflation remains near 2%. Thus, Fed “can be patient as we assess what adjustments, if any, will be appropriate to the stance of monetary policy.

                              Clarida’s full remarks.

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                              Gold completed corrective recovery, heading back to 1280

                                Follow up on yesterday’s comment, Gold’s sharp fall today and firm break of 1303.25 minor support confirms completion of corrective recovery from 1280.85, at 1324.49. Further decline is now expected as long as 1306.72 minor resistance holds. Based on current downside momentum, 1280.85 should at least be breached.

                                Key focus is indeed on 1276.76 cluster support (38.1% retracement of 1160.17 to 1346.17 at 1275.45). The break of medium term channel now affirms that 1346.71 is a medium term bottom on bearish divergence in daily MACD. Decisive break of 1275.45/1276.76 should also confirm completion of whole rise from 1160.17.

                                In that case, gold should have started another falling leg inside the long term range pattern. Deeper fall should then be seen back towards 61.8% retracement at 1234.42 and below.

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                                Sterling tumbles as Brexit optimism put into question again

                                  Sterling tumbles today as Brexit optimism is put into question again. It’s reported that Brexit Minister Dominic Raab is not going to Brussels this week for the talk on Irish border. And, Prime Minister Theresa May’s office doesn’t expect a deal at the European Council next week.

                                  May’s spokesman is also quoted saying that the withdrawal deal with EU will not be agreed without securing a “precise future framework” on relationship. The spokesman also emphasized that there’s a difference between optimistic talk and getting an agreement. He urged EU to move it position.

                                  Separately, according to a document seen by Reuters, EU insisted that it’s own Irish border backstop proposal as “pragmatic” that “built on existing health checks on animals and agricultural goods between mainland Britain and Northern Ireland.

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                                  Trump tweeted down the Dollar?

                                    USD trades broadly lower today. And some attributes the weakness to Trump’s tweet on Russia and China devaluation.

                                    Originally, we prefer not to cover some random morning comments like that. But it’s getting a bit annoying to see reports on this flying around, making it a big news.

                                    It’s not, at least for now.

                                    Just take a look at the D heatmap. Yes USD is in red against all others. But it’s only in deep red against EUR and GBP. Meaning that it’s staying in Friday’s range except versus EUR and GBP.

                                    And take a look at this, EUR/USD. It can’t find enough buying through 1.2396 resistance yet.

                                    How about USD/JPY? It’s well above 106.64 support and even holding above a near term trend line.

                                    So, USD weak? Yes. But not that weak to make it an everywhere headline. Looking at the above D heatmap, it’s GBP’s strength that’s worth a mention. Even if USD dives further during the rest of the session, it’s likely because of some other reason.

                                    And some people said that Trump needs to stay away from his tweets. We’ll say it’s the media and people who need to stay away from these random nonsense.

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                                    SNB Maechler: Exchange rate is important to Swiss monetary conditions and prices

                                      SNB Governing Board member Andrea Maechler said the central bank is maintaining negative interest rates. And it’s ready to intervene in the forex markets.

                                      She clarified that “our mandate is not to defend the Swiss franc, but price stability.” However, she added that”we are a small, open country, which means the exchange rate is important for our monetary conditions and is linked to prices.”

                                      Also, “we have seen that if the franc is too strong, inflation goes negative”.

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                                      US Senate to hold competing votes to end government shutdown

                                        The US Senate will hold two competing votes on Thursday as effort to end the record government shut down. Trump’s plan, which includes USD 5.7B for border wall will be voted on. Also, Democrat’s proposal, to reopen government through February 8, will also be voted on. It’s seen as a concession by Senate Majority Leader Mitch McConnell who previously refused to vote on a bill that Trump would veto.

                                        Trump includes a provisional three-year work permits for the youngsters under Deferred Action for Childhood Arrivals program as bargaining chip. But his plan is still likely to be voted down as Democrats have open rejected to compromise on the issue.

                                        The Democrats could gain enough support from Senate Republicans rebels to vote for their proposal, which was already pass in the House. However, even so, Trump will likely veto even if the Democrat’s bill is passed in the Senate. The Democrats are way short of two-third majority to override Trump’s veto.

                                        So, the shutdown might still extend beyond Thursday.

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                                        Greece completes three year bailout program, begins a new chapter

                                          European Commission formally announced the conclusion of the three-year stability support program for Greece and “a new chapter” begins. In the statement, EC hailed that “The successful conclusion of the programme is a testament to the efforts of the Greek people, the country’s commitment to reform, and the solidarity of its European partners.”

                                          European Commission President Jean-Claude Juncker said: “The conclusion of the stability support programme marks an important moment for Greece and Europe. While their European partners have demonstrated their solidarity, the Greek people have responded to every challenge with a characteristic courage and determination. I have always fought for Greece to remain at the heart of Europe. As the Greek people begin a new chapter in their storied history, they will always find in me an ally, a partner and a friend.”

                                          Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: “The conclusion of the stability support programme is good news for both Greece and the euro area. For Greece and its people, it marks the beginning of a new chapter after eight particularly difficult years. For the euro area, it draws a symbolic line under an existential crisis. The extensive reforms Greece has carried out have laid the ground for a sustainable recovery: this must be nurtured and maintained to enable the Greek people to reap the benefits of their efforts and sacrifices. Europe will continue to stand by Greece’s side.”

                                          Full statement here.

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