Sun, Aug 25, 2019 @ 07:04 GMT

US headline PCE slowed to 2.0%, core PCE unchanged at 2.0%

    In September, US personal income rose 0.2%, below expectation of 0.3%. Spending rose 0.4%, matched expectations. Headline CPI slowed to 2.0%, down from 2.2%. Core PCE was unchanged at 2.0% yoy.

    Dollar is mildly higher after the release but remains mixed for the day. The most notable development today is the selloff in Yen and Swiss Franc as stock markets rebound.

    Full release here.

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    Fed Powell: We’re going to be patient to allow things to clarify

      In the semi-annual testimony, Fed Chair Jerome Powell said there were “crosscurrents and conflicting signals” in the past few months. He explained that the conflicting signals include disappointing data, like retails, that’s in contrast to strong job data. And there will be drags from slowdown overseas that US may “feel more of” in the coming months. But he emphasized that the “baseline outlook is a good one”.

      For now, Powell added, “we have the makings of a good outlook and our committee is really monitoring the crosscurrents, the risks, and for now we are going to be patient with our policy and allow things to take time to clarify.”

      He also reiterated that “going forward, our policy decisions will continue to be data dependent and will take into account new information as economic conditions and the outlook evolve.”

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      UK CPI slowed to 2.7% yoy, missed expectation. GBP dips… shallowly

        Pound dips mildly after disappoint inflation data but loss is limited. In particular, headline CPI slowed to 2.7% yoy in February, down from 3.0% yoy and missed expectation of 2.8% yoy. The reading doesn’t give any added pressure for BoE to rate interest rate in May. Nonetheless, CPI stays above the mid-point of 2-3% target range. BoE board members should still view the Brexit transition deal as a relief to businesses. And investments could come back with, at least, part of the uncertainties cleared. Know hawks like Michael Saunders and Ian McCafferty could still start pushing for rate hike during this week’s meeting. Hence, there is no sustainable selloff in the pound, just mild retreat.

        Here is the list of inflation data:

        • CPI Feb: 0.4% mom vs exp 0.5% mom vs prior -0.5% mom
        • CPI Feb: 2.7% yoy vs exp 2.8% yoy vsprior 3.0% yoy
        • CPI Core Feb: 2.4% yoy vs exp 2.5% yoy vs prior 2.7% yoy
        • RPI Feb: 0.8% mom vs exp 0.8% mom vs prior -0.8% mom
        • PPI Input Feb: -1.1% mom vs exp -0.9% vs prior 0.7% mom
        • PPI Input Feb: 3.4% yoy vs exp 3.8% yoy vs prior 4.7% yoy
        • PPI Output Feb: 0.0% mom vs exp 0.1% mom vs prior 0.1% mom
        • PPI Output Feb: 2.6% yoy vs exp 2.7% yoy vs prior 2.8% yoy
        • PPI Output Core Feb: 0.2% mom vs exp 0.2% mom vs prior 0.3% mom
        • PPI Output Core Feb: 2.4% vs exp 2.4% yoy vs prior 2.2% yoy

        GBP/USD is staying comfortably above 55H EMA despite the post CPI dip. Recent rise is still on course through 1.4087 to 1.4144 resistance.

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        An update on GBP/CHF short, lower stop to 1.2725

          Swiss Franc overtakes Euro as the strongest currency for today and the week so far as buyers jump in during early part of European session. On the other hand, Sterling was left behind by others in the broad based selloff in Dollar. As a result, GBP/CHF dips notably to as low as 1.2588 so far today and is set to recent down trend. As planned in the last weekly report, we’ll now lower the stop of our GBP/CHF short (sold at 1.2971) to 1.2725, which is slightly above 1.2722 minor resistance.

          Overall view is unchanged that fall from 1.3854 is in progress and should target cluster level at 100% projection of 1.3854 to 1.3049 from 1.3265 at 1.2460 and 61.8% retracement of 1.1638 to 1.3854 at 1.2485. We plan to exit our short position at 1.2500, which is slightly above this 1.2460/85 support zone. Consider that there is loss of downside momentum, as seen it daily MACD’s stay above signal line. There is no compelling reason to change this plan.

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          Japan Tankan: Large manufacturing sentiments deteriorated for another quarter

            The BoJ’s quarterly Tankan survey showed notable worsening in manufacturer’s sentiments in Q2.

            The Larger Manufacturing Index dropped to 21, down from 24 and missed expectation of 23. It’s also a second straight quarterly decline from Q4’s 26, the first time since 2012. Large Manufacturer outlook rose to 21, up from 20.

            Large Non-Manufacturing index rose to 24, up from 23, beat expectation of 23. Large Non-Manufacturing Outlook rose to 21, up from 20 but missed expectation of 22.

            Large all industry capex rose 13.6%, beat expectation of 0.2%.

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            US 30-year yield nearing historical low after huge plunge

              Risk aversion dominated the US session overnight and carried forward in Asian session. DOW closed down -1.48%. S&P 500 dropped -1.22%. NASDAQ lost -1.20%. Technically, all three indices were rejected by 55 day EMAs, suggesting more near term downside pressure.

              More importantly, treasury yields dived again on massive safe haven flows. 30-year yield took a big plunge by -0.118 to close at 2.130. TYX is now just inch above historical low of 2.102 made back in 2016. A break there is inevitable.

              10-year yield also dropped -0.095 to 1.639. TNX is now below 78.6% retracement of 1.336 to 3.248 at 1.745. We’d still pay attention to bottoming above 1.336. But a firm break of 2.102 in TYX could likely drag TNX through this 1.336 low at least.

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              US durable goods rose 2.0%, ex-transport orders rose 1.2%

                US durable goods orders rose 2.0% to USD 246.0B in June, beat expectation of 0.7%. Ex-transport orders rose 1.2% to, also beat expectation of 0.2%. Excluding defense, new orders increased 3.1 percent.

                Advance goods trade deficit narrowed -1.2% to USD 74.2B, but was larger than expectation of USD -72.4B. Wholesale inventories rose 0.2% mom, below expectation of 0.4% mom.

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                Bundesbank Wedimann, growth to fall well short of 1.5% potential this year

                  Bundesbank President Jens Weidmann said today that German economy growth will “fall well short of the potential rate of 1.5 percent in 2019”. That’s because “there is much to suggest that the dip in growth here in Germany has persisted into the current year”.

                  However, he emphasized that the prerequisites for growth remain intact, including low financing cost, expansion in employment market and rising wages. Thus, there is no reason for pessimism yet.

                  Separately, it’s reported that German cabinet gave green-light for a second eight-year term for Weidmann, as the current term expires at the end of APril.

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                  Chinese stocks rebound as Premier Li pledged to step up countercyclical measures

                    Stocks in China and Hong Kong buck the global trade and rebounds notably today. At the time of writing, China Shanghai SSE is up 1.35%. Hong Kong HSI is up 1.34%.

                    Sentiments are apparent lifted by news that the Chinese government is going to provide more stimulus to the economy. The State Council noted in a brief statement in its website that Premier Li Keqiang pledged to step up “countercyclical adjustments” of macro policies.

                    The comments were made when Li at a meeting with officials of the country’s banking and insurance regulator after visiting Bank of China, Industrial and Commercial Bank of China and China Construction Bank. Measures will include tax cuts, targeted lowering of reserve requirements to help small and private companies.

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                    UK PM May: European Parliament Weber welcomes Chequers proposals

                      A spokesman of UK Prime Minister Theresa May said that Manfred Weber, Leader of the European People’s Party in the European Parliament, welcomed May’s Brexit plan.

                      He said, “on Brexit, Weber recognized that the Chequers proposals were a step forward and stressed the priority the European Parliament placed on resolving questions relating to the border between Ireland and Northern Ireland, as well as on maintaining the integrity of the Single Market.”

                      And, “they also discussed the Future Framework and agreed that both the UK Parliament and European Parliament should be able to vote on a precise plan for the UK-EU relationship.”

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                      UK CBI: Investment down, stockpiling up, threat of a no-deal ever present, viable Brexit deal desperately need

                        UK CBI trends total orders dropped to -10 in May, down from -5 and missed expectation of -5. 23% of manufacturers reported total orders books above normal. 32% said they were below normal. The -10 balance was the worst since October 2016, but stayed broadly in line with long-run average of -13.

                        Anna Leach, CBI Deputy Chief Economist, said: “With investment down, stockpiling up, and the threat of a no-deal ever present, we desperately need parliament to thrash out a viable deal in the national interest. Where the cross-party talks failed, Parliament must succeed, or continued economic paralysis will see us hurtle ever closer to disaster.”

                        Full release here.

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                        German ifo forecasts 2.6% growth in 2018, 2.1% in 2019

                          ifo Institute forecasts German economy to grow 2.6% in 2018, then slow to 2.1% in 2019. It’s head of f Economic Forecasting Timo Wollmershaeuser noted that the calculations “confirm figures from our December forecast.: However, “underlying forces have shifted somewhat.”

                          In particular, forecast for household consumption expenditure was scaled by by 0.5% in 2018, because of lower than expected spending back in 2H 2017. Government spending forecast was raised by 0.5% in 2018, as new government policy will provide a stimulus. Export growth was revised up by 0.5% in 2018, thanks to upturn in Eurozone economy and US tax cuts.

                          Regarding risks, “the debate over the introduction and/or increase in tariffs on transatlantic trade and the appreciation of the euro are weakening sentiment among German companies.” Also, the new coalition government is “disappointing in terms of reforming the tax and social security system.” In particular, Wollmershaeuser said that was no response to US, France and UK tax cuts.

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                          Japan PMI manufacturing finalized at 48.9, sharper reductions in output and demand

                            Japan PMI manufacturing was finalized at 48.9 in February, revised up from 48.5. It’s the first contractionary reading since August 2016. Demand conditions in Japan deteriorated at stronger rate while business outlook was broadly neutral having fallen for the ninth straight month.

                            Commenting on the Japanese Manufacturing PMI survey data, Joe Hayes, Economist at IHS Markit, which compiles the survey, said:

                            “Sharper reductions in output and demand drove the Japanese manufacturing economy into contraction during the midway point of Q1, compounding reductions already recorded in January. Global trade frictions and weak domestic manufacturing demand pose considerable risks to Japan’s goods producers. As such, firms pared back expectations to near-neutrality. The rebound seen in the official Q4 GDP estimate does not appear to be reflective of underlying economic conditions in Japan.

                            “With the consumption tax hike set to come into play later this year, weak domestic demand will only heighten fears that the economy could be poised for a downturn. Focus turns towards service sector data, which will need to show signs of resilience in order to offset the manufacturing drag.”

                            Full release here.

                            Also from Japan, unemployment rate rose 0.1% to 2.5% in January, versus expectation of 2.4%. Tokyo CPI core was unchanged at 1.1% yoy in February, versus expectation of 1.0% yoy. Capital spending rose 5.7% in Q4 versus expectation of 4.5%.

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                            Asian update: Sterling extending rally, Yen lower as stocks rise

                              Asian stocks trade broadly higher today following the extended rally in the US. There were rumors that Treasury Secretary Steven Mnuchin is considering to roll back tariffs on Chinese imports to facilitate negotiation. But such rumor was quickly denied. Also, the US government shutdown is extending it’s record run without any end in sight. But sentiments were not affected much.

                              In the currency markets, trading turns rather quiet today as most major pairs and crosses are stuck in tight range. For the week, Sterling remains the strongest one. And the Pound is extending rally against Dollar, Euro and Yen. It’s unsure what Brexit will eventually be. But for now, the chance of no-deal Brexit seems slim.

                              Staying in the currency markets, Dollar is the second strongest for the week as lifted by rebound in treasury yields. Canadian Dollar is the third strongest, helped by resilience in oil prices. WTI crude oil is back at 52.8 and looks set to extend recent rebound from 42.05. The Loonie will also face tests from Canadian CPI today. On the other hand, Kiwi, Swiss Franc and Yen are the weakest ones for the week.

                              In Asia, currently:

                              • Nikkei is up 1.34%.
                              • Hong Kong HSI is up 1.10%.
                              • China Shanghai SSE is up 1.02%.
                              • Singapore Strait Times is up 0.23%.
                              • Japan 10-year JGB yield is up 0.0025 at 0.014


                              • DOW rose 0.67%.
                              • S&P 500 rose 0.76%.
                              • NASDAQ rose 0.71%.
                              • 10-year yield rose 0.018 to 2.749.
                              • But 30-year yield ended flat at 3.077.
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                              Philadelphia Fed Harker: Appropriate to continue rate hikes judiciously

                                Philadelphia Fed President Patrick Harker said yesterday that he sees two more rate hike this year. He noted it’s “prudent to continue to move away from the zero lower bound”. And Inflation “does seem to be moving toward 2%”. He added that there is “not much slack in the labor markets”. Hence, it’s appropriate to continue rate hikes “judiciously”.

                                And if there is an “acceleration of inflation”, then he “supportive of a third”. Though, he is not yet seeing a “rapid acceleration” in inflation yet.

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                                China to put words into action by lowering passenger car levy

                                  Bloomberg reported that China is going to lower levy on import passenger cars from the current 25% to 15%. That’s seen as Chinese President Xi Jinping putting his word into actions. Xi has already reiterated the initiative at the Boao Forum back in April.

                                  As in 2017, the total sales of automobiles in China added up to 28.9m. Only 1.22m, or 4.2%, are imported. The lowering of tariff is seen as a strong boost to European vehicle makers and less so the US ones.

                                  For domestic car makers, the levy cut to 15% is the better case scenario in the rumored range of 10-15%.

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                                  Boris Johnson wins another round of Conservative leadership vote, Stewart eliminated

                                    Boris Johnson wong another round of Conservative leadership ballot today, getting 143 votes. Main rival Jeremy Hunt followed as second and won 54 votes. Michael Gove got 51 while Sajid Javid got 38. Rory Stewart got only 27 and was eliminated.

                                    GBP/USD is in a strong recovery today but upside is held well below 1.2763 resistance. Thus, near term outlook remains bearish. Next move will depend on FOMC rate decision.

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                                    GBP pares gain as industrial and manufacturing production missed expectation

                                      GBP/USD pares some of earlier against after disappointing data.

                                      • Industrial production rose 0.1% mom, 2.2% yoy in February, below expectation of 0.4% mom, 2.9% yoy.
                                      • Manufacturing production dropped -0.2% mom, rose 2.5% yoy, below expectation of 0.2% mom, 3.3% yoy.
                                      • Construction output dropped -1.6% mom in February versus expectation of 0.7% mom.
                                      • Visible trade deficit narrowed to USD -10.2b in February versus expectation of GBP -11.9b.

                                      While GBP/USD retreats after hitting 1.4222, it’s still on track to 1.4243 as long as 1.4144 minor support holds.

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                                      EU Tusk: Cannot betray increasing majority of British people who want to stay in EU

                                        European Commission President Jean-Claude Juncker and European Council President Donald Tusk talked Brexit to the European Parliament day.

                                        Tusk said the voices of British people whole wanted to stay in the EU shouldn’t be ignored. And he urged the Parliament to be open to a longer Article 50 extension. He said, “I said that we should be open to a long extension if the UK wishes to rethink its Brexit strategy, which would of course mean the UK’s participation in the European parliament elections. And then there were voices saying that this would be harmful or inconvenient to some of you…. Let me be clear: such thinking is unacceptable. You cannot betray the 6 million people who signed the petition to revoke article 50, the 1 million people who marched for a people’s vote, or the increasing majority of people who want to remain in the European Union.”

                                        Juncker said it’s unclear how Brexit would unfold. And, “I told some of you that if you compare Great Britain to a sphinx then the sphinx would seem to me an open book. We will see in the course of this week how this book will speak,”

                                        Also, chief Brexit negotiator told lawmakers: “In all scenarios, the Good Friday agreement will continue to apply. The United Kingdom will remain a core guarantor of that agreement and is expected to uphold it in spirit and in letter:” And, “the Commission is ready to make additional resources available to Ireland, technical and financial to address any additional challenges.”

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                                        Japan Hamada: BoJ can drops the 2% inflation target

                                          Koichi Hamada, an advisor to Japanese Prime Minister Shinzo Abe said the BoJ could abandon the 2% inflation target. He told Reuters that “prices don’t need to rise much. From the perspective of people’s livelihood, what’s more desirable is for prices to fall, not rise.”

                                          And, the inflation target is only “a tool for achieving full employment”. Hamada added “it can be abandoned. It isn’t absolutely crucial”, and the “appropriate target level of inflation can be decided by the central bank”.

                                          On current monetary policy, Hamada said “the world economy faces substantial turbulence, the BOJ can wait”. There is no need for loosen up policy too as “Demand is exceeding supply now. As long as this trend continues, we don’t need to worry too much.”

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