Wed, Sep 18, 2019 @ 13:42 GMT

German Gfk consumer climate dropped 0.1 to 10.8. Increasingly insecure state of geopolitics influencing consumer mood

    German Gfk consumer climate dropped to 10.8 in May, down 0.1 from 10.9, met expectations.

    Quote from the release:

    “The increasingly insecure state of geopolitics now also seems to be influencing the mood of consumers. There is a tangible drop in economic expectations in April, while income expectations fell only slightly by comparison. In contrast, propensity to buy is still at a very high level.”

    “The escalation of the Syrian crisis and the protectionist trade policies of the United States are worrying consumers and could now also affect Germany’s previously excellent economic prospects.”

    “Further escalation of these conflicts would also have a long-term adverse effect on the consumer climate. Above all, increasing protectionism in international trade would hit Germany, as an export nation, resulting in employees fearing they may lose their jobs and again being more reluctant to buy. In this case, the consumer forecast would certainly be untenable.

    Full relesae here.

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    China foreign ministry: Trade friction is not a positive situation for US, China and the world

      China and the US are holding vice ministerial trade negotiation in Beijing today. Chinese Foreign Ministry spokesman Lu Kang said that “From the beginning we have believed that China-U.S. trade friction is not a positive situation for either country or the world economy. China has the good faith, on the basis of mutual respect and equality, to resolve the bilateral trade frictions.”

      Lu added, “As for whether the Chinese economy is good or not, I have already explained this. China’s development has ample tenacity and huge potential”. And, “We have firm confidence in the strong long-term fundamentals of the Chinese economy.”

      Trump said on Sunday that “I think China wants to get it resolved. Their economy’s not doing well… “I think that gives them a great incentive to negotiate.”

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      US core CPI accelerated to 2.1%, large monthly rise of 0.3% since 2018

        US headline CPI slowed to 1.6% yoy in June, down from 1.8% yoy, matched expectations. But that was mainly due to a drag from energy price index, which dropped -3.4% yoy.

        On the other hand, CPI core accelerated to 2.1% yoy, up from 2.0% yoy, beat expectation of 2.0% yoy. Also, over the month, CPI core rose 0.3% mom, largest monthly rise since January 2018.

        Full release here.

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        EU Hogan: Trump has to see the error of his ways and abandon reckless behavior

          Phil Hogan, EU’s Agriculture Commissioner, urged US President Donald Trump to see the “error” of his protectionist way when it comes to trade negotiation with EU. Hogan is expected the be appointed by incoming European Commission president, Ursula von der Leyen, to be the next EU Trade Commissioner starting November 1.

          Hogan told Irish national broadcaster RTE that “Mr Trump certainly has indicated his clear preference for trade wars rather than trade agreements. If he keeps up this particular dynamic of protectionism, I expect that the European Union will continue to forge deals around the world,”

          “But obviously we are going to do everything we possibly can to get Mr Trump to see the error of his ways and hopefully that he will be able to abandon some of the reckless behavior that we have seen from him in relation to his relationship with China and describing the European Union as a security risk.”

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          ECB de Guindos: Wage growth increasingly broad-based, inflation to rise over medium term

            ECB Vice President Luis de Guindos sounded confidence in his comemnts on inflation today. He sid that “wage growth has become increasingly broad-based in recent years.”

            And, “this, together with our monetary policy measures and the ongoing economic expansion, is expected to translate into higher underlying inflation over the medium term.”

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            Into US session: Yen stays strongest after paring gains, Sterling weakest

              Entering into US session, Yen remains the strongest one for today even though it has already pared back much of the “flash crash gains”. Risk aversion intensifies in European session and Swiss Franc is now the second strongest, followed by Euro and then Dollar. Sterling overtook Aussie’s place as the weakest one. Australian Dollar stays the second weakest after paring some of the spike losses, followed by Kiwi.

              Risk aversion will likely stay, at least at the beginning of risk aversion. After Apple’s sales outlook downgrade, DOW future is now trading down over -300 pts. But 10 year yield is back at 2.65, up from premarket low at 2.626. Stocks will be facing multiple tests in job data and ISM manufacturing in US session.

              In Europe, at the time of writing:

              • FTSE is down -0.33%
              • DAX is down -1.16%
              • CAC is down -1.09%
              • German 10 year bund yield is up 0.018 at 0.187, much better than yesterday’s low of 0.150

              Earlier in Asia, selloff was not to serious:

              • Hong Kong HSI dropped -0.26%
              • China Shanghai SSE dropped -0.04%
              • Singapore Strait Times dropped -0.86%
              • Japan was still on holiday
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              USTR on track to impose new 15% tariffs on China on Sept 1

                US Trade Representative office affirmed that the administration is carrying on with the plan to impose new tariffs on China. In Federal Register notice, it’s noted that 15% tariffs will take effect on part of the USD 300B in Chinese goods, starting September 1.

                The second batch of products include cell phones and laptop computers. 15% tariffs on this second batch will take effect of December 15.

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                RBA left cash rate unchanged at 1.50%, full statement

                  RBA left cash rate unchanged at 1.50%, full statement below:

                  Statement by Philip Lowe, Governor: Monetary Policy Decision

                  At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

                  The global economy has strengthened over the past year. A number of advanced economies are growing at an above-trend rate and unemployment rates are low. The Chinese economy continues to grow solidly, with the authorities paying increased attention to the risks in the financial sector and the sustainability of growth. Globally, inflation remains low, although it has increased in some economies and further increases are expected given the tight labour markets. As conditions have improved in the global economy, a number of central banks have withdrawn some monetary stimulus and further steps in this direction are expected.

                  Financial markets have been affected by political developments in the eurozone, particularly in Italy. There are also concerns about the direction of international trade policy in the United States and economic developments in a few emerging market economies. Long-term bond yields in most major economies have declined recently and there has been some widening of corporate credit spreads. Overall, though, financial conditions remain expansionary. Conditions in US dollar short-term money markets have eased recently, although they are tighter than earlier in the year, with US dollar short-term interest rates having increased for reasons other than the increase in the federal funds rate. The higher rates in the United States have flowed through to higher short-term interest rates in a few other countries, including Australia.

                  The price of oil has increased over recent months, as have the prices of some base metals. Australia’s terms of trade are expected to decline over the next few years, but remain at a relatively high level.

                  The recent data on the Australian economy have been consistent with the Bank’s central forecast for GDP growth to pick up, to average a bit above 3 per cent in 2018 and 2019. Business conditions are positive and non-mining business investment is increasing. Higher levels of public infrastructure investment are also supporting the economy. Stronger growth in exports is expected. One continuing source of uncertainty is the outlook for household consumption. Household income has been growing slowly and debt levels are high.

                  Employment has grown strongly over the past year, although growth has slowed over recent months. The strong growth in employment has been accompanied by a significant rise in labour force participation, particularly by women and older Australians. The unemployment rate has been little changed at around 5½ per cent for much of the past year. The various forward-looking indicators continue to point to solid growth in employment in the period ahead, with a gradual reduction in the unemployment rate expected. Wages growth remains low. This is likely to continue for a while yet, although the stronger economy should see some lift in wages growth over time. Consistent with this, the rate of wages growth appears to have troughed and there are reports that some employers are finding it more difficult to hire workers with the necessary skills.

                  Inflation is low and is likely to remain so for some time, reflecting low growth in labour costs and strong competition in retailing. A gradual pick-up in inflation is, however, expected as the economy strengthens. The central forecast is for CPI inflation to be a bit above 2 per cent in 2018.

                  The Australian dollar remains within the range that it has been in over the past two years. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.

                  The housing markets in Sydney and Melbourne have slowed. Nationwide measures of housing prices are little changed over the past six months, with prices having recorded falls in some areas. Housing credit growth has slowed over the past year, especially to investors. APRA’s supervisory measures and tighter credit standards have been helpful in containing the build-up of risk in household balance sheets, although the level of household debt remains high. While there may be some further tightening of lending standards, the average mortgage interest rate on outstanding loans is continuing to decline.

                  The low level of interest rates is continuing to support the Australian economy. Further progress in reducing unemployment and having inflation return to target is expected, although this progress is likely to be gradual. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

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                  Italy Services PMI down to 55.0 vs exp 57.3, Slower growth compared to January recorded

                    Italy Services PMI down to 55.0, vs exp 57.3, from prior 57.7.

                    Key findings:

                    • Slower growth compared to January recorded
                    • Activity and new business nonetheless still increase at marked rates
                    • Further jobs added as workloads continue to
                      increase

                    Paul Smith, Director at IHS Markit which compiles the Italy Services PMI survey, said:

                    “Following a stellar start to the year, the Italian service sector saw growth weaken in February but sustained at a decent clip. Midway through the first quarter of 2018 the economy is firmly on course to deliver a similar sized level of quarterly GDP growth to those seen over the past year or so.

                    “Demand conditions remain favourable, and rising workloads mean that companies continue to take on additional workers, albeit in a relatively careful and considered manner.

                    “Recruitment is also being supported by positive expectations for growth, with service providers retaining an optimistic outlook and indicating plans to raise investment levels over the coming 12 months.”

                    Full release.

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                    Gold’s corrective rally in progress for 1286.6

                      Gold’s rebound from 1238.00 continues today and hits as high as 1265.40 so far. With a short term bottomed formed ahead of 1236.66 key support could be seen. Gold should now target 38.2% retracement of 1365.24 to 1238.00 at 1286.60. That would still be reasonably close to 55 day EMA (now at 1286.23) when they meet. For now we’re only seeing the rebound from 1238.00 as a corrective pattern. Hence, we’d expect strong resistance from 1286.60 to limit upside. The fall from 1365.24 is expected to resume later through 1238.00, when Dollar regains strength.

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                      Germany, France and Britain seek US sanction exemptions in Iran

                        Reuters reported that Germany, France and Britain sent a letter to US Treasury Secretary and Secretary of State on June 4, requesting US sanction exemptions in EU companies in Iran.

                        The letter state that “as close allies, we expect that the extraterritorial effects of U.S. secondary sanctions will not be enforced on EU entities and individuals, and the United States will thus respect our political decisions.”

                        EU expected exemptions on pharmaceuticals, healthcare, energy, automotive, civil aviation, infrastructure and banking companies.

                        EU ministers also warned that “An Iranian withdrawal from the (nuclear agreement) would further unsettle a region where additional conflicts would be disastrous.” And they emphasized that the 2015 JCoPA was “the best basis on which to engage Iran and address those concerns”.

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                        Risk aversion dominates as Italian bond and Hong Kong stocks dumped

                          Risk aversion dominates the markets in the early part of European session. Australian Dollar is currently the biggest loser, followed by Euro. Yen is the clear gainer followed by Swiss Franc and Dollar.

                          On the one hand, Italy’s budget is a key focal point after EU officials basically rejected it. At the same time Deputy Prime Minister, 5-Star movement leader, Luigi Di Maio insisted today that “We are not turning back from that 2.4 percent target, that has to be clear … We will not backtrack by a millimeter.”

                          Italian 10 year yield surges as open and hit as high as 3.444, highest level since 2014. It’s staying up 0.079 at 3.384 at the time of writing.

                          On the other hand, German 10 year yield is down -0.031 at 0.435. Spread is now very close to 300 again.

                          On the other hand, Hong Kong HSI suffers steep selling back from holiday. It’s current down -2.55% and 27000 handle looks vulnerable. China is still on holiday. But selloff in HSI could be a prelude to SSE. US is now more ready to take on full trade war with China as settling Canada.

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                          US extends temporary steel tariffs exemptions for EU, Mexico and Canada

                            Just before the temporary exemptions on the steel and aluminum tariffs expire today, Trump announced to a 30-day extension on European Union, Mexico and Canada, allowing for further negotiation. Meanwhile, the US has reached trade agreements-in-principle with Argentina, Australia and Brazil and details with be finalized “shortly”.

                            The White House said in a statement that “in all of these negotiations, the administration is focused on quotas that will restrain imports, prevent transshipment, and protect the national security.” And it added that “these agreements underscore the Trump administration’s successful strategy to reach fair outcomes with allies to protect our national security and address global challenges to the steel and aluminum industries.”

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                            Dollar and yield rebounded as Fed Powell talked down rate cuts

                              Dollar and treasury yields rebounded overnight after Fed Chair Jerome Powell talked down the chance of a rate cut after Fed kept interest rate unchanged at 2.25-2.50% as widely expected. In particular, 10-year yield hit as low as 2.455 earlier in the day but closed up 0.002 at 2.511, regained 2.5 handle. DOW closed down -0.61%, S&P 500 lost -0.75% and NASDAQ dropped -0.57%.

                              In the post meeting press conference, Powell noted that “our policy stance is appropriate at the moment” and emphasized “we don’t see a strong case for moving it in either direction. Fed acknowledged that both headline and core inflation were running below targets. But Powell said that’s mostly due to transient factors. He predicted inflation to pick rise back to 2% target ahead.

                              Here are some suggested readings on FOMC:

                              10-year yield recovered strongly after breaching 2.463 key near term support. But still, risk will stay on the downside as long as 2.614 resistance holds. Rebound from 2.356 is likely completed after hitting 55 day EMA. Sustained break of 2.463 should resume larger down trend from 3.248.

                              S&P 500 edged to historical intraday high at 2954.13 but reversed to close down -0.75% at 2923.73. SPX continued to lose upside momentum as seen in daily MACD. We maintain the view that it’s not resuming long term up trend despite breaching 2940.91 key resistance. Thus, near term reversal should be around the corner and break of 2891.90 support should at least confirm short term topping. Nevertheless, for sure, sustain trading above 2940.91 will prove our view wrong.

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                              An update on AUD/USD short, lower the stop slightly

                                Here an update on our AUD/USD short (entered at 0.7100) as last discussed in the weekly report. Finally, we’re seeing the weakness anticipated in the pair as it drops to as low as 0.7058 so far today. The solid break of 0.7088 minor support argues that corrective rise from 0.7040 is likely competed at 0.7159 already. And the larger fall is possibly resuming. Further decline should be seen to 0.7040 first.

                                Break of 0.7040 will resume whole down trend form 0.8135 and should target a test on 0.6826 (2016 low). It’s still early to tell. But we’re looking at the possibly of resuming long term down trend from 1.1079 (2011 high). We’ll looking downside momentum of the next fall, upon breaking 0.7040, to gauge the chance.

                                For now, we’ll hold on to the short position. Stop will be lowered from 0.7185 (slightly above 50% retracement of 0.7314 to 0.7040 at 0.7178) to 0.7165 (slightly above 0.7159 resistance). We’ll decide whether to exit at around 0.6826 later.

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                                Eurozone industrial production dropped -03% mom, -0.6% yoy

                                  Eurozone industrial production dropped -0.3% mom in March, matched expectations. Over the year, industrial production dropped -0.6% yoy, above expectation of -0.8% yoy. EU28 industrial production dropped -0.1% mom, rose 0.4% yoy.

                                  Over the month, among Member States for which data are available, the largest decreases in industrial production were registered in Malta (-3.7%), Greece (-2.7%) and Sweden (-2.3%). The highest increases were observed in Lithuania (3.5%), Denmark (1.8%) and Slovakia (1.2%).

                                  Full release here.

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                                  RBA Lowe said economy reached a gentle turning point, but growth forecasts revised down

                                    In the “Opening Statement to the House of Representatives Standing Committee on Economics“, RBA Governor Philip Lowe said “there are signs the economy may have reached a gentle turning point”. The economic outlook is supported by lower interest rates, tax cuts, weaker exchange rate, stabilization of housing markets, improvement in resources sector and infrastructure spending. Thus, “consistent with this, we are expecting the quarterly GDP growth outcomes to strengthen gradually after a run of disappointing numbers,” Lowe said.

                                    Though, for now, Lowe reiterated that “It is reasonable to expect an extended period of low rates will be needed to achieve the Board’s employment and inflation objectives,.” And, at the Q&A session, Lowe also noted that “it’s possible we end up at the zero lower bound” on interest rates. He added “it’s unlikely but it is possible” and RBA is “prepared to do unconventional things if circumstances warranted.”.

                                    In the new economic forecasts, 2019 year end growth was revised down from 2.75% to 2.50%. 2020 year-end growth was unchanged at 2020%. 2021 year-end growth was expected to pick up to 3.00%. Unemployment rate forecasts for 2019 and 2002 year-end were revised up from 5.00% to 5.25%. Unemployment was expected to drop to 5.00% in 2021 year end. Headline CPI forecasts were also revised down from 2.00% to 1.75% at both 2019 and 2020 year-end, before picking up to 2.00% at 2021 year-end.

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                                    Dollar dumped as Fed mulls early end to balance sheet reduction

                                      Dollar suffers broad based selloff and stocks surge after WSJ reported that Fed is considering to stop shrinking it’s massive balance sheet earlier. That is, the eventual size of the portfolio of treasury securities could be larger than originally expected. Further discussion on when to stop the roll-off would take place in next week’s FOMC meeting.

                                      This is seen as move in response to the adverse stock market condition back in December. Some policy makers might want to take the balance sheet reduction off autopilot.

                                      At the time of writing, DOW is up more than 1.1% and is heading towards 25000 handle.

                                      AUD/USD’s break of 0.7166 suggests that fall from 0.7235 is merely a corrective pull back and has completed. Rise from 0.6722 might be resuming.

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                                      UK PM May denied childish document on plan to announce Brexit deal on Nov 19

                                        BBC reported, based on a “leaked” document titled “Brexit Communications Grid Summary” that UK Brexit Minister Dominic Raab is set to announce the full withdrawal agreement on November 19 and put to parliament. And, according to the document, the Parliament would vote on the bill on November 27.

                                        But Prime Minister Theresa May’s spokesman quickly came out and denied it. The spokesman said “The misspelling and childish language in this document should be enough to make clear it doesn’t represent the government’s thinking. You would expect the government to have plans for all situations – to be clear, this isn’t one of them.”

                                        For your entertainment, here is the full text of the notes:

                                        Brexit Communications Grid Summary

                                        Cabinet reviews the deal this Tuesday, the 6th November. They expect all the details to then leak.

                                        “A moment of decisive progress” will be announced this Thursday. Raab to announce.

                                        The narrative is going to be measured success, that this is good for everyone, but won’t be all champagne corks popping.

                                        Then there’s recess until 12th.

                                        After the announcement of decisive progress there follows the 10 days of Sherpa meetings with EU 27 and then daily themed announcements.

                                        19th November – “We have delivered on the referendum” PM speaks at the CBI conference.

                                        Saying this deal brings the country back together, now is the time for us all to unite behind it for the good of all our futures etc. She will also hold a business reception.

                                        This is the day both the Withdrawal Agreement and Future Framework will be put to Parliament by way of a statement from Raab who will also do media. Junior ministers are doing regional media all day. Government lining up 25 top business voices including Carolyn Fairburn and lots of world leaders eg Japanese PM to tweet support for the deal.

                                        20th – Theme is Delivering for the Whole of the UK – PM to visit the north and or Scotland and the Commons will debate in business motions the date of the Meaningful Vote.

                                        PM will be back in the house to vote. The Cabinet Office publishes its explainer of the deal and what it means for the public, comparing it to No Deal, but not to our current deal.

                                        Other business leaders to come out and back it eg Adam Marshall from Chambers of Commerce and supportive voices in devolved regions like Andy Street and Andy Burnham. Also hoping to get 3rd Sector voices out supporting it.

                                        21st – Theme is Economy, Jobs, Customs. Philip Hammond to open debate in Commons and Raab to close it. Institute of Directors to speak out.

                                        Hoping for Stephen Martin, Martin McTeague etc

                                        22nd – Theme is immigration – take back control of our borders. Home Sec doing media and visits. Raab on QT in the West mids.

                                        Hope Mike Hawes of SMMT will speak out in favour along with influential voices from the rest of the world saying how great this is for the flow of global talent.

                                        23rd – Theme is money – NHS funding and structural funds. Matt Hancock hospital visit. David Everett to welcome the deal alongside Tech for UK.

                                        24th Theme is Northern Ireland and The Union – no hard border in the UK and the integrity of the Union is protected. PM visits border communities and business in NI and maybe also to Wales to visit agri and export businesses. Karen Bradley doing media.

                                        Trying to get Varadker to support and Anand Menon and Henry Newman too.

                                        25th – Theme is global Britain. We can strike trade deals with RoW (rest of world) security in this one too.

                                        Speech from Liam Fox. Jeremy Hunt on Marr. Hope Miles Celic to come out in support (City UK).

                                        Lining up lots of former foreign secs to come out in support and Mark Littlewood of the IEA.

                                        26th – theme is taking back control of our laws, Raab doing media. PM interview with Dimbleby.

                                        27th – morning theme is agri and fisheries. Gove doing a visit and media.

                                        Evening is the vote. HISTORIC MOMENT, PUT YOUR OWN INTERESTS ASIDE, PUT THE COUNTRY’S INTERESTS FIRST AND BACK THIS DEAL.

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                                        Japan Tankan large manufacturing dropped to 19 in Q3

                                          Japan Tankan large manufacturing index dropped to 19 in Q3, down from 21 and missed expectation of 22. Large manufacturing outlook dropped to 19, down form 21 and matched expectations.

                                          Large non-manufacturing index dropped to 22, down from 24 and missed expectation of 22. Non-manufacturing outlook rose to 22, up from 21 and beat expectation of 20.

                                          Large all industry capex rose 13.4%, missed expectation of 14.2%.

                                          Full release here.

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