China’s NBS PMI manufacturing falls slightly to 49.1, Caixin manufacturing rises to 50.9

    China’s manufacturing sector continued its contraction for the fifth consecutive month in February, with official NBS PMI decreasing slightly from 49.2 to 49.1, matched expectations.

    New orders subindex remained steady at 49, indicating stagnant demand. New export orders fell further from 47.2 to 46.3, reflecting ongoing pressures on the export front.

    NBS PMI Non-Manufacturing rose from 50.7 to 51.4 , surpassing the anticipated 50.8. PMI Composite remained unchanged at 50.9.

    In parallel, Caixin PMI Manufacturing, which focuses more on small and medium-sized enterprises, edged up from 50.8 to 50.9 , slightly above expectations of 50.7.

    Caixin noted sustained increase in output and new orders, with firms expressing improved business optimism for the second consecutive month. Additionally, input cost inflation declined to a seven-month low, while selling prices fell.

    Full China Caixin PMI manufacturing release here.

    US-China trade deal might not be ready for APEC, farm purchase a sticky point

      According to a Reuters report, the text of US-China trade deal might not be ready for signing at the APEC summit in Chile on November 16-17. An unnamed official was quoted saying “If it’s not signed in Chile, that doesn’t mean that it falls apart. It just means that it’s not ready. Our goal is to sign it in Chile. But sometimes texts aren’t ready. But good progress is being made and we expect to sign the agreement in Chile.”

      Though, White House spokesman Judd Deere insisted, “As the president said several weeks ago, we have reached a phase-one agreement with the Chinese and both sides are working to finalize the text for a signing in Chile.”

      Separately, it’s reported that the amount of farm purchases is a sticky point for the text of the agreement. US is pushing China to spell out that it would buy as much as USD 50B of American farm products. But China would want to make it flexible and make the purchases based on market conditions. An unnamed Chinese officials said “China does not want to buy a lot of products that people here don’t need or to buy something at a time when it is not in demand.”

      And separately again, China’s UN Ambassador Zhang Jun warned on Tuesday that US criticism on China’s Xinjian policy is not helping trade negotiations. The US, UK and 21 other states pushed China to stop detaining ethnic Uighurs and other Muslims in Xinjiang Zhang said, “the trade talks are going on and we are seeing progress. I do not think its helpful for having a good solution to the issue of trade talks.”

      BoJ Ueda: Will patiently continue monetary easing

        In today’s parliamentary address, BoJ Kazuo Ueda laid out the central bank’s approach to an evolving inflation scenario in Japan. Governor Ueda announced, “We expect inflation to quite clearly slow below 2%” as we move further into the current fiscal year.

        Despite this imminent deceleration, BoJ is forecasting a subsequent rebound, albeit with a degree of caution. Ueda added, “Inflation is likely to rebound thereafter … though there is high uncertainty” about the future direction of inflation rates.

        In response to these trends, BoJ plans to remain patient and maintain its current approach to monetary policy. Ueda affirmed the central bank’s commitment to its strategy, stating, “(We) will patiently continue monetary easing as there’s still distance to achievement of sustainable and stable 2% price hikes together with continued rises in wages.”

         

        UK GDP grew only 0.1% mom in Feb, production contracted

          UK GDP grew 0.1% mom only in February, below expectation of 0.3% mom. Services was the main contributor to growth, up 0.2% mom. But that was offset by -0.6% mom contraction in production, and -0.1% mom in construction.

          Overall monthly GDP was 1.5% above its pre-coronavirus level in February 2020. Services was 2.1% above that level while construction was 1.1% above. However, production was -1.9% below.

          Full release here.

          Also published, manufacturing production came in at -0.4% mom, 3.6% yoy, versus expectation of 0.4% mom, 2.5% yoy. Industrial production came in at -0.6% mom, 1.6% yoy, versus expectation of 0.4% mom, 1.4% yoy. Goods trade deficit narrowed to GBP -20.6B, larger than expectation of GBP -16.8B.

          Very limited progress made after disappointing Brexit negotiations

            UK Brexit chief Brexit negotiator David Frost said “very limited progress” were made on the “most significant outstanding issues” with EU after completing the latest round of negotiations. He further warned that if EU persists in its “novel and unbalanced proposals on the so-called level playing field,” two sides won’t be able to reach an agreement.

            “We very much need a change in EU approach for the next round,” Frost added. “The U.K. will continue to work hard to find an agreement, for as long as there is a constructive process in being, and continues to believe that this is possible.”

            On the other hand, EU chief Brexit negotiation Michel Barnier said the third round of Brexit talks was “disappointing”. But he insisted, “We’re not going to bargain away our values for the benefit of the British economy.”

            ANZ business confidence: Fairly uninspiring reading

              New Zealand ANZ business confidence dropped to -27.2 in May, down from -23.4. That is, a net 27% of businesses are pessimistic about the year ahead. Views on their “own activity” also dipped from 18 to 14.

              ANZ noted in the release that “the survey made for fairly uninspiring reading this month, with all aggregate activity indicators flat to falling. The economy still has good tailwinds in the form of fiscal stimulus and the record-high terms of trade, but may be tiring nonetheless.”

               

              Meanwhile, ANZ’s composite growth indicator, a combination of business and consumer confidence, is consistent with around 2% y/y growth.

              Full release here.

              USDJPY heading lower after Trump cancels summit with North Korean Kim

                Stocks tumble sharply, while treasury yields dive as Trump announced to cancel the meeting with North Korean Leader Kim Jong Un in Singapore on June 12. At the time of writing, DOW is down -0.5%, at around 24770. Deeper fall could be seen but the key is whether near term support at around 24600 would hold. There is some distance to this level yet.

                But 10 year yield is looking much worse. TNX opened the day at 3% and hit as long as 2.963 so far. There is some clear downside acceleration after Trump’s announcement through the White House. And the sharp fall in TNX drags USD/JPY to 109.10so far.

                Below is the tweet from the White House regarding the cancellation.

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                NZ ANZ business confidence jumps to 30.8, but inflation concerns remain

                  ANZ Business Confidence in New Zealand saw a significant increase in November, reaching its highest level since March 2015, as it rose from 23.4 to 30.8. Additionally, Own Activity Outlook improved from 23.1 to 26.3.

                  ANZ’s analysis said the results support the idea of “soft landing” for New Zealand economy. However, ANZ points out that it’s still uncertain if this slowdown will be adequate to reduce inflation to target level quickly enough.

                  The survey also revealed varied trends across different economic indicators. Export intentions saw an uptick from 6.1 to 9.2, indicating stronger future export plans. Investment intentions also increased marginally from 3.8 to 4.5. In contrast, employment intentions experienced a slight decrease from 5.6 to 5.4, suggesting a small dip in hiring plans.

                  Notably, cost expectations showed a decrease from 76.0 to 73.9, which could signal easing cost pressures. Profit expectations reversed from a negative -5.6 to a positive 1.5, reflecting an improved outlook for business profitability.

                  The report presented a mixed view of inflation indicators. Inflation expectations continued their downward trajectory, moving from 4.94% to 4.79%. However, pricing intentions rose slightly from 46.3 to 46.8.

                  ANZ also commented on the market’s expectations for RBNZ’s OCR. They noted that while there is market anticipation for rate cuts, the current economic indicators, particularly some stalling in inflation measures and the overall robust level of activity, suggest that the RBNZ may not be inclined to lower rates soon.

                  Full ANZ business confidence release here.

                  China Caixin PMI services dropped to 36.2 in Apr, PMI composite down to 37.2

                    China Caixin PMI Services dropped from 42.0 to 36.2 in April, below expectation of 40.9. That’s the second straight month of steep decline, and the worst reading since February 2020. Caixin said decline in new business gathered pace but employment fell only slightly. PMI Composite dropped from 43.9 to 37.2, also the worst since the onset of the pandemic.

                    Wang Zhe, Senior Economist at Caixin Insight Group said: “Overall, in April, local Covid outbreaks continued and activity in the manufacturing and service sectors continued to contract, with services shrinking more. Demand was under pressure, external demand deteriorated, supply shrank, supply chains were disrupted, delivery times were prolonged, backlogs of work grew, workers found it difficult to return to their jobs, inflationary pressures lingered, and market confidence remained below the long-term average.”

                    Full release here.

                    New Zealand Dollar selloff extends ahead of RBNZ

                      New Zealand Dollar is under broad based selling pressure today as markets await RBNZ rate decision. RBNZ will keep the OCR unchanged at 1.75%, no doubt. It will also reiterate the neutral stance to “keep the OCR at this expansionary level for a considerable period of time” too. The main question is how RBNZ Governor Adrian Orr view the balance of risks. On the one hand, there will be stimulus from the government’s expansive fiscal policy. But on the other hand, there is threat of global trade war and slow down in China, it’s major trading partner.

                      Action Bias tables and charts of NZD/USD show down trend resumption with solid downside momentum. In particular, the lack of upside blue bar in the corrective rise since May shows that bears remained in control despite the rebound.

                      Further fall should be seen to 0.6779 (2017 low) support in near term. We’d maintain our view here that 0.6779 is a key support level. For short term trading one should tighten up the stop as NZD/USD approaches 0.6779 to guard of a strong and quick rebound.

                      For position trading, we’d suggest to have a little patience to see if NZD/USD would take out this level firmly. And, decisive break there will confirm completion of the corrective rise from 2015 low at 0.6102. That would also be accompanied by a head and shoulder top (ls: 0.7487, h: 0.7557, rs: 0.7436. And that will very likely resume the long term down trend from 2014 high at 0.8835, through 0.6102. It’s worth the wait.

                      EU Barnier: Same significant divergences persist with UK

                        EU chief Brexit negotiation Michel Barnier confirmed that he’s travelling to London this evening to continue in-person trade talks with the UK over the weekend. but he also noted, “same significant divergences persist”. An unnamed EU official said Barnier told national diplomats that “the gaps on level playing-field, governance and fisheries remain large,”

                        On the UK side, Prime Minister Boris Johnson said, “Clearly there are substantial and important differences still to be bridged but we’re getting on with it.” He added, “the likelihood of a deal is very much determined by our friends and partners in the EU — there’s a deal there to be done if they want to do it.”

                        Australia AiG services index dropped to 38.7, lowest since 2009

                          Australia AiG Performance of Services Index dropped from 43.0 to 38.7 in March. That’s the lowest level since March 2009 and the fourth month of contracting results. AiG said, “the services sector is now entering a difficult period of pandemic-related closures and adjustments from a base already weakened by summer’s bushfire crisis and by longer-term factors”.

                          “Restrictions on human movement and gatherings means closures for many businesses in hospitality, retail, transport, recreation, personal services, education and even community services. Businesses that remain open face falling sales and increasing operational restrictions.”

                          Australia NAB business conditions dropped to -6, as employment deteriorated

                            Australia NAB Business Confidence improved to -8 in August, up from -14. However, Business Conditions dropped to -6, down from 0. All conditions components deteriorated, with trading down from 1 to -2, profitability down from 1 to -3, employment down form -2 to -13.

                            Alan Oster, NAB Group Chief Economist said the weakness in conditions was “primarily driven by a deterioration in the employment index – suggesting that while the economy has generally begun to open up, the labour market is still weakening”. The deteriorations was also “broad-based across the states”, suggests that the “virus continues to pose a risk everywhere, not just states with significant containment measures in place”. Confidence also “remains fragile”, still negative. it will “continue to be impacted by news around the virus”

                            “Given the sheer magnitude of the fall in activity in Q2 and the subsequent lockdowns in Victoria, it’s is likely we will see a protracted recovery and a rise in the unemployment rate before it gets better. Policy makers have provided unprecedented support – but we think there will need to be more. This would help businesses and the economy recover more quickly and the focus can again return to growth”, Oster added.

                            Full release here.

                            US PCE inflation slowed to 6.3% yoy, core PCE down to 4.9% yoy

                              US personal income rose 0.5% mom, or USD 89.3B, in April, below expectation of 0.6% mom. Personal spending rose 0.9% mom, or USD 152.3B, above expectation of 0.7% mom.

                              Headline PCE price index slowed from 6.6% yoy to 6.3% yoy, below expectation of 6.6% yoy. Core PCE price index slowed from 5.2% yoy to 4.9% yoy, matched expectations. Energy prices rose 30.4% yoy while food prices rose 10.0% yoy.

                              Full release here.

                              ECB said to consider 50bps hike this week, EUR/CAD rising towards 1.3383

                                Euro jumps broadly after Reuters reported that ECB policymakers will discuss whether to raise interest rate by 50bps this Thursday, as a option to the pre-committed 25bps hike. But ECB spokesperson declined to comment so far.

                                Similar to EUR/USD, EUR/CAD should have formed a short term bottom at 1.2970. Further rise is expected to 1.3383 support turned resistance fist. Firm break there will target channel resistance (now at 1.3535). On the downside, below 1.3101 minor support will bring retest on 1.2970 low instead.

                                Fed Mester: Appropriate to hike in March, and follow with further increases in coming months

                                  Cleveland Fed President Loretta Mester said yesterday, “I believe it will be appropriate to move the funds rate up in March and follow with further increases in the coming months.”

                                  “If by mid-year, I assess that inflation is not going to moderate as expected, then I would support removing accommodation at a faster pace over the second half of the year,” she added.

                                  Mester still expects inflation to remain above 2% this year and next. Moderation in inflation is “conditioned on the FOMC taking appropriate action to transition away from the current emergency levels of accommodation.”

                                  “We will need to convey the overall trajectory of policy and give the rationale for our policy decisions based on our assessment of the outlook and risks around the outlook, which are informed by economic and financial developments,” Mester said. “This change in communications will provide a better sense of the FOMC’s policy reaction function and should not be interpreted as the FOMC backing away from transparency.”

                                  Into US session: GBP bounces from technical support, CHF downside breakout

                                    Entering into US session, Sterling is the strongest one in a rather listless day so far. Technical support is seen as the major reason for the bounce. GBP/USD is close to 1.2960 key near term support. EUR/GBP is also “relatively” close to 0.8722 key near term resistance. Yen and Dollar are the next strongest ones, mainly thanks to sluggishness elsewhere.

                                    For now, Swiss Franc is the weakest one, as funds are flowing out of this safe haven. Rise in oil price is seen as a major factor. Technically, USD/CHF broke 1.0128 key resistance last week and medium term up trend has resumed for 1.0342 resistance. EUR/CHF also takes out 1.1444 key resistance today, indicating near term reversal. 1.1501 resistance is next and will likely be conquered with ease. Australian and New Zealand Dollar are the next weakest. The Aussie will be vulnerable to CPI release tomorrow.

                                    In Europe:

                                    • FTSE is up 0.45%.
                                    • DAX is down -0.23%.
                                    • CAC is down -0.14%.
                                    • German 10-year yield is up 0.0288 at 0.055.

                                    Earlier in Asia:

                                    • Nikkei rose 0.19%.
                                    • Hong Kong HSI dropped -0.00%.
                                    • China Shanghai SSE dropped -0.51%.
                                    • Singapore Strait Times dropped -0.13%.
                                    • Japan 10-year yield dropped -0.0025 to -0.029.

                                    ECB Lagarde: Some restrictions in Q1 considered in last economic projections

                                      ECB President Christine Lagarde said the forecasts of 3.9% GDP growth this year in Eurozone is “still very plausible”, despite resurgent in coronavirus infections. She explained that’s because “our forecast is predicated on lockdown measures until the end of the first quarter.

                                      “What would be a concern would be that after the end of March those member states still need to have lockdown measures and if, for instance, vaccination programmes were slowed down,” she added.

                                       

                                      Eurozone PPI down -1.9% mom, -1.5% yoy in May

                                        Eurozone PPI was down -1.9% mom, -1.5% yoy in May, versus expectation of -1.8% mom, -1.3% yoy. For the month, industrial producer prices decreased by -5.0% mom in the energy sector, by -1.0% mom for intermediate goods and by -0.1% mom for non-durable consumer goods, while prices remained stable for capital goods and increased by 0.3% mom for durable consumer goods. Prices in total industry excluding energy decreased by -0.4% mom.

                                        EU PPI was down -1.8% mom, -0.5% yoy. The largest monthly decreases in industrial producer prices were recorded in Ireland (-7.4%), Italy (-3.1%) and Finland (-3.0%), while increases were observed in Cyprus (+2.8%), and Malta (+0.4%).

                                        Full Eurozone PPI release here.

                                        ECB expects eurozone economy to contract -5% to -12% this year

                                          In the post meeting press conference, ECB President Christine Lagarde said said the Eurozone is “facing an economic contraction of a magnitude and speed that are unprecedented in peacetime”. While GDP shrank by -3.8% qoq, “sharp downturn in economic activity in April suggests that the impact is likely to be even more severe in the second quarter”. Though, growth is expected to “resume as the containment measures are gradually lifted, supported by favourable financing conditions, the euro area fiscal stance and a resumption in global activity.”

                                          Eurosystem staff macroeconomic projections indicate that GDP could contract by between -5% and -12% in 2020. Recovery and normalization of growth will follow in “subsequent years”. But the “extent of the contraction and the recovery will depend crucially on the duration and the success of the containment measures, how far supply capacity and domestic demand are permanently affected, and the success of policies in mitigating the adverse impact on incomes and employment.”

                                          HICP inflation slowed to 0.4% in April, “driven by lower energy price inflation, but also slightly lower HICP inflation excluding energy and food”. On the basis of sharp decline in oil prices, “headline inflation is likely to decline considerably further over the coming months”. Sharp down turn in economic activity would lead to “negative effects on underlying inflation over the coming months” too. But medium0term implications of coronavirus pandemic for inflation are “surrounded by high uncertainty”.

                                          Full introductory statement.