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IMF downgrades Eurozone growth and inflation forecasts

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    ActionForex.com
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    In the Regional Economic Outlook report, IMF downgraded Eurozone growth forecasts for both 2019 and 2020. It said that “global trade and manufacturing have weakened and so have these sectors in Europe… , European exports are softening and prospects for a recovery in global trade are not as strong as they were six months ago”. IMF also urged that “monetary policy should remain accommodative where inflationary pressures are still subdued, which is the case in most European economies. ”

    Eurozone economy is projected to slow sharply from 1.9% in 2018 to just 1.2% in 2019, revised down from 1.3%. Mild recovery is expected in 2020 by 1.4% (revised down from 1.5%), and stay there in 2021. Headline inflation to projected to slow from 1.8% in 2018 to 1.2% in 2019 (revised down from 1.3%), then climb to 1.4% in 2020 (revised down from 1.6%) and then 1.5% in 2021 (revised down from 1.7%).

    Full report here.

    Into US session: AUD strongest, USD and JPY weakest ahead of NFP

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      ActionForex.com
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      Entering into US session, Australian Dollar remains the strongest one for today on optimism that there would be break through in US-China relationship that would avert full-blown trade war. Swiss franc, though, overtook New Zealand’s position as the second strongest. As the financial markets are enjoying strong risk appetite, in particular in Asia, Yen is naturally the weakest one. Without support of trade war, Dollar’s selloff intensifies today. Focus will turn to non-farm payroll to be release within less than an hour.

      The “positive” telephone call between Trump and Xi was the turning point this week. And both sides appear to sound positive and “nice” after that. US and China are now preparing the meeting of the two presidents as sideline of G20 summit in Argentina on Nov 30 – Dec 1. Ahead of that, it’s also reported that Trump asked his key cabinet secretaries to draw up a potential agreement to sign during the meeting, as cease-fire in escalating trade war. Multiple agencies are believed to be involved in drafting the plan.

      In European markets, at the time of writing:

      • FTSE is up 0.82%
      • DAX is up 1.60%
      • CAC is up 1.41%
      • German 10 year yield is up 0.032 at 0.433.
      • Italian 10 year yield is down -0.076 at 3.304. Spread continued to narrow.

      Earlier in Asia:

      • Nikkei rose 2.56% to 22423.66
      • Hong Kong HSI rose 4.21% to 26486.35
      • China Shanghai SSE rose 2.70% to 2676.48
      • Singapore Strait Times rose 1.81% to 3116.39.
      • USD/CNH is now at 6.8635, comparing to the near term top made yesterday at 6.9871

      RBA Lowe: No strong case for near term adjustment in interest rate

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        ActionForex.com
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        RBA Governor Philip Lowe devoted a section on monetary policy is his address to Australia-Israel Chamber of Commerce (WA) today. And, he brought out four broad points.

        1. He expects a “further pick-up” in the Australian economy, with increased investment, hiring and exports. Inflation is also expected to “gradually pick up” with wages growth too. But there are uncertainties “lying in the international arena”. Lowe warned that “a serious escalation of trade tensions would put the health of the global economy at risk and damage the Australian economy”. And, “we also have a lot riding on the Chinese authorities successfully managing the build-up of risk in their financial system.” Domestically, the level “high level of household debt remains a source of vulnerability”.

        2. The next interest rate move will likely be “up, not down”. And that might “come as a shock to some people”.

        3. Inflation returning to midpoint of target zone is expected to be “only gradual”. And, “it is still some time before we are likely to be at conventional estimates of full employment.

        4. “Reserve Bank Board does not see a strong case for a near-term adjustment in monetary policy.” Lowe reiterated that other global central banks have lower policy rates than Australia “over the past decade”. So, the situations are different.

        Here is Lowe’s full speech.

        China Caixin PMI manufacturing rose to 50.6, supply strains became the paramount factor

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          ActionForex.com
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          China Caixin PMI Manufacturing rose to 50.6 in October, up from 50.0, above expectation of 50.6. Caixin noted total new work had the strongest increase in four months. Production fell modestly amid rising costs and reduced power supply. Average lead times rose at fastest rate since March 2020.

          Wang Zhe, Senior Economist at Caixin Insight Group said: “To sum up, manufacturing recovered slightly in October from the previous month. But downward pressure on economic growth continued. We noticed that the pandemic’s impact on manufacturing faded from late September to mid-October as the number of new Covid-19 cases dropped, which boosted demand.

          “However, supply strains became the paramount factor affecting the economy. Shortages of raw materials and soaring commodity prices, combined with electricity supply problems, created strong constraints for manufacturers and disrupted supply chains. Input costs for manufacturers have risen much faster than output prices for several months, putting a lot of pressure on downstream enterprises.”

          Full release here.

          Markets in risk aversion as coronavirus spreads globally

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            ActionForex.com
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            Markets start the week in deep risk aversion cases of coronavirus and death tolls surged in China. The spread to other countries is also widening. Nikkei is currently down -1.7% while many other Asian are on lunar new year holiday. DOW future is down -0.9% while WTI crude oil is down -2.33%. Gold is up 0.56%, with Yen jumps across the board with Dollar.

            Confirmed cases in China jumped to 2744 on Monday, up from 1975 yesterday, and 1287 on Saturday. Death tolls also hit 80. The virus has now spread to countries including the US, France, Australia, Taiwan Japan, South Korea, Singapore, Thailand, Malaysia, Vietnam and Nepal.

            The Chinese government extends the annual lunar new year break until February 2, from January 30 originally. The US is planning to evacuate some Americans from Wuhan on Tuesday. France is preparing to do the same by mid-week. Japan is also planning to evacuate its nationals.

            Source: Washington Post

            Eurozone CPI rose to 1.6% yoy in Apr, unemployment rate dropped to 8.1% in Mar

              By
              ActionForex.com
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              Eurozone CPI accelerated to 1.6% yoy in April, up from 1.3% yoy, matched expectations. Looking at the main components of energy is expected to have the highest annual rate in April (10.3%, compared with 4.3% in March), followed by services (0.9%, compared with 1.3% in March), food, alcohol & tobacco (0.7%, compared with 1.1% in March) and non-energy industrial goods (0.5%, compared with 0.3% in March).

              Eurozone unemployment rate dropped to 8.1% in March, down from 8.2%, better than expectation of 8.3%. EU unemployment dropped to 7.3%, down from 7.4%.

              An update on GBP/USD short, exit at market

                By
                ActionForex.com
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                Follow up on our GBP/USD short (entered at 1.3150) as last updated here. In short, we’ll exit the position at market now (1.3079), with 71 pips profit .

                The stronger than expected rebound from 1.2921 raised the chance that rise from 1.2661 is not completed at 1.3297. That is, we’d probably see another test on 1.3297 before heading back to 1.2661 low.

                In formulating the strategy, our biggest mistake was the view on EUR/GBP. We believed that the fall from 0.9097 was completed at 0.8847. And the pull back from 0.8894 was a corrective move. That is, Sterling will eventually underperform Euro and help pressure GBP/USD. But the acceleration below 0.8847 today invalidated this view.

                Secondly, we gave the position another chance to see if NFP will give dollar a strong boost. But it doesn’t. So, we’ll exit the GBP/USD short for now with some profit and move on.

                 

                Dollar index to take on 90 with focus on non-farm payrolls

                  By
                  ActionForex.com
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                  US non-farm payroll is a major focus for today. Markets are expecting 520k job growth in November. Unemployment rate is expected to edge down by 0.1% to 6.8%. Looking at related indicators, ISM manufacturing employment dropped back into contraction at 48.4. But ISM services employment improved from 50.1 to 51.5. ADP private employment grew only 307k, missed expectations. Four-week moving average of initial jobless claims dropped from 787k to 740k. Overall, the set of data pointed to continuous growth in US employment, but the momentum could disappoint.

                  Dollar index’s medium term down trend resumed this week and accelerated to as low as 90.51 so far. It’s now close to a key support level at around 90 psychological level. That coincides with 38.2% projection of 102.99 to 91.74 from 94.30 at 90.00. Decisive break there would prompt further downside acceleration to 61.8% projection at 87.34, and solidify medium term downside momentum.

                  Japan GDP grow slowed to just 0.2% annualized in Q3

                    By
                    ActionForex.com
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                    Japan GDP grew 0.1% qoq in Q3, slowed from Q2’s 0.3% qoq and missed expectation of 0.2% qoq. Annualized rate slowed sharply from 1.8% to just 0.2%, way below expectation of 0.9%. GDP deflator accelerated to 0.6% yoy, up from 0.4% yoy and beat expectation of 0.5% yoy. Private consumption growth slowed to 0.4%, down from 0.6%, despite pre-tax hike purchases. Capital spending, though, accelerated to 0.9%, up from 0.7%.

                    Economy Minister Yasutoshi Nishimura blamed the weak GDP growth on worsening relations with South Korea. He said that had a “big impact” on exports, while dropped -0.7% from the prior quarter. Also, declines in in-bound tourists from South Korea was a drag, along with some impact form the prolonged trade war between US and China.

                    BoC to stand pat, CAD/JPY staying bullish in range

                      By
                      ActionForex.com
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                      BoC is widely expected to stand pat today, and keep the benchmark overnight rate unchanged at 4.50%. Governor Tiff Macklem has explicitly indicated that in inflation comes down as predicted, there is no need to raise interest rates further. But of course, he’s prepared to act if that doesn’t happen as expected. For now, markets are pricing in around 80% chance of another hike within this year. But it’s too early for BoC to shift its evidence for now.

                      Some previews on BoC:

                      Canadian Dollar’s performance this week is not too bad, as it’s just down against the strong Dollar, Euro and Swiss Franc. For example, CAD/JPY is just holding in range below 100.85 temporary top, with the shallow retreat contained above 99.02 support, as well as 55 day EMA. Further rally remains in favor.

                      Firm break of 38.2% retracement of 110.87 to 94.61 at 110.82 will argue that the down trend from 110.87 to 94.61 is reversal. That would bring stronger rally to 61.8% retracement at 104.65. (USD/JPY has taken out equivalent level of 38.2% retracement of 151.93 to 127.20 at 136.64 already).

                      US non-farm payroll grew 273k, wage growth matched expectations

                        By
                        ActionForex.com
                        -

                        US non-farm payrolls rose 273k in February, well above expectation of 178k. Unemployment rate dropped to 3.5%, down from 3.6%, as it continues to gyrate between 3.5-3.6% for the past six months. Participation rate remained unchanged at 63.4%. Average hourly earnings rose 0.3% mom, matched expectations. Also from the US, trade deficit narrowed to USD -45.3B in January versus expectation of USD -48.8B.

                        Germany GDP contracted -0.7% qoq in Q4, still -1.5% lower than pre-pandemic level

                          By
                          ActionForex.com
                          -

                          Germany GDP dropped -0.7% qoq in Q4, worse than expectation of -0.2% qoq. GDP was still -1.5% lower than pre-pandemic level in Q4, 2021. For whole of 2021, GDP grew 2.8%.

                          Destatis said, “after economic output grew again in the summer despite increasing supply and material bottlenecks, the recovery of the German economy was halted by the fourth corona wave and renewed tightening of corona protection measures at the end of the year.”

                          “Private consumption in particular decreased in the fourth quarter of 2021 compared to the previous quarter, while government consumer spending increased. Construction investments fell compared to the third quarter of 2021.”

                          Full release here.

                          UK retail sales volume rose 0.5% mom in Jan, value up 0.6% mom

                            By
                            ActionForex.com
                            -

                            UK retail sales volume rose 0.5% mom in January, much better than expectation of -0.2% mom decline. Ex-fuel sale volume rose 0.4% mom, above expectation of 0.0% mom.

                            Compare with a year ago, retail sales volume dropped -5.1% yoy, versus expectation of of -5.5% yoy. Ex-fuel sales volume dropped -5.3% yoy, matched expectations.

                            In value term, retail sales rose 0.6% mom, 4.1% yoy. Ex-fuel sales rose 0.5% mom, 3.7% yoy.

                            Full release here.

                            France GDP stagnated in Q1 with sharp decline in household consumption

                              By
                              ActionForex.com
                              -

                              France GDP stagnated with 0.0% qoq growth in Q1, below expectation of 0.3% qoq. Households’ consumption expenditure sharply decreased (-1.3% after +0.6%) while gross fixed capital formation (GFCF) slightly decelerated (+0.2% after +0.3%). Finally, internal demand excluding inventory changes contributed to -0.6 points to GDP growth, after +0.5 points in the previous quarter.

                              Full GDP release here.

                              Also from France, consumer spending dropped -1.3% mom in March, worse than expectation of -0.1% mom. CPI accelerated from 5.1% yoy to 5.4% yoy in April, above expectation of 5.1% yoy.

                              UK Bercow firms up on no repeat votes ruling, eight Brexit amendments chosen

                                By
                                ActionForex.com
                                -

                                The prospect of another meaningful vote for UK Prime Minister Theresa May’s Brexit deal is in doubt. House of Commons speaker John Bercow firmed up his “no repeat votes” ruling today. In short, he restated his ruling that a new vote will only be allowed if there is substantial changes. Additional, he pledged to block any attempt by the government to use a procedural rule change to get round such decision.

                                The prospect of another meaningful vote for UK Prime Minister Theresa May’s Brexit deal is in doubt. House of Commons speaker John Bercow firmed up his “no repeat votes” ruling today. In short, he restated his ruling that a new vote will only be allowed if there is substantial changes. Additional, he pledged to block any attempt by the government to use a procedural rule change to get round such decision.

                                Meanwhile, eight amendments are chosen by Bercow to be put to indicative votes today. They include

                                • Conservative John Baron’s No deal
                                • Conservative Nick Boles’s Common Market 2.0
                                • Conservative George Eustice’s Efta and EEA
                                • Conservative Ken Clarke’s – Customs union
                                • Labour’s – Customs union and alignment with single market
                                • SNP Joanna Cherry’s – Revocation to avoid no deal
                                • Dame Margaret Beckett’s – Confirmatory public vote
                                • Marcus Fysh’s – Contingent preferential arrangements

                                Here is Bercow’s statement on no repeat rules:

                                “In the course of answering questions following her statement [on Monday], the prime minister accepted this constraint, saying that “I am very clear about the strictures that Mr Speaker gave when he made his statement last week and, were we to bring forward a further motion to this house, we would of course ensure that it met the requirements he made.”

                                I understand that the government may be thinking of bringing meaningful vote three before the house either tomorrow or even on Friday, if the house opts to sit that day.

                                Therefore, in order that there should be no misunderstanding, I wish to make clear that I do expect the government to meet the test of change. They should not seek to circumvent my ruling by means of tabling either a notwithstanding motion or a tabling motion. The table office has been instructed that no such motions will be accepted.

                                I very much look forward, colleagues, to today’s debate and votes which give the house the chance to start the process of positively indicating what it wants.”

                                Dollar stays weak as Fed Powell doesn’t dismiss July cut, but loss limited

                                  By
                                  ActionForex.com
                                  -

                                  Dollar remains generally weak but selloff in so far rather limited except versus Yen. Fed Chair Jerome Powell didn’t sound particular dovish at the Congressional testimony. Yet, he basically did nothing to alter market expectations of a 25bps rate cut by Fed in July. That’s generally taken as a nod to the cut.

                                  Among the Q&As, there’s one thing that’s rather important. Asked if June’s stronger than expected job report had changed Fed’s thinking, Powell bluntly said “a straight answer to your question is, no.” But then, Powell still sounded non-committal to any move in interest rates. But he pointed to the upcoming data including CPI this week, retail sales next week, and Q2 GDP the week after. All these data will be taken in to considerations at the next FOMC meeting.

                                  In the stock markets, DOW hit as high as 26983.45 earlier today but pared back much gains to 26860, up only 0.29%. S&P 500 also breached 3000 handle for the first time ever but it’s now back below 2985.

                                  Focus in USD/JPY is now back on 108.28 minor support. Break there will indicate failure to sustain above 108.80 resistance, and completion of rebound from 106.78. Deeper fall would then be seen back to 107.53 support and then 106.78 low.

                                  Germany Gfk consumer confidence dropped to -6.8, down on Omicron and prices

                                    By
                                    ActionForex.com
                                    -

                                    Germany Gfk consumer confidence for January dropped sharply from -1.8 to -6.8. In December, economic expectations dropped from 31.0 to 17.1, lowest since April. Income expectations dropped from 12.9 to 6.9. Propensity to buy dropped from 9.7 to 0.8.

                                    Rolf Bürkl, GfK consumer expert said: “Consumer sentiment continues to be under a lot of pressure from two sides as the year draws to a close. High case numbers due to the fourth wave of the Corona pandemic with further restrictions, as well as significantly increased prices, are putting more and more pressure on consumer sentiment…. The outlook for the beginning of next year is also muted against the backdrop of the rapid spread of the Omicron variant.”

                                    Full release here.

                                    BoE Ramsden: Certainly not rule out expanding asset purchase next week

                                      By
                                      ActionForex.com
                                      -

                                      BoE Deputy Governor Dave Ramsden said he’s “certainly not going to rule out” an increase in the asset purchase program at the meeting next week. “It’s quite possible that we could do more at that meeting or at subsequent meetings. But we will make that decision at the time,” he said.

                                      He added that BoE still had “quite a lot of headroom” in terms of gilt purchases, and “we have the potential to flex any purchases program.

                                      On the topic of negative rates, he said “we are keeping out whole tool-set under active review”. It was “perfectly reasonable to have an open mind on negative rates,” he said.

                                      Released from UK, retail sales dropped -18.1% mom, -22.6% yoy in April. Ex-fuel sales dropped -15.2% mom, -18.4% yoy. Public sector net borrowing surged to GBP 61.4B, up from GBP 14.0.

                                      Eurozone PMI composite rose to 59.2, 15-year high

                                        By
                                        ActionForex.com
                                        -

                                        Eurozone PMI Manufacturing was unchanged at 63.1 in May, above expectation of 62.1. PMI Services rose to 58.0, up from 55.2, above expectation of 57.6, and a 41-month high. PMI Composite rose to 59.2, up from 57.1, a 180-month high.

                                        Chris Williamson, Chief Business Economist at IHS Markit said:

                                        “The eurozone economy is booming at a pace not seen for 15 years as businesses report surging demand, with the upturn becoming increasingly broad-based, spreading from manufacturing to encompass more service sectors, especially consumer-facing firms.

                                        “Virus containment measures have been eased to the lowest since last September and are set to be reduced further in July to the lowest since the pandemic began. Vaccination programmes are also making impressive progress. This has not only facilitated greater activity in the service sector in particular, but the brightening prospect of life increasingly returning to normal has also pushed confidence to an all-time high, fueled greater spending and encouraged hiring.

                                        “The data set the scene for an impressive expansion of GDP in the second quarter to be followed by even stronger growth in the third quarter.

                                        “However, the strength of the upturn – both within Europe and globally – means firms are struggling to meet demand, suffering shortages of both raw materials and staff. Under these conditions, firms’ pricing power will continue to build, inevitably putting further upward pressure on inflation in the coming months.”

                                        Full release here.

                                        Eurozone PMI compsoite rose to 54.8, 25-mth high, hints at initial V recovery

                                          By
                                          ActionForex.com
                                          -

                                          Eurozone PMI Manufacturing rose to 51.1 in July, up from 47.4, a 19-month high. PMI Services rose to 55.1, up from 48.3, a 25-month high. PMI Composite rose to 54.8, up from 48.5, a 25-month high.

                                          Chris Williamson, Chief Business Economist at IHS Markit said: “Companies across the euro area reported an encouraging start to the third quarter, with output growing at the fastest rate for just over two years in July as lockdowns continued to ease and economies reopened…. However, while the survey’s output measures hint at an initial v-shaped recovery, other indicators such as backlogs of work and employment warn of downside risks to the outlook…. The concern is that the recovery could falter after this initial revival.”

                                          Full release here.

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