Tue, Jul 16, 2019 @ 00:09 GMT

ECB Mersch: Global risks are gaining prominence

    ECB Executive Board member Yves Mersch said in Singapore that the Eurozone economy is experience broad based expansion. And risks to growth remain “broadly balanced”. Overall, Mersch expect the expansion to continue as a “pace slightly above potential in the period ahead.” Inflation is expected to continue its rise thanks to “quite some” degree of monetary stimulus.

    However, Mersch also warned that risks related to global factors, including “the threat of increased protectionism, the finalization of the Brexit negotiations and vulnerabilities in emerging markets are gaining prominence.”

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    Asian update: AUD lower on unemployment rate, Yen strong on persistently weak yields

      US stocks staged a broad based recovery overnight on reports that Trump would delay the decision on auto tariffs, due May 18, by up to 6 months. Though, strength of recovery was relatively limited. More importantly, 10-year yield still closed down -0.0040 at 2.379, breaking 2.4 handle firmly. With 3-month yield closed at 2.404, this most crucial part of yield curve, 3-month to 10-yield, is inverted. Asian markets are mixed with mild recovery in China and Hong Kong stocks, but Nikkei is clearly down despite the auto tariff news.

      In the currency markets, Australian and New Zealand Dollar are the weakest ones for today. Aussie was somewhat weighed down by unexpected rise in unemployment rate to 8-month high of 5.2%. But we’d like to emphasize that was due to rise in participation rate to record high of 65.8%. It’s healthy in a strong labor market. Canadian Dollar is the third weakest for today. On the other hand, weak treasury yields continue to support Yen as strongest, while Euro and Sterling recover.

      For the week, Yen and Swiss Franc remain the strongest one on free fall in major global treasury yields. Dollar remains the third strongest. Sterling is the weakest one on never ending Brexit impasse. Australian and New Zealand Dollar are the next weakest.

      In Asia, currently:

      • Nikkei is down -0.67%.
      • Hong Kong HSI is up 0.24%.
      • China Shanghai SSE is up 0.28%.
      • Singapore Strait Times is up 0.05%.
      • Japan 10-year JGB yield is down -0.0097 at -0.061.

      Overnight:

      • DOW rose 0.45%.
      • S&P 500 rose 0.58%.
      • NASDAQ rose 1.13%.
      • 10-year yield dropped -0.040 to 2.379.
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      Trump: Not the right time for trade talk with China

        There is breakthrough in US-Mexico trade talk, which will likely pave the way for Canada. There is progress in US-EU trade talks too. But how about China? Trump is clear with his priority as he said yesterday that “it’s just not the right time to talk right now, to be honest with China.” He went further and added that “it’s too one-sided for too many years and too many decades, and so it’s not the right time to talk.” Though, he said “eventually I’m sure that we’ll be able to work out a deal with China.” US Trade Representative Robert Lighthizer said that “we have to change the way we work with China”, without giving any detail.

        This could explain why all Asian stocks surge today but China SSE is left behind. Yuan was lifted since the PBoC reintroduced measures last Friday that acts counter-cyclical to market forces to keep Yuan from falling too quickly. But the Yuan is quickly losing some momentum already.

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        France PMIs: Growth at a decent lick at the start Q3

          France PMI manufacturing rose to 53.1 in July, up from 52.5 but missed expectation of 53.9. PMI services dropped to 55.3, down from 55.9, but beat expectation of 54.3. PMI composite dropped 0.4 to 54.5, hitting a two month low.

          Commenting on the Flash PMI data, Alex Gill, Economist at IHS Markit said:

          “The French private sector continued to grow at a decent lick at the start of the third quarter. The rate of expansion, however, remains far weaker than seen around the turn of the year.

          “Diverging trends remained between the two main sectors, with activity growth at manufactures lagging behind service providers. A notable trend in this regard was a fall in goods exports for the first time in 22 months amid reports that global trade tensions is weighing on external demand.

          “Nevertheless, the rate of job creation and degree of business confidence remained strong at both manufacturers and service providers, suggesting the French private sector is poised for further solid near-term growth.”

          Full release here.

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          UK RICS house price balance rose to -10, but anecdotal insight shows political and economic concerns

            UK RICS House Price Balance improved to -10 in May, up from -22. That is, 10% more respondents saw a fall rather than rise in May. This would indicate a deceleration in the pace of price declines in six months time.

            Simon Rubinsohn, RICS Chief Economist, said: “Some comfort can be drawn from the results of the latest RICS survey as it suggests that the housing market in aggregate may be steading. However much of the anecdotal insight provided by respondents is still quite cautious, reflecting concerns about both the underlying political and economic climate.”

            Full release here.

             

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            New Zealand business confidence unchanged, main threat to growth is offshore

              New Zealand ANZ business confidence was unchanged at -37.1 in November. Activity outlook rose 0.2 to 7.6. ANZ noted that “Left well enough alone, the New Zealand economy can muddle through. Population growth is cooling, and household debt is very high, but interest rates are stimulatory, the terms of trade are high, and dairy production is off to a boomer.”

              “The main threat to growth is in fact offshore, with mounting evidence that global growth is slowing (particularly in export powerhouses such as China and Germany), which is an unhelpful backdrop for already-wobbly equity and credit markets. New Zealand is a small, open economy reliant on foreign capital, and what happens offshore can have a big impact.”

              Full release here.

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              BoJ Kuroda: Some steps remaining for government on fiscal reforms

                BoJ Governor Haruhiko Kuroda spoke to the parliament today and hailed that the government has made significant progress on fiscal reforms. And, there is “some lagbefore the steps already taken begin to affect the economy”.

                But he also emphasized that there are “still some steps remaining that the government needs to take on structural reform and growth strategy.”

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                US oil inventories rose 2.2M barrels, WTI heading back to 50.64 support

                  US commercial crude oil inventories rose 2.2M barrels in the week ending June 7, above expectation of -1.0M barrels fall. At 485.5 million barrels, U.S. crude oil inventories are about 8% above the five year average for this time of year. WTI crude oil weakens mildly after the release.

                  Prior recovery from 50.64 was limited at 54.68 and failed to sustain above 54.61 minor resistance. It’s also staying below falling 4 hour 55 EMA. Near term outlook remains bearish and further decline is still expected. Break of 50.64 and sustained trading below 61.8% retracement of 42.05 to 66.49 at 51.38 could pave the way to retest 42.05 low.

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                  Canadian Trudeau: We work on a good NAFTA deal, not just any deal

                    The bilateral NAFTA talks between the US and Mexico continued to drag on. Mexican Economy Minister Ildefonso Guajardo said in Washington yesterday that “we’re on a path that can take us into the weekend and next week.” And, “we are well advanced (but) not there yet.” Guajardo also said “we need to get an engagement with Canada and the only way that can happen is if we continue through the weekend and into next week.”

                    Separately, Canadian Prime Minister Justin Trudeau said in British Columbia the “we are encouraged by the optimism expressed by the U.S. and Mexico”. But he emphasized that “we will only sign a good deal for Canadians.” And, “we’re working to achieve a good deal, not just any deal.”

                    Foreign Minister Chrystia Freeland added, “in order to get to the ultimate goal that we all share of modernizing and updating Nafta, obviously it’s important to resolve the bilateral issues.” And, “our plan is then ultimately to move on to the trilateral issues.”

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                    10 year yield showed hesitation ahead of 3%

                      10 year yield jumped to as high as 2.990 during regular trading hour overnight but struggled to extend further higher. TNX then closed at 2.973, up 0.22, but below open at 2.975. The development showed some hesitation ahead of key 3.000 level. It looks like the market might have to take a bit more time to digest the sharp move since last week.

                      But for now, there is no change in the near term up trend. And we’d expect a test the real key resistance zone soon. That is, 2014 high at 3.036 and 100% projection of 1.336 to 2.621 from 2.034 at 3.318. This is the key area that will define the long term trend.

                       

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                      Into US session: Yen retreat continues, Gold recovers after hitting 1160

                        Entering into US session, Yen continues to trade as the weakest one as market sentiments improved. Swiss Franc follows as the second weakest. Meanwhile, Australian and New Zealand Dollar are the strongest ones. Apparently, both Aussie and Kiwi are lifted by news that US and China are going too resume trade talk later in the month. This can also be clearly reflected in the recovery in the Chinese Yuan, as USD/CNH (offshore Yuan) dipped to as low as 6.8694 so far today, and broke yesterday’s low. However optimism is indeed not seen in Asian equities.

                        In Asia, Nikkei closed slightly down by -0.05%, Hong Hong HSI dropped -0.82%, Singapore Strait Times lost -0.69%. China Shanghai SSE also fell -0.66% to 2705.19, barely defended 2700 handle.

                        The picture in Europe is slightly better. At the time of writing, FTSE is up 0.65% at 7546.92. DAX is up 0.51% at 12224.54, CAC is up 0.63% at 5338.71. However, all are kept below yesterday’s high at 7632, 12428.56 and 5417.18 respectively. Today’s recoveries are merely seen as a corrective move only.

                        Gold dropped to as low as 1160.37 and broke 1172.09 fibonacci level. But it rides on Dollar’s pull back to recover and is back pressing 1180. Some consolidations is likely in near term. But outlook stays bearish as long as 1217.20 resistance holds. We’d still expect further fall into 1046.54/1122.81 long term support zone before bottoming.

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                        A look at NZDUSD and AUDNZD after post RBNZ selloff

                          The RBNZ rate decision turned out to be much more dovish than expected. Governor Adrian Orr’s statement indicated there is no rush to lift interest rate. And the central bank downgraded inflation forecast for 2019 and 2020. The downgrade of 2019 and 2020 GDP forecasts was quite significant too. RBNZ is now expected to stand pat at least until mid-2019.

                          Given that, NZD tumbled broadly after the release. NZD/USD drops to as low as 0.6915 so far. 161.8% projection of 0.7436 to 0.7152 from 0.7394 at 0.6934 is firmly taken out. And our counter trend long position mentioned here will likely be stopped out with a loss. NZD/USD would now target 0.6779 low after sustaining below 0.69 handle.

                          AUD/NZD surges to as high as 1.0795 and hit 38.2% retracement of 1.1289 to 1.0486 at 1.0793. Based on current momentum, rise from 1.0486 will now likely extend to 61.8% retracement at 1.0982 and above. As AUD/NZD is, after all, staying in long term range trading, strong resistance could be seen above 1.0982 to bring reversal to extend the range pattern.

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                          Asian update: Dollar and Sterling soft, risk markets directionless

                            Dollar is trading generally softer as it’s entering into an important week. There are a number of high profile events ahead, including US-China trade talk, FOMC rate decision and non-farm payrolls, as well as US government re-opening. But for today so far, Sterling is even softer as markets turns a bit cautious ahead of tomorrow’s Brexit debate in the commons. New Zealand Dollar is so far the strongest, followed by Yen and Australian Dollar. With such a picture, it’s easy to see the lack of direction in the risk markets.

                            In Asian markets:

                            • Nikkei closed down -0.60% at 20649.
                            • Hong Kong HSI is down -0.09%.
                            • China Shanghai SSE is down -0.18%.
                            • Singapore Strait Times is up 0.06%.
                            • Japan 10 year JGB yield is down -0.0022 at -0.002, turned negative
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                            UK GDP grew 0.2% in Feb, 0.3% in rolling three-month period

                              UK GDP rose 0.2% mom in February, down from January’s 0.5% mom but beat expectation of 0.0% mom. Index of services rose 0.1% mom, while index of production rose 0.6% mom. Manufacturing rose 0.9% mom. Construction rose 0.4% mom. Agriculture dropped -1.3% mom.

                              Rolling three-month growth rate (Dec to Feb) was unchanged at 0.3%. Services contributed 0.29%, production 0.02% and construction -0.04%.

                              Commenting on today’s GDP figures, Head of GDP Rob Kent-Smith said: “GDP growth remained modest in the latest three months. Services again drove the economy, with a continued strong performance in IT. Manufacturing also continued to recover after weakness at the end of last year with the often-erratic pharmaceutical industry, chemicals and alcohol performing well in recent months.”

                              Also from UK, in February, industrial production rose 0.5% mom, 0.1% yoy versus expectation of 0.1% mom, -0.8% yoy. Manufacturing production rose 0.9% mom, 0.6% yoy, versus expectation of 0.2% mom, -0.7% yoy. Construction output rose 0.4% mom versus expectation of -0.3% mom. Visible trade deficit widened to GBP -14.1B.

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                              German Ifo dropped to lowest since Dec 2014, economic situation remains weak

                                German Ifo Business Climate dropped to 98.5 in February, down from 99.3 and missed expectation of 98.9. That’s also the lowest level since December 2014, and the sixth decline in a row. Expectations index dropped to 93.8, down from 94.2 and missed consensus of 94.2. Current Assessment index also dropped to 103.4, down from 104.3 and missed expectation of 103.9.

                                Clemens Fuest, President of ifo Institute said “these survey results as well as other indicators point to economic growth of 0.2 percent in the first quarter. The economic situation in Germany remains weak.”

                                Full release here.

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                                German Ifo stopped declining trend, Euro mildly higher

                                  German Ifo business climate rose to 102.2 in May, up from 102.1 and beat expectation of 102.0.

                                  Expectations gauge dropped to 98.5, down fro 98.7, met consensus.

                                  Current assessment gauge rose to 106.0, up from 105.7, beat expectation of 105.5.

                                  Ifo President Clemens Fuest noted in the release that “the declining trend in the ifo Business Climate has stopped. The index held steady at 102.2 points (The April value was seasonally corrected.), after having fallen five months in succession. The very good current business situation improved slightly, but the optimistic expectations weakened slightly. The German economy is performing well in a difficult international situation. The current business survey and other indicators point to economic growth of 0.4 percent in the second quarter.”

                                  Full release here.

                                  Euro recovers mildly after the release.

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                                  IMF Furusawa: Global economy continues to strengthen on the back of investment and trade

                                    IMF Deputy Managing Director Mitsuhiro Furusawa delivered an opening remark to the 9th IMF-Japan High-Level Tax Conference for Asian Countries today.

                                    There he noted:

                                    • The global economy continues to strengthen on the back of investment and trade
                                    • Capital flows to emerging markets remaining resilient
                                    • U.S. tax reform expected to boost growth temporarily
                                    • Current upswing provides an ideal opportunity for reforms to boost potential output
                                    • This will require strategies to ensure fiscal sustainability and financial resilience

                                    The speech otherwised touched on taxation and digitalization.

                                    Here is the speech.

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                                    Into US session: Dollar in fresh selloff as Trump directed Cohen to commit a crime

                                      Entering into US session, there is fresh selling in Dollar, in particular against Euro, Swiss Franc and Canadian Dollar seen. A key trigger is that Trump’s former lawyer Michael Cohen pleaded guilty to illegal campaign finance charges. Cohen’s attorney Lanny Davis said in a statement that Cohen “stood up and testified under oath that Donald Trump directed him to commit a crime by making payments to two women for the principal purpose of influencing an election.” Additionally, Davis told MSNBC that Cohen has knowledge about Trump regarding computing hacking. And there’s the possibility of a “conspiracy to collude and corrupt the American democracy system in the 2016 election”. Davis said Cohen would be willing to tell Mueller.

                                      Euro and Swiss Franc are trading as the strongest one for the day, followed by Canadian Dollar. Australia is trading even worse than Dollar. Otherwise are mixed.

                                      US futures are relatively steady on the news though and point to flat open. While S&P 500 may open slightly lower, it could still have the buying to make another record high. In Europe, FTSE is trading up 0.38%, DAX up 0.18%, CAC up 0.40%. 10 year German bund yield rose 0.007 to 0.340. Italian 10 year yield rose 0.023 to 2.992. Earlier today, Nikkei closed up 0.64% at 22362.55, Hong Hong HSI rose 0.63% to 27927.58. China Shanghai SSE dropped -0.7% to 2714.61.

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                                      Mid-US update: Stocks stablized as treasury yields dive, EUR/CHF and Gold upside breakouts

                                        There is tentative sign of stabilization in US stock markets today. DOW initially extended the selloff to as low as 25226.16. The tamer than expected inflation reading just provided brief support to investor sentiments. However, as bond yields’ decline gathers momentum, stocks are back to life. At the time of writing, DOW is down just -0.01%, S&P 500 down 0.13% and NASDAQ is indeed up 0.56%. 10-year yield is down -0.060 at 3.165. 30 year yield is down -0.056 at 3.342. European markets didn’t enjoy the recovery, closing a little too early. FTSE closed down -1.94%, DAX down -1.48%, CAC down -1.92%.

                                        In the currency markets, Swiss Franc is undoubtedly the weakest one for now, followed by Yen and then Dollar. New Zealand, Australia and Canadian Dollar are the strongest ones.

                                        One development to note is that EUR/CHF has firmly taken out 1.1452 resistance decisively. The development should confirm bullish reversal after drawing support from 1.1154/98 key support zone. Further rise is now in favor back to 1.1713 resistance next.

                                        Another development is gold’s break of 1214 resistance Rebound from 1160.36 is extending. But we’d expect 1235.24/1236.99 cluster resistance zone (38.2% retracement of 1365.24 to 1160.36 at 1238.62, 100% projection of 1160.36 to 1214.30 from 1183.05 at 1236.99) to limit upside.

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                                        RBA keeps cash rate unchanged at 1.50%. Full statement

                                          RBA stands pat and keeps cash rate unchanged at 1.50%. Full statement below.

                                          Statement by Philip Lowe, Governor:

                                          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.

                                          Long-term bond yields have risen over the past six months, but are still low. Equity market volatility has increased from the very low levels of last year, partly because of concerns about the direction of international trade policy in the United States. Credit spreads have also widened a little, but remain low. Financial conditions generally remain expansionary. There has, however, been some tightening of conditions in US dollar short-term money markets, with US dollar short-term interest rates increasing for reasons other than the increase in the federal funds rate. This has flowed through to higher short-term interest rates in a few other countries, including Australia.

                                          The prices of a number of Australia’s commodity exports have fallen recently, but remain within the ranges seen over the past year or so. Australia’s terms of trade are expected to decline over the next few years, but remain at a relatively high level.

                                          The Australian economy grew by 2.4 per cent over 2017. The Bank’s central forecast remains for faster growth in 2018. 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 after temporary weakness at the end of 2017. One continuing source of uncertainty is the outlook for household consumption, although consumption growth picked up in late 2017. Household income has been growing slowly and debt levels are high.

                                          Employment has grown strongly over the past year, with employment rising in all states. 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 declined over the past year, but has been steady at around 5½ per cent over the past six months. The various forward-looking indicators continue to point to solid growth in employment in the period ahead, with a further gradual reduction in the unemployment rate expected. Notwithstanding the improving labour market, 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 remains low, with both CPI and underlying inflation running a little below 2 per cent. Inflation is likely to remain low 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.

                                          On a trade-weighted basis, 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. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. 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.

                                          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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