Tue, Oct 15, 2019 @ 03:48 GMT

German Gfk consumer sentiment rose to 10.8

    Germany Gfk consumer confidence rose 0.4 to 10.8 in February, above expectation of 10.3. Gfk noted that rising income prospects and an increasing propensity to buy mean that the consumer climate is improving once more. This is further reinforced by a decrease in propensity to save in January.

    Rolf Bürkl, GfK Consumer Expert, explains, “For the whole of 2019, GfK is predicting real growth in private consumer spending in Germany of 1.5 percent. The key pillars for the consumer economy will above all be the expected positive trend on the labor market coupled with positive income expectations. However, this is based on there being no significant growth in German consumers’ uncertainty about the economy. For example, if there were an escalation in the trade dispute, putting further strain on export prospects, this would be a bad sign for the export nation of Germany. If this were to again increase workers’ fears of job losses, it would have an adverse impact on the consumer climate, jeopardizing the forecast.”

    Full release here.

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    Into US session: Yen and Swiss Franc Strongest, Aussie Weakest on China worries

      Entering into US session, Yen is the strongest one for today followed by Swiss Franc. On the other hand, Australian Dollar leads other commodity currencies lower on risk aversion. The main theme for today is further evidence of slowdown in China. Trade balance data showed both imports and expects contracted in the fastest pace since 2016 in December.

      On the other hand, Brexit is another major theme. Ahead of tomorrow’s vote in the parliament, UK Prime Minister Theresa May stepped her rhetorics. She warned that there are some MPs who wish to delay or even stop Brexit. And she urged MPs to vote to deliver what people decided in the referendum back in 2016. EU sent a “reassurance” letter to May today, pledging to work on a post-Brexti agreement by end of 2020 deadline to avoid triggering the backstop “in the most solemn manner”. But it’s unsure how such assurances could change the mind of those who already got a position. That is, those who believed no-deal Brexit is closest to what people want, and those who want no Brexit at all.

      In European markets, currently:

      • FTSE is down -0.86%
      • DAX is down -0.59%
      • CAC is down -0.72%
      • German 10 year yield is down -0.0252 at 0.215

      Earlier in Asia:

      • Hong Kong HSI dropped -1.38%
      • China Shanghai SSE dropped -0.71%
      • Singapore Strait Times dropped -0.79%
      • Japan was on holiday
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      Sterling dips as Boris Johnson resigns, markets taking it seriously

        Sterling dips notably as hit by another resignation in Prime Minister Theresa May’s cabinet. The rumor has come true as Foreign Minister Boris Johnson finally resigns.

        Statement from Downing Street: “This afternoon, the prime minister accepted the resignation of Boris Johnson as foreign secretary. His replacement will be announced shortly. The prime minister thanks Boris for his work.”

        Now, we’ll see if the news has lasting impact on the pound, or it’s just a knee jerk action like that following David Davis resignation. But judging from the current price action, Boris resignation seems to be taken more seriously by the markets.

         

         

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        UK DExEU Rycroft: No-deal Brexit plans in place, economic analysis of Chequers plan ongoing

          In UK, Philip Rycroft, Permanent Secretary at the Department for Exiting the European Union (DExEU) told the parliament that the plans for no-deal Brexit are “in place”. And, “they are at a level of detail which satisfies the team at DEXEU … we are constantly monitoring those plans to make sure they are kept up to date.”

          Also Rycroft said there were studies on the economic impact of Prime Minister Theresa May’s Chequers plan and “the work is ongoing”.

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          Fed Rosengren: Additional monetary stimulus is not needed

            Boston Fed President Eric Rosengren dissented to Fed’s rate cut this week and voted for no change. In a statement released today, he explained that “additional monetary stimulus is not needed for an economy where labor markets are already tight, and risks further inflating the prices of risky assets and encouraging households and firms to take on too much leverage.”

            He also warned that “While risks clearly exist related to trade and geopolitical concerns, lowering rates to address uncertainty is not costless.”

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            Japan FM Aso wants G20 to promote infrastructure investments to boost growth next year

              Japanese Finance Minister Taro ago said the G20 meeting in Osaka next year should play the role to ” nip crises in the bud before they develop further.” He also wanted G20 to focus “to promote investment in high-quality infrastructure to ensure economic growth.”

              Aso also noted that the G20 finance minister and central banker meeting last week discussed the downside risks to the global economy and reaffirmed the consensus over current issues. However, it should be noted that there was no consensus of the resolutions on US tariffs actions. And the situation could only worsen next year and protectionism rises and spreads.

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              EU Malmstrom and USTR Lighthizer to meet on March 6 on trade negotiations and tariffs

                EU Trade Commissioner Cecilia Malmstrom is scheduled meet U.S. Trade Representative Robert Lighthizer on March 6 in Washington to resume trade negotiations. On the following day, Secretary-General of the European Commission, Martin Selmayr, will meet US National Economic Council Director Larry Kudlow.

                European Commission spokesman Margaritis Schinas said “the discussions will focus on the next steps toward the implementation of the July 2018 Joint Statement and on the EU-US cooperation on World Trade Organization reform and level playing field issues”. He added that “the Commission will update the U.S. side on the state of play of the adoption of the negotiating mandates for EU-U.S. trade agreements on industrial goods and on conformity assessment.”

                Also, Schinas said “the Commission will also raise the EU’s concerns on the tariffs imposed by the U.S. on steel and aluminum products and on the possible consequences of the recently concluded investigation on whether automobile imports represent a threat to the US’ national security”.

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                US-China trade talks “have not broken down” but significant differences on issues of principle remain

                  Last week’s US-China negotiations ended with practically no progress, but just confirmation that the tariff war will drag on. New round of tariffs already took effect on Friday and paperwork for tariffs on USD 325B in Chinese goods has started. For now, no new round of talks is scheduled. China’s retaliations are awaited and could be announced any time soon.

                  Chines Vice Premier Liu He told reporters on Friday that the “negotiations have not broken down”. He also tried to talked down the situation and said mall setbacks are normal and inevitable during the negotiations of both countries. Looking forward, we are still cautiously optimistic” . Yet, he added that “right now, both sides have reached mutual understanding in many things, but frankly speaking, there are also differences.”

                  Liu emphasized “differences are significant issues of principle,” and “we absolutely cannot make concessions on such issues of principle.” One of the issues is over the current tariffs. Liu told Phoenix television in Hong Kong that if both sides wanted to reach an agreement, then all tariffs must be eliminated. Also, both sides have different opinions on the volume of additional purchase of US goods from China. As noted by a commentary by state news agency Xinhua, any purchases should be “in line with reality”. The biggest issue, though, is likely on the text regarding law changes regarding core issues like IP theft, which China sees as intrusion of sovereignty. Liu said that “every nation has its dignity, so the text ought to be balanced,”

                  Trump continued to sound hard line on China with his tweets and said China was “beaten so badly” in recent negotiations and they may as well “wait around for next election” to see if they can “get lucky and have a Democratic win”. But Trump also said “the only problem is that they know I am going to win… and the deal will become far worse for them if it has to be negotiated in my second term. Would be wise for them to act now, but love collecting BIG TARIFFS!”. Trump typically didn’t elaborate the logic link between China knowing he will win the second term yet, they’re waiting for next election. That’s no point in dragging on if a Trump win is certain.

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                  Fed Evans: With procyclical fiscal policy and a very strong economy, interest rates might have to go above neutral

                    Chicago Fed President Charles Evans reiterated his stance that interest rate might have to go to a bit restrictive. He said in a CNBC interview that “after many, many years of accommodative policy, which I have supported strongly because inflation’s now up at 2 percent, it’s time to readjust the policy stance at least to neutral.” Then, “let’s see how the economy is performing at that point and then we might have to do a little more after that.”

                    He further explained that “I would say that with the unemployment rate headed to three and a half percent, we’re in a more normal environment where an accommodative stance of policy, when we’ve got procyclical fiscal policy and a very strong economy, we probably need to be a little bit on the above-neutral side, but I don’t know that we need to be a lot.”

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                    Swiss KOF dropped to 96.2, largely due to deterioration in manufacturing

                      Swiss KOF Economic Barometer dropped to 96.2 in April, down from 97.1 and missed expectation of 97.0. KOF noted that the Barometer value is still “clearly below average”. Also, the Swiss economy will remain sluggish in the coming months.

                      KOF also said that the decline was largely due to deterioration in manufacturing sector. Construction also dropped slightly. The signals for private consumption as well as the banking and insurance sector was almost unchanged. The outlook for other service providers, accommodation and food service activities and for foreign demand was slightly better than in the previous month.

                      Full release here.

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                      US 30-year yield nearing historical low after huge plunge

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

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

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

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                        UK CPI slowed to 2-year low, Sterling shrugs

                          UK CPI slowed to 1.8% yoy in January, down from 2.1% yoy and missed expectation of 2.0% yoy. That’s also the lowest level since January 2017. Core CPI was unchanged at 1.9% yoy, matched expectations. ONS noted that the largest downward contribution to the change in the 12-month rate came from electricity, gas and other fuels. Meanwhile, these downward effects were partially offset by air fares.

                          Also from UK,

                          • RPI slowed to 2.5% yoy, down from 2.7% yoy, below expectation of 2.5% yoy.
                          • PPI input slowed to 2.9% yoy, down from 3.2% yoy and missed expectation of 3.8% yoy.
                          • PPI output slowed to 2.1% yoy, down from 2.4% yoy and missed expectation of 2.2% yoy.
                          • PPI output core was unchanged at 2.4% yoy, above expectation of 2.3% yoy.
                          • House price index slowed to 2.5% yoy, down from 2.7% yoy, matched expectations.
                          • Sterling dips mildly after the release. But loss is so far very limited.
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                          Japan Nishimura: Meeting with USTR Lighthizer not prelude to bilateral FTA

                            Japanese Deputy Chief Cabinet Secretary Yasutoshi Nishimura emphasized today that the meeting between Economy Minister Toshimitsu Motegi and US Trade Representative Robert Lighthizer next week is not a prelude to a bilateral free trade agreement.

                            Nishimura reiterated the government’s stance that “Japan does not desire an FTA and these talks are not at all preliminary discussions on an FTA.” Though he noted that “We will be looking for the best path for both the United States and Japan.”

                            In additional he also ruled out setting a quantitative limit on auto exports to the US. He said “whether it’s exports or imports, we will not set numerical targets.” And, “the fundamental thing is to maintain free and fair trade.”

                            Regarding the threat of auto tariffs from Trump, Nishimura said “raising tariffs on autos would have a big impact on the world economy and would be a big minus for the American economy, so we want to talk firmly so that does not happen.”

                            Japan has been very clear on their intention to bring the US back to the multilateral Trans-Pacific Partnership pact which Trump quitted as one of the first things he did after taking office.

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                            Japan cabinet office downgraded exports assessment to weakened recently

                              Japan Cabinet Office left overall economic assessment unchanged and said it’s in gradual recovery. However, export assessment was downgraded from “flattened” to “weakened recently”. In particular, shipments of electronics and semiconductor manufacturing equipment to China have slowed sharply.

                              The office noted in the monthly report that “we need to keep in mind that there is uncertainty about how trade disputes and China’s economic outlook will affect the global economy.”

                              On inflation, the report noted that consumer prices have leveled off. It’s another downgrade from last month’s description that gains were slowing. Consumer spending was recovering while capital expenditure was increasing. Both assessments were unchanged.

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                              EU Barnier: Backstop cannot be extended to whole UK

                                EU Brexit negotiator Michel Barnier criticized UK’s backstop proposal regarding Irish border. He said that “our backstop cannot be extended to the whole UK. Why? Because it has been designed for the specific situation of Northern Ireland.” And he emphasized that “what is feasible for a territory the size of Northern Ireland is not necessarily feasible for the whole UK.”

                                On the other hand, UK spokesman for PM May said that UK will never accept a customs border between Northern Ireland and the rest of the UK. And he countered-criticized that European Commission’s proposals do not achieve maintaining the integrity of UK. And that’s the reason why May put forward its own backstop solutions for customs in Brexit talks.

                                UK published document on temporary Brexit customs arrangements earlier this week.

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                                WTI crude oil breaks 63.68 fibonacci resistance, eyeing 77.06 in medium term

                                  WTI crude oil’s rally accelerates again today and reaches as high as 64.24 so far. 61.8% retracement of 77.06 to 42.05 at 63.68 is taken out.

                                  Also, 55 week EMA is considered firmly taken out after last week’s rise. The rally from 42.05 is at least considered as part of a sideway pattern from 77.06. Or, it could even be resuming the up trend from 27.69.

                                  Thus, sustained trading trading above 63.68 will pave the way to retest 77.06 high next. And in any case, near term outlook will remain bullish as long as 61.82 support holds, in case of retreat.

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                                  ECB Praet: ECB to make judgement call next week

                                    ECB chief economist Peter Praet delivers a speech titled “Monetary policy in a low interest rate environment” at the Congress of Actuaries, Berlin today.

                                    There, he noted that “the key question for monetary policy is: will growth remain sufficiently strong for the ongoing pressure on resource utilisation to continue to nudge inflation along a pathway that rises fast enough towards our objective?”

                                    In Praet’s view, the “main intersection” between growth and inflation formation lies in the labor market. He said that “a look at the sectoral make-up of the most recent developments in the job market is encouraging”. PMIs continued to signal employment creation across sectors and countries. And, measures of labour market titaness show “upward trend” has steepened over the past year. Measures of slack also showed improvement.

                                    And at the same time “there is growing evidence that labour market tightness is translating into a stronger pick-up in wage growth”. Annual wage growth rose to 1.9% in Q1, up from Q4’s 1.6%. The upsurge was due to sharp rise in 2.3% in negotiated wages in Germany. And rising wage pressures are starting to feed into producers prices too.

                                    Praet added that “signals showing the convergence of inflation towards our aim have been improving, and both the underlying strength in the euro area economy and the fact that such strength is increasingly affecting wage formation supports our confidence that inflation will reach a level of below, but close to, 2% over the medium term. ”

                                    Full speech here

                                    Praet also added that “next week, the Governing Council will have to assess whether progress so far has been sufficient to warrant a gradual unwinding of our net purchases.” And, it will be a “judgement” call.

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                                    Into US session: AUD recovers, Yen pulls back. But AUD/JPY just in corrective rebound

                                      Markets remain rather quiet today as most of the major markets are still on holiday. Though activity could back with the US later today. For now, Australian and New Zealand Dollar are the strongest ones for today so far while yen and Swiss Franc are the weakest.

                                      That’s probably be due to easing risk aversion as US futures point to slightly higher open. But it should be noted that a higher open doesn’t necessary mean a sustainable rebound in stocks. It could also be setting up the markets for another deep fall. Let’s see.

                                      For now AUD/JPY is the top mover for today. But that’s just a corrective recovery. AUD/JPY is indeed the worst performer for the month on risk aversion. It’s down -5.96% for the month, quite a distance from second top mover NZD/JPY.

                                      AUD/JPY’s strong break of 78.56 support last week confirmed resumption of the down trend from 90.29 high.

                                      More importantly, AUD/JPY failed to sustain above falling 55 week EMA on last rebound attempt. Weekly MACD was also held below zero. It’s also now broken 61.8% retracement of 72.39 to 90.29 decisively. These are also bearish signals. And fall from 90.29 could indeed be resuming larger down trend from 105.42 (2013 high). AUD/JPY should now target 61.8% projection of 90.29 to 78.56 from 83.90 at 76.65 first. Firm break there will add more credence to this long term bearish case.

                                       

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                                      UK Cox given up Irish backstop time limit or unilateral exit

                                        The Telegraph reported that UK Attorney General Geoffrey Cox has given up the request on a time-limit on the Irish backstop or unilateral exit mechanism. Cox wanted to push for an independent arbitration mechanism which both UK and EU could give formal notice to end the backstop. But such independent arbitration would be outside the jurisdiction of the European Court of Justice. That is seen as totally unacceptable by the EU.

                                        Separately, Trade Minister Liam Fox said he would be “shocked” if EU would insist on a delay of 21 months or two years extension of Article 50, if requested. He said “the European Union does not want Britain to fight the European elections.” Fox added it’s still “entirely possible” for leave EU on March 29. But a short extension to Article 50 may be needed to deliver a smoother exit.

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                                        Into US session: Aussie and Sterling weakest, not Euro

                                          Entering into US session, while Euro’s sell and Italy catches a lot of headlines today, it’s actually not the weakest one. Selloff in Euro slows a little bit after Italian PM Conte’s FB post, pledging that Euro is indispensable. Australian Dollar is indeed the worst performing on risk aversion, following the sharp selloff in Hong Kong stocks and weakness in offshore Chinese Yuan. Sterling is the second worst as UK PM May continues get criticism on her Chequers plan from EU as well as Brexiteers. Yen is the strongest one on risk aversion, followed by Dollar and Swiss Franc.

                                          At the time of writing, DAX is trading down -0.77% at 12244.13, recovered mildly after hitting as low as 12203.60. CAC is down -0.78% and FTSE is down -0.45%. German 10 year bund yield hit as long as 0.41 earlier today but it’s now back at 0.441, down -0.035. Italian 10 year yield is up 0.066 at 3.371, after hitting as high as 3.444.

                                          Earlier today, Nikkei pared back almost all earlier gains and closed up just 0.10%. Singapore Strait Times lost -0.39%. Hong Kong HSI is in crisis mode, lost -2.38%. China is still on holiday but could very much face some troubles when they’re back next week. Gold is hovering around 1190 despite Dollar strength.

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