Mon, Sep 16, 2019 @ 10:20 GMT

Stopping war games could weaken US rationale to ask South Korea to pay more

    The Yonhap news agency reported that South Korea and the US would announce suspension of large scale joint military exercises this week, amid the negotiations with North Korea on denuclearization. A “snapback” clause, though, would be included if North Korea fails to deliver its promises.

    Yonhap also reported that suspension of the exercises could “weaken Washington’s rationale for an increase in Seoul’s share of the cost for the upkeep of 28,500 U.S. troops in the country.” And the US has been demanding the South to pay more. There will be a fourth round of so-called burden sharing costs negotiations in Seoul later this month.

    Meanwhile, Trump also made clear it’s his request to stop the “war games” as they are “very expensive”.

     

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    China announced retaliation tariffs on soybean, agricultural products, automobiles

      China announced retaliation tariffs on US importants, including soybean, agricultural products, automobiles. These products are valued at around USD 34B, will be subjected to 25% tariffs, starting July 6, 2018.

      China would also impose 25% tariffs on other products, valued at around USD 16B, including  chemicals, medical equipment, and energy products. Effective date is to be determined.

      Below is the “google-translated” statement. Original statement in simplified Chinese could be found here.

      Announcement on Imposing Tariff on Certain Products Originating in the United States

      On June 15, 2018, the U.S. government announced that it would impose an import tariff of 25% on China’s 50 billion U.S. dollar products, including levied tariffs on about US$34 billion of Chinese exports to the US The measures will be implemented on July 6. Additional tariff measures for the remaining US$16 billion will further seek public opinions. The United States disregards China’s resolute opposition and solemn representations and insists on taking actions that violate the rules of the World Trade Organization. It seriously violates China’s legitimate rights and interests under the rules of the World Trade Organization and threatens China’s economic interests and security.

      Regarding the emergency situation caused by the United States’ violation of its international obligations to China, and in order to defend its legitimate rights and interests, China decided to rely on the laws and regulations of the Foreign Trade Law of the People’s Republic of China and other basic principles of international law on soybean, agricultural products , automobiles , and water originating in the United States. Products and other imported goods are subject to tariff levying measures at a tax rate of 25%, involving about 34 billion U.S. dollars in imports from the United States in 2017 (see Annex 1). The above measures will take effect from July 6, 2018.

      At the same time, China intends to impose an import tariff of 25% on commodities imported from the United States, including chemicals, medical equipment, and energy products, involving approximately US$16 billion in US imports from the United States in 2017 (see Annex 2), final measures, and effective time. Will be announced separately .

      Annex:

      List of Customs Tariff Commissions of the State Council Concerning the Collection of Customs Products for the United States and Canada.pdf

      The Customs Tariff Commission of the State Council issues a list of tariffs on the United States and Canada.pdf

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      MOFCOM: China to retaliate at same scale, same strength

        Response from the Chinese MOFCOM below. Original in simplified Chinese. Below is “google-translated”:

        China and the United States have conducted several rounds of consultations on economic and trade issues in an effort to resolve differences and achieve a win-win situation. We deeply regret that the United States has disregarded the consensus it has formed and is fickle, provoking a trade war. This move is not only damaging bilateral interests but also undermining the world trade order. China firmly opposes this.

        China does not want to fight a trade war. However, in the face of short-sighted behavior that the United States has done against people’s disadvantages, the Chinese side has to give a strong blow back, resolutely safeguard national interests and the interests of the people, and resolutely defend economic globalization and the multilateral trading system. We will immediately introduce taxation measures of the same scale and the same strength. All the economic and trade achievements previously reached by the two parties will be invalid at the same time.

        In today’s era, launching a trade war is not in the global interest. We call on all countries to take joint action, resolutely put an end to this outdated and regressive behavior, and firmly defend the common interests of mankind.

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        US announced Tariffs on USD 34B of Chinese imports, starting July 6. Added USD 16B products for public hearing

          The US Trade Representative formally announced the section 301 tariffs on Chinese imports, targeting products related to the Made in China 2025 policy. USTR said these “strong defensive actions” are to ” protect America’s leadership in technology and innovation against the unprecedented threat posed by China’s theft of our intellectual property, the forced transfer of American technology, and its cyber attacks on our computer networks.” And it condemned that “China’s government is aggressively working to undermine America’s high-tech industries and our economic leadership through unfair trade practices and industrial policies like ‘Made in China 2025.'”

          There are two set of tariffs lines. The first set contains 818 lines of the original 1,333 lines announced in April. This set covers around USD 34B of Chinese imports. 25% tariffs will be imposed starting July 6, 2018. The second set contained 284 proposed tariff lines, covering around USD 16B in Chinese goods. This set will undergo further public view before finalizing.

          Altogether they’re valued around USD 50B. and focuses on products from industrial sectors that contribute to or benefit from the “Made in China 2025” industrial policy, which include industries such as aerospace, information and communications technology, robotics, industrial machinery, new materials, and automobiles. The list does not include goods commonly purchased by American consumers such as cellular telephones or televisions.

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          US announced tariffs on USD 50B of Chinese imports, full statement

            USTR Issues Tariffs on Chinese Products in Response to Unfair Trade Practices

            Washington, DC – The Office of the United States Trade Representative (USTR) today released a list of products imported from China that will be subject to additional tariffs as part of the U.S. response to China’s unfair trade practices related to the forced transfer of American technology and intellectual property.

            On May 29, 2018, President Trump stated that USTR shall announce by June 15 the imposition of an additional duty of 25 percent on approximately $50 billion worth of Chinese imports containing industrially significant technologies, including those related to China’s “Made in China 2025” industrial policy.  Today’s action comes after an exhaustive Section 301 investigation in which USTR found that China’s acts, policies and practices related to technology transfer, intellectual property, and innovation are unreasonable and discriminatory, and burden U.S. commerce.

            “We must take strong defensive actions to protect America’s leadership in technology and innovation against the unprecedented threat posed by China’s theft of our intellectual property, the forced transfer of American technology, and its cyber attacks on our computer networks,” said Ambassador Robert Lighthizer.  “China’s government is aggressively working to undermine America’s high-tech industries and our economic leadership through unfair trade practices and industrial policies like ‘Made in China 2025.’  Technology and innovation are America’s greatest economic assets and President Trump rightfully recognizes that if we want our country to have a prosperous future, we must take a stand now to uphold fair trade and protect American competitiveness.”

            The list of products issued today covers 1,102 separate U.S. tariff lines valued at approximately $50 billion in 2018 trade values.  This list was compiled based on extensive interagency analysis and a thorough examination of comments and testimony from interested parties.  It generally focuses on products from industrial sectors that contribute to or benefit from the “Made in China 2025” industrial policy, which include industries such as aerospace, information and communications technology, robotics, industrial machinery, new materials, and automobiles.  The list does not include goods commonly purchased by American consumers such as cellular telephones or televisions.

            This list of products consists of two sets of U.S tariff lines.  The first set contains 818 lines of the original 1,333 lines that were included on the proposed list published on April 6.  These lines cover approximately $34 billion worth of imports from China.  USTR has determined to impose an additional duty of 25 percent on these 818 product lines after having sought and received views from the public and advice from the appropriate trade advisory committees.  Customs and Border Protection will begin to collect the additional duties on July 6, 2018.

            The second set contains 284 proposed tariff lines identified by the interagency Section 301 Committee as benefiting from Chinese industrial policies, including the “Made in China 2025” industrial policy.  These 284 lines, which cover approximately $16 billion worth of imports from China, will undergo further review in a public notice and comment process, including a public hearing.  After completion of this process, USTR will issue a final determination on the products from this list that would be subject to the additional duties.

            USTR recognizes that some U.S. companies may have an interest in importing items from China that are covered by the additional duties. Accordingly, USTR will soon provide an opportunity for the public to request the exclusion of particular products from the additional duties subject to this action.  USTR will issue a notice in the Federal Register with details regarding this process within the next few weeks.

             

            Background

            President Trump announced on March 22, 2018, that USTR shall publish a proposed list of products and any intended tariff increases in order to address the acts, policies, and practices of China that are unreasonable or discriminatory and that burden or restrict U.S. commerce.

            These acts, policies and practices of China include those that coerce American companies into transferring their technology and intellectual property to domestic Chinese enterprises.  They bolster China’s stated intention of seizing economic dominance of certain advanced technology sectors as set forth in its industrial plans, such as “Made in China 2025.”  (See USTR Section 301 Report here.)

            On April 3, USTR announced a proposed list of 1,333 products that may be subject to an additional duty of 25 percent, and sought comments from interested persons and the appropriate trade advisory committees.

            Interested persons filed approximately 3,200 written submissions.  In addition, USTR and the Section 301 Committee convened a three-day public hearing from May 15-17, 2018, during which 121 witnesses provided testimony and responded to questions. The public submissions and a transcript of the hearing are available on www.regulations.gov in docket number USTR-2018-0005.

            Click here to view a fact sheet on the Section 301 product list.

            Click here to view a fact sheet on the Section 301 investigation.

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            Chinese foreign ministry warns on immediate action against US unilateralism and protectionism

              Below is the transcript of Chinese foreign ministry spokesman Geng Shuang’s reply to question regarding US tariffs during a regular press briefing.

              Q: It is reported that US officials said President Trump has decided to approve the value of 50 billion US dollars of Chinese exports to the US goods to levy a 25% tariff, the decision will be formally announced Friday US time. Did the U.S. inform the Chinese side? The Chinese side has repeatedly stated that if the U.S. side introduces trade sanctions including the increase of tariffs, all trade and economic achievements negotiated by the two parties will not take effect. Yesterday, State Councilor and Foreign Minister Wang Yi stated that if the United States chooses the idea of ​​confrontation and double lose, China is ready. Do you have any further response to this? What kind of countermeasures will China take?

              A: Yesterday, U.S. Secretary of State Pompeo visited China during the visit and exchanged views with China on Sino-U.S. relations and important international and regional issues, including China-US economic and trade issues. Please read carefully the relevant news released by the Chinese side. China’s position on China-U.S. economic and trade issues is very clear in the press release. Here I want to emphasize a few more points:

              First, the nature of Sino-U.S. economic and trade relations is mutually beneficial and win-win. We have always advocated that, on the basis of mutual respect, equality, and mutual benefit, we should handle economic and trade issues in a constructive manner through dialogue and consultation, and constantly narrow differences and expand cooperation for the benefit of both. People of the country.

              Second, China and the United States maintained communication on economic and trade issues, including China-US economic and trade frictions, and also conducted consultations. In fact, they have made some progress. If you remember, after the Sino-U.S. economic and trade consultations earlier this month, China issued a statement. In the statement, we clearly pointed out that if the U.S. side introduces trade sanctions including the increase of tariffs, all the economic and trade achievements negotiated by the two parties will not take effect.

              Thirdly, at the beginning of April this year, spokespersons of the Ministry of Commerce and spokesmen of the Ministry of Foreign Affairs had all made formal responses to some U.S. unilateralist words and deeds. The Chinese position is consistent. Here I would like to reiterate that if the U.S. side adopts unilateralism and protectionism and damages China’s interests, we will respond in the first instance and take necessary measures to firmly safeguard our legitimate rights and interests.

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              BoJ Kuroda: Deflationary mindset caps medium- and long-term inflation expectations

                In the post meeting press conference, BoJ Governor Haruhiko Kuroda admitted that ” year-on-year growth in consumer prices is slowing”. Falling durable goods prices and temporary fluctuations in hotel costs were part of the reasons. However, “companies’ price-setting behavior appears to be changing” as they’re passing on rising costs to consumer. Hence, the economy is “sustaining momentum” to achieve the 2% inflation target. Kuroda also said there will be further debate on price moves at the next meeting in July, when the quarter long-term forecasts will also be published.

                Kuroda added that “Japan’s economy is seeing labor markets tighten and the output gap improving, but prices aren’t rising much.” There are external factors from US and Europe. At the same time, that’s the deflationary mindset of households and companies, which became entrenched due to 15 years of deflation.” That’s the reason keeping medium- and long-term inflation expectations subdued.

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                BoJ stands pat as widely expected

                  BoJ left monetary policy unchanged today as widely expected. Under the yield curve control framework, short term policy rate is held at -0.1%. BoJ will also continue target to keep 10 year JGB yield at around 0%. Annual pace of JGB purchase is kept at around JPY 80T. Goushi Kataoka dissented again in a 8-1 vote. Kataoka pushed to “further strengthen monetary easing” so that “yields on JGBs with maturities of 10 years and longer would broadly be lowered further.”

                  The description on the economy is largely unchanged. One exception is that CPI is now “in the range of 0.5-1.0%”, comparing to April’s description of moving around 1 percent. On the outlook, BoJ noted that the economy is “likely to continue its moderate expansion.” Domestic demand will follow an uptrend while exports will continue the moderate increasing trend. Risks to the outlook include the following: the U.S. economic policies and their impact on global financial markets; developments in emerging and commodity-exporting economies; negotiations on the United Kingdom’s exit from the European Union (EU) and their effects; and geopolitical risks.

                  Full statement here.

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                  IMF warned of US fiscal and trade policies

                    IMF saw a positive picture of the US economy in a report released yesterday, but warned of fiscal and trade policy. IMF said that near-term outlook for the U.S. economy is one of strong growth and job creation. And, a slow but steady rise in wage and price inflation is expected as labor and product markets tighten. It projects US economy to grow 2.9% In 2018 and 2.7% in 2019 but slow sharply to 1.9% in 2020. Core PCE is projected to hit 2.0% in 2018 and accelerate to 2.3% in 2019 before slowing back to 2.2% in 2020.

                    Regarding fiscal policy, IMF warned that the combined effect of the administration’s tax and spending policies will cause the federal government deficit to exceed 4.5% of GDP by 2019. And, such a procyclical fiscal policy will elevate the risks to the U.S. and global economy. The risks include higher public debt, a inflation surprise, international spillover, future recession and increased global imbalances. IMF said Fed will need to raise policy rates at a faster pace to achieve its dual mandate. And policymakers should be ready to accept some modest, temporary overshooting of its medium-term inflation goal

                    On trade, IMF warned that the measures to impose new tariffs or otherwise restrict import “are likely to move the globe further away from an open, fair and rules-based trade system, with adverse effects for both the U.S. economy and for trading partners”. Risks include:

                    • Catalyzing a cycle of retaliatory responses from others, creating important uncertainties that are likely to discourage investment at home and abroad.
                    • Expanding the circumstances where countries choose to cite national security motivations to justify broad-based import restrictions. As such, this has the potential to undermine the rules-based global trading system.
                    • Interrupting global and regional supply chains in ways that are likely to be damaging to a range of countries, and to U.S. multinational companies, that are reliant on these supply chains.
                    • Impacting a range of countries, particularly some of the more vulnerable emerging and developing economies, through increased financial market or commodity price volatility associated with these trade actions.

                    Full report here.

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                    US agriculture associations cry #TradeNotTariffs

                      Agriculture associations in the US turned to the Congress for help after their voices have fallen on Trump’s deaf ears. The American Soybean Association (ASA), the National Corn Growers Association, National Association of Wheat Growers (NAWG), Association of Equipment Manufacturers (AEM) issued a joint appeal to the Congress with hashtag #TradeNotTariffs.

                      The urged the Congress to “convince the administration to halt tariffs and go back to the negotiating table.” And, Under the hashtag #TradeNotTariffs, members of these organizations are also raising awareness on social media by sharing with the public what tariffs could mean for their livelihoods – and how severe that outlook could be.

                      This is an immediate response to the news that White House would announce the final list of tariffs on USD 50B in Chinese goods. Chinese has announced a retaliation list several months ago that include 25% tariffs on US soybeans. ASA described the Chinese retaliation as “devastating to growers of the number one US agricultural export.” NAWG said “adding a 25 percent tariff on exports to China for US wheat is the last thing we need during some of the worst economic times in farm country.”

                      NCGA warned farmers “cannot afford the immediate pain of retaliation nor the longer term erosion of long-standing market access and economic partnerships with some of our closest friends and allies.” AEM also said “we strongly oppose a trade war with China because no one ever wins in these tit-for-tat dispute”.

                      Here is the full release.

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                      Trump approved Section 301 tariffs on USD 50B of Chinese imports

                        It’s reported that Trump has approved the Section 301 tariffs on USD 50B in Chinese imports and the formal announcement would be made today. That came after a 90-minute meeting with the core team of senior White House officials, national-security officials and senior representatives of the Treasury, Commerce Department, Trade Representative’s Office. The initial proposal include around 1,300 lines of products targeting the “Made in China 2025” plan. But it’s uncertain what changes would be made to the list after public hearing. Also, it’s uncertain when the tariffs will come into effect.

                        China has pledged retaliation yesterday if the tariffs are enforced. Foreign Minister Wang Yi warned yesterday that China and the US faced a choice between cooperation and confrontation. Wand said “China chooses the first”. But “of course, we have also made preparations to respond to the second kind of choice.”

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                        EUR/USD short opportunity for position trading

                          Let’s have a look at EUR/USD follow today’s post ECB selloff.

                          First of all, EUR/USD is clearly in a medium term down trend as seen in W action bias chart. Despite near term rebound from 1.1509, W action bias stayed downside red throughout.

                          D action bias chart turned neutral after a string of downside red bars. This is consistent with the view that price actions from 1.1509 are corrective in nature. And such corrective rise was indeed relatively weak, without any upside blue bar.

                          The sharp fall today turned 6H action bias downside red too, with a few persistent red bars in H action bias too.

                          The development suggests that EUR/USD’s down trend is possibly resuming. The main hesitation for us is that D action bias bar hasn’t turned red yet. Hence, we’d opt for a safer strategy and sell of recovery to 1.1725 minor resistance, with stop above 1.1851. We’re looking at 61.8% retracement of 1.0339 to 1.2555 at 1.1186 as target for position trading.

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                          ECB Mario Draghi’s introductory statement in press conference

                            One important point to note in the introductory statement is the revision in economic projections. ECB now projects annual GDP growth to be at 2.1% in 2018, that’s notable downward revision from March projection of 2.4%. For 2019 and 2020, GDP projections were kept unchanged at 1.9% and 1.7% respectively. On the other hand, HICP inflation is projected to be 1.7% in 2018, 2019 and 2020. That’s notably revised up from March projection of 1.4% in 2018, 1.4% in 2019 and 1.7% in 2020.

                            Below is the statement.

                            Mario Draghi, President of the ECB,
                            Luis de Guindos, Vice-President of the ECB,
                            Riga, 14 June 2018

                            INTRODUCTORY STATEMENT

                            Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. I would like to thank Deputy Governor Razmusa for her kind hospitality and express our special gratitude to her staff for the excellent organisation of today’s meeting of the Governing Council. We will now report on the outcome of our meeting.

                            Since the start of our asset purchase programme (APP) in January 2015, the Governing Council has made net asset purchases under the APP conditional on the extent of progress towards a sustained adjustment in the path of inflation to levels below, but close to, 2% in the medium term. Today, the Governing Council undertook a careful review of the progress made, also taking into account the latest Eurosystem staff macroeconomic projections, measures of price and wage pressures, and uncertainties surrounding the inflation outlook.

                            As a result of this assessment, the Governing Council concluded that progress towards a sustained adjustment in inflation has been substantial so far. With longer-term inflation expectations well anchored, the underlying strength of the euro area economy and the continuing ample degree of monetary accommodation provide grounds to be confident that the sustained convergence of inflation towards our aim will continue in the period ahead, and will be maintained even after a gradual winding-down of our net asset purchases.

                            Accordingly, the Governing Council today made the following decisions:

                            First, as regards non-standard monetary policy measures, we will continue to make net purchases under the APP at the current monthly pace of €30 billion until the end of September 2018. We anticipate that, after September 2018, subject to incoming data confirming our medium-term inflation outlook, we will reduce the monthly pace of the net asset purchases to €15 billion until the end of December 2018 and then end net purchases.

                            Second, we intend to maintain our policy of reinvesting the principal payments from maturing securities purchased under the APP for an extended period of time after the end of our net asset purchases, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

                            Third, we decided to keep the key ECB interest rates unchanged and we expect them to remain at their present levels at least through the summer of 2019 and in any case for as long as necessary to ensure that the evolution of inflation remains aligned with our current expectations of a sustained adjustment path.

                            Today’s monetary policy decisions maintain the current ample degree of monetary accommodation that will ensure the continued sustained convergence of inflation towards levels that are below, but close to, 2% over the medium term. Significant monetary policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term. This support will continue to be provided by the net asset purchases until the end of the year, by the sizeable stock of acquired assets and the associated reinvestments, and by our enhanced forward guidance on the key ECB interest rates. In any event, the Governing Council stands ready to adjust all of its instruments as appropriate to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner.

                            Let me now explain our assessment in greater detail, starting with the economic analysis. Quarterly real GDP growth moderated to 0.4% in the first quarter of 2018, following growth of 0.7% in the previous quarters. This moderation reflects a pull-back from the very high levels of growth in 2017, compounded by an increase in uncertainty and some temporary and supply-side factors at both the domestic and the global level, as well as weaker impetus from external trade. The latest economic indicators and survey results are weaker, but remain consistent with ongoing solid and broad-based economic growth. Our monetary policy measures, which have facilitated the deleveraging process, continue to underpin domestic demand. Private consumption is supported by ongoing employment gains, which, in turn, partly reflect past labour market reforms, and by growing household wealth. Business investment is fostered by the favourable financing conditions, rising corporate profitability and solid demand. Housing investment remains robust. In addition, the broad-based expansion in global demand is expected to continue, thus providing impetus to euro area exports.

                            This assessment is broadly reflected in the June 2018 Eurosystem staff macroeconomic projections for the euro area. These projections foresee annual real GDP increasing by 2.1% in 2018, 1.9% in 2019 and 1.7% in 2020. Compared with the March 2018 ECB staff macroeconomic projections, the outlook for real GDP growth has been revised down for 2018 and remains unchanged for 2019 and 2020.

                            The risks surrounding the euro area growth outlook remain broadly balanced. Nevertheless, uncertainties related to global factors, including the threat of increased protectionism, have become more prominent. Moreover, the risk of persistent heightened financial market volatility warrants monitoring.

                            According to Eurostat’s flash estimate, euro area annual HICP inflation increased to 1.9% in May 2018, from 1.2% in April. This reflected higher contributions from energy, food and services price inflation. On the basis of current futures prices for oil, annual rates of headline inflation are likely to hover around the current level for the remainder of the year. While measures of underlying inflation remain generally muted, they have been increasing from earlier lows. Domestic cost pressures are strengthening amid high levels of capacity utilisation, tightening labour markets and rising wages. Uncertainty around the inflation outlook is receding. Looking ahead, underlying inflation is expected to pick up towards the end of the year and thereafter to increase gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion, the corresponding absorption of economic slack and rising wage growth.

                            This assessment is also broadly reflected in the June 2018 Eurosystem staff macroeconomic projections for the euro area, which foresee annual HICP inflation at 1.7% in 2018, 2019 and 2020. Compared with the March 2018 ECB staff macroeconomic projections, the outlook for headline HICP inflation has been revised up notably for 2018 and 2019, mainly reflecting higher oil prices.

                            Turning to the monetary analysis, broad money (M3) growth stood at 3.9% in April 2018, after 3.7% in March and 4.3% in February. While the slower momentum in M3 dynamics over recent months mainly reflects the reduction in the monthly net asset purchases since the beginning of the year, M3 growth continues to be supported by the impact of the ECB’s monetary policy measures and the low opportunity cost of holding the most liquid deposits. Accordingly, the narrow monetary aggregate M1 remained the main contributor to broad money growth, although its annual growth rate has receded in recent months from the high rates previously observed.

                            The recovery in the growth of loans to the private sector observed since the beginning of 2014 is proceeding. The annual growth rate of loans to non-financial corporations stood at 3.3% in April 2018, unchanged from the previous month, and the annual growth rate of loans to households also remained stable, at 2.9%.

                            The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households and credit flows across the euro area. This is also reflected in the results of the latest Survey on the Access to Finance of Enterprises in the euro area, which indicates that small and medium-sized enterprises in particular benefited from improved access to financing.

                            To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed that today’s monetary policy decisions will ensure the ample degree of monetary accommodation necessary for the continued sustained convergence of inflation towards levels that are below, but close to, 2% over the medium term.

                            In order to reap the full benefits from our monetary policy measures, other policy areas must contribute more decisively to raising the longer-term growth potential and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. Regarding fiscal policies, the ongoing broad-based expansion calls for rebuilding fiscal buffers. This is particularly important in countries where government debt remains high. All countries would benefit from intensifying efforts towards achieving a more growth-friendly composition of public finances. A full, transparent and consistent implementation of the Stability and Growth Pact and of the macroeconomic imbalance procedure over time and across countries remains essential to increase the resilience of the euro area economy. Improving the functioning of Economic and Monetary Union remains a priority. The Governing Council urges specific and decisive steps to complete the banking union and the capital markets union.

                            We are now at your disposal for questions.

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                            US retail sales and jobless claims beat expectations

                              Initial jobless claims dropped -4k to 28k in the week ended June 9, slightly better than expectation of 223k. Four-week moving average of initial claims dropped -1.25k to 224.25k. Continuing claims dropped -49k to 1.697m in the week ended June 2, lowest since December 1, 1973. Four-week moving average of continuing claims dropped -3.75k to 1.726m, lowest since December 8, 1973.

                              Headline retail sales rose 0.8% in May versus expectation of 0.4% mom. Ex-auto sales rose 0.9% versus expectation of 0.3%. Import price rose 0.6% mom in May versus expectation of 0.5% mom.

                              Also released, new housing price index rose 0.0% mom in April versus expectation of 0.2% mom.

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                              Euro dives after ECB as markets unhappy with rate path

                                Euro suffers steep selling after ECB’s announcement. ECB did deliver an the decision on asset purchase program. That is, tapering it for three months after September and end it after December. But the markets seem to be rather unhappy with it. The decision to taper, instead of ending it right after September could be a factor.

                                The more important one could be this part of the statement. “The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019 and in any case for as long as necessary to ensure that the evolution of inflation remains aligned with the current expectations of a sustained adjustment path.”

                                It suggests that for now, ECB is not even eyeing mid 2019 as the timing for the first rate hike.

                                Focus on EUR/USD is now back on 1.1713 minor support. Break will bring retest of 1.1509 low next. Euro now looks to Mario Draghi’s press conference for rescue. Based on our experience on Draghi, he usually delivers something more cautious then the statements.

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                                ECB to taper APP to EUR 15B/M after Sep, end it after Dec. Full statement

                                  ECB left main refinancing rate unchanged at 0.00% as widely expected. Regarding the asset purchase program, ECB decided to taper it from EUR 30B per month to EUR 15B per month after the end of September. And, the program will end after December 2018.

                                  Press conference to start at 12:30GMT

                                  Full statement below.

                                  Monetary Policy Decisions

                                  At today’s meeting, which was held in Riga, the Governing Council of the ECB undertook a careful review of the progress towards a sustained adjustment in the path of inflation, also taking into account the latest Eurosystem staff macroeconomic projections, measures of price and wage pressures, and uncertainties surrounding the inflation outlook.

                                  Based on this review the Governing Council made the following decisions:

                                  First, as regards non-standard monetary policy measures, the Governing Council will continue to make net purchases under the asset purchase programme (APP) at the current monthly pace of €30 billion until the end of September 2018. The Governing Council anticipates that, after September 2018, subject to incoming data confirming the Governing Council’s medium-term inflation outlook, the monthly pace of the net asset purchases will be reduced to €15 billion until the end of December 2018 and that net purchases will then end.

                                  Second, the Governing Council intends to maintain its policy of reinvesting the principal payments from maturing securities purchased under the APP for an extended period of time after the end of the net asset purchases, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

                                  Third, the Governing Council decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019 and in any case for as long as necessary to ensure that the evolution of inflation remains aligned with the current expectations of a sustained adjustment path.

                                  Today’s monetary policy decisions maintain the current ample degree of monetary accommodation that will ensure the continued sustained convergence of inflation towards levels that are below, but close to, 2% over the medium term.

                                  The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.

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                                  Sterling jumps on stellar May retail sales

                                    Sterling surges after much stronger than expected retail sales data in May.

                                    Retail sales include fuel rose 1.3% mom versus expectation of 0.5% mom and prior 1.8% mom.

                                    Retail sales include fuel rose 3.9% yoy versus expectation of 2.4% yoy and prior 1.4% yoy.

                                    Retail sales ex-fuel rose 1.3% mom versus expectation of 0.3% mom and prior 1.4% mom

                                    Retail sales ex-fuel rose 4.4% yoy versus expectation of 2.5% yoy and prior 1.4% yoy.

                                    Here are the main points from the release:

                                    • In May 2018, the quantity bought in the retail industry increased by 1.3% when compared with April 2018 with growth across all main sectors.
                                    • Feedback from retailers suggested that a sustained period of good weather and Royal Wedding celebrations encouraged spending in food and household goods stores in May.
                                    • The quantity bought saw a sharp increase to year-on-year growth in May at 3.9% when compared with April at 1.4%; possibly due to a combination of warm weather and slow year-on-year growth in May 2017 at 0.8%.
                                    • Non-store retailing showed strong growth in the quantity bought when compared with the previous year at 16.2%, the previous month at 4.5% and in the three months to May at 4.9%.
                                    • Online spending for food, department and clothing stores continued to increase, achieving new record proportions of online retailing in May at 5.8%, 17.4% and 17.6% respectively.
                                    • The proportion of online spending in clothing stores has grown at a much faster rate in the last 14 months, from 14.7% in March 2017 to 17.6% in May 2018.

                                    Full release here.

                                    GBP/USD’s break of 1.3424 minor resistance now suggests that rebound from 1.3203 is going to resume through 1.3471. It could target 100% projection of 1.3203 to 1.3471 from 1.3307 at 1.3575.

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                                    Australian Dollar lower on job and China data, a look at EURAUD

                                      Australian Dollar is trading as the weakest one today as pressured by its own data miss as well as weaker than expected China data. Australia employment rose 12k seasonally adjusted in May, below consensus of 19.2k. Unemployment rate dropped to 5.4%, as participation rate also dropped to 65.5%.

                                      From China, retail sales rose 8.5% yoy in May, slowed from 9.4% yoy and missed expectation of 9.6% yoy. Industrial production slowed to 5.8% yoy, down from 7.0% yoy and missed expectation of 7.0% yoy. Fixed asset investment slowed to 6.1% yoy, down from 7.0% yoy and missed expectation of 7.0% yoy.

                                      EUR/AUD is a top mover today and is displaying strength across time frames.

                                      EUR/AUD action bias table also shows some promising near term upside momentum.

                                      This could be seen clearly in the H and 6H action bias charts too.

                                      However, a look at D action bias chart sees that EUR/AUD has just come out of a near term down trend. While the near term rebound is impressive, it doesn’t warrant a trend reversal yet.

                                      So, we would not suggest chasing the rally. In particular, there is an high profile risk in ECB policy decision and press conference today.

                                       

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                                      South Korean Moon approved the result of Kim-Trump summit

                                        South Korean President Moon Jae-in met with US Secretary of State Mike Pompeo today and gave a nod to what the US has done in the Kim-Trump summit.

                                        Moon said that “there have been many analyses on the outcome of the summit but I think what’s most important was that the people of the world, including those in the United States, Japan and Koreans, have all been able to escape the threat of war, nuclear weapons and missiles.”

                                        Pompeo said that “we’re hopeful that we can achieve that in the 2-1/2 years,” referring the major nuclear disarmament in North Korea. And he tweaked the meaning of “complete” and said it “encompasses verifiable and irreversible” denuclearization. But no one asked him when the word “complete” started including those extra meaning.

                                        In Japan, the Yomiuri newspaper reported that Prime Minister Shinzo Abe is arranging a meeting with North Korean Leader Kim Jong-un, possibly in Pyongyang around August.

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                                        Trade war concern caps Dollar gains as Trump is ready to impose Section 301 tariffs on China

                                          Fed delivered the widely expected rate hike overnight, with hawkish statement and economic projections. FOMC is now projecting two more rate hikes this year, a total of four, and another three next year. But Dollar is failing to extend it’s gain despite the announcement. The greenback is indeed trading down against all but Australian and New Zealand Dollar in Asian session.

                                          The concern of trade war is a main factor that’s weighing down the greenback. It’s reported that Trump is ready to snap tariffs on USD 50B of Chinese imports. The original list consists of around 1300 product lines. Trade advisor Peter Navarro’s comments suggested that the tariffs could be on a “subset” of the original list. The decision would be made on Thursday today, and the final list of products would be unveiled on Friday.

                                          To recap, that’s the action under section 301 investigation in response to forced transfer of U.S. technology and intellectual property. It’s different from the section 232 steel and aluminum tariffs against the world. The section 301 tariffs solely targeted at China.

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