Sun, Aug 25, 2019 @ 06:51 GMT

Chinese stocks rebound as Premier Li pledged to step up countercyclical measures

    Stocks in China and Hong Kong buck the global trade and rebounds notably today. At the time of writing, China Shanghai SSE is up 1.35%. Hong Kong HSI is up 1.34%.

    Sentiments are apparent lifted by news that the Chinese government is going to provide more stimulus to the economy. The State Council noted in a brief statement in its website that Premier Li Keqiang pledged to step up “countercyclical adjustments” of macro policies.

    The comments were made when Li at a meeting with officials of the country’s banking and insurance regulator after visiting Bank of China, Industrial and Commercial Bank of China and China Construction Bank. Measures will include tax cuts, targeted lowering of reserve requirements to help small and private companies.

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    European Update: Sterling pares gain as Brexit optimism turns into cautiousness

      Sterling reversed some of this week’s gain as Brexit optimism has now turned into cautiousness. UK Prime Minister Theresa May will hold a Cabinet meeting shortly to secure support for her agreement with the EU. And she plan to issue Commons statement after that. EU’s chief negotiator Michel Barnier also plans to make a statement today on the status, and hopefully, he would declare “decisive progress” for a November EU summit. The could be some more volatility in the pound in the upcoming hours.

      For now, New Zealand Dollar remains the strongest one for today, followed by Canadian Dollar and then US Dollar. WTI crude oil dipped to as low as 54.84 but it’s now back above 56. The recovery is giving Canadian a breath but that could be temporary. Meanwhile, Swiss Franc is trading as the weakest one, followed by Australian Dollar and then Sterling.

      Economic data released today saw US CPI and core CPI stalled at 2.4% yoy and 1.9% yoy respectively. German GDP and Japan GDP contracted in Q3 and both were attributed to global trade tensions. US CPI will be the next focus.

      In European markets, major indices are trading mildly softer today. At the time of writing:

      • FTSE is down -0.02%
      • DAX is down -0.34%
      • CAC is down -0.42%
      • German 10 year yield drops -0.018 to 0.396
      • Italian 10 year yield is up 0.043 at 3.490. German-Italian spread is now at 310. That came after Italy refused to change its 2019 deficit target in the resubmitted plan to EU.

      Earlier in Asia

      • Nikkei closed up 0.16%
      • But Hong Kong HSI dropped -0.54%
      • China Shanghai SSE dropped -0.85%
      • Singapore Strait Times dropped -0.34%
      • Japan 10 year JGB yield dropped -0.0077 to 0.108. We haven’t seen it below 0.11 for a while.
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      Yen surges, Nikkei drops as Trump mulls car tariffs on national security ground

        Yen’s broad based rally extends today as Nikkei dives over -1% as led by selloff in car makers shares.

        Sentiments are hurt by news that the US is considering to impose as much as 25% tariffs on import cars. Similar to steel and aluminium tariffs, national security is used as the excuse for the investigation under Section 232 of the Trade Expansion Act of 1962.

        Commerce Secretary Wilbur Ross said in a statement that “there is evidence suggesting that, for decades, imports from abroad have eroded our domestic auto industry.” And, the department will “conduct a thorough, fair, and transparent investigation into whether such imports are weakening our internal economy and may impair the national security.”

        In a separate statement, US President Donald Trump said: “core industries such as automobiles and automotive parts are critical to our strength as a Nation.”

        Some see the the car tariffs as a threat to force concessions in NAFTA talks, which has been in deadlock. This could also be an act to address pressure to EU, in particular on Germany for trade talks. But Japan could be the hardest hit if the tariffs are implemented. Japan is one of the few top 10 steel importers to the US who’s not even granted a temporary exemption.

        In 2017, US imported 8.3m vehicles, including 2.4 million from Mexico, 1.8 million from Canada, 1.7 million from Japan, 0.9m from South Korea and 0.5m from Germany.

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        Yen rises sharply in early European session. An update on EURJPY and GBPCHF short

          Yen surges broadly in the later part of Asian session, early European session. The selloff in Chinese stocks in the final two hours could be a factor driving risk aversion. The Shanghai SSE index closed down -1.27% at 2744.07. European indices open mixed with German DAX slightly down by -0.2% at the time of writing.

          Despite the strong rebound from 128.49, EUR/JPY was limited below 129.52 minor resistance and drops sharply. 128.49 is back into focus and break will resume whole decline from 131.97. Based on the position strategy as our weekly report, we sold EUR/JPY at 128.60 at open this week. We’ll hold on to the short position, with stop at 129.60, slightly above 129.52 minor resistance. 127.13 is the first target but we’d expect at least a test on 124.61 low if things turns out as we expected.

          Also, we’re holding on GBP/CHF short, sold at 1.2971. The development so far is in line with out expectation. We’ll lower the stop to break even at 1.2971. 61.8% projection of 1.3854 to 1.3049 from 1.3265 at 1.2768 as first target. And there is prospect of extending to 100% projection at 1.2460 in medium term.

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          BoJ Kuroda: Rise of protectionism and tightening of financial conditions call for vigilance

            BoJ Governor Haruhiko Kuroda warned that “recent rise of protectionist moves and tightening of financial conditions in some economies remind policymakers of the importance of being vigilant at all times:. And he urged to “pay more attention to protectionist moves, as global economies have become increasingly interdependent through global value chains.”

            Domestically, Kuroda said “when 2 percent inflation target is met or is close to be met, of course we can change the target, the monetary operating target of interest rate.” But he also reiterated that “at this moment, inflation is only 1 percent, so we will continue the current yield curve control at the current level of interest.”

            Kuroda also talked down the impact of the planned sales tax hike in 2019 and said “at this stage, there would not be any major negative impact on the economy”. He expected to impact of growth would be “much, much smaller” than from an increase in 2014.

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            Eurozone economic sentiment dropped for the eighth straight month

              Eurozone economic sentiment dropped -0.5 to 111.6 in August, down from 112.1 and below expectation of 112.2. That’s also the eighth straight month of deterioration. Industrial confidence dropped to 5.5, down from 5.8 and below expectation of 5.5. Services confidence dropped to 14.7, down from 15.3 and below expectation of 15.2. Consumer confidence was finalized at -1.9.

              Eurostats noted that “the decrease in the euro-area sentiment indicator resulted from a marked deterioration of confidence among consumers and a milder decrease in the services sector, which were only partly offset by increases in the retail trade and construction sectors.” Meanwhile, “confidence in the industry sector remained broadly stable”.

              Also, the sentiment indicator was virtually unchanged in Germany, which was down by -0.1. But notable decreases are seen in France (-1.3), Italy (-0.8), Spain (-0.7) and the Netherlands (-0.5).

              Business climate indicator dropped to 1.22, down from 1.29 and missed expectation of 1.25.

              Also released in European session, German unemployment dropped -8k in August, matched expectation. Unemployment rate was unchanged at 5.2%. UK Mortgage approvals was unchanged at 65k in July. M4 money supply rose 0.9% mom in July.

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              US-China trade war ceasefire for 90 days, China to work on reforms immediately

                US President Donald Trump hailed that he had an “amazing and productive meeting” with Chinese President Xi Jinping, as sideline of G20 summit in Argentina. Both sides agreed to ceasefire on trade war for 90 days and work on structural changes in China. China also agreed to start buying US agriculture products immediately. Trump said there are “unlimited possibilities for both the United States and China.”

                In a White House statement:

                • Trump agreed NOT to raise the tariffs on USD 200B of Chinese progress to 25% on January 1, but leave them at 10%.
                • China will purchase a “very substantial” amount of agricultural, energy, industrial, and other product from the US, starting immediately with agriculture.
                • Most importantly, negotiations will immediately begin on structural reforms regarding “forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture. “
                • The negotiations will be completed within the next 90 days. If an agreement couldn’t be made, the above mentioned tariffs will be raised from 10% to 25%.

                Here is the full statement.

                Statement from the Press Secretary Regarding the President’s Working Dinner with China

                The President of the United States, Donald J. Trump, and President Xi Jinping of China, have just concluded what both have said was a “highly successful meeting” between themselves and their most senior representatives in Buenos Aires, Argentina.

                Very importantly, President Xi, in a wonderful humanitarian gesture, has agreed to designate Fentanyl as a Controlled Substance, meaning that people selling Fentanyl to the United States will be subject to China’s maximum penalty under the law.

                On Trade, President Trump has agreed that on January 1, 2019, he will leave the tariffs on $200 billion worth of product at the 10% rate, and not raise it to 25% at this time. China will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between our two countries. China has agreed to start purchasing agricultural product from our farmers immediately.

                President Trump and President Xi have agreed to immediately begin negotiations on structural changes with respect to forced technology transfer, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture. Both parties agree that they will endeavor to have this transaction completed within the next 90 days. If at the end of this period of time, the parties are unable to reach an agreement, the 10% tariffs will be raised to 25%.

                It was also agreed that great progress has been made with respect to North Korea and that President Trump, together with President Xi, will strive, along with Chairman Kim Jong Un, to see a nuclear free Korean Peninsula. President Trump expressed his friendship and respect for Chairman Kim.

                President Xi also stated that he is open to approving the previously unapproved Qualcomm-NXP deal should it again be presented to him.

                President Trump stated: “This was an amazing and productive meeting with unlimited possibilities for both the United States and China. It is my great honor to be working with President Xi.”

                Orignal source.

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                China to end anti-dumping and anti-subsidy investigations of US sorghum

                  As the first day of US-China trade talk started, there are rumors flying around already. It’s reported that, according to a US official, China is offering to slash its trade surplus with the US by up to USD 200B year. (Btw, is that considered a leak?) It’s unclear for now how the total value was determined. But another source said the package could include Chinese tariffs on around USD 4B worth of US farm products.

                  Meanwhile, the Chinese Ministry of Commerce just announced to end the “anti-dumping and anti-subsidy investigations of imported sorghum originating in the United States” in a statement here. Looks like there was some real progress made.

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                  USTR announced 10% tarrifs on Chinese imports, to increase to 25% on Jan 1 2019

                    US Trade Representative finally announced the tariffs on USD 200B of Chinese imports, effective September 24, 2018. The initial tariff rate is 10%. Staring January 1, 2019, the tariff rate will be increased to 25%. The list of products covers 5745 lines of the original 6031 lines proposed back in July 10. 297 lines were fully or partially removed from the list. Products include consumer electronics, certain chemical inputs for manufactured goods, textiles and agriculture; certain health and safety products such as bicycle helmets, and child safety furniture such as car seats and playpens.

                    The tariffs were part of the follow-up actions on Section 301 investigations. China’s unfair trade practices were repeated in the statement. These include, forced technology transfer, depriving UA companies to set market based terms in negotiations, unfairly facilitating systematic investment in acquisition of US technology companies, and cyber intrusions to US commercial computer networks for valuable business information.

                    Trump warned in a statement that new round of tariffs on around USD 267B of additional imports will be pursued if China retaliates. He added that “we have been very clear about the type of changes that need to be made, and we have given China every opportunity to treat us more fairly.” “But, so far, China has been unwilling to change its practices.”

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                    US non-farm payroll grew 164k, unemployment rate unchanged at 3.7%, wage growth accelerated

                      US non-farm payroll grew 164k in July, slightly below expectation of 169k. That was still in-line with the average growth in the first six months of the year, but notably below 2018 average of 223k per month. Prior month’s figure was revised down from 224k to 193k.

                      Unemployment rate was unchanged at 3.7%, matched expectation. Participation rate was unchanged at 63.0%. The upside surprise comes from wage growth. Average hourly earnings rose 0.3% mom in July, above expectation of 0.2% mom.

                      Also released, US trade deficit narrowed slightly to USD -55.2B in June. Canada trade surplus came in smaller than expected at CAD 0.1B.

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                      Gold lost momentum ahead of 1200, focus back on 1187.40

                        Gold’s rebound from 1160.36 extends higher to 1197.81 today. But it’s clearly losing upside momentum as seen in the bearish divergence condition in hourly MACD. While further rise could still be seen, upside will likely be limited by 1200 handle to complete the rebound. Meanwhile, break of 1187.40 will turn bias back to the downside an bring retest of 1160.06 low.

                        Also, for now, as long as 1204.58 minor resistance holds, rebound from 1160.36 is seen as a brief consolidation. And fall from 1365.24 is expected to resume sooner rather than later. Though, break of 1204.58 will indicate that rise from 1160.36 is correcting the whole decline from 1365.24. And stronger rise would be seen to 38.2% retracement of 1365.24 to 1160.36 at 1238.62 before completing the rebound.

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                        Gold rally halted at 1510, still on track to 1568/86

                          Gold’s up tend extended to as high as 1510.48 last week before forming a temporary top there and turned into consolidation. Downside of retreat should be contained by 1452.94 resistance turned support to bring rally resumption.

                          Break of 1510.48 will resume the up trend and target 161.8% projection of 1160.17 to 1346.71 from 1266.26 at 1568.08.

                          In the bigger picture, we’d be cautious on topping ahead of 61.8% retracement of 1920.70 to 1046.37 at 1586.70, at least on first attempt.

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                          UK PM May takes floor, Hammon express support

                            UK Prime Minster takes floor in the House of Commons as two of her cabinet members resigned today over her Brexit plan. May thanks former Foreign Minister Boris Johnson and Brexit Minister David Davis.

                            May emphasized that the new Brexit plan would take back control of laws and borders. At the same time, she rejected EU’s proposal and warned that “if the EU continues on this course, there is a serious risk it could lead to no deal.”

                            May also defended the plan regarding the common rulebook on goods as she said “the friction-free movement of goods is the only way to avoid a hard border between Northern Ireland and Ireland and between Northern Ireland and Great Britain.”

                            May also said the plan agreed was a new model that would accelerate negotiations over the summer, secure a new relationship in the autumn, followed by the passing of the withdrawal bill to leave the EU in March 2019.

                            The Chancellor of Exchequer Philip Hammond expressed her support to May in his tweets.

                            Now, the question is, whether the resignation of Davis and Johnson would bring down May’s government? Or actually strengthen it.

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                            EU reiterates no Brexit renegotiation even with new UK PM

                              European Commission reiterates its stance that there will be renegotiation of the Brexit deal even with a new UK Prime Minister. The Commission’s spokesman said today, “Everybody knows what is on the table. What is on the table has been approved by all member states and the election of a new prime minister will not change the parameters.”

                              The stance is echoed by both Germany and France. Germany’s Europe Minister Michael Roth said “I see no willingness to restart negotiations from the beginning. The candidates would do well to bear that in mind in the course of their internal party campaigns.” France’s state secretary for European affairs Amélie de Montchalin said “We consider it is up to Britain to decide how it wants to proceed. The exit agreement was not negotiated against the British; negotiators on both sides tried, painstakingly, to find the best solution for all concerned.” Also, without a “new political line” in the UK or a second referendum, Britain must expect to leave the bloc on 31 October.

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                              Dollar mixed after US CPI met expectations, initial jobless claims fell

                                Released in US session, US CPI rose 0.1% mom, 2.9% yoy in June versus expectation of 0.2% mom, 2.9% yoy. Core CPI rose 0.2% mom, 2.3% yoy, matched expectations. Data showed inflation continued to accelerate with headline CPI accelerated from 2.8% yoy in May, core CPI accelerated from 2.2% yoy.

                                Initial jobless claims dropped -18k to 214k in the week ended July 7. Four week moving average of initial claims dropped 1.75k to 223k. That’s notably low than expectation of 230k. Continuing claims dropped -3k to 1.739m in the week ended June 30. Four-week moving average of continuing claims rose 9.5k to 1.7285m.

                                From Canada, new housing price index rose 0.0% mom in May versus expectation of -0.1% mom.

                                Dollar is trading mixed for today after the release, up against Euro, Yen and Swiss, but down against others.

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                                UK unemployment rate dropped to 4.0%, lowest since 1975, Sterling jumps

                                  Sterling rises mildly after better than expected job data. Unemployment rate dropped to 4.0% in November, down from 4.1% and beat expectation of 4.1%. That’s also the lowest level since February 1975. Wage growth also shows sign of pick up. Average earnings including bonus accelerated to 3.4% 3moy, above expectation of 3.3% 3moy. Average earnings excluding bonus rose 3.3% 3moy, unchanged. Claimant count rose 20.8k in December, slightly above expectation of 20.0k.

                                  Full release here.

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                                  Asian update: Dollar weakest on dovish Fed, DOW reclaimed 25k overnight

                                    Dollar tumbled broadly overnight, while stocks surged, after dovish FOMC statement. The greenback remains the weakest on in Asian session today, followed by Sterling and then Swiss Franc. On the other hand, strong risk appetite lifts Australian and New Zealand Dollar. Technically, AUD/UD broke 0.7235 resistance yesterday to resume rebound from 0.6722 for 0.7393 key resistance. USD/CAD also broke 1.3180 support to resume fall from 1.3664. EUR/USD resumed rise from 1.1289 towards 1.1569 resistance. USD/JPY also broke 109.14 minor support which argues that rebound from 104.69 has completed at 110.00 already.

                                    In short, Fed dropped the tightening bias language of “”some further gradual increases” in interest rate. Instead, Fed said it would be “patient as it determines what future adjustments”. On balance sheet reduction plan, Fed is “prepared to adjust any of the details for completing balance sheet normalization in light of economic and financial developments”. But no detail was revealed yet. On economic assessment Fed stay activity has been “rising at a solid rate” rather than being “strong”. Also, “market- based measures of inflation compensation have moved lower in recent months”.

                                    More on FOMC:

                                    In Asia:

                                    • Nikkei is up 1.24%.
                                    • Hong Kong HSI is up 1.21%.
                                    • China Shanghai SSE is up 0.63%.
                                    • Singapore Strait Times is up 0.38%.
                                    • Japan 10-year JGB yield is down -0.0022 at 0.001.

                                    Overnight:

                                    • DOW rose 1.77% or 434.9pts to 25014.86, reclaimed 25k handle.
                                    • S&P 500 rose 1.55% to 2681.05.
                                    • NASDAQ rose 2.20% to 7183.08.
                                    • 10-year yield dropped -0.017 to 2.695, back below 2.7.

                                    DOW’s rally from 21712.53 resumed and broke 61.8% retracement of 26951.81 to 21712.53 at 24950.40. It’s on track to 78.6% retracement at 25830.60 and above.

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                                    UK Cox to set out proposed legal changes in Irish backstop, and return to Brussels mid-week

                                      UK Brexit Minister Stephen Barclay said he had a “positive meeting” with EU chief Brexit negotiator Michel Barnier and UK Attorney General Geoffrey Cox. In the meeting, the proposed Malthouse Compromise regarding Irish backstop was discussed.

                                      And, Cox shared his thinking in terms of the legal way forward and the ways to address the central issue. That is, according to Barclay, “the legal underpinning that is temporary and his advice to parliament in terms of the indefinite nature of the backstop”.

                                      Fox is now expected to set out the changes on Irish backstop on Tuesday. He and Barclay will return to Brussels at mid-week to present the proposals to Barnier.

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                                      US ADP added 271k jobs, low unemployment will get even lower

                                        US ADP report shows 271k growth in private sector jobs in December, up from 157k and beat expectation of 175k. Ahu Yildirmaz, vice president and co-head of the ADP Research Institute, said in the release that “we wrapped up 2018 with another month of significant growth in the labor market.” And, “Although there were increases in most sectors, the busy holiday season greatly impacted both trade and leisure and hospitality. Small businesses also experienced their strongest month of job growth all year.”

                                        Mark Zandi, chief economist of Moody’s Analytics, said, “Businesses continue to add aggressively to their payrolls despite the stock market slump and the trade war. Favorable December weather also helped lift the job market. At the current pace of job growth, low unemployment will get even lower.”

                                        Full release here.

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                                        Eurozone FMs to discuss Italy’s recipe for reviving growth

                                          Italy’s budget will certainly be a hot topic in the summit of Eurozone finance minister meeting in Brussels today. It comes at time time after European Commission rejected the country’s 2019 budget, with deficit target at 2.4% of GDP. The Commission demand Italy to revise the plan by November 13, But Prime Minister Giuseppe Conte insisted there is no “Plan B” for the program and indicated no intention to comply with EU’s demand.

                                          Italian Deputy Prime Minister Luigi Di Maio, leader of the 5 Star Movement, said over the weekend that the coalition government “will not cede an inch” on the budget. He also hailed that their own plan will become a “recipe” for reviving European growth.

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