Mon, Sep 16, 2019 @ 10:21 GMT

ECB Praet: Some slowdown in Eurozone growth, significant stimulus still needed

    ECB Chief Economist Peter Praet admitted in a speech that recent developments in the Eurozone “point to some slowdown in the pace of economic growth”. The slowdown reflects “a loss of momentum in global activity”. And, the retreat from strong growth of 2017 was “compounded by short term country-specific of sector-specific factors. Nevertheless, domestic demand “remained resilient” and sentiment indicators remained in “expansionary territory”. He added that the underlying strength of the economy “continues to support our confidence that the sustained convergence of inflation to our aim will proceed.” But “significant monetary policy stimulus is still needed”.

    On monetary policy, Praet emphasized that “winding-down of net asset purchases is not tantamount to a withdrawal of monetary policy accommodation.” The “rotation” from net asset purchase towards enhanced forward guidance has “preserved the ample degree of monetary policy accommodation”. And looking ahead, the key policy rates and forward guidance will become an “anchor” for monetary policy as end of asset purchase is nearing. The communications and the rate path will be “calibrated to ensure that inflation remains on a sustained adjustment path.”

    Full speech “Preserving monetary accommodation in times of normalisation“.

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    Trump: Fed will probably do very little comparing to EU and China

      Just ahead of FOMC rate decision on Wednesday, Trump continue to pile political pressure on Fed policymakers. In a couple of tweets, he firstly complained that “the E.U. and China will further lower interest rates and pump money into their systems, making it much easier for their manufacturers to sell product. But “in the meantime, and with very low inflation, our Fed does nothing – and probably will do very little by comparison. Too bad!”

      Additionally, he said Fed raised interest rate “way too early and way too much” and “their quantitative tightening was another big mistake”. And, “the Fed has made all of the wrong moves. A small rate cut is not enough”.

       

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      Iran FM Zarif had “very good and constructive” meeting with EU Mogherini

        Iranian Foreign Minister Mohammad Javad Zarif said the meeting with European Union’s foreign policy chief, Federica Mogherini in Brussels was “very good and constructive”. Zarif also said that both sides were on the “right track” to ensure that the interests of the JCPOA’s “remaining participants, particularly Iran, will be preserved and guaranteed.” Zarif’s comments came before meeting with foreign ministers of Germany, France and the UK, on continuing the JCPOA nuclear agreement after US withdrawal.

        Separately, IRNA news agency quoted Iranian President Hassan Rouhani asking EU to stand against the US’ “illegal and illogical” actions of pulling out from JCPOA.

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        Moody’s updates view on Brexit: Uncertainty prevails before conclusive final agreement

          Moody’s, the credit rating agency, acknowledge the positive impact of the Brexit transition deal announced last week. However, it remained cautious that risks will prevail until a final agreement is made.

          Here are some highlights of the report:

          • The agreement reinforces Moody’s view that the impact of Brexit will be manageable for rated UK corporate issuers, despite increased bureaucracy costs under an FTA.
          • For UK banks the agreement is mildly positive to the extent that it reduces downside risks to growth and revenues.
          • As far as the risk of a disorderly withdrawal is somewhat mitigated, the agreement reinforces Moody’s central scenario of gradually moderating growth in the UK.
          • Uncertainty concerning the terms of UK’s future long-term relationship with the EU will prevail until a conclusive final agreement is reached.
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          UK GDP grew 0.3% mom in May, on partial recovery in car production

            UK GDP grew 0.3% mom in May, matched expectations. Index of services rose 0.0% mom. Index of production rose 1.4% mom while manufacturing rose 1.4% mom. Construction rose 0.6% mom. Agriculture rose 0.0% mom.

            Rolling three month growth from March to May slowed to 0.3%, down from 0.4% from February to April. It’s also notably below 0.5% qoq in Q1. Services grew 0.3% in the three-month period, production grew 0.3%, while construction was flat.

            Commenting on today’s GDP figures, Head of GDP Rob Kent-Smith said: “GDP grew moderately in the latest three months, with IT, communications and retail showing strength. Despite this, there has been a longer-term slowdown in the often-dominant services sector since summer 2018. The economy returned to growth in the month of May, following the fall seen in April. This was mainly due to the partial recovery in car production.”

            Full release here.

            Also released, manufacturing production came in at 1.4% mom, 0.0% yoy versus expectation of 2.2% mom, 1.1% yoy. Industrial production came in at 1.4% mom, 0.9% yoy, versus expectation of 1.5% mom, 0.9% yoy.

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            UK PM May now in Brussels seeking both legal and political assurances on the backstop

              UK Prime Minister Theresa May survived the leadership challenge yesterday. She’s now in Brussels for the EU summit. She told reporters that “I don’t expect an immediate breakthrough, but what I do hope is that we can start to work as quickly as possible on the assurances that are necessary.” And those include both legal and political assurances on the backstop.

              Also, May confirmed that she will not lead the Conservatives into 2022 election.

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              White House Navarro insists Mexico should share their responsibility and take asylum seekers

                Mexican Foreign Secretary Marcelo Ebrard will meet US Vice President Mike Pence at 1900 GMT today on the issue of tariffs and migration flow. The Mexican delegation is expected to use their every efforts to convince the US to avert the tariffs that Trump threatened to impose starting on June 10.

                Ahead of the meeting White House economic adviser Peter Navarro said that it’s important to get the US-Mexico border issue solved. And he insisted that the Mexican government must bear their share of the responsibility. And the most important thing is for the Mexican government to take the asylum seekers.

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                Italy PMI services rose to 50.4, but not much sign of relief

                  Italy PMI services rose to 50.4 in February, up from 49.7 and beat expectation of 49.5. Markit noted that “activity rises slightly in February”, “new orders fall for first time since February 2015”, and there was “third consecutive fall in selling prices”.

                  Commenting on the PMI data, Amritpal Virdee, Economist at IHS Markit said:

                  “With the Italian economy currently in a recession (its third in the past ten years), February’s Italian Services PMI data did not provide much sign of relief.

                  “Inflows of new business contracted for the first time in four years, amid the third month of falling output charges, signalling that attempts by service providers to stimulate customer demand are not always proving effective.

                  “Despite positive signs in the form of an increase in payroll numbers and an up-tick in optimism, the latest PMI data indicates that the private sector remains on course for a further contraction in the first quarter of 2019.”

                  Full release here.

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                  US oil inventory dropped -3.1M barrels, little reaction in WTI, stays bearish

                    US commercial crude oil inventories dropped -3.1M barrels  in the week ending June 14, larger than expectation of -1.5M. At 482.4 million barrels, U.S. crude oil inventories are about 7% above the five year average for this time of year.

                    WTI crude oil has little reaction the data. The break of 4 hour 55 EMA is another sign of stabilization in oil price. Yet, WTI is held below 54.86 resistance so far. Thus, near term outlook remain bearish for another fall. Break of 50.64 and sustained trading below 61.8% retracement of 42.05 to 66.49 at 51.38 could pave the way to retest 42.05 low. However, sustained break of 54.86 will confirm short term bottoming. Stronger rebound would than be seen back to 55 day EMA (now at 57.59).

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                    USDJPY rebound completed as US yield reverses

                      US treasury yields had a wild session overnight. 10 year yield hit as high as 2.992 but closed sharply lower at 2.933, down -0.042.

                      There was no apparent major reason for the ride. Reasons cited include slump in emerging market currencies, fat finger trade as well as technical resistance at 3% handle.

                      Net effect in the forex market is also no too clear, except that USD/JPY is dragged down. Judging from 6H action bias chart, the rebound from 108.10 is likely over.

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                      BoE Inflation Report shows slowing conditioning rate path

                        The new projections in the Inflation report suggests that after this rate hike, there would be a lot of room for BoE to wait and see. And, there could be only one more hike within the forecast horizon through Q3 2021.

                        In the quarterly Inflation Report, the rate path as condition by BoE for economic forecasts is slow than May’s.

                        In the current conditioning path, the Bank rate will hit 0.9% in Q4 2019 1.1% in Q4 2020 and stay there till Q3 2021.

                        In May’s conditioning path, the Bank rate will reach 1.0% already in Q3 2019, and then 1.2% in Q3 2020 and stays there till Q2 2021.

                        That is, the current path argues that the next hike could happen in Q1 2020, instead of Q3 2019. And there could be no more rate hike in the forecast horizon.

                        With such conditioning path, GDP (exclude backcast) is projected to growth faster by 1.5% in the four-quarter to Q3 2018, and 1.8% in the four-quarter to Q3, 2019. But GDP growth in the four-quarter to Q3 2020 is unchanged at 1.7%. Inflation will return to target later at 2.0% in Q3 2021, instead of Q3 2020. But, at 2.2% in Q3 2019 and 2.1% in Q3 2020, it’s reasonably close to target.

                        Full inflation report.

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                        UK retail sales rose 1.1%, ex-auto sales rose 1.2%

                          Released from UK:

                          • Retail sales include auto and fuel rose 1.1% mom, 6.7% yoy in March versus expectation of -0.4% mom, 4.6% yoy.
                          • Retail sales exclude auto and fuel rose 1.2% mom, 6.2% yoy in March versus expectation of -0.3% mom, 4.0% yoy.

                          Full release here.

                          GBP/USD recovers mildly after the release but remains soft for 1.2960 support.

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                          Japan Aso to watch current market move with sense of urgency

                            At a regular press conference, Japanese Finance Minister Taro Aso emphasized that “currency stability is important”. He added that “we must closely watch the currency market move with a sense of urgency. Though, he didn’t give any comment of specific exchange rate levels. The comments came after Yen spiked higher yesterday in response to abrupt escalation of US-China trade war.

                            Aso also noted that recent market volatility won’t change the government stance on the planned sale tax hike. The government will still proceed with October’s sale take hike from 8% to 10%, unless there is serious shocks in the economy.

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                            WTI oil tumbles on surprised inventory build, heading to 57 fibonacci level

                              WTI crude oil drops sharply today as crude inventory unexpectedly rose 4.74M barrels in the week ending May 17, versus expectation of -1.2M barrels decline. Current development suggests that recovery from 60.03 has completed at 63.90 already. And the fall from 66.49 might be ready to resume.

                              Deeper decline should be seen to 60.03 first. Break will confirm this bearish case and target 100% projection of 66.49 to 60.03 from 63.90 at 57.44.

                              Nevertheless, fall from 66.49 is seen as a corrective move so far. Downside should be contained by 38.2% retracement of 42.05 to 66.49 at 57.15 to bring rebound.

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                              Fed Evans: Good capacity to wait and look at incoming data and upcoming developments

                                Chicago Fed President Charles Evans said in a speech that “because inflation is not showing any meaningful sign of heading above 2 percent…I feel we have good capacity to wait and carefully take stock of the incoming data and other developments”. He added that “developments in the first half of 2019 will be very important for making this assessment of our future monetary policy actions,”

                                Though, he also reiterated that “if the downside risks dissipate and the fundamentals continue to be strong, I expect that eventually the fed funds rate will rise a touch above its neutral level.” And responding to the question of how many hikes, Evans said “three rate increases would be the short answer to your question”. But he also noted “timing is not at all important…whether we get there by the end of 2019 or the end of 2020”.

                                Evan’s full speech here.

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                                UK Johnson pledges no further Brexit delay after another Commons defeat

                                  UK Prime Minister Boris Johnson suffered his sixth consecutive defeat at the Commons yesterday. His second call for snap election was also rejected as widely expected. The Commons is now suspended for five weeks.

                                  At the same time, Johnson pledged after the vote that “this government will press on with negotiating a deal, while preparing to leave without one,” referring to Brexit. And, “I will go to that crucial summit in Brussels on Oct. 17, and no matter how many devices this Parliament invents to tie my hands, I will strive to get an agreement in the national interest.”

                                  Johnson also insisted “this government will not delay Brexit any further.” That even the Parliament has passed a law that requires Johnson to seek Brexit delay from October 31 if he couldn’t get a deal.

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                                  BoJ Kuroda laid out options for additional easing if necessary

                                    In the post meeting press conference, BoJ Governor Haruhiko Kuroda warned of downside risks to the economy “particularly via overseas economic developments”. He added, “if trade frictions persist, that could have a broad impact on Japanese and overseas economies.” Nevertheless, he also pointed to tankan survey and BoJ’s internal hearings, and noted “trade frictions on Japan’s economy is limited for now”. There is so far no change in the view that the economy is “expanding moderately”. Also, ” momentum for achieving our price target is sustained.”

                                    Kuroda also sounded open to more easing and noted “If we think doing so would be necessary to sustain the momentum for achieving our price target, we will ease monetary policy further as appropriate.” The options for additional easing include cutting the short-term interest rate target, lowering the long-term yield target, ramping up asset buying and accelerating the pace of increase in base money.

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                                    Into European session: Dollar rebound lost steam, Aussie higher after RBA

                                      Entering into European session, Australian Dollar is the strongest one for today so far, followed by New Zealand Dollar. RBA kept interest rate unchanged and downgraded growth and inflation projections. But after all, the central bank remained confident that inflation will gradually pick up. Thus, the next move will still more likely be a hike than a cut. That’s the factor that keeps Aussie buoyed.

                                      Euro is currently trading as the weakest one for today, followed by Swiss Franc and the Dollar. The greenback attempted for a rebound yesterday. But apparently, the rebound was rather weak. Dollar remains near term bearish against Euro, Sterling, Aussie and Canadian. And Dollar is only performing marginally better against Swiss Franc and Yen.

                                      In Asia:

                                      • Nikkei closed down -0.19% at 20844.45.
                                      • Japan 10-year JGB yield is down -0.0032 at -0.015, staying negative.
                                      • China, Hong Kong and Singapore are on lunar new year holiday.

                                      Overnight:

                                      • DOW rose 0.7%.
                                      • S&P 500 rose 0.68%.
                                      • NASDAQ rose 1.15%.
                                      • 10 year yield rose 0.033 to 2.724, back above 2.7 handle.
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                                      BoE Carney talks markets’ initial take on May’s Brexit defeat

                                        BoE Governor Mark Carney told the parliament that after yesterday’s vote in the Commons, the risk of a no-deal Brexit has diminished, or the process would be extended.

                                        But Carney emphasized that “I’m not giving my view, I’m giving the markets’ initial take”. Also he added “I wouldn’t put much weight on these very short term-moves. The market is waiting.”

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                                        Japan Defence Minister Onodera: Military drills vital to East Asia security

                                          Japan Defence Minister Itsunori Onodera emphasized that “the drills and the US military stationed in South Korea play a vital role in East Asia’s security.” And he hoped to “share this recognition between Japan and the US, or among Japan, US and South Korea.”

                                          Onodera also said there is no change in Japan’s policy after the Kim-Trump summit, of “putting pressure” on North Korea. And, Japan would stick to plans to bolster its defences against a possible ballistic missile strike from North Korea.

                                          Separately, Chief Cabinet Secretary Yoshihide Suga said that Japan could shoulder some of the costs of North Korea’s denuclearization, on the condition that International Atomic Energy Agency (IAEA) restarts inspections.

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