Tue, Aug 11, 2020 @ 09:51 GMT

US embassy denies statement of release of pastor Brunson

    Lira has a quick dip in early US session while Yen crosses recover in general. The trigger is a social media report that American pastor Andrew Brunson, will be released from house arrest by August 15.

    The U.S. Embassy in Ankara, Turkey, quickly comes out and denies that it released related statement.

    While the rumor is denied, the reactions in the markets argue that traders are ready to take any positive news to close out their positions. The worst of Turkish crisis might be temporarily over.

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    Australia wage price index rose 3.6% qoq, on the back of strong public sector growth

      Australia Wage Price Index rose 3.6% qoq in Q2, but couldn’t reverse the -4.1% fall in Q1. Annually, Wage Price Index rose 2.3% yoy comparing to Q2 2018.

      ABS Chief Economist, Bruce Hockman said: “Wage growth continues at a steady rate in the Australian economy on the back of strong public sector growth over the quarter. The most significant contribution to wage growth this quarter came from the public sector component of the health care and social assistance industry, where a number of large increases were recorded in Victoria under a plan to ensure wage parity with other states.”

      Full release here.

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      Trump’s tweet on ZTE prompted bipartisan criticism

        Trump’s tweet regarding helping China telecoms company ZTE prompted bipartisan criticism and concerns on his softening stance. Republican Senator Marco Rubio said he hoped “this isn’t the beginning of backing down to China.” Democrat Senator Chuck Schumer said “this leads to the greatest worry, which is that the president will back off on what China fears most – a crackdown on intellectual property theft – in exchange for buying some goods in the short run.”

        On the other hand, Trump defended with another tweet saying that “ZTE, the large Chinese phone company, buys a big percentage of individual parts from U.S. companies. This is also reflective of the larger trade deal we are negotiating with China and my personal relationship with President Xi”.

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        China PMI manufacturing edged higher to 51.1, USD/CNH staying in near term decline

          China’s official PMI Manufacturing rose to 51.1 in July, up from 50.9, slightly above expectation of 51.0. That’s the highest reading since March too. Looking at some details, production rose 0.1 to 54.0. New orders also improved by 0.3 to 51.7. New export orders rose notably by 5.8 to 48.4, but stayed in contraction. PMI Non-Manufacturing retreated mildly to 52.3, down from 54.4, but beat expectation of 51.2. Overall, the set of data suggests that recovery in on track, but it will remain a long road back to pre-pandemic levels.

          USD/CNH drops mildly in Asian session today, following general weakness in Dollar. Prior recovery from 0.6933 was limited at 7.0298, below 7.0396 support turned resistance. The development suggests that fall from 7.1961 is still in progress. It’s seen as the third leg of the pattern from 7.1953 and break of 0.6933 would pave the way back to 6.8452 support.

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          UK Hammond hails Q1 GDP growth in all major sectors

            UK Chancellor of Exchequer Philip Hammond hailed that 0.5% growth in Q1 GDO was good news, with growth in all major sectors. He added, “we’re investing billions in our infrastructure and skills to boost jobs & wages”.

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            S&P projects 2.7% debt-to-GDP for Italy in 2019, government’s growth forecasts overly optimistic

              Last Friday, S&P kept Italy’s sovereign debt rating unchanged at BBB, two notches above junk. However, outlook was lowered to negative from stable. Nonetheless, the result of the view was already better than Moody’s, which downgraded Italy to a notch above junk with stable outlook.

              S&P said in the statement that “the Italian government’s economic and fiscal policy settings are weighing on the country’s economic growth prospects, a critical driver of government debt-to-GDP trajectory.” Also, “the government’s planned economic and fiscal policy settings have eroded investor confidence, as reflected by a rising yield on government debt.”

              S&P projected Italy 2019 budget deficit at 2.7% of GDP, higher than the government’s own forecast and pledge of 2.4%. The rating agency noted that the government’s forecasts for economic growth of 1.5% in 2019 and 1.6% in 2020 were “overly optimistic”. And it projected 1.1% growth for both year, even downgraded from 1.4%, as “the demand stimulus from the government’s budgetary measures will likely be short-lived.”

              Though, S&P also hailed that Italy “continues to be supported by its wealthy and diversified economy and its strong external position, with the economy close to becoming a net creditor in the context of its net international investment position.”

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              ECB accounts offer nothing more than a bit of cautiousness

                ECB’s monetary meeting accounts offer nothing new to the markets, just a bit more cautiousness.  Thus, Euro’s reaction is rather muted.

                Some quote from the monetary stance and policy considerations sections of the ECB monetary policy meeting accounts:

                • The recent incoming information pointed to some moderation in activity but so far remained consistent with a solid and broad-based expansion of the euro area economy.
                • The underlying strength of the euro area economy continued to support the Governing Council’s confidence that inflation would gradually converge to its inflation aim of below, but close to, 2% over the medium term
                • Measures of underlying inflation remained subdued and had yet to show convincing signs of a sustained upward trend.
                • For underlying inflation pressures to continue to build up and support the path of headline inflation over the medium term, patience, persistence and prudence with regard to monetary policy remained warranted.
                • Despite the observed moderation in activity, confidence in the underlying strength of the euro area economy and the eventual convergence of inflation to the Governing Council’s inflation aim remained unchanged.
                • While measures of underlying inflation continued to be subdued, some comfort was drawn from encouraging signs of a strengthening in nominal wage growth and the continued anchoring of long-term inflation expectations at levels consistent with the Governing Council’s aim.
                • While risks surrounding the euro area growth outlook remained broadly balanced, it was acknowledged that risks related to global factors, including the threat of increased protectionism, had become more prominent and warranted monitoring with regard to their implications for the medium-term outlook for growth and prices.

                Full release here.

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                Gold selloff accelerates, corrective rise from 1160.36 likely completed

                  Gold drops to as low as 1215.57 so far today, breaking 1219.90 support firmly. The development suggests rejection by 38.2% retracement of 1365.24 to 1160.36 at 1238.62, despite brief breach. And it’s in line with our view that rebound from 1160.36 is a correction only.

                  Immediate focus is on 55 day EMA (now at 1215.20). Sustained break will pave the way to retest 1160.36 low. In case of another recovery, we’d expect strong resistance from 1238.62 fibonacci level to limit upside again. Eventually, the down trend from 1365.24 is expected to extend through 1160.36 after the corrective pattern from 1160.36 completes.

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                  EU Dombrovskis confirmed budget agreement with Italy to avoid EDP

                    European Commission Vice-President Valdis Dombrovskis confirmed that an agreement is made with Italy regarding 2019 budget. He tweeted that “A lot of hard work and negotiation went into finding solution on the Italian budget. Let’s face it: the solution on the table is not ideal. But it allows us to avoid an Excessive Deficit Procedure at this stage, provided that the agreed measures are fully implemented.”

                    He added that “I hope this solution would also be the basis for balanced budgetary & economic policies in Italy. Italy urgently needs to restore confidence in its economy to ease financial conditions and support investment. Ultimately, this is what will support purchasing power of all Italians.”

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                    Dollar dives after ISM non-manufacturing dropped sharply to 52.6

                      Dollar dives notably after poor services data from US. ISM Non-Manufacturing PMI dropped to 52.6 in September, down from 56.4, and missed expectation of 55.1. Looking at some details, Production dropped -6.3 to 55.2. New Orders dropped -6.6 to 53.7. Employment dropped -2.7 to 50.3. Prices, on the other hand, rose 1.8 to 60.0.

                      ISM said : “According to the NMI, 13 non-manufacturing industries reported growth. The non-manufacturing sector pulled back after reflecting strong growth in August. The respondents are mostly concerned about tariffs, labor resources and the direction of the economy.”

                      Full release here.

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                      Topics for US-China trade talks confirmed

                        White House spokesperson Stephanie Grisham confirmed that top-level US-China trade talks will start on October 10, this Thursday. She said in a statement, “the two sides will look to build on the deputy-level talks of the past weeks. Topics of discussion will include forced technology transfer, intellectual property rights, services, non-tariff barriers, agriculture, and enforcement”.

                        Separately, Trump is scheduled to sign the pacts with Japan at 1930 GMT today. The pacts are U.S.-Japan Trade Agreement and U.S.-Japan Digital Trade Agreement.

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                        All nine BoJ regions reported rosy economic assessment

                          According to BoJ’s Regional Economy Report, six regions (Hokuriku, Kanto-Koshinetsu, Tokai, Kinki, Chugoku, and Kyushu-Okinawa) reported that their economy had been expanding or expanding moderately. Three regions (Hokkaido, Tohoku, and Shikoku) noted that the economy had continued to recover moderately. That’s unchanged from previous assessment in April 2018.

                          BoJ Governor Haruhiko also said in the meeting of the regional branch manager that “Japan’s economy is expected to continue expanding moderately.” But ultra-loose monetary policy would be maintained until inflation hits target. Nonetheless, Yasuhiro Yamada, manager of the BOJ’s Osaka branch, warned that “Many companies in the region say (protectionism) is the number one risk. They are worried about the huge uncertainty over the trade outlook.”

                          Full report here.

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                          Sterling lower after retail sales miss, but loss is limited

                            Sterling suffers some selloff after worse than expected June retail sales data.

                            Retail sales including fuel dropped -0.5% mom, well below expectation of 0.2% mom growth. For the year, Sale including fuel rose 2.9% yoy, missing expectation of 3.7% yoy.

                            Retail sales excluding fuel dropped -0.5% mom, well below expectation of 0.2% mom growth. For the year, Sale excluding fuel rose 3.0% yoy, missing expectation of 3.5% yoy.

                            While the pound dips broadly after the release, selloff is not too serious. In particular, Australian Dollar reversed earlier gains and takes New Zealand Dollar lower with it.

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                            OPEC slashes global oil demand growth on China’s coronavirus

                              In the latest monthly report published today, OPEC sharply lower 2020 global oil demand growth to 0.99m barrels per day, down -0.23m bpd from the estimate released a month ago.

                              The report warned, “the impact of the Coronavirus outbreak on China’s economy has added to the uncertainties surrounding global economic growth in 2020, and by extension global oil demand growth in 2020.”

                              And, “clearly, the ongoing developments in China require continuous monitoring and assessment to gauge the implications on the oil market in 2020.”

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                              Navarro: US-China trade deal ph 1 adopts the entire IP chapter in May’s deal

                                White House economic adviser Peter Navarro told Fox Business Network that the “good news” about US-China trade deal phase one is that “it adopted virtually the entire chapter in the deal last May that they reneged on for IP”. Hence, “practically it means, if they steal our IP we’ll be able to take retaliatory action without them retaliating.”

                                Separately, it’s reported that China aims to buy at least USD 20B of American farm products in the first year, as part of the phase one deal. That would bring purchases back to the level in 2017, before trade war began. In the second year of a final deal, purchases could rise further to USD 40B-50B, when all punitive tariffs are removed.

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                                BoJ Kuroda pushes deregulation and structural reforms

                                  BoJ Governor Haruhiko Kuroda told the parliament today that “a mix of fiscal and monetary policy isn’t enough” to boost the economy. It’s also important to “proceed with deregulation and structural reforms to heighten Japan’s medium- and long-term growth potential.”

                                  Kuroda repeated his view that the ultra-look monetary policy could increase the effect of fiscal stimulus. However, he also emphasized “our monetary easing efforts are aimed at achieving our price target, not at helping fund government spending. There needs to be a clear line drawn on this point,”

                                  Executive Director Eiji Maeda told the parliament that “current ultra-loose monetary environment is stimulating the economy by spurring capital expenditure and housing investment.” That will “push up” household income and asset prices. But policymakers are also “mindful” on the “excessive declines” in super-long yields. He warned that could ‘hurt public sentiment and economic activity by lowering the interest life insurers and pension funds earn from their investment”.

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                                  ECB Lagarde noted signs on stabilization and mild increase in underlying inflation

                                    ECB President Christine Lagarde said in the post-meeting press conference that incoming data pointed to “muted inflation pressures and weak euro area growth dynamics”. However, there were “some initial signs of stabilisation” in slowdown and a “mild increase” in underlying inflation. Job and wages growth continue to “underpin the resilience” of Eurozone economy too.

                                    There were some slight adjustments in the new Eurosystem staff macroeconomic projections. GDP growth are forecast to be at 1.2% in 2019 (revised up from Sep’s 1.1%), 1.1% in 2020 (revised down from 1.2%) and 1.4% in both 2021 (unchanged) and 2022. HICP inflation is projected to be at 1.2% in 2019 (unchanged), 1.1% in 2020 (revised up from 1.0%), 1.4% in 2021 (revised down from 1.5%) and 1.6% in 2022.

                                    Full introductory statement here.

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                                    Position trading update: Entered AUD/JPY short

                                      This is an update to our position trading strategy as mentioned in the weekly report. We’d sold AUD/JPY at 78.40 with today’s strong rebound. The rebound off 77.51 support was as expected even though the strength is a bit surprising, mainly thanks to return of risk appetite.

                                      At this point, there is no overwhelming strength in Aussie elsewhere. AUD/USD is just in corrective recovery. EUR/AUD is held well above 1.5721 support. GBP/AUD also held well above 1.7868 support. AUD/CAD is in very tight range around 0.94. On the other hand, EUR/JPY stays below 125.95 resistance. GBP/JPY is well below 144.84 resistance. CAD/JPY is also below 83.98 high too.

                                      Thus, for now, there is no change in the view AUD/JPY’s rebound from 77.44 is a corrective rise. And we maintain the view that whole rise from 70.27 has completed at 79.84, on bearish divergence condition in 4 hour MACD, after failing to sustain above 55 day EMA.

                                      While current rebound form 77.44 might extend, we don’t expect a break of 79.84 resistance. A break of 78.33 minor support will suggest that the recovery is completed and add some credence to our bearish case.

                                      We’ll hold short in AUD/JPY (sold at 78.40). Stop is kept at 79.84. As we don’t expect a break of 70.27 with the next fall, our target will be put at 61.8% retracement of 70.27 to 79.84 at 73.92.

                                       

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                                      A look at Euro pairs after today’s selloff

                                        Euro suffered broad based selling today, except versus JPY and CHF. Markets seemed to take ECB minutes rather negatively. The cautious tone prompted talks that ECB could stay dovish for longer than expected. Let’s have a quick glance on how Euro pairs are doing.

                                        EUR/USD breached 1.2302 minor support briefly, but stabilized since then. There is, so far, at least no downside acceleration through 1.2302 yet. And, even if that happens, the key support level is at 1.2214. As long as it holds, the triangle pattern from 1.2555 is still intact and larger up trend remains in favor to resume later..

                                        EUR/JPY is staying in consolidation below 132.61 temporary top. But it’s holding well above 131.09 minor support. Thus, the rebound from 128.94 is still expected to extend higher at a later stage to 61.8% retracement of 137.49 to 128.94 at 134.22 and above.

                                        EUR/CHF’s rally continues today and reached as high as 1.1888 so far. Long term up trend has just resumed this week and is on track for 1.2 handle.

                                        EUR/AUD extended the choppy fall from 1.6189 t as low as 1.5868. But for now, it’s staying above 1.5857 minors support. Hence, price actions from 1.6189 are viewed as a corrective move. Larger up trend is expected to resume at a later stage. Nonetheless, firm break of 1.5857 will be a sign of trend reversal and turn focus back to 1.5621 key support.

                                        EUR/CAD’s decline from 1.6151 extends today and reaches as low as 1.5490. The cross is on track for 38.2% retracement of 1.3782 (2016 low) to 1.6151 at 1.5246.

                                        EUR/GBP’s downside breakout today now confirms resumption of medium term decline from 0.9305. Next target will be 61.8% projection of 0.9305 to 0.8745 from 0.8967 at 0.8621. But based on current momentum, it will likely extend further to 100% projection at 0.8407.

                                        After all, we’d like to point out that outlook in Euro is indeed not that bearish in spite of today’s selloff. There is no doubt that EUR/CAD and EUR/GBP are in near term down trend. But there is not clear bearishness in EUR/USD and EUR/AUD yet. EUR/JPY is still likely to extend recent rebound. And EUR/CHF is making new high. So, Euro is overall, mixed only.

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                                        German economy grew 1.5% in 2018, slowest since 2013

                                          The German Federal Statistical Office said the German economy grew 1.5% in 2018 as a whole. And that was above the 1.2% average growth rate of the last 10 years. It’s the ninth year of growth in a row. But Destatis noted that “growth has lost momentum”. German economy grew 2.2% in both 2017 and 2016, and 1.7% in 2015. And the pace was slowest since 2013.

                                          Positive contributions came mainly from domestic demand. Household final consumption expenditure rose 1.0%. Government final consumption expenditure rose 1.1%. But both were notably slower than growth rate back in the past three years. Exports grew 2.7% while imports grew 3.4%. Full release here.

                                          The Economy Ministry said the slowdown was due to weaker global economy, car industry’s sales problem, outbreak of flu and strikes. It’s optimistic that the economy will likely expand at the start of 2019. However, Euro drops notably today on worries that Germany was in a technical recession with contraction in last Q3 and Q4

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