Tue, Nov 19, 2019 @ 13:30 GMT

ECB Lane: Too early to tell if soft data is a demand issue, or just running out of room

    ECB Governing council member Philip Lane said the policymakers need more data to decide whether the slowdown in Eurozone is due to global demand of a decrease in the amount of slack domestically.

    He said:

    “In terms of soft data and some of the hard data, the question is whether it is something just to acknowledge and accept as running out of room, versus a demand issue, which would trigger more questions,”

    “But let’s see. Let’s see where we are. I think it’s too early to tell.”

    “In June I think and next month possibly we will have much more recent data”

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    Into US session: Swiss Franc broadly lower as Italian budget worries eased

      Entering into US session, Australian Dollar is the strongest for the day, but it’s Euro that’s actually got some momentum. Or, actually, it’s Swiss Franc’s weakness that’s the theme while Euro is a main beneficiary. Canadian Dollar is trading as the second weakest one for today.

      Economic data released from UK and Eurozone were largely ignored. Sterling didn’t get much lift from GDP which strong the strongest 3-month growth in nearly a year. Instead, easing concerns over Italy’s budget was the main driver. At the time of writing, Italian 10 year yield is down -0.124 at 2.921, back below 3.000. German 10 year bund yield is up 0.012 at 0.403, above above 0.400. That’s seen as that main factor driving funds out of safe haven Franc, back to Euro.

      Elsewhere, European stock indices also pare back some of last week’s losses. FTSE is up 0.38%, DAX up 0.41% and CAC up 0.53%. Asian markets clearly under performed with China SSE lost -1.21% to 2669.48, Hong Kong HSI dropped -1.33% to 26613.42, Singapore Strait Times fell -0.43% to 3120.92. Raising trade tension between US and the rest of the world is weighing down sentiments. But Japanese Nikkei buck the trend and gained 0.30% even though Japan is clearly Trump’s next target.

      Gold continues to consolidate below 1214.30 but is held comfortably above key near term support at 1182.9.

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      WH adviser Pillsbury: Trump is giving China one last chance

        Michael Pillsbury, a leading adviser to Trump on China issues, told Fox that Trump is “essentially giving the Chinese one last chance next week, and then perhaps … a short extension”, referring to the next round of trade negotiation in Washington this week. He pointed out, “notice how the president always refers to the tariffs as bringing in revenue, billions of dollars of revenue to us,” and “so he is not somebody who’s anti-tariff.”

        Pillsbury also said “this coming week’s going to be awfully important, when the Chinese come here at the working level.” And, “We’re going to try to find out, I think, what will be in this memorandum of understanding,” he said, “whether it will “have enforcement and time limits and … be tough” or just “be a cosmetic agreement.”

        Trump on the weekend tweeted “Important meetings and calls on China Trade Deal, and more, today with my staff. Big progress being made on soooo many different fronts! Our Country has such fantastic potential for future growth and greatness on an even higher level!”

        Chinese delegation with travel to the US this week to work towards a memorandum of understanding, which should form the framework of a trade agreement, to be finalized through a Trump-Xi summit.

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        EU Juncker welcomed UK Johnson’s Brexit proposal as positive advances

          UK Prime Minister Boris Johnson’s new Brexit proposal was welcomed by European Commission President Jean-Claude Juncker welcomed as “positive advances”. But the Commission noted in a statement that “there are still some problematic points that will need further work in the coming days, notably with regards to the governance of the backstop.” it added “the EU wants a deal. We remain united and ready to work 24/7 to make this happen – as we have been for over three years now.”

          However, Guy Verhofstadt, European Parliament’s Brexit coordinator, said “the first reaction of the Brexit Steering Group was not positive, not positive in the sense that we don’t think that this is really the safeguards that Ireland needs”. The group will set out a more detailed response on Thursday.

          On the other hand, UK Chancellor of the Duchy of Lancaster Michael Gove noted that some lawmakers from the most pro-Brexit wing of the ruling Conservatives and some opposition Labour lawmakers have signaled their backing for Johnson’s new proposal. Northern Ireland’s DUP also welcomed the plan. Gove said, “That seems to me to be a pretty solid majority.”

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          UK GDP grew 0.5% mom in Jan, productions beat expectations

            UK GDP grew strongly by 0.5% in January, well above expectation of 0.2% mom. Services rose 0.3%, production rose 0.6%, manufacturing rose 0.8% and construction jumped 2.8%. Though, agriculture dropped -1.3%. Rolling three-month growth was unchanged at 0.2% qoq.

            ONS Head of GDP Rob Kent-Smith said: “Across the latest three months, growth remained weak with falls in manufacture of metal products, cars and construction repair work all dampening economic growth. These were offset by strong performances in wholesale, IT and health services. This sluggish growth came despite the economy bouncing back from a weak December.”

            Full release here.

            Also from UK, visible trade deficit widened to GBP -13.1B in January. Industrial production rose 0.6% mom, -0.9% yoy versus expectation of 0.2% mom, -1.3% yoy. Manufacturing production rose 0.8% mom, -1.1% yoy versus expectation o f0.2% mom, -1.9% yoy.

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            NZD/USD range bound after non-eventful RBNZ rate decision

              NZD/USD trades steadily in range after RBNZ kept OCR unchanged at 1.75% as widely expected and delivered no surprise to the markets. Governor Adrian Orr reiterated in the statement that “we expect to keep the OCR at this level through 2019 and into 2020.” He also kept the options open and indicated the next move could be “up or down”. Economic projections are “little changed” from the August MPS. Even though Q2 GDP was stronger than anticipated, Orr noted “downside risks to the growth outlook remain”. He concluded the statement by repeating “we will keep the OCR at an expansionary level for a considerable period to contribute to maximising sustainable employment, and maintaining low and stable inflation.”

              NZD/USD’s rebound from 0.6500 lost momentum after hitting 0.6698 and turned sideway. While further rise still be seen, we’d expect strong resistance from 0.6726 to limit upside to complete the corrective rebound. On the downside, break of 0.6607 will bring retest of 0.6500 low.

              In the bigger picture, with 0.6726 resistance in tact, outlook in NZD/USD stays bearish. Medium term down trend from 0.7436 is still in progress to 161.8% projection of 0.7557 to 0.6779 from 0.7436 at 0.6177. Nonetheless, considering bullish convergence condition in daily MACD, sustained break of 0.6726 will indicate medium term bottoming and bring stronger rebound.

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              UK PM May to tell Scotland: Brexit deal protects jobs

                UK Prime Minister Theresa May will continue her nationwide Brexit deal sales tour today and Scotland is the next destination. May is expected to say “it is a deal that is good for Scottish employers and which will protect jobs.” And, the agreement would create a new free trade area of “unprecedented economic relationship that no other major economy has.”

                May would also add that “at the same time, we will be free to strike our own trade deals around the world – providing even greater opportunity to Scottish exporters.”

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                Eurozone Sentix Investor Confidence rose to 12.1 in technical counter-movement

                  Eurozone Sentix Investor Confidence rose to 12.1 in July, up from 9.3 and beat expectation of 9.0. Sentix noted in the release that Eurozone expectations may “stabilize slightly” after the sharp fall in June. But that seems more of a “technical counter-movement”. It noted that the Economic Index for Germany had dropped for the sixth time in a row to just 16.2.

                  Also, the next of of trade dispute between the US and the rest of the world “has been reached and countermeasures by the EU and China are under way. Sentix noted if Trump now targets the European car industry, the “trade dispute could lead to more than a slowdown in economic sentiment.” At the same time, central banks, at the path of stimulus remove, are “unlikely to play a support role”.

                  Sentix added that the global environment is also showing more and more signs of an economic slowdown. For Japan, for example, we are recording the sixth consecutive decline in the overall index and economic expectations for Asia ex Japan are slumping by more than 10 points. US economic expectations are also falling to their lowest level since August 2012.

                  Full Sentix Economic Index release here.

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                  New Zealand trade surplus at NZD 217m in Feb, import hits Feb record high, NZD broadly higher

                    NZD trades generally higher in Asian session after trade balance data.

                    Accord to Stats NZ Tatauranga Aotearoa, for February 2018 compared with February 2017:

                    • Goods exports rose NZD 446 million (11%) to NZD 4.5 billion.
                    • Goods imports rose NZD 187 million (4.6%) to NZD 4.2 billion, a new high for total imports in a February month. The previous high was NZD 4.1 billion, in February 2017.
                    • The monthly trade balance was a surplus of NZD 217 million (4.9% of exports).

                    NZD is trading higher together with commodity currencies in general, as seen in daily heatmap.

                    Against Dollar, NZD/USD extends the rebound from 0.7152 and reaches as high as 0.7276 so far. Further rise is now mildly in favor to 0.7354 resistance.

                    From the daily chart, NZD/USD has been in consolidation since hitting 0.7436. Firm break of 0.7354 will now be a strong signal of resumption of medium term rise from 0.6779.

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                    EU Oettinger: It’s only my personal opinion regarding Italy budget

                      In response to a to Der Spiegel’s report that Italy budget is not inline with EU obligations Günther Oettinger, European Commissioner for Budget and Human Resources tweeted to clarify.

                      In short, he rejected the call that the commission has made a decision and added that it’s only his personal opinion.

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                      US initial jobless claims jumped to 253k, highest since Sep 2017

                        US initial jobless claims jumped 53k to 253k in the week ending January 26, well above expectation of 210k. That’s also the highest level since September 30, 2017. Four-week moving average of initial claims rose 5k to 220.25k.

                        Continuing claims rose 69k to 1.782M in the week ending January 19. It’s also the highest level since April 28, 2018. Four-week moving average of continuing claims rose 8k to 1.738M, highest since August 4, 2018.

                        Full release here.

                        Also from US, employment cost index rose 0.7% in Q4, below expectation of 0.8%.

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                        Trump to announce USD 50b tariffs on China today, China fights back… verbally… for now

                          Trump is set to announce the tariffs on 100 different types of Chinese goods today, as follow up to the section 301 of the Trade Act of 1974 investigation. Bloomberg reported that the targeted amount would be at around USD 50b annually. White House official Raj Shah also said in a statement that “tomorrow the president will announce the actions he has decided to take based on USTR’s 301 investigation into China’s state-led, market-distorting efforts to force, pressure, and steal U.S. technologies and intellectual property.” It’s believed that the tariffs won’t take effect immediately. And the list of targeted products will be finalized after industry input. But it’s only confirmed when it’s confirmed.

                          On the other hand, China is readying retaliation measures. But before that, China’s Ministry of Commerce pointed to WTO ruling against the Obama-era anti-subsidy tariffs. Back in 2012, China went to WTO to challenge U.S. anti-subsidy tariffs on Chinese exports including solar panels, wind turbines, steel cylinders and aluminum extrusions. And, the WTO ruled the United States had not fully complied with a 2014 ruling against its anti-subsidy tariffs on a range of Chinese products

                          The MOFCOM criticized that the US has “violated WTO rules, repeatedly abused trade remedy measures, which has seriously damaged the fair and just nature of the international trade environment and weakened the stability of the multilateral trading system.” THe MOFCOM also pledged to oppose “protectionism by the US ahead of any possible trade measures against China” and to ” take all necessary measures to resolutely protect its interests”

                          Separately, a former vice commerce minister and now an executive deputy director of the China Center for International Economic Exchanges, Wei Jianguo, warned that “if Trump really signs the order, that is a declaration of trade war with China.” Wei said “China is not afraid, nor will it dodge a trade war.” And, there are “plenty of measures to fight back, in areas of automobile imports, soybean, aircraft and chips.

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                          WTI crude oil resumes corrective decline from 66.49, targeting 55 day EMA at 60.67

                            WTI crude oil’s corrective decline from 66.49 resumes today and reaches as low as 61.38 so far. Such decline is on track to first line of defense at 55 day EMA (now at 60.67). Decisive break there will confirm that fall from 66.49 is correcting whole rise from 42.05. WTI should then target 38.2% retracement of 42.05 to 66.49 at 57.15. We’d expect strong support from there to contain downside and bring rebound.

                            Meanwhile, strong support and rebound from 55 day EMA could bring another rise through 66.49 before forming a medium term top.

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                            UK PM May insists Chequers plan is the only Brexit proposal on the table

                              After meeting with her EU counter parts in Austria, UK Prime Minister Theresa May insisted that her Chequers plan is the only Brexit proposal that’s on the table.

                              She said, “there is no counter proposal on the table at the moment that actually deals, delivers on what we need to do and respects the integrity of the United Kingdom and respects the result of the referendum,”

                              Separately, it’s reported that UK Finance Minister Philip Hammond has urged urged the European Commission to work with UK together on preparation of no-deal Brexit to reduce or avoid disruption to the financial sector.

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                              Fed Harker said “no, not right now” for another rate cut

                                Philadelphia Fed President Patrick Harker told CNBC “No. Not right now”, when asked if he sees a case for further rate cut. He explained, “the labor markets are strong, inflation is moving up slowly — but with the last CPI print, it was a good print,”

                                On the current interest rate, he said: “We’re roughly where neutral is. It’s hard to know exactly where neutral is, but I think we’re roughly where neutral is right now. And I think we should stay here for a while and see how things play out.”

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                                USTR: China has not fundamentally altered its unfair practices

                                  The US Trade Representative released an update on Section 301 IP investigation on China yesterday. Less than two weeks ahead of the Trump-Xi meeting as sideline of G20 summit in Argentina, USTR is piling more pressure on China for reforms. In short, the report complained that “China has not fundamentally altered its unfair, unreasonable, and market-distorting practices that were the subject of the March 2018 report on our Section 301 investigation.”

                                  The report also noted that “despite repeated U.S. engagement efforts and international admonishments of its trade technology transfer policies, China did not respond constructively and failed to take any substantive actions to address U.S. concerns.” And, China, “made clear – both in public statements and in government-to-government communications – that it would not change its policies in response to the initial Section 301 action.” The report also said “China largely denied there were problems with respect to its policies involving technology transfer and intellectual property”.

                                  Full report here.

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                                  Recession risks increased in Japan, but Abe still on track for sales tax hike

                                    The likelihood of a recession in Japan rose due to global economic slowdown and the indirect impact of US-China trade war, according to a Reuters poll between Jan 9-18. Yet economists were still optimistic that Japan economy will grow 0.8% in the fiscal year starting April.

                                    28 of 38 economists said the chance of recession in fiscal 2019 has risen comparing with three months ago. 27 of 39 said Prime minister Shinzo Abe has over 80% chance to go ahead with the planned sales tax hike. For the October-December quarter when sales tax is raised, economist expected a sharp contraction of -3% in GDP. But over the fiscal year, it’s estimated to expand 0.8%, then slow to 0.6% in fiscal 2020. National core CPI is seen to rise only 0.6% in fiscal 2019, staying way off BoJ’s 2% target.

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                                    WH Kudlow: Still planning for Chinese trade team to come in September

                                      White House economic adviser Larry Kudlow said yesterday that there was “quite constructive” telephone conversations at deputy level between US and China and trade. The deputies have agreed to set up another conference call and were working through some of the key issues.

                                      Kudow added “we are still planning for the Chinese team to come over here in September.”

                                      On the economy, Kudlow dismissed the concerns of a downturn. Instead, he said “we don’t anticipate anything but a solid strong economy.”

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                                      Finance Ministry: Strong upturn in German economy to continue

                                        The German Finance Ministry said in the latest monthly report that the economy is in a “strong economic upturn” even if growth in Q1 was “a bit less dynamic” than in Q4 due to “special factors”.

                                        Macroeconomic conditions “remain favorable” and indicators suggest the upturn will continue.

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                                        GBPCHF in solid up trend as UK wage growth awaited

                                          Revisiting GBP/CHF that we covered here last week. The strong up trend continues as seen in the action bias table.

                                          It’s also apparent in the D action bias chart that momentum is very solid.

                                          Now that 61.8% projection of 1.2219 to 1.3419 from 1.2861 at 1.3647 is firmly taken out, next upside target will be 100% projection at 1.4133.

                                          The path will be subject to the job and inflation data to be released today and tomorrow. Market expect today’s data to show average weekly earnings growth accelerating from 2.8% 3moy to 3.0% 3moy. Headline CPI to be released tomorrow is expected to be unchanged at 2.7% yoy, while core CPI is expected to accelerate to 2.5% yoy.

                                          Meeting these expectations will solidify the case for BoE to raise the Bank rate again in May. And the chance of another hike in November would increased too. Missing these expectation might trigger some rethink of the BoE expectations. That could trigger a setback in GBP/CHF’s rally. But the setback should be temporary even in that case, as BoE is still on it’s tightening path. It’s just about the pace.

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