Thu, Aug 22, 2019 @ 04:55 GMT

Argentine Dujovne: Trade tensions faced among G20 members

    Argentine Treasury Minister Nicolas Dujovne, chairm of this year’s G20 finance leaders’ meeting, said in urged the countries involved to solve trade tensions, in a the summit in Indonesia. He said, “we recognize we are now facing trade tensions among members of the G20”, without directly naming the US or China.

    And he added that “the G20 can play a role in providing the platform for discussions. But the differences that still persist should be resolved by the members that are directly involved in the tensions.”

    Dujovne also added “we agree that international trade is an important engine of growth, and that we need to resolve tensions which can negatively affect market sentiment and increase financial volatility”.

    Separealy, US Treasury Secretary Steven Mnuchin said that “I expressed my concern about the weakness in the (yuan) currency and that as part of any trade discussions, currency has to be part of the discussion.”

    - advertisement -

    BoJ’s government debt holdings jumped to record high

      BoJ’s government debt holdings jumped to record high in the period of October to December 2017. By the end of December, holdings jumped 6.8% yoy to JPY 449T. That equaled to 41.1% of all Japanese government debt. Insurance and pensions holdings was a distant second, at JPY 21.6T only. Overseas holdings also rose to JPY 122T, a record high.

      - advertisement -

      AUD selloff accelerates as China Dalian harbours ban Australian coal imports

        Selloff in Australian Dollar accelerates on news that China’s Dalian port has banned imports of the countries’ coal. The ban came effective at the start of February already and it’s indefinite. Under the control of Dalian customers, Dalian, Bayuquan, Panjin, Dandong and Beiliang harbour will not allow Australian coal to clear through customers.

        That’s part of the measures to cap overall coal imports through the above harbours to 12m tonnes this year. Coal imports from Russia and Indonesia will not be affected. It’s also reported that clearing times for Australian coal at other ports are prolonged to at least 40 days.

        AUD/USD was initially lifted by stronger than expected employment data earlier today. But it started to reverse after Westpac forecasts RBA to cut interest rates twice this year in August and November. Selloff then accelerates further on the above news.

        - advertisement -

        EU Malmstrom reiterated US should end steel tariff threats

          EU trade Commissioner Cecilia Malmstrom reiterated today that the US should end the steel tariff threats to the EU. And EU’s position is clear that there would be discussion of closer trade ties only if EU is granted permanent exemptions from the steel tariffs. However, Malmstrom also noted that “they don’t think it is enough”, referring to the lack of response from the US.

          Separately, German economy minister Peter Altmaier urged more work on trade deal with the US as time is running out for a deal over the steel tariffs.

          The current temporary exemption for EU will expire on June 1.

          - advertisement -

          GBP/CHF building momentum for rally extension

            We talked about GBP/CHF last week (here) and its rally did extend as we expected. It’s so far reached as high as 1.3640, just inch below 61.8% projection of 1.2219 to 1.3419 from 1.2861 at 1.3647.

            While GBP/CHF is not a big mover this week, momentum is still solid. Action Bias table is upside blue all the way with some neutral bars.

            D action bias row show it’s in solid rally, which is in line with the action bias chart too. The last three neutral 6H action bias bar should it was in consolidation. But H action bias bar argues that it’s possibly building up momentum for a break out.

            Outlook in the cross stay bullish and break of 1.3647 will pave the way to 100% projection at 1.4133.

            - advertisement -

            German Ifo dropped to 102.8, global uncertainty increasingly taking its toll

              German Ifo business climate dropped to 102.8 in October, down from 103.7, below expectation of 103.2. Current assessment gauge dropped to 105.9, down from 106.4 and missed expectation of 106.0. Expectations gauge dropped to 99.8, down from 101 and missed consensus of 100.3. Manufacturing, services and trade indices record decline in the month, but construction hit another record high.

              Ifo president Clemens Fuest noted in the release that “firms were less satisfied with their current business situation and less optimistic about the months ahead. Growing global uncertainty is increasingly taking its toll on the German economy.”

              Full release here.

              - advertisement -

              US Empires State Manufacturing index rose 12.9 pts to 4.3

                US Empires State Manufacturing General Business Outlook improved to 4.3 in July, up 12.9 pts from -8.6. Looking at some details, new orders were little changed, and shipments increased. Unfilled orders and inventories continued to move lower, while delivery times were longer. The employment index remained negative, falling to its lowest level in nearly three years. Input price increases continued to moderate somewhat, while the pace of selling price increases remained modest. Indexes assessing the six-month outlook indicated that firms were fairly optimistic about future conditions.

                Full release here.

                - advertisement -

                BoJ said to downgrade inflation forecast in upcoming July meeting

                  The Nikkei Review reported earlier this week that BoJ will likely lower inflation forecast at the upcoming quarterly Outlook for Economic Activity and Prices. The new projections will be published after July 30-31 meeting.

                  Back in April, BoJ projected inflation to hit 1.3% in fiscal 2018 and 1.8% for fiscal 2019. In the upcoming projections, BoJ could lower than to 1.0% in fiscal 2018 and 1.5% in fiscal 2019. That will bring the figures in-line with forecasters surveyed by Japan Center for Economic Research, which expected 0.94% inflation in fiscal 2018.

                  BoJ scrapped its “timeline” of hitting 2% inflation target around fiscal 2019, back in the April statement. But it’s been clarified multiple times by BoJ communications that the “timeline” was merely a projection, not a target.

                  - advertisement -

                  Eurozone 2019 growth forecasts lowered, inflation to dive to only 1.6% in 2020

                    The European Commission lowered 2019 Eurozone growth forecast by 0.1% to 1.9%, then slow to 1.7% in 2020. HICP inflation forecast for both 2018 and 2019 are raised by 0.1% to 1.8%. However, HICP inflation is projected to slow down to 1.6% in 2020.

                    In the release European Commission warned that “rising global uncertainty, international trade tensions and higher oil prices will have a dampening effect on growth in Europe”. And looking ahead “the drivers of growth are set to become increasingly domestic”.

                    There are two interesting points to note. Firstly, inflation is forecast to move away from ECB’s 2% target in 2020, reflecting further slowdown in activity. Does that mean ECB shouldn’t raise interest rates in 2019? Secondly, Italy’s budget deficit is projected at -2.9% of GDP in 2019, way higher than its government’s own target of -2.4%. In 2020, Italy’s deficit is even projected to exceed EU’s limit of -3%.

                    This is a quick summary:

                    GDP growth at

                    • 2.1% in 2018 vs 2.1% (Summer) vs 2.3% (Spring)
                    • 1.9% in 2019 vs 2.0% (Summer) vs 2.0% (Spring)
                    • 1.7% in 2020

                    HICP inflation at

                    • 1.8% in 2018 vs 1.7% (Summer) vs 1.5% (Spring)
                    • 1.8% in 2019 vs 1.7% (Summer) 1.6% (Spring)
                    • 1.6% in 2020

                    And, the full table by country:

                    Full release.

                    - advertisement -

                    Into US session: Yen retreat continues, Gold recovers after hitting 1160

                      Entering into US session, Yen continues to trade as the weakest one as market sentiments improved. Swiss Franc follows as the second weakest. Meanwhile, Australian and New Zealand Dollar are the strongest ones. Apparently, both Aussie and Kiwi are lifted by news that US and China are going too resume trade talk later in the month. This can also be clearly reflected in the recovery in the Chinese Yuan, as USD/CNH (offshore Yuan) dipped to as low as 6.8694 so far today, and broke yesterday’s low. However optimism is indeed not seen in Asian equities.

                      In Asia, Nikkei closed slightly down by -0.05%, Hong Hong HSI dropped -0.82%, Singapore Strait Times lost -0.69%. China Shanghai SSE also fell -0.66% to 2705.19, barely defended 2700 handle.

                      The picture in Europe is slightly better. At the time of writing, FTSE is up 0.65% at 7546.92. DAX is up 0.51% at 12224.54, CAC is up 0.63% at 5338.71. However, all are kept below yesterday’s high at 7632, 12428.56 and 5417.18 respectively. Today’s recoveries are merely seen as a corrective move only.

                      Gold dropped to as low as 1160.37 and broke 1172.09 fibonacci level. But it rides on Dollar’s pull back to recover and is back pressing 1180. Some consolidations is likely in near term. But outlook stays bearish as long as 1217.20 resistance holds. We’d still expect further fall into 1046.54/1122.81 long term support zone before bottoming.

                      - advertisement -

                      Minneapolis Fed Kashkari doubts long term impact of tax cut

                        Minneapolis Fed President Neel Kashkari expressed his doubts on the long term effect of Trump’s USD 1.5T package of corporate and individual tax cuts. In an event at African Development Center of Minnesota, he said “we know if you cut taxes on the margin that should boost economic growth in the short term.” However, “the question is when that short term is over, does it actually lead to longer-term, higher sustained economic growth? That’s unclear right now.”

                        He also points to the information he got from businesses. Kashkari said while business leaders “are more optimistic than I had expected,” they are also saying that lower tax rates have not led them to make new investments, at least not yet. He added “I am asking businesses ‘are you actually investing more?’ And so far the answer that I’ve heard is ‘we’re waiting to see.'”

                        - advertisement -

                        ECB Knot: No Recession or crisis, just cooling off

                          ECB Governing Council member Klass Knot told German newspaper Handelsblatt that there has been a “cooling off” in the economy. But he emphasized there is “no recession or crisis”. Robust demand and wage growth in Eurozone meaned growth would pick up again soon. He, as known hawk, remains in favor of policy normalization ahead.

                          Knot also saw TLTRO III as a “bridge” to “ease transition to market financing. That is, the new programs conditions will be “less advantageous than before”. He noted that ECB should avoid the need on TLTRO IV or V in a few year’s time.

                          - advertisement -

                          China, facing tough struggle, lowers 2019 growth target to 6-6.5%

                            Chinese Premier Li Keqiang delivered his annual work report to the National People’s Congress today. Li warned that “China will face a graver and more complicated environment as well as risks and challenges that are greater in number and size”. And he emphasized “China must be fully prepared for a tough struggle.”

                            GDP growth target for 2019 is lowered to 6-6.5%, notably down from 2018’s target of around 6.5%. The lower bound at 6% would be the slowest pace of growth in nearly three decades.

                            To help the manufacturing sector, a 3% cut to top bracket of VAT was announced, from 16% to 13%. Also, there will be with 1% cut to the 10% VAT bracket for transport and construction sectors, down from 10% to 9%. It’s estimated the cuts are equivalent to as much as CNY 800B. Social security fees paid by businesses will be reduced to 16%.

                            Budget deficit for 2019 was set at 2.8% of GDP, larger than 2018 target of 2.6%. Total reduction in tax and social security fees would add up to CNY 2T.

                            The 2019 NPC and CPPCC, in simplified Chinese.

                            - advertisement -

                            US initial claims dropped to 211k, Q4 GDP revised down to 2.2% only

                              US initial jobless claims dropped -5k to 211k in the week ending March 23, below expectation of 220k. Four-week moving average of initial claims dropped 3.25k to 217.25k.

                              Continuing claims rose 13k to 1.756M in the week ending March 16. Four-week moving average dropped -4.25k to 1.751M.

                              Q4 GDP growth was finalized at 2.2% annualized, revised down from 2.6% and missed expectation of 2.4%. That’s sharply slower from Q3’s 3.4%. Real GDP grew only 2.9% in 2018, up from 2.2% in 2017 but was below 3.0% handle.

                              - advertisement -

                              Boris Johnson wins another round of Conservative leadership vote, Stewart eliminated

                                Boris Johnson wong another round of Conservative leadership ballot today, getting 143 votes. Main rival Jeremy Hunt followed as second and won 54 votes. Michael Gove got 51 while Sajid Javid got 38. Rory Stewart got only 27 and was eliminated.

                                GBP/USD is in a strong recovery today but upside is held well below 1.2763 resistance. Thus, near term outlook remains bearish. Next move will depend on FOMC rate decision.

                                - advertisement -

                                US PMIs dropped, point to slown down to 2.5% GDP growth

                                  PMI manufacturing dropped to 54.5 in August, down from 55.3 and missed expectation of 55.1. PMI services dropped to 55.2, down from 56.0 and missed expectation of 55.9. PMI composite dropped to 55.0, down from 55.7, hit a 4-month low.

                                  Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

                                  “The US economy lost a little pace in August, according to the flash PMI, but continued to grow at a solid rate. The PMI is indicative of the economy growing at an annualised rate of roughly 2.5%, down from a 3.0% indicated rate in July.

                                  “Output, new orders and employment growth all moderated, adding to signs that the economy has cooled after strong growth in the second quarter. Backlogs of uncompleted work, a key indicator of future output and hiring, meanwhile fell for the first time for over a year, suggesting the slowing trend could persist into the fall.

                                  “Manufacturing has led the slowdown, though the service sector has also come off the boil compared to the second quarter highs.

                                  “Some of the slowdown can be attributed to supply shortages: jobs growth in manufacturing and services is being restricted by a lack of available workers, while factories are also constrained by a lack of raw materials, sometimes blamed on ‘panic-buying’ of safety stocks as well as a lack of transportation to ship goods around.

                                  “However, the survey also found increased cases of companies reporting the need to cut costs, in part reflecting the recent steep rise in raw material prices, often linked to tariffs and shortage-related price hikes. Fortunately, input price inflation eased for a third successive month and average prices charged for goods and services rose at a slower rate than July’s post-recession high.”

                                  Full release here

                                  - advertisement -

                                  USD/CNY hits highest since 2016, Shanghai SSE heading to 2500

                                    Let’s have a look at Yuan and Chinese stocks after US Treasury refrained from naming China a currency manipulator.

                                    PBoC set the USD/CNY (onshore Yuan) rate at 6.9275 today, versus yesterday’s 6.9103. USD/CNY then edged further higher to 6.9413 and hit the highest level since December 2016.

                                    USD/CNH (offshore Yuan) also edged higher to 6.9403 today. But for now, it’s limited below recent key resistance at 6.9586.

                                    The Shanghai SSE suffers another day of selloff and reaches as low as 2504.63 so far. 2500 handle looks rather vulnerable.

                                    - advertisement -

                                    German GfK consumer confidence dropped to 10.1, downward spiral of economic outlook continued

                                      Germany GfK consumer confidence for June dropped to 10.1, down from 10.2 and missed expectation of 10.4. That’s also the lowest level in more than two years. GfK noted that following a period of stability, the consumer climate was forced to take a small hit once more.

                                      In particular, the steep downward spiral of the economic outlook has continued. The indicator dropped -1.3 to 1.7. It lost almost 32 points within just a 12-month period. GfK added, “The global cooling off of the economy, the endless discussions around Brexit, and the risk of an escalation of the trade conflict with the USA have also put a noticeable brake on the economic outlook of consumers. Persistent trade conflicts pose a particular threat to the export nation of Germany. Weak periods of economic activity have a similar effect on export markets.”

                                      Full release here.

                                      Also from Germany, import price rose 0.3% mom in April, below expectation of 0.5% mom.

                                      - advertisement -

                                      China lowers RRR by 1% for some banks to release CNY 750B funds

                                        China’s central bank PBoC announced on Sunday to cut the reserve requirement ratio (RRR) for some lenders by 1%, effective October 15. According to the bank’s statement, this will release a total of CNY 1.2T. Of which, CNY 0.45T will be used to repay existing medium-term funding (MLF) facilities which will mature on the same date. The cut will apply to large commercial banks, joint-stock commercial banks, city commercial banks, non-county rural commercial banks and foreign banks.

                                        PBoC said that objective of the RRR cut is to “optimize the liquidity structure and enhance the financial ability of financial services.” Release of CNY 750B of funds can “increase the financial institutions’ support for small and micro enterprises, private enterprises and innovative enterprises, promote the vitality and resilience of economic innovation, enhance the growth of endogenous economic growth, and promote the healthy development of the real economy.”

                                        PBoC also maintained that despite the RRR cut, monetary policy is “stable and neutral” and the “orientation has not changed”. It added that the cut added liquidity but monetary policy is “not relaxed while market interest rate is stable. PBoC does not expect “depreciation pressure” on the Chines Yuan after the move.

                                        PBoC’s statement and Q&A in simplified Chinese.

                                        Overall, to us, the central bank’s RRR cut is clearly a pre-emptive counter measures to the market volatility last week. That is, the steep decline in Asian equities as well as surge in global treasury yields, which China was on holiday for a whole week. It’s measures to stabilize the Chinese market when it’s back from holiday tomorrow. We’ll have too see the reactions in the Shanghai SSE and USD/CNH tomorrow to see how the cut is received by the markets.

                                        Meanwhile, we will cancel the AUD/USD short strategy as noted in weekly report, and see how the markets react first.

                                        - advertisement -

                                        Fed Williams: Recession risks not elevated, yield curve inversion points to modest growth

                                          New York Fed President John Williams said overnight that the “most likely case” was for US economy to grow 2%, with low unemployment. To him, the probability of recession this year or next was “not elevated relative to any year”. He also downplayed the significance of yield curve inversion. He added “there’s a lot of reasons to think that it has been a recession predictor for reasons in the past that kind of don’t apply today.” And, it only “telling us that growth will be pretty modest”.

                                          On monetary policy, Williams said short-term interest rate is “around neutral”. Meanwhile, “any development in the economy, whether it’s on the employment side or on the inflation side, that moved in a persistent way away from our objectives, one way or the other, would be a reason to rethink the path of policy going forward.”

                                          - advertisement -
                                          - advertisement -