Tue, Oct 15, 2019 @ 21:26 GMT

Italy to stick with 2019 budget for now, wait for technical analysis of the plan

    Italy decided to stick with their 2019 budget after meeting between Prime Minister Giuseppe Conte and his two deputies, Matteo Salvini and Luigi Di Maio. In a joint statement, the three said that “the objectives that have already been fixed are confirmed.” Also, “as far as the on-going discussions with European institutions are concerned, we agreed to wait for the technical analysis of the proposed reforms which have the most important social impact to quantify precisely the cost.”

    Full statement of the coalition government here.

    Meanwhile, it’s reported that they’re still flexible in adjusting the details of the plan so as to avoid disciplinary actions by the European Commission. For example, the so called citizen’s income plan could be delayed for a month or two which could save billions.

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    RBNZ condition full 25bps hike in Q4 2020, revised down GDP forecasts

      New Zealand Dollar tumbles broadly and sharply after RBNZ announcement turned out to be more dovish than expected. The Official Cash Rate is held unchanged at 1.75%. OCR is expected to be kept low, “but for longer”, through 2019 and into 2020. RBNZ also reiterated that the next move “could be up or down”.

      According to the new Monetary Policy Statement (MPS), RBNZ is now conditioning a full 25bps hike to 2.00% in December quarter of 2020. That’s notably later than March quarter in 2020 as in May MPS.

      GDP growth forecasts were revised down to 2.7% in 2018 (2.8% in May MPS), 2.6% in 2019 (3.1%), 3.4% in 2020 (3.3%) and 3.2% in 2021 (3.1%).

      CPI forecasts were kept unchanged at 1.1% in 2018, 1.6% in 2019, 1.8% in 2020, and 2.0% in 2021.

      Full August MPS

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      ECB de Guindos: Challenges remain in the form of low trend growth

        ECB Vice President Luis de Guindos said in a speech that Eurozone economy is “continuing to grow” and the growth is “broad-based across countries and sectors”. He added that “during this recovery, the countries that were most affected by the crisis have regained competitiveness thanks to a combination of accommodative monetary policy, fiscal consolidation and structural reforms.”

        However, de Guindos warned that “challenges remain in the form of low trend growth compared with other advanced economies, and persistently high public and private debt levels in a number of euro area countries.”. He urged further efforts to “strengthen productivity growth and boost productive investments to lift long-term potential growth.”

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        Euro rises on discrepancy on interpretations of “summer of 2019”

          Euro is lifted by reports that ECB policymakers are split over the timing of the first rate hike in years. ECB official communications said rates will remain at current level until through the summer of 2019. But the wordings are vague and subject to interpretation.

          Reuters quoted one unnamed source saying that after September 21 is the “only possible interpretation”. That is, October 24 is the earliest date.

          But another unnamed source said “you cannot tie yourself for more than a year”. And instead, the wordings could be interpreted as July 25 meeting for hike if data supports.

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          Into US session: Sterling pares loss, risk appetite returns as China mulls auto tariff cut to 15%

            Entering into US session, Sterling is trading as the strongest one for today, paring some of yesterday’s steep losses. Strong wage growth is a positive factor for the pound. Also, traders are awaiting the results of Prime Minister Theresa May’s EU tour. Both European Council President Donald Tusk and European Commission President Jean-Claude Juncker are clear that they won’t renegotiate the Brexit agreement. But they’re willing to give further assurance to help May secure parliamentary approval. We’ll see what they’re going to offer. Separately May’s spokesman also said the Brexit deal vote will happen before January 21, 2019.

            Meanwhile, Australian Dollar follows as the second strongest on return of risk appetite. Sentiments are lifted by renewed optimism on US-China trade negotiation. So far, Chinese authorities and even media are distancing the arrest of Huawei’s executive to trade talks. Vice Premier Liu He had a telephone conversation with US Trade Representative Robert Lighthizer on timetable and roadmap for the next stage of negotiations. China dove Treasury Secretary Stephen Mnuchin was also present. Additionally, Bloomberg reports that China is considering to bring down auto tariffs from the current 40% to 15%. And a proposal has been submitted for review by the cabinet in the coming days. The news give solid boost to European stocks and US futures.

            Quick update: Trump also just tweeted “Very productive conversations going on with China! Watch for some important announcements!”

            In Europe, at the time of writing:

            • FTSE is up 1.58%
            • DAX is up 1.97%
            • CAC is up 1.99%
            • German 10 year yield is up 0.0182 at 0.264
            • Italian 10 year yield is up 0.033 at 3.130

            Earlier in Asia:

            • Nikkei dropped -0.34%
            • Hong Kong HSI rose 0.07%
            • China Shanghai SSE rose 0.37%
            • Singapore Strait Times dropped -0.43%
            • 10 year JGB yield rose 0.0057 to 0.047
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            US treasury yields surge, dollar trying to rebound

              Dollar is apparently helped by surge in US treasury yields today, especially at the long end. While the momentum of the rebound isn’t too strong yet, the development is worth a note.

              30 year yield is still the most impressive one like last Friday. It’s up 0.05 and breaches 3.08 handle. The development further affirms the case that the pull back from 3.247 has completed at 2.925. We’d likely seen further rise through 3.14 resistance in near term.

              10 year yield is also finally showing meaningful movement. It’s up 0.045 at 2.941. Rebound from is likely resuming based on current momentum. And, break of 3.009 resistance should be seen in near term.

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              Asian update: Pound found footing after May’s historic defeat, more upside likely

                A lot of volatility is seen in Sterling in the past 12 hours. The Pound was sold off on the historical defeat of Prime Minister Theresa May in the Commons. But it found its footing quickly. For now, there is still prospect of extending recent rebound against Dollar and Euro.

                Though, at the time of writing, Yen is the strongest one for today. Australian Dollar is the weakest. But all are bounded in yesterday’s range after all.

                For the week, Sterling remains the strongest followed by Yen, Euro is the worst performing followed by Swiss Franc.

                In Asian markets, major indices are staying in tight range:

                • Nikkei is down -0.65%
                • Hong Kong HSI is down -0.13%
                • China Shanghai SSE is down -0.08%
                • Singapore Strait Times is up 0.21%
                • Japan 10 year JGB yield is down -0.0079 at 0.007, still positive

                Overnight:

                • DOW rose 0.65%
                • S&P 500 rose 1.07%
                • NASDAQ rose 1.71%

                Treasury yields continued to show strength at the long end

                • 30-year yield up 0.011 at 3.071
                • 10-year yield up 0.001 at 2.711
                • 5-year yield down -0.002 at 2.527
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                Stocks recovered as Mnuchin will travel to China for trade talks again soon

                  US stocks recovered mildly overnight, partly due to a technical recovery, and partly cause Trump’s administration tried to tone down trade war with China. DOW ended up 0.82% or 207.06 pts at 25532.05 but was kept well below 55 day EMA at 25690.77. S&P 500 rose 0.80% while NASDAQ rose 1.14%. Both were also capped by 55 day EMA.

                  Trump said “we’re having a squabble with” China only., and “we have a dialogue going. It will always continue.” Treasury spokesman also indicated that Steven Mnuchin will plan for another meeting with China, without details. The spokesman said: “As the secretary has indicated, the negotiations will continue. We do anticipate, as the secretary indicated yesterday, that we will plan for a meeting in China at some point soon.” However, nothing is heard from Trade Representative Robert Lighthizer yet.

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                  EU Malmstrom: If US auto tariffs were to happen, that would not be on EU

                    The US Commerce Department has submitted the draft recommendations regarding Section 232 national security tariffs on autos to the White House this week. The recommendations were discussed at a regular weekly meeting of Trump’s top trade officials yesterday. So far, no immediate action is taken by Trump.

                    At the same time, EU Trade Commissioner Cecilia Malmstrom will meet US Trade Representative Robert Lighthizer on Wednesday to carry on trade negotiations. Ahead of that, she said “We assume that if that (U.S. auto tariffs) were to happen, that would not be for the European Union,”. She referred to the agreement between Trump and European Commission President Jean-Claude Juncker that auto tariffs won’t apply to the EU when negotiations are still on going. Malmstrom also reiterated that the scope of the EU-US trade deal will be “limited” to industrial goods. She emphasized “be very clear, it will not include agriculture.”

                    Juncker said earlier this week that “we had achieved that there will not be a new trade conflict over the summer months until the end of the year, particularly with regard to car tariffs.”

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                    South Korean Trade Ministry warns US-China trade dispute likely to be prolonged and proliferated

                      In a policy news release, the South Korean Ministry of Trade, Industry and Energy warned that the US-China trade dispute is likely to be “prolonged and proliferated”. And it urged private sector to seek analysis from the Korea Institute for Industrial Economics and Industry (KIEP) on the effects on imports and exports of each industry.

                      The Ministry also warned that “China’s home appliances, computers and telecommunication equipment are included in the additional tariffs, which suggests that exports of intermediate goods to China will decrease .” Meanwhile, the government would prepare a scenario for developing trade disputes with the US and prepare counter measures accordingly.

                      The issue regarding US 232 auto tariffs was discussed at a meeting with the motor industry representatives on July 10. Follow up actions including attending the US hearing by the government and the industry. In addition, delegation of representatives from the Ministry of Industry , Ministry of Foreign Affairs and the Ministry of Information and Communication , automobile industry association, Hyundai Motor , and trade association representatives, is scheduled to meet with US officials, legislators and automobile organizations.

                      Full statement here.

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                      Into US session: Dollar weakest, Swiss Franc strongest, USD/CHF accelerates downwards

                        Entering into US session, Dollar and Canadian are the weakest one for today and the week. In particular, USD/CHF suffered renewed selling with a key support level at 0.9848 taken out firmly. That’s also thanks to broad based strengthen in Swiss Franc, which is the strongest one for today and the week. Yen is the second strongest for today but trails behind Euro as the third strongest for the week.

                        European markets are generally higher today. At the time of writing:

                        • FTSE is up 1.77%
                        • DAX is up 1.78%
                        • CAC is up 1.83%
                        • German 10 year yield is up 0.0023 at 0.235
                        • Italian 10 year yield is down -0.0242 at 2.723.
                        • German-Italian spread is below 250.

                        Earlier in Asia

                        • Nikkei closed down -0.31% to 20014.77, still holding above 20000 handle
                        • Hong Kong HSI rose 0.1% to 25504.20
                        • China Shanghai SSE rose 0.44% to 2493.90
                        • Singapore Strait Times rose 0.29% to 3053.43
                        • Japan 10 year JGB yield dropped -0.0232 to 0.001, very close to 0%.

                        With today’s downside acceleration, USD/CHF should have a take on 61.8% retracement of 0.9541 to 1.0128 at 0.9765 first. Firm break there will pave the way back to 0.9541 key support level.

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                        US retail sales and Empire state manfacturing beat expectation, reactions muted

                          A batch of economic data is released from the US

                          • Headline retail sales rose 0.8% in October, above expectation of 0.5% mom
                          • Ex-auto sales rose 0.7%, above expectation of 0.5 mom
                          • Import price index rose 0.5% mom in October, much higher than expectation of 0.1% mom.
                          • Empire State Manufacturing index rose to 23.3 in November, up from 21.1 and beat expectation of 19.3.
                          • Philly Fed Business outlook dropped to 12.9, down from 22.2, below expectation of 20.7.
                          • Initial jobless claims rose 2k to 216k in the week ended November 10
                          • Continuing claims rose 46k to to 1.676M in the week ended November 3.

                          Dollar shows little reaction to the data as focus is not in the UK, not the US.

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                          DOW feels heavy around 24000, Euro gains upside momentum

                            DOW opened notably higher today and breached 24000 handle to 24044.39. But it quickly lost momentum. For the moment, it’s feeling heavy from 24000. Current fall from 25449.15 is seen as resuming the decline from 26616.71 to 23360.29. Ideally, if our view is current, any interim recovery should be brief and there should be near them downside acceleration through 23360.29 support. And, break of 24453.14 resistance is needed to indicate bottoming. Otherwise, DOW will more likely have a take on 23360.29 than not.

                            In the currency markets, after some strong momentum in early US session, Euro is now trading as the strongest one for today, overtaking NZD.

                            In particular, EUR/USD’s breach of 1.2445 resistance is now setting up the pair for a test on 1.2555 high.

                            EUR/AUD has met upside target of 61.8% projection of 1.5130 to 1.5976 from 1.5621 at 1.6130 first. With current solid momentum, it should be on track to 100% projection at 1.6444.

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                            Irish PM Varadkar: Possible for us to come to an agreement on Brexit

                              Sterling rebounded strongly overnight and would very likely end the week and the biggest winner. It was firstly lifted by the “constructive” talks between UK Prime Minister Boris Johnson and Irish Prime Minister Leo Varadkar. Then upbeat comments from Varadkar added more fuel to the Pound’s rally.

                              Varadkar told reporter: “I think it is possible for us to come to an agreement, to have a treaty agreed, to allow the UK to leave the EU in an orderly fashion and to have that done by the end of October.. Also, “I don’t think this should be seen in the context of who’s making concessions, or who the winners and losers are, I don’t think that’s the game any of us want to play.”

                              Earlier, they issued a joint statement, saying that “both continue to believe that a deal is in everybody’s interest”. More importantly, “they agreed that they could see a pathway to a possible deal. Their discussion concentrated on the challenges of customs and consent.” UK Brexit Secretary Steve Barclay and EU negotiator Michel Barnier will meet in Brussels on Friday. Officials will “continue to engage intensively” with each other in the search for a deal.

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                              Into US session: Aussie and Yen strongest in mixed markets

                                Entering US session, the forex markets are kind of mixed today. Australian Dollar is so far the strongest one, followed by Yen. Stock market rallies are starting to lose momentum but Aussie is paying little attention. Dollar is a close third as it’s trying to recover some of yesterday’s losses. The main driver of Dollar selling is Fed officials comment that patience is needed before making another rate move. Fed Powell, Bullard and Evans will speak again today and will likely reinforce the same message.

                                Sterling is the weakest ones over Brexit uncertainties. Prime Minister Theresa May’s Brexit deal will have a meaningful vote next Tuesday. But as the day approaches, it looks increasingly unlikely to get the deal through the parliament. Both Brexiteers and Pro-EU camps look determined to vote it down no matter what. Swiss Franc is the second weakest, followed by Euro.

                                In Europe, at the time of writing:

                                • FTSE is down -0.03%
                                • DAX is down -0.27%
                                • CAC is down -0.69%
                                • German 10 year yield is down -0.024 at 0.198, back below 0.2 handle

                                Earlier in Asia:

                                • Nikkei dropped -1.29%
                                • Singapore Strait Times rose 0.81%
                                • Hong Kong HSI rose 0.22%
                                • China Shanghai SSE dropped 0.36%
                                • Japan 10 year JGB yield dropped -0.0061 to 0.025 but stays positive
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                                China Caixin PMI manufacturing dropped to 50, downward pressure significant

                                  Released over the weekend, China Caixin PMI manufacturing dropped to 50.0, down from 50.6. That’s the fourth straight monthly drop and an acceleration in the index’s decline. The key points are, “production rises at weakest pace for nearly a year”, “total new business broadly stagnant, as export sales decline at faster rate”, “business confidence slips to nine-month low”.

                                  Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said in the released that “expansion across the manufacturing sector weakened in September, as exports increasingly dragged down performance and continued softening demand began to have an impact on companies’ production. In addition, the employment situation worsened further. Downward pressure on China’s economy was significant.”

                                  Full release here.

                                  Also released, the official China PMI manufacturing dropped to 50.8 in September, down from 51.3. Official PMI non-manufacturing rose to 54.9, up from 54.2.

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                                  RBA minutes: USD appreciation raised risks for emerging economies, but helpful to Australia

                                    In the minutes of October 2 meeting, RBA noted that global economic conditions had continued to be positive for Australia, despite risks including trade policies. Also, elevated energy and bulk commodity prices supported its terms of trade. Broad based appreciation of the US dollar “had raised risks for some economies, particularly the more fragile emerging market economies”. But the “resultant modest depreciation of the Australian dollar was likely to have been helpful for domestic economic growth.

                                    Domestically, RBA maintained that GDP growth would be “above potential over the following two years”. Forward-looking indicators of labour demand continued to point to above-average growth”. And wage growth is expected increase “gradually”. However, subdued household income growth remained an “important source of uncertainty for the outlook for consumption and inflation.”

                                    Overall, RBA also maintained that ” the next move in the cash rate was more likely to be an increase than a decrease.” However, “since progress on unemployment and inflation was likely to be gradual, they also agreed there was no strong case for a near-term adjustment in monetary policy.”

                                    Full minutes here.

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                                    German Ifo dropped for fourth month, economy faces a lean festive season

                                      Germany Ifo Business Climate dropped for the fourth straight month to 101.0 in December, down fro 102.0 and missed expectation of 101.7. Current Assessment gauge dropped to 104.5, down from 105.5 and missed expectation of 104.9. Expectations gauge dropped to 97.3, down from 98.7 and missed consensus of 98.2.

                                      Ifo President Clemens Fuest noted in the release that “concern is growing among German businesses”. And, “the German economy faces a lean festive season.” Ifo economist Klaus Wohlrabe said uncertainty had increased again and Brexit was at the top of the agenda. The German economy is cooling but there is no recession in sight.

                                      Full release here.

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                                      RBA minutes suggest easing bias, affirm more rate cut

                                        In the minutes of September meeting, RBA maintained easing bias with some dovishness between paragraphs. The minutes overall are inline with market expectations of further rate cut ahead, probably in October. It’s noted that “members would assess developments in both the international and domestic economies, including labour market conditions, and would ease monetary policy further if needed to support sustainable growth in the economy and the achievement of the inflation target over time.”

                                        On international developments, RBA said “risks to the global growth outlook were to the downside”. US-China trade disputes had “escalated” while China’s growth “had continued to slow”. These developments were “affecting trade and investment decisions in overseas economies”. And, “against this backdrop and with ongoing low inflation, a number of central banks had reduced interest rates over recent months and further monetary easing was widely expected.”

                                        Domestically, employment growth continued to be strong but “unemployment rate had remained steady at around 5.2 per cent”. Wages growth had “remained slow” with few indications of building pressures. Also, RBA repeated that the economy “could sustain lower rates of unemployment and underemployment.” Q2 Growth was expected to have been around 0.5%. “Private final demand, which includes consumption, business investment and dwelling investment, was expected to have been weak.”

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                                        UK construction PMI rose to 53.2, but underlying data paints less rosy picture

                                          UK PMI construction rose to 53.2 in October, up from 52.1 and beat expectation of 52.1. Markit noted “fastest growth in civil engineering since July 2017”. However, there was “slower rise in new projects at construction companies:” and “business optimism weakest in nearly six years”.

                                          Trevor Balchin, Economics Director at IHS Markit, which compiles the survey:

                                          “Although total UK construction activity rose at a stronger pace in October, the underlying survey data paint a less rosy picture for the sector towards the end of the year.

                                          “New contracts increased at only a modest pace, and firms were the least optimistic regarding the 12-month outlook for nearly six years. Construction companies again linked uncertainty to Brexit negotiations, which influenced delays to final decisions at clients.

                                          “Moreover, the higher total activity figure reflected the civil engineering sector, which saw a rebound following declines in August and September. Housing and commercial construction activity both rose more slowly in October, and at rates that remained below long-run survey averages.

                                          “More positively, construction firms continued to raise headcounts at a strong pace, suggesting they are not expecting an imminent contraction in demand. That said, if the new orders and expectations indices remain at current levels or fall further, the employment index could also drift back towards the 50.0 no-change mark.”

                                          Full release here.

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