China’s trade surplus shrank again in April to USD 13.84B, down from USD 32.67B and missed expectation of USD 34.56B. Exports dropped -2.7% yoy versus expectation of 3.0% yoy. On the other hand, imports rose 10.3% yoy versus expectation of -3.0% yoy.
In CNY terms, trade surplus narrowed sharply to CNY 93.57B, down from 221.23B, missed expectation of CNY 216.75B. Exports grew merely 3.1% yoy versus expectation of 8.0% yoy. Imports rose 10.3% yoy versus expectation of 3.0% yoy.
Japan Tankan Large Manufacturing Index rose to 5 in Q1, up from -10, above expectation of 0. That’s also the highest level since Q3 2019. Non-Manufacturing Index rose to -1, up from -5, above expectation of -5. Large Manufacturing Outlook rose to 4, up from -8, matched expectations. Non-Manufacturing Outlook rose to -1, up from -6, above expectation of -2. All industry Capex rose 3.0%, above expectation of 1.4%.
Also released, PMI Manufacturing was finalized at 52.7 in March, up from February’s 51.4. Usamah Bhatti, Economist at IHS Markit, said: “The Japanese manufacturing sector continued to gather some positive momentum at the end of the first quarter of 2021… Beyond the immediate future, Japanese manufacturers were confident that output would continue to rise over the coming 12 months… Currently, IHS Markit estimates that industrial production in Japan will grow 7.7% in 2021, yet this does not fully recover the output lost in 2020.”
UK PMI Manufacturing was finalized at 58.1 in November, up from October’s 57.8, hitting a 3-month high. Markit said output growth edged higher as domestic order intakes rose. New export business fell for the third straight month.
Rob Dobson, Director at IHS Markit, said: “The current mix of supply-side constraints, cost increases, skill shortages and rising demand for labour will add to the expectations of an imminent rate increase by the central bank, but the survey highlights how the subdued rate of manufacturing growth and export decline leaves industry in a vulnerable position to any new headwinds, not least the Omicron variant.”
BoC is widely expected to keep the overnight rate unchanged at the effective lower bound of 0.25% this week. Bank rate and deposit rate will be kept at 0.50% and 0.25% respectively. Meanwhile, as the central has already been tweaking its asset purchases program, there might be some more changes to be announced at the meeting. Though, they shouldn’t be viewed as a change in the monetary stance, but just some adjustments to fine-tune the program.
Forward guidance would be kept unchanged too as policy rate will be kept at the “effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved”. “QE program will continue until the recovery is well underway”. The question is, whether Governor Tiff Macklem would take the opportunity to start push the message that BoC would not hike before the Fed.
EUR/CAD is building the case of a bullish break out. EUR/CAD’s price action from 1.5978 are clearly corrective, which could have completed at 1.5389. Break of 1.5738 resistance would confirm this view and bring resumption rise from 1.5054 through 1.5978. Meanwhile, USD/CAD’s downside attempt has been contained well above 1.2994 low so far. Break of 1.3529 resistance would extend the pattern from 1.2994 with another rising leg through 1.3418 resistance. If BoC announce this week is going to trigger some selloff in the Canadian, we’d prefer to see the break of these two levels together to double confirm.
St. Louis Fed President James Bullard said he’s “hearing full-throated angst” regarding escalating trade disputes across his district. He added that “all aspects of the economy are affected, but agriculture is certainly” being hit.
He pointed to some suppliers using threat of new tariffs to raise prices, even though their businesses are not directly targeted. And to Bullard, “that shows you how uncertainty over trade policy can feed back” into business decision-making.”
S&P affirmed the “AA+/A-1+” sovereign credit ratings on the US. Outlook remained “stable”, as negative and positive rating factors for the U.S. will be balanced over the next three years”.
In the upside scenario, rating could be raised over the next two years if “effective and proactive public policymaking contributes to favorable economic outcomes. Sustained economic growth, along with measures to address long-term fiscal challenges, could slow the recently high annual increases in the general government’s net debt as a share of GDP.
Conversely, in the downside scenario, “unexpectedly negative political developments in the next two years that reduce the resilience of American institutions, the economy, and the effectiveness of long-term policymaking or jeopardize the dollar’s status as the world’s leading reserve currency could lead to a negative rating action.”
European Union Budget Commissioner Guenther Oettinger commented regarding EU-US trade relationship, ahead of European Commission President Jean-Claude Juncker’s meeting with Trump. Oettinger said “firstly, our common line is that we expect the existing punitive tariffs to be lifted”, referring the section 232 national security steel and aluminum tariffs. And, “then we are ready to discuss a reduction and restructuring of all tariffs in all sectors.”
He added that “in this way, we want to avoid a further escalation of the trade conflict, and to avoid a trade war/” And, “one could try to untangle the existing tariffs and then … reduce tariffs for various goods and services.” He added that ” would be a negotiation that would be possible in half a year, and which we could start with the U.S. in the autumn.”
US personal income rose 0.7% mom to USD 155.3B in October, above expectation of 0.4% mom. Personal spending rose 0.8% mom to USD 147.9B, matched expectations.
For the month, PCE price index rose 0.3% mom, below expectation of 0.5% mom. PCE core (excluding food and energy) rose 0.2% mom, below expectation of 0.4% mom.
From the same month ago, PCE price index slowed from 6.3% yoy to 6.0% yoy, below expectation of 6.0% yoy. PCE core price index slowed from 5.2% yoy to 5.0% yoy, matched expectations. Prices for goods rose 7.2% yoy and prices for services rose 5.4% yoy. Food prices rose 11.6% yoy and energy prices rose 18.4% yoy.
Eurozone PMI Manufacturing dipped slightly from 58.7 to 58.4 in February, below expectation of 58.7. PMI Services, on the other hand, jumped from 51.1. to 55.8, above expectation of 51.7. PMI Composite rose from 52.3 to 55.8, a 5-month high.
Chris Williamson, Chief Business Economist at IHS Markit said:
“The eurozone economy regained momentum in February as an easing of virus-fighting restrictions led to renewed demand for many consumer services, such as travel, tourism and recreation, and helped alleviate supply bottlenecks. Business optimism in the outlook has likewise improved as companies look to the further reopening of the economy, encouraging increased hiring.
“However, although easing, supply constraints remain widespread and continue to cause rising backlogs of work. As such, demand has again outstripped supply, handing pricing power to producers and service providers. At the same time, soaring energy costs and rising wages have added to inflationary pressures, resulting in the largest rise in selling prices yet recorded in a quarter of a century of survey data history.
“The strength of the rebound in business activity signalled by the PMI provides welcome evidence that the economy has so far shown encouraging resilience in the face of the Omicron wave, but the intensification of inflationary pressures will add to speculation of an increasing hawkish stance at the ECB.”
Australia retail sales rose 1.8% mom in January, above expectation of 0.4% mom.
Director of Quarterly Economy Wide Statistics, Ben James said: “The emergence of the Omicron variant and rising COVID-19 case numbers, combined with an absence of mandated lockdowns has resulted in a range of different consumer behaviours. We have seen the type of spending previously associated with lockdowns occurring simultaneously with those associated with the easing of lockdown conditions.”
“This had led to variations across the industries with Food retailing recording a rise in sales consistent with previous COVID-19 outbreaks as consumers exercise caution amidst surging case numbers. However, the absence of lockdowns meant that other discretionary industries which would usually see a fall during the pandemic have recorded mixed results.”
Japan CPI core (all item ex-fresh food) dropped further to -1.0% yoy in December, down from -0.2% yoy, but was above expectation of -1.1% yoy. That’s still the biggest annual decline in core inflation since September 2010. Headline CPI (all items) dropped to -1.2% yoy, down from -0.9% yoy. CPI core-core (all item ex-fresh food and energy) dropped to -0.4% yoy, down from -0.3% yoy.
“I don’t think the risk of Japan sliding back into deflation is high,” BOJ Governor Haruhiko Kuroda insisted yesterday. “But potential growth may be falling so we need to look at the impact (on prices) carefully.”
White House economic advisor Larry Kudlow told CNBC that despite recent intensifications in US-China tensions, “the reality is we would like to negotiate”. He reiterated that “we’re planning for the Chinese team to come here in September. Things could change with respect to the tariffs.”
Regarding Trump’s series of aggressive tweets against China, Kudlow said “in the course of his tweets and his conversations with the trade team, he would like to continue negotiations”. And, “He would like to make a deal. It has to be the right deal for the United States. We would much prefer a commercial transaction.”
Additionally, Kudlow saw clear advantage over china as tariffs burden “is falling almost 100% on China.” “The American economy is in great shape. It’s booming, there is no inflation,” Kudlow said. “We’re in terrific shape. The Chinese, regrettably, are not.”
US Conference Board Consumer Confidence Index dropped to 88.6 in December, down from 92.9, missed expectation of 97.5. Present Situation Index dropped sharply from 105.9 to 90.3. However, Expectations Index rose from 84.3 to 87.5.
Lynn Franco, Senior Director of Economic Indicators at The Conference Board: “Consumers’ assessment of current conditions deteriorated sharply in December, as the resurgence of COVID-19 remains a drag on confidence… Overall, it appears that growth has weakened further in Q4, and consumers do not foresee the economy gaining any significant momentum in early 2021.”
Dollar tries to extend post FOMC rally today but there is little success so far. Firstly, the greenback is overshadowed by Yen and Swiss Franc. Yen is clearly lifted by risk aversion. Meanwhile, Swiss Franc trades higher on some mild weakness in emerging market currencies like Rand and Lira. Secondly, there is no technical breakthrough in Dollar pairs today. USD/HF is limited below 1.0094 resistance. EUR/USD is held well above 1.1300 key support. And even GBP/USD and AUD/USD are held well above 1.2951 and 0.7182 minor support levels respectively.
Sterling is trading as the weakest one even though Q3 GDP grew 0.6% as expected. But September’s monthly GDP miss raises some doubt over the outlook ahead. And there is never-ending Brexit negotiation, without any progress on Irish border backstop. Canadian Dollar follows as the second weakest, and the Australian Dollar.
In European markets, all major indices are down at the time of writing.
Asian indices also closed broadly down
Is SSE’s corrective rebound from 2449.19 completed ahead of 55 day EMA? Probably.
BoJ board member Asahi Noguchi underlined the necessity of maintaining monetary easing as Japan navigates signs of wage growth.
“What’s most important now is for the BOJ to maintain monetary easing and ensure budding signs of wage growth become a sustained, strong trend,” he said.
Noguchi predicts that core consumer inflation, which has been running above the bank’s 2% target, will likely drop below this level around September or October. He attributed this anticipated decrease to the fading effects of past increases in raw material costs.
However, he noted that the possibility of inflation bouncing back above 2% later on and maintaining that level hinges largely on future wage trends and service prices.
US initial jobless claims dropped -20k to 385k in the week ending May 29, better than expectation of 410k. Four-week moving average of initial claims dropped -30.5k to 428k. Both figures were lowest since March 14, 2020.
Continuing claims rose 169k to 3771k in the week ending May 22. Four-week moving average of continuing claims rose 23k to 3688k.
ECB Governing Council member Pierre Wunsch said monetary stimulus is “never a piece of cake”. He added, “I can’t promise that when we can start discussing an exit — and I hope we can within a reasonable time frame — that it’s going to be completely smooth.”
Wunsch also said EU’s combination of national and combined fiscal measures has been “appropriate”. Fiscal support is “much more focused than in the U.S. We’ve taken timely, temporary and targeted measures,” he said. “We have automatic stabilizers in Europe that they don’t have in the U.S. So in a way our fiscal response was more efficient.”
BoC Governor Tiff Macklem said in a speech that the central bank is trying to “balance the risks of under- and over-tightening.” “The tightening phase will draw to a close,” he added. “We are getting closer, but we are not there yet.”
BoC is still “far from that goal” of ensuring “low, stable and predictable” inflation. “With inflation so far above our target, we are particularly concerned about the upside risks,” he added.
Macklem also said, “We expect growth will stall in the next few quarters—in other words, growth will be close to zero. But once we get through this slowdown, growth will pick up, our economy will grow solidly, and the benefits of low and predictable inflation will be restored.”
In May, New Zealand good export rose 8.5% yoy to NZD 5.8B, hitting a record high. Import rose 7.6% yoy to NZD 5.5B. Trade surplus came in at NZD 264m, above expectation of NZD 200m. In particular, exports to China rose 29% yoy to NZD 1.5B led by rises in milk powder, beef, food preparations and logs.
Strong terms of trade reaffirms RBNZ’s stance to stand pat tomorrow. Yet, the central bank will likely maintain openness to further rate cut later in the year.
AUD/NZD dips through last week’s low as Kiwi jumps after the release. Choppy corrective decline from 1.0731 is still in progress for 61.8% retracement of 1.0275 to 1.0731 at 1.0449. We’d pay attention to strong rebound from there to complete the correction from 1.0731. Break of 1.0550 resistance will turn bias back to the upside. However, sustained break of 1.0449 will pave the way to 1.0275 support next.
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UK PMI manufacturing finalized at 45.3 in Dec, took a further turn for the worse
UK PMI Manufacturing was finalized at 45.3 in December, down from 46.5 in November, a 31-month low. S&P Global noted that production and new orders fell at faster rates, leading to accelerated job losses. Selling price and input cost inflation eased.
Rob Dobson, Director at S&P Global Market Intelligence, said: “The UK manufacturing downturn took a further turn for the worse at the end of the year. Output contracted at one of the quickest rates during the past 14 years, as new order inflows weakened and supply chain issues continued to bite. The decline in new business was worryingly steep, as weak domestic demand was accompanied by a further marked drop in new orders from overseas.
Full release here.