Germany PMI composite rose to 46.6, contraction maybe shallower than first feared

    Germany PMI Manufacturing improved from 45.1 o 46.7 in November. PMI Services dropped from 46.5 to 46.4. PMI Composite also recovered slightly from 45.1 to 46.4.

    Phil Smith, Economics Associate Director at S&P Global Market Intelligence said:

    “November’s flash PMI survey doesn’t alter the narrative that Germany is likely heading for a recession, but it does offer some hope that the contraction in the economy will perhaps be shallower than first feared. The headline PMI surprised on the upside, coming in above consensus at 46.4 and signalling the slowest rate of decline in business activity for three months.

    “Positively, data showed a reduction in the downward pressure on factory production, as manufacturers reported an improvement in material availability and an overall shortening of supplier delivery times for the first time in almost two-and-a-half years.

    “Not to get too carried away, however, underlying demand continues to weaken rapidly, linked to sharp price increases and hesitancy among customers, with the downturn in service sector new business even gathering pace to the quickest since May 2020.”

    Full release here.

    ECB’s Kazimir: Cannot rule out further hike, premature to bet on cut

      ECB Governing Council member and head of Slovakia’s central bank, Peter Kazimir, indicated in an opinion piece that the possibility of further rate hikes remains on the table. Also, it’s premature to bet on the timing of the first rate cut.

      Kazimir emphasized that the forthcoming March forecast will be a decisive factor in ascertaining whether the inflation target is within reachable limits, stating, “Only the March forecast can confirm that we are heading unequivocally and steadily towards our inflation goal.”

      “That is why I cannot rule out the possibility of further rate increases today,: he added.

      Elaborating on the current stance of the policy rates, Kazimir metaphorically commented, “Assume we’re at the top. If so, we may have to stay camping here for quite some time and spend the winter, spring, and summer here.”

      Hence, it would be “premature to place market bets on when the first interest rate cuts will occur.”

      Meanwhile, he did leave the door open for potential adjustments in the bank’s quantitative tightening measures, contingent on economic data. He noted, “As soon as incoming economic data and analyses confirm that further tightening is unnecessary, I see room for a debate about adjusting the pace of our quantitative tightening.”

       

       

      ECB Lane emphasizes need for timely return to 2% inflation

        In an interview with The Currency, ECB Chief Economist Philip Lane offered some guarded optimism about the inflationary environment in Eurozone, despite acknowledging that the current inflation rate is a lofty 5.3%. Lane was keen to highlight a “welcome development” in the latest data, pointing to a slight easing in both goods and services inflation as potentially indicative of changing momentum.

        Lane emphasized ECB’s ongoing challenge of steering inflation rate back to its 2% target. “What is a timely manner?” Lane posed, elaborating that the goal is to return to 2% “sufficiently quickly that everyone understands that the current inflation episode is time-limited.”

        He underscored the importance of convincing the public that this is a “temporary inflation episode,” and that they should not alter their longer-term behavior in anticipation of persistently high inflation rates. The key objective here is to prevent inflation expectations from becoming unanchored.

        Full interview of ECB Lane here.

        BoJ stands pat, Kataoka dissents again, little market reaction

          No surprise, BoJ left monetary policy unchanged today. Short term policy rate is kept at -0.1%. BoJ will continue to purchase assets at a pace of JPY 80T per annum to keep 10 year JGB yields at around 0%.

          Goushi Kataoka dissented again, continued his push to lower yields on JGBs with maturities longer than 10 years.

          Quotes from the statement:

          • “Japan’s economy is expanding moderately, with a virtuous cycle from income to spending operating”.
          • “Japan’s economy is likely to continue its moderate expansion”.
          • “Year-on-year rate of change in the CPI is likely to continue on an uptrend and increase toward 2percent”.
          • Risks include: US policies, Brexit and geopolitical risks
          • BoJ will “continuing expanding the monetary base:” until core CPI exceeds 2% and stays above in a “stable manner.

          Full release here.

          Little reaction in USD/JPY as it’s on course to extend the rebound from 105.24, following broad based dollar strength.

          NIESR: UK GDP to contract -0.1% in Q3, remains in recession

            NIESR projects UK GDP to contract -0.1% in Q3, with growth slowing as inflation maintains its drag on consumer demand and confidence.

            “GDP grew by 0.2 per cent in July following the large fall of 0.6 per cent in June. This was stronger than we had expected and was driven by a rise in services, particularly consumer-facing services, with production and construction continuing to fall. That said, GDP in the three months to July was flat relative to the previous three months and we think the UK economy remains in recession.” Stephen Millard Deputy Director for Macroeconomic Modelling and Forecasting, NIESR.

            Full release here.

            BoE’s Pill prepared to raise rates if necessary

              BoE Chief Economist Huw Pill emphasized today the readiness of the Bank to raise interest rates further if the situation demands, but also indicated that further rate hikes are not a necessity at the current juncture.

              Pill highlighted today’s wage growth data, noting, “We did have this morning the latest official data on pay growth in the UK with pay growing at 7.7%… But actually over the summer pay growth has remained very strong and we certainly wouldn’t see pay growth of that rate as consistent with achieving the 2% inflation target on an ongoing basis.”

              BoE is closely monitoring the upcoming October CPI data, anticipating a decline to “around 5%.” However, Pill acknowledges that even this level is significantly higher than the target, remarking, “But nonetheless, 5% is still much too high.”

              Pill also expressed concerns about the persistence of inflation, partly attributed to ongoing supply issues. He stressed the importance of maintaining a consistent policy approach, stating, “We need to meet inflation persistence with persistent restrictiveness in policy.”

              AUD tumbles as RBA said lower interest rates could be expected

                Australian Dollar tumbles sharply in Asian session after dovish RBA minutes set out the conditions for a rate cut. It’s seen as another step towards more monetary easing ahead, as markets are expecting two cuts this year.

                The most important part of the minutes is that RBA confirmed there could be a need for rate cut. It said “a lower level of interest rates could still be expected to support the economy through a depreciation of the exchange rate and via reducing required interest payments on borrowing, freeing up cash for other expenditure”. Also, in a scenario where ” inflation did not move any higher and unemployment trended up”, “a decrease in the cash rate would likely be appropriate in these circumstances”.”

                Nevertheless, “members agreed that there was not a strong case for a near-term adjustment in monetary policy”. It suggested RBA would wait-and-see, likely at least through Q2.

                Suggested readings on RBA.

                UK Johnson to seek Brexit progress in the next few days

                  UK Prime Minister Boris Johnson will travel to Luxembourg today, to meet outgoing European Commission President Jean-Claude Juncker. Ahead of that, he wrote in the Daily Telegraph that “if we can make enough progress in the next few days, I intend to go to that crucial summit on Oct. 17, and finalize an agreement” for Brexit.

                  He also criticized the parliament for hampering his negotiation, by approving that law that forces him to seek another delay. He said, “Its effect is completely contrary to the UK’s interests – because it has at least given the impression to our partners that the UK is no longer either fully able or determined to leave on Oct 31.”

                  Separately, BusinessEurope Director General Markus Beyrer warned that “No deal is a recipe for disaster and should be definitely ruled out. A disorderly, no deal exit of the UK would be extremely harmful for all sides. It would cause massive damage for citizens and businesses in the UK and on the continent alike… The negative consequences would not be limited to the exit date but would drag on, endangering the fruitful and positive future relationship we all aim for.”

                  BoJ Kuroda: Timing and pace of recovery in consumption remains highly uncertain

                    BoJ Governor Haruhiko Kuroda reiterated in a speech that “consumption is expected to pick up if further progress in vaccinations allow society to curb infections, while resuming economic activity.”

                    “But the timing and pace of recovery in consumption remains highly uncertain and could change depending on how the pandemic unfolds,” he added.

                    “We will scrutinise the impact of the pandemic on the economy and take additional easing steps without hesitation if needed,” he pledged again.

                    Stocks jump on US-China trade talks, USD/CHF & USD/JPY rebounds not strong enough yet

                      Market sentiments are given a solid lift in Asia, after the Trump-Xi meeting in Japan ended up with agreement on no further escalations in tariffs for the time being. Trump agreed to loosen up the ban on Chinese tech giant Huawei while China agreed to buy large amount of American farm products. Additionally, Trump surprised the world by being the first sitting US president to visit the Demilitarized Zone between the two Koreas and met North Korean leader Kim Jong-un, for restarting nuclear talks.

                      At the time of writing, Nikkei is up 1.95%, China Shanghai SSE is up 1.88%. Singapore Strait Times is up 1.26%. Hong Kong is on holiday. In the currency markets, Swiss Franc and Yen are overwhelmingly the weakest ones on return of risk appetite. But commodity currencies are not gaining much for now. Instead, Sterling and Dollar are the strongest ones.

                      Suggested readings:

                      While but USD/CHF and USD/JPY rebound notably today, they’re both limited below key near term resistance levels. Thus, such rebounds are still viewed as corrective for now and outlook in both pair stays bearish. USD/CHF will have to take out 0.9854 resistance decisively to confirm short term bottoming.

                      USDJPY’s development is a bit more bullish with trend line broken. Also bullish convergence condition is seen in 4 hour MACD. But still, sustained break of 108.80 resistance is needed to confirm short term reversal.

                      US NFP grew 638k in Oct, unemployment rate dropped to 6.9%

                        US non-farm payroll employment grew 638k in October, above expectation of 600k. Unemployment dropped sharply to 6.9%, down from 7.9%, well below expectation of 7.7%. Labor force participation rate also rose 0.3% to 61.7%. Average hourly earnings rose just 0.1% mom, below expectation of 0.2% mom.

                        Full release here.

                        China starts tariffs on 128 US products, in response to 232 steel tariffs

                          China formally starts the tariffs on 7 types, 128 products from the US today, according to a statement (link in simplified Chinese) by the Ministry of Finance. This is part of the packaged announced last month which targets up to USD 3b in imports. And it’s a counter measure to the 232 steel and aluminum tariffs of the US that’s non-geo-targeted.

                          China’s response is seen by many as symbolic so far, and refrained. And the impact should be negligible comparing to the size of the bilateral trading relationship between the countries. Also, it’s reported that the US is already in negotiation with China regarding a trade deal. However, for now, China is still holding the cards regarding the Section 301 tariffs, which are targeted on Chinese goods that adds up to USD 50-60b of value.

                          Talking about the Section 301 tariffs, Trump administration is expected to announce the list of products to be affected. It’s believed that the list will concentrate on those affected by intellectual property theft only. And a major portion would be cutting-edge technology products.

                          Follow up on AUD/CAD long strategy

                            Following up on AUD/CAD long strategy here. The cross rose as expected and hit as high as 0.9924 so far today. There is still a bit of distance from our target at 61.8% retracement of 1.0241 to 0.9553 at 1.0066.

                            Looking at the action bias table, 6H action bias remains consistently upside blue, which support our bullish trade. The question is, from H action bias, there seems to be not enough upside momentum as AUD/CAD comes out of a consolidation.

                            So, we’d hold the long position, with target still at 1.0066, but raise the stop to 0.9860, slightly below 0.9862 support. This is for locking in some profits if the current rise is a false break.

                             

                            Australia retail sales rose 0.3%, trade surplus narrowed to AUD 4.95B

                              Australia retail sales rose 0.3% mom in March, above expectation of 0.2% mom. February’s growth was revised up from 0.8% mom to 0.9% mom. In seasonally adjusted terms, there were rises in Victoria (0.7%), Queensland (0.6%), New South Wales (0.2%), Tasmania (0.4%), South Australia (0.1%), and the Northern Territory (0.7%). The Australian Capital Territory was relatively unchanged (0.0%) and Western Australia (-0.7%) fell in seasonally adjusted terms in March 2019.

                              Trade surplus narrowed to AUD 4.95B in March, down from AUD 5.14B but beat expectation of AUD 4.49B. Goods and services exports dropped -2% to AUD 39.34B. Good and services imports dropped -1% to AUD 34.39B.

                              ECJ said UK free to revoke Brexit unilaterally

                                As widely expected, the European Court of Justice finally ruled today that “the United Kingdom is free to revoke unilaterally the notification of its intention to withdraw from the EU.” And, “Such a revocation, decided in accordance with its own national constitutional requirements, would have the effect that the United Kingdom remains in the EU under terms that are unchanged as regards its status as a Member State.

                                The UK Parliament is set to vote on Prime Minister Theresa May’s Brexit agreement tomorrow. Should the agreement passes, there is no doubt that UK is heading for Brexit in March. However, it’s more likely than not that the agreement is voted down. That will open up a wide range of options in “uncharted waters” as described by May. There could be a new election, or even a new Brexit referendum.

                                ECJ’s statement.

                                Australia employment rose 33.5k in Aug, unemployment rate ticked up to 3.5%

                                  Australia employment rose 33.5k in August, slightly smaller than expectation of 35.5k. Full-time jobs rose 58.8k while part-time jobs decreased -25.3k.

                                  Unemployment rate ticked up from 3.4% to 3.5%, above expectation of 3.4%. Participation rate rose 0.2% from 66.4% to 66.6%. Monthly hours worked rose 0.8% mom.

                                  Full release here.

                                  Fed Powell: Economy outlook has clearly brightened

                                    Fed Chair Jerome Powell said in a speech, while the US economy is “not out of the woods yet”, “real progress” was being made and economic outlook has “clearly brightened”. The economy is “reopening, bringing stronger economic activity and job creation.”.

                                    But at “street level”, lives and livelihoods have been affected in ways that vary from “person to person, family to family, and community to community”. “The economic downturn has not fallen evenly on all Americans, and those least able to bear the burden have been the hardest hit,” Powell added.

                                    Full speech here.

                                    Japan FM Suzuki carefully watching bad yen weakening

                                      Japan Finance Minister Shunichi Suzuki said the government is carefully watching the foreign exchange market to avoid “bad yen weakening”. He repeated that currency stability was important. While a weak Yen is positive for exporters, it’s negative for household on popping up living costs.

                                      Yesterday, BoJ started offering four days of unlimited bond purchases to defend the 0.25% cap of 10-year JGB yield. The first offer drew no bid but JPY 64.5B in JGBs were accepted in the second offer. According to the current guidance, BoJ targets to keep 10-year JGB yield at around 0% with 25bps limit up and down.

                                      NASDAQ at a technical juncture after selloff

                                        NASDAQ is now pressing key support level at 14175.11 after yesterday’s -2.41% decline, and it’s now at a technical juncture. Strong rebound from current level, followed by break of 55 day EMA (now at 14778.46) will maintain medium term bullishness. In this case, a break of 15403.43 record high is more likely before having a larger scale correction.

                                        However, sustained break of 14175.11 will suggest that NASDAQ is already in correction to whole up trend from 6631.42. In this case, deeper fall would be seen to 55 week EMA (now at 134174.13), or even further to 38.2% retracement of 6631.42 to 15403.43 at 12052.52 before completing the correction. If happens, bearish sentiment would likely persist throughout Q4.

                                        Australia employment grew 90k in Nov, unemployment rate dropped to 6.8%

                                          Australia employment grew 90k in November, to 12.86m, much better than expectation of 50.0k. Over, the year, though, employment was still down -0.6% or -83.1k. Looking at some details, Full-time jobs rose 84.2k to 8.73m. Part-time jobs rose 5.8k to 4.14m.

                                          Unemployment rate dropped -0.2% to 6.8%, better than expectation of 7.0%. Participation rate rose 0.3% to 66.1%. Hours worked rose 2.5% mom.

                                          Full release here.