Mon, Aug 26, 2019 @ 09:27 GMT

US PMIs dropped slightly, enjoying sustained robust economic growth in Q4

    US PMI manufacturing dropped to 55.4 in November, down fro 55.7, missed expectation of 55.8. PMI services dropped to 54.4, down from 54.8, missed expectation of 55.0. PMI composite dropped to 54.4, down from 54.9.

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

    “Solid flash PMI numbers for November add to evidence that the US is enjoying sustained robust economic growth in the fourth quarter. The surveys are broadly consistent with the economy growing at an annualized rate of 2.5%, building further on the country’s best growth spell since 2014 seen in the second and third quarters.

    “The November survey does raise some warning flags to suggest growth could slow in coming months. In particular, growth of hiring has waned as companies grew somewhat less optimistic about the outlook. Goods exports also appear to also be coming under increasing pressure, often linked to trade wars having dampened demand. However, it should also be remembered that some pull back in growth was to be expected after October’s numbers were boosted by a post-hurricane rebound, especially given the historically high levels of production, order books and employment.

    “With growth remaining reassuringly robust and price pressures elevated, policymakers will be encouraged that the economy has so far withstood both the headwinds of trade war worries and the steady progress made to date towards normalising interest rates.”

    Full release here.

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    German Economy Ministry expects moderate growth in Q1, weak manufacturing and prospering services

      German Economy Ministry said in its March economic report that the economy has a subdued start to 2019. And the country “has become more troubled due to higher risks and uncertainties in the external environment.” This applies in particular to manufacturing with significant fall in production in January. The “weak phase” is likely to continue due to “sluggish foreign demand”.

      Though, the ministry expects growth to continue in other sectors, in particular most service sectors. This was underlined by “recent significant increase in employment” those sectors. With the conflicting tension between weak manufacturing and prospering services, GDP will likely increase “at best moderate” in Q1.

      The government lowered 2019 growth forecast to 1.0% back in January and will update the projections again in April.

      Full report here in German.

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      Fed Williams: Interest rates are still very low, and we’ll likely raise them somewhat

        New York Fed President John Williams said overnight that the US is “in a great position”, where “unemployment is very low, the economy has got a lot of, I think good, positive signs and for us it’s just keeping a good balance. Keeping this economy strong and stable.”

        For now, Williams noted “interest rates are still very low”. And, “We’ll be likely raising interest rates somewhat but it’s really in the context of a very strong economy”. Though, he also noted that Fed is “not on a preset course”, but “we’ll adjust how we do monetary policy to do our best to keep this economy going strong with low inflation.”

        For December meeting, Williams said, “what we’re going to do over the next FOMC monetary policy meeting, we’re going to do what we’ve been doing as best we can – we’re going to find a … gradual path of the monetary policy back to a more normal level of interest rates.”

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        UK PMI construction unchagned at 52.5, somewhat underwhelming rebound

          UK PMI construction was unchanged at 52.5 in May, above expectation of 52.0.

          Sam Teague, Economist at IHS Markit and author of the IHS Markit/CIPS Construction PMI®:

          “The May PMI data signalled an unchanged pace of activity growth across the UK’s construction sector since April’s somewhat underwhelming rebound, yet nevertheless indicating a recovery in the second quarter after the contraction seen at the start of the year.

          “However, activity in May was once again buoyed by some firms still catching up from disruptions caused by the unusually poor weather conditions in March, and a renewed drop in new work hinted that the recovery could prove short-lived.

          “Inflows of new business slipped back into decline, signalling the resumption of the downward trend in demand seen during the opening quarter. Companies frequently noted that Brexit uncertainty and fragile business confidence led clients to delay building decisions in May.

          “With new order books deteriorating and cost pressures picking back up, it’s not surprising to see construction firms taking a dimmer view of prospects and pulling-back on hiring, all of which makes for a shaky-looking outlook.”

          Full release here.

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          Today’s top mover: AUD/JPY downside accelerate mixes up technical outlook

            At the time of writing, Australian Dollar is clearly today’s biggest loser on risk aversion. And let’s be reminded that Australia Q3 GDP released earlier this week was also a big miss. Yen is the strongest one naturally on risk aversion. In particular, the selloff in stock markets is global. And, the decline in treasury yields is global too.

            AUD/JPY’s break of 81.18 support confirms short term topping at 83.90, ahead of 89.92 resistance. And the development mixed up the technical outlook of the cross. The steepness of the fall from 83.90 does argue that rebound from 78.56 is finished. But at the same time, 78.56 is a medium term bottom on bullish convergence condition in daily MACD. Rebound from 78.56 to 83.90 is not too corrective looking.

            That is, at this point, we’re unsure if fall from 83.90 is merely a pull back, or resuming down trend fro 90.29. For now, we’ll be neutral on the cross first. The structure of the upcoming recovery would reveal much about the underlying trend.

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            UK Hammond: A different budget strategy needed in case of no-deal Brexit

              UK Chancellor of the Exchequer Philip Hammond will deliver his budget speech today. He told Sky News that in case of a no-deal Brexit, “we would need to look at a different strategy and frankly we’d need to have a new budget that set out a different strategy for the future.” And the government would have to ” see how markets and businesses and consumers responded to that.” And then, “we would take appropriate fiscal measures to protect the economy, to prepare us for the future and to strike out in a new direction”.

              Separately, he pledge to BBC that he will maintain fiscal buffers, a reserve of borrowing power against my fiscal rules, so if the economy, as a result of a no-deal Brexit or indeed because of something else that we haven’t anticipated, needs support over the coming months and years I have the capacity to provide that support.” And he emphasized “the important point is that I have got fiscal reserves that would enable me to intervene.”

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              Stocks fall, Dollar and Yen surge as Trump ready to tariff additional $267B in Chinese goods

                DOW drops “slightly” by -130 pts, Dollar and yen surge, after Trump said he’s ready for more tariffs on China. The public hearing on 25% tariffs on USD 200B of Chinese goods ended yesterday. Trump said he has additional USD 267 billion in goods identified to tariff any time. Additionally, he said he’s started trade negotiation with Japan. And on Canada, he added “we’ll see what happens”.

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                Euro surges as EU leaders agreed on migration

                  Euro jumps broadly today on news that the 28 EU leaders have agreed on the conclusions of the EU summit, including migration. There were some concerns earlier as Italy threatened to block all agreement if they requests on migration were not met. German Chancellor Angela Merkel, who’s under political pressure domestically, said that “overall, after an intensive discussion on the most challenging theme for the European Union, namely migration, it is a good signal that we agreed a common text.”

                  In the summit conclusion, it’s written that “the European Council reconfirms that a precondition for a functioning EU policy relies on a comprehensive approach to migration which combines more effective control of the EU’s external borders, increased external action and the internal aspects, in line with our principles and values.”

                  It noted that the measures since 2015 has brought down detected illegal border crossings into EU by 95%. And European Council pledged to “continue and reinforce this policy to prevent a return to the uncontrolled flows of 2015 and to further stem illegal migration on all existing and emerging routes.”

                  Regarding the “Central Mediterranean Route”, EU pledged to “stand by Italy and other frontline Member States in this respect. It will step up its support for the Sahel region, the Libyan Coastguard, coastal and Southern communities, humane reception conditions, voluntary humanitarian returns, cooperation with other countries of origin and transit, as well as voluntary resettlement. All vessels operating in the Mediterranean must respect the applicable laws and not obstruct operations of the Libyan Coastguard.”

                  Full conclusion here.

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                  UK Hammond on Brexit negotiation: Positive process, challenging substance

                    Chancellor of the Exchequer Philip Hammond said that there are still big issues to resolve in Brexit negotiation. He said “what has happened over the last week, ten days, is that there has been a measurable change in pace.” However, “that shouldn’t conceal the fact that we still have some big differences left to resolve. So process is a lot more positive this week – substance still very challenging.”

                    Separately, it’s reported that Prime Minister Theresa May is going to make a public statement saying UK “will not agree to be trapped permanently in a customs union in any circumstances”.

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                    Italy to target budget deficit at 2.4% of GDP for the next three years

                      Euro wasn’t too bothered after Italian government confirmed raising budget deficit, which would put them at odds with the EU. After the highly anticipated cabinet meeting, they decided to target budget deficit at 2.4% of GDP for the next three years. That is, Economy Minister Giovanni Tria, an unaffiliated technocrat, conceded his push for lowering deficit to just 1.6% of GDP, and then 2.0% in 2019.

                      “There is an accord within the whole government for 2.4 percent, we are satisfied, this is a budget for change,” 5-Star Movement leader Luigi Di Maio and League leader Matteo Salvini, both Deputy Prime Ministers, said in a joint statement after meetings with Tria.

                      Prime Minister Giuseppe Conte said the budget goals were “considered, reasonable and courageous” and would “ensure more robust economic growth and significant social progress for our country.” He added the budget plan included “the biggest program of public investments ever carried out in Italy.”

                      While the 2.4% deficit target remains below EU rule of 3.0%, EU might find a lack of commitment on Italy’s side to cut its massive debt.

                      Euro is trading mixed for the day and the week.

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                      BoC Lane: US trade policies, lower oil prices, softened housing resulted in temporary slowing on Canadian economy

                        In a speech in Washington, BoC Deputy Governor Timothy Lane outlined the challenges the Canada is facing. Firstly, uncertainty on US trade policies held back Canadian business investments. Secondly, lower oil prices caused deterioration of Canada’s terms of trade. Thirdly, housing investment and consumption softened. Together, they resulted in “temporary slowing of Canada’s economic growth.”.

                        On the other hand, the US economy “has been powering ahead with the effects of the fiscal stimulus”. Fed also raised interest rates a couple of times last yet. The combined effects put downward press on the Canadian. And, “the lower Canadian dollar, in turn, will help support the economy through this period.”

                        Lane’s full speech here.

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                        St. Louis Fed Bullard downplays rise in core CPI

                          St. Louis Fed President James Bullard tried to down play recent rise in core inflation, where core CPI rose above 2% to 2.1% in March. Bullard said “year-over-year core CPI is now above 2 percent but it was also above 2 percent all during 2016, and so it’s really only come back to the level that it was in that earlier period when interest rates were much lower.” And to him, “those developments so far have been unsurprising.”

                          Regarding trade tensions, Bullard said there is too much uncertainty around the tariffs to assess the impact for now. But he hoped that US and China will get a good outcome on trade.

                          Regarding exchange rates, Bullard said growth growth has been surprising, in particular in Europe. Such strength wasn’t priced in and thus, led to dollar weakness.

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                          RBNZ Governor Adrian Orr press conference highlights and full

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                            ECB Liikanen: Time needed for underlying inflation to accelerate

                              ECB Governing Council member, Finnish Central Bank Governor Erkki Liikanen, tells the Finnish parliament today that it takes time for underlying inflation in the Eurozone to accelerate. And that would support rise in headline inflation.

                              Also, he pointed out that there was an exceptional amount of uncertainty on how ECB’s unconventional monetary policy worked out. However, loose policy is still necessary to boost inflation back to 2% target.

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                              Eurozone economic sentiment dropped to 104.0, decreased in most major countries

                                Eurozone Economic Sentiment Indicator dropped -1.6 to 104.0 in April, missed expectation of 105.0. Industrial Confidence dropped to -4.1, down from -1.6 and missed expectation of -2.0%. Services Confidence was unchanged at 11.5, matched expectation. Consumer Confidence was finalized at -7.9.

                                Amongst the largest Eurozone economies, the ESI rose only in the Netherlands (+0.4), while it decreased in France (-1.0) and Italy (-1.0) and, more significantly so, in Germany (-1.5) and Spain (-2.6).

                                Also released, Eurozone Business Climate Indicator dropped -0.12 to 0.42, below expectation of 0.49. Managers’ views of the past production, their production expectations, and their assessments of overall order books and the stocks of finished products declined significantly. Meanwhile, there was some relief in the appraisals of export order books.

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                                China Caxin PMI manufacturing dropped to 51.0, deteriorating exports and weak employment

                                  China Caxin PMI manufacturing dropped 0.1 to 51.0 in June, met expectations. Caixin noted in the release that “productions expands as faster pace … despite softer rise in total new orders and further decline in export sales”. And, “staffing levels fall at quickest rate for nearly a year.”

                                  Quote from the release by Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group:

                                  “The Caixin China General Manufacturing PMI stood at 51.0 in June, dropping slightly from a month earlier but remaining in expansion territory. The output index continued to rise, suggesting that manufacturing supply was relatively strong. The new order index dropped marginally, and the employment index dropped for the second consecutive month, indicating worsening layoffs. The index for new export orders fell to a low for the year so far and remained in contraction territory, pointing to a grim export situation amid escalating trade disputes between China and the U.S., which led to weak demand across the manufacturing sector.

                                  “The indices for output charges and input prices both rose, with the latter jumping sharply, continuing to drive the output index upward and suggesting that the year-on-year growth of the producer price index probably continued to rise significantly in June. Corporate profits could have been squeezed due to the rapid rise in input prices, leading to a dip in the future output index. The two indices measuring stocks of finished goods and purchases both dropped, with the latter falling into contraction territory for the first time this year, reflecting that the manufacturing sector is stepping into a destocking phase amid weak demand. The suppliers’ delivery times index remained in contraction territory, indicating delivery delays and poor capital turnover among manufacturing suppliers.

                                  “Overall, the manufacturing PMI survey pointed to strengthening price pressures in June. Deteriorating exports and weak employment, along with companies’ destocking and poor capital turnover, put pressure on the manufacturing sector.”

                                  Full release here.

                                  Released over the weekend, the official China PMI manufacturing dropped -0.4 to 51.5 in June. Official PMI non-manufacturing rose 0.1 to 55.0.

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                                  US consumer confidence rose to 135.7, highest this year

                                    Conference Board US Consumer Confidence Index rose to 135.7 in July, up from 124.3, and beat expectation of 125.0. Present Situation Index rose from 164.3 to 170.9. Expectations Index Rose from 97.6 to 112.2.

                                    Conference Board said: “After a sharp decline in June, driven by an escalation in trade and tariff tensions, Consumer Confidence rebounded in July to its highest level this year,”

                                    “Consumers are once again optimistic about current and prospective business and labor market conditions. In addition, their expectations regarding their financial outlook also improved. These high levels of confidence should continue to support robust spending in the near-term despite slower growth in GDP.”

                                    Full release here.

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                                    BoJ Kuroda: Deflationary mindset caps medium- and long-term inflation expectations

                                      In the post meeting press conference, BoJ Governor Haruhiko Kuroda admitted that ” year-on-year growth in consumer prices is slowing”. Falling durable goods prices and temporary fluctuations in hotel costs were part of the reasons. However, “companies’ price-setting behavior appears to be changing” as they’re passing on rising costs to consumer. Hence, the economy is “sustaining momentum” to achieve the 2% inflation target. Kuroda also said there will be further debate on price moves at the next meeting in July, when the quarter long-term forecasts will also be published.

                                      Kuroda added that “Japan’s economy is seeing labor markets tighten and the output gap improving, but prices aren’t rising much.” There are external factors from US and Europe. At the same time, that’s the deflationary mindset of households and companies, which became entrenched due to 15 years of deflation.” That’s the reason keeping medium- and long-term inflation expectations subdued.

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                                      German PMIs: Two-speed economy, threat of GDP contraction in Q3 remains

                                        Germany PMI Manufacturing rose slightly to 43.6 in August, up from 43.2 and beat expectation of 43.0. PMI Services dropped to 54.4, down from 54.5, but beat expectation of 54.0. It’s nevertheless a 7-month low. PMI Composite improved to 51.4, up from 50.9.

                                        Commenting on the flash PMI data, Phil Smith, Principal Economist at IHS Markit said:

                                        “Germany remains a two-speed economy, with ongoing growth of services just about compensating for the sustained weakness in manufacturing. Although improving slightly, the survey’s output data haven’t changed enough to dispel the threat of another slight contraction in GDP in the third quarter, especially given the deterioration in the forward-looking indicators.

                                        “The headline services business activity index has come down a touch but remains indicative of a robust pace of output growth in that sector. However, cracks are starting to appear elsewhere in the services data, with inflows of new work barely rising in August and business confidence at its lowest for almost five years. Manufacturing expectations have also taken a turn for the worse, and are now at a record low.

                                        “The sustained weakness in demand continues to filter through to the jobs market. Employment growth has now almost stalled, reflecting falling capacity pressures and lower business confidence generally.”

                                        Full release here.

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                                        BoE Carney: Global negative spillovers to UK increasing, drag from Brexit uncertainties intensifying

                                          BoE Governor Mark Carney said in a speech that the robust, broad-based expansion in the global economy has turned into a widespread slowdown. He warned “the latest actions raise the possibility that trade tensions could be far more pervasive, persistent and damaging than previously expected.” Risks have shifted to the downside.

                                          Regarding UK, Carney said Q2 is likely to be “considerably weaker” than Q1. Also, “recent data also raise the possibility that the negative spillovers to the UK from a weaker world economy are increasing and the drag from Brexit uncertainties on underlying growth here could be intensifying.” Also, “underlying growth in the UK is currently running below its potential, and is heavily reliant on the resilience of household spending.”

                                          Further, Carney warned “a no deal outcome would result in an immediate, material reduction in the supply capacity of the UK economy as well as a negative shock to demand. And, “as in other advanced economies, if there is a material trade shock, other policies, including fiscal policy, would likely need to play important roles in supporting the economy.”

                                          Carney’s full speech here.

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