Sun, Jan 19, 2020 @ 10:24 GMT

Australian business confidence rose, ongoing strength but meek price pressures

    Australian NAB Business Confidence rose to 6 in September, up from 5 and beat expectation of 5. Business Conditions rose to 15, up from 14 and beat expectation of 9.

    Alan Oster, NAB Group Chief Economist noted in the release that “business conditions appear to have stabilized after declining through the middle of 2018.” Also, “despite having eased notably from the highs earlier in the year, they remain well above average, suggesting that the business environment continues to be favorable”. And, “ongoing strength in employment is especially encouraging.”

    The only concern remains around “lower forward orders”. Mining again is strongest but “retail is weak and deteriorating”. And, “retail has now lagged for some time and is unlikely to turn around anytime soon with the weaker outlook for the consumer and ongoing structural changes in the sector”. Overall, the survey points to “ongoing strength in business activity” in to latter part of 2018, but “ongoing meek price pressures”.

    Full release here.

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    Swiss KOF dropped to 93, economic outlook remains subdued

      Swiss KOF Economic Barometer dropped to 93.0 in November, down from 94.8, and missed expectation of 95.0. It’s also the lowest level since 2015. KOF said: “The downward movement, which has been observed since the beginning of the year, continues. The barometer is still well below its long-​term average. The outlook for the Swiss economy remains subdued.”

      Also, “Several bundles of indicators are equally responsible for the decline. However, negative signals from hotel and catering activities and from the banking and insurance sector stand out slightly. Indicators regarding foreign demand and other services are also declining. On the other hand, indicators for the manufacturing sector remain almost unchanged.”

      Full release here.

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      BoE Carney: Much of Q1’s lost output will not be made up

        BoE Governor Mark Carney speaks to the Treasury Committee in the parliament for inflation report hearing today.

        Regarding the dismal Q1 growth, Carney said ” it’s more likely to have been temporary and idiosyncratic factors that slowed the economy.” But the MP didn’t expect much of that “lost output” to be made up. Therefore, BoE forecast 0.4% growth in Q2 only.

        Carney noted that there were arguments for and against publishing a rate path. But he pointed out that “e risk of it being interpreted as a promise, as a commitment are real, there are risks of procrastination once you put a path out there… there’s risk of pre-commitment as well”. And thus, the majority of the committee were not in favor of it.

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        Maeda: BoJ ready to use combinations of measures to ease further if needed

          Eiji Maeda, BoJ Executive Director of International Affairs, reiterated the central bank stands ready to ease monetary policy further if needed.

          He said in the Diet that “if the economy’s momentum for achieving our price target is threatened, we are ready to ease monetary policy as necessary”. And, “we’ll continue to take steps as needed, including a combination of them, with an eye on their effects and side-effects” on the financial system.

          Separately Finance Minister Taro Aso said there is no plan for the government to test a heterodox modern monetary theory. That is, countries issuing their own currencies can never run out of money”.

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          Euro rebounds as formation of eurosceptic Italy government collapsed

            Italy is in fresh political turmoil again as the formation of the new eurosceptic government collapsed. Nonetheless, the Euro is lifted mildly higher today as that’s seen as a positive development for the common currency.

            President Sergio Mattarella vetoed Paolo Savona as the as economy minister. Savona is an 81-year-old eurosceptic economist who’s a vocal critic of the common currency. Mattarella said in a televised speech that “the uncertainty over our position (on euro) has alarmed investors and savers both in Italy and abroad.” And, he emphasized that “membership of the euro is a fundamental choice. If we want to discuss it, then we should do so in a serious fashion.” Mattarella added that “I asked for that ministry an authoritative political figure from the coalition parties who was not seen as the supporter of a line that could provoke Italy’s exit from the euro.”

            Prime Minister-designate Giuseppe Conte promptly abandoned the effort to form a new government. Tthe far-right League and anti-establishment Five Star Movement, accused Mattarella of abusing his authority and working under the orders of European powers. Five Star leader Luigi D Maio even demanded that parliament impeach Mattarella. League chief Matteo Salvini threatened mass protests unless snap elections were called.

            Former IMF director of discal affairs Carlo Cottarelli was called in to head a stopgap government. But he’s unlikely to have enough supoort from the parliament. So, that’s only a short-term solution and an election is now likely to be held to solve the political crisis, possibly in September or October.

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            Japan PMI manufacturing rose to 53.1, export sales rose for the first time since May

              Japan PMI manufacturing rose to 53.1 in October, up from 52.5 and beat expectation of 52.6. Markit noted that “growth of key macroeconomic variables (output, new orders and employment) all accelerate”, and “rates of input cost and output price inflation both quicken to multi-year highs.”

              Commenting on the Japanese Manufacturing PMI survey data, Joe Hayes, Economist at IHS Markit, which compiles the survey, said:

              “Following a rather disappointing slew of PMI data over the third quarter, Japan’s manufacturing sector looks set to start Q4 on a more upbeat note. The latest survey indicated stronger expansions in all the key barometers of macroeconomic health, with output, new order and employment growth quickening since September. Furthermore, export sales rose for the first time since May, despite several respondents highlighting problems arising from global trade tensions.

              “That said, next month’s data will be important to assess whether the latest growth rebound is a transitory response to weakness resulting from recent natural disasters.”

              Full release here.

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              Muted reaction to Trump’s withdrawal from Iran deal. USD, CHF, JPY stay in pole position

                Trump announced to withdraw from the Iran deal. Market reactions are relative limited as it seems like it’s all expected. DOW turns from initial loss to slight gain. But technically, it still has to overcome 55 day EMA (now sitting at 24442). The currency markets are also relatively steady. Dollar, Swiss and Yen are staying in pole positions.

                 

                 

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                ECB maintains interest rates and forward guidance, to end APP this month

                  ECB let interest rates unchanged today as widely expected. That is, main refinancing rate, marginal lending facility and deposit facility rates are held at 0.00%, 0.25% and -0.40% respectively.

                  ECB maintained forward guidance that interest rates will “remain at their present levels at least through the summer of 2019”.

                  Also, the asset purchase program will end this month as scheduled.

                  Full statement below:

                  Monetary Policy Decisions

                  At today’s meeting the Governing Council of the European Central Bank (ECB) decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.

                  Regarding non-standard monetary policy measures, the net purchases under the asset purchase programme (APP) will end in December 2018. At the same time, the Governing Council is enhancing its forward guidance on reinvestment. Accordingly, the Governing Council intends to continue reinvesting, in full, the principal payments from maturing securities purchased under the APP for an extended period of time past the date when it starts raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

                  The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.

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                  US Empire State Manufacturing index dropped to 3.7

                    US Empire State Manufacturing index dropped to 3.7 in March, down from 8.8 and missed expectation of 10. It’s also the third consecutive month of sub-10 reading, suggesting “growth has remained quite a bit slower so far this year than it was for most of 2018.

                    Looking at some details, new orders index dropped -5pts to 3.0, indicating orders grew at a slower pace. Shipments dropped -3 pts to 7.7, indicating modest shipments growth. Employment index rose to 13.8. But average work week turned negative for the firs time since 2016, at -3.4.

                    Full release here.

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                    New Zealand CPI rose 0.6% qoq, NZD/USD extending rebound

                      New Zealand CPI rose 0.6% qoq 1.7% yoy in Q2, matched expectations. The annual rate accelerated from 1.5% yoy in Q1. However, the rise in headline inflation was largely due to the 5.8% quarter increase in petrol price, which contributed 0.25% to the 0.6% qoq figure. That suggests the pick-up could be temporary only, not to mention that annual CPI remains firmly below 2% mid-point of RBNZ’s 1-3% target range.

                      Stronger monetary stimulus and economic growth is required to lift inflation sustainably back to the 2% target. Yet, domestic and global headwinds remain. Thus, more OCR cuts are still expected for RBNZ. August could be the month to deliver even though it’s not totally certain yet.

                      Full release here.

                      NZD/USD’s choppy rebound from 0.6481 resumed this week by taking out 0.6726 resistance. Such rise is seen as part of the sideway pattern from 0.6424. It should now be heading to 78.6% retracement of 0.6969 to 0.6481 at 0.6865. But upside should be limited below 0.6969 resistance to bring near term reversal.

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                      UK Johnson: Brexit presents enormous opportunities for our country

                        Sterling’s selloff continues today as markets are adding their bets to no deal Brexit. UK Prime Minister Boris Johnson is insisting that he could get a new Brexit deal with the EU. He said in televised comments that “we’re very confident, with goodwill on both sides, two mature political entities — the U.K. and EU — can get this done”.

                        And, “it’s responsible for any government to prepare for a no deal if we absolutely have to. That’s the message I’ve been getting across to our European friends. I’m very confident we’ll get there.” He also insisted that the Irish backstop is “dead” along with former PM Theresa May’s withdrawal agreement.

                        Johnson also emphasized that “Once we leave the EU on Oct. 31, we will have a historic opportunity to introduce new schemes to support farming – and we will make sure that farmers gets a better deal”. And, “Brexit presents enormous opportunities for our country, and it’s time we looked to the future with pride and optimism.”

                        At this point, there is no sign of EU shifting its position yet. That is, the negotiation for the Brexit Withdrawal Agreement was closed and won’t be re-opened. European Commission also indicated that while an orderly withdrawal is in everyone’s interest, the bloc is well-prepared for a no-deal Brexit.

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                        Tentative deal reached to avert another US government shutdown, with border fencing

                          A tentative deal was agreed yesterday between the Republicans and Democrats to avert another partial government shutdown this Saturday. But the agreement does not include the USD 5.7B funding for the border wall that Trump demanded.

                          No detail is provided for the deal yet. But based on unnamed source, there would be USD 1.375B in funding for new fencing along the southern border of the US. That is around the same amount the Congress allocated last year.

                          Also, it’s reported that only currently deployed design could be used for 90km of additional barriers, which might include steel bollard fencing.

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                          Trump: Tariffs are a beautiful thing when you have all the money

                            In a CNBC Squawk Box telephone interview, Trump romanticized tariffs as a “beautiful thing” that countries with money should use. He said “People haven’t used tariffs, but tariffs are a beautiful thing when you are the piggy bank, when you have all the money. Everyone is trying to get our money”. He also touted boasted that “If we didn’t have tariffs we wouldn’t have made a deal with Mexico” on migration problem of the US.

                            He’s also confidence that the China trade deal is going to work out “Because of tariffs. Because right now China is getting absolutely decimated by countries that are leaving China, going to other countries, including our own.” China is “going to make a deal because they’re going to have to make a deal, ” Trump added.

                            Yet, he praised China’s system as “the head of the Fed in China is President Xi” and “He can do whatever he wants. They devalue.” They loosen”. He added, “They devalue their currency. They have for years. It’s put them at a tremendous advantage”. On the other hand, “we don’t have that advantage because we have a Fed that doesn’t lower interest rates.”

                            Trump said the Fed “certainly didn’t listen to me because they made a big mistake. They raised interest rates far too fast,” and he went on to chide them for hiking “the day before a bond issue goes out so we have to pay more money.” He certainly believed in a system that central banks work for the countries leader, instead of independently.

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                            DOW lost -724 pts in delayed reaction to start of US-China trade war

                              DOW closed sharply lower by -724.42 pts or -2.93% at 23957.89 overnight as fear of trade war intensified. S&P 500 was down -68.24 pts or -2.52% at 2643.69. NASDAQ also dropped -178.61pts or -2.43% to 7166.68. Selloff continues in Asian session with Nikkei down -3.6% and HK HSI down -2.7% at the time of writing.

                              Initial reaction to Trump’s announcement on tariffs against Chinese imports was very muted. Trump is targeting to impose tariffs on USD 50b worth of goods from China. That’s a big difference to the rumor of USD 50b in tariffs. Nonetheless, the selloff picked up momentum in the last trading hour, as traders dumped their position ahead of China’s retaliation measures. (China responded in Asian morning and that will be covered in another note). USD/JPY followed by breaking through 105 handle.

                              It initially looked like DOW could defend support zone between 23.6% retracement of 26616.71 to 23360.29 at 24128.80 and 24217.76. But the late intensified selling powered the index through this zone. Further fall is now expected in near term to 23360.29 support level. In the bigger picture, we’re maintaining the view that price action from 26616.71 is a medium term correction pattern that’s correcting, at least, whole up trend from 2016 low at 15450.56. That means, 38.2% retracement of 15450.45 to 26616.71 at 22351.24 is the first target when the correction extends.

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                              BoJ opinions: Should seriously prepare for the next downturn

                                Summary of opinions of BoJ’s October 30-31 meeting noted that “inflation momentum has not been lost” and thus, the central should “maintain the current easing policy”. However, it was appropriate to “clarify” that the policy stance is “further tilted toward monetary accommodation”, by indicating the “downward bias” in policy rates.

                                Also, in the current situation where risks are skewed to the downside, the Bank should continue to examine whether additional monetary easing will be necessary”. As inflation expectations are “not anchored” to 2% target and observed inflation rate is “far from the target”, BoJ should “seriously prepare for the next economic downturn as one of the risk scenarios.

                                Full summary of opinions here.

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                                Into US session: USD reverses, CAD stays strong with WTI back above 71

                                  Heading into US session, USD is broadly sold off and reversed all of today’s against except versus JPY. There is no apparent trigger for the reversal. But it could because USD’s rally has exhausted on overbought conditions. Also, traders could be lighting up positions ahead of tomorrow’s CPI release.

                                  Notable buying is seen in GBP, ahead of tomorrow’s BoE rate decision. But CAD is the one the emerges as the strongest for today, with WTI crude oil back above 71 handle.

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                                  Moon Jae-in scored another point as North Korea suspended nuclear tests, abolished nuclear site

                                    South Korea announced to stop broadcasting its propaganda along the border with North Korea, as a gesture of goodwill ahead of the highly anticipated Inter-Korean Summit at the border truce village of Panmunjom on Friday.

                                    South Korean President Moon Jae-in has made tremendous progress in solving the Korea crisis by continuously seeking dialogue. The meeting between high level officials of the two countries earlier this year was the turning point. And, the limited, yet successful, joint participation in recent Winter Olympic in the South created a crucial diplomatic window for the relationship.

                                    It’s only the third top level summit between the two countries, with the two previous meetings held back in 2000 and 2007. Ahead of the meeting, North Korea has announced to suspend nuclear and missile tests effective immediately. Its northern nuclear test site will also be abolished. And now, a formal end to the Korean War is also on agenda in the meeting between Moon and North Korean leader Kim Jong-un.

                                    Considering that South Korea was in a mess when Moon took office last May. His predecessor was impeached for corruption. The achievements domestically and diplomatically deserved much recognition. And that’s a main reason Moon is chosen as the 4th of the World’s 50 Greatest Leaders by Fortune as announced last week.

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                                    French Macron: We don’t mind being six, if needs be

                                      French President Emmanuel Macron urged to remain polite and productive in the G6+1 summit in Canada. But he also warned that “no leader is forever”.

                                      Macron added that “maybe the American president doesn’t care about being isolated today, but we don’t mind being six, if needs be.”

                                      And, “because these six represent values, represent an economic market, and more than anything, represent a real force at the international level today.”

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                                      Yen stays strong as 10 year JGB breaches 0.11, US yield limits dollar downside

                                        Yen trades in a broadly firm tone today as helped by resilient in JGB yield. JGB 10 year yield hit as high as 0.113 today and is hovering around 0.10 at the time of writing. JGB yield could remain firm ahead of tomorrow’s highlight anticipated BoJ meeting. There are speculations that BoJ is considering to tweak its monetary policy to probably target 10 year yield at 0.1%, rather than 0.0%. But so far, it’s believed the discussions are preliminary. And, there is very likely chance of any announce of any sort that carries significance next week.

                                        While Dollar is mixed this in Asia, it’s trading as the third strongest one for the week, next to Canadian Dollar and Yen. The rebound in US treasury yields overnight reaffirmed underlying near term upside momentum. 10 year yield closed up 0.039 to 2.975, making a near high for the week. 30 year yield also gained 0.036 to 3.10. Both are on track for near term resistance at 3.009 and 3.140. The development will, at least, limit downside attempts of Dollar.

                                        Asian markets are mixed today, following US. DOW closed up 0.44% or 112.97 pts to 25527.07. However, thanks to Facebook, NASDAQ dropped -1.01% or -80.06 pts to close at 7852.18. At the time of writing, Nikkei is up 0.33% at 22661.73. Hong Kong HSI is downside -0.25%, China Shanghai SSE is down -0.16%. Singapore Strait Times is down -0.21%.

                                         

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                                        Fed Daly: Last rate cut an appropriate recalibration of policy for headwinds, not impending downturn

                                          In a Quora.com post, San Francisco Fed Mary Daly said the US is not headed towards a recessions right not. She saw “solid domestic momentum that points to a continued economic expansion:. Also, “the labor market is strong, consumer confidence is high, and consumer spending is healthy.”

                                          But “considerable headwinds”, including global slowdown and trade uncertainties, contributed to fear that a “downturn is right around the corner”. Hence, she’s closely look at whether “fear of recession becomes a self-fulfilling prophecy”.

                                          Daly added that recent rate cut was “appropriate recalibration” of policy in response to the headwinds. And, her support was “not because I see an impending downturn on the horizon.”

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