Eurozone retail sales dropped -0.6% mom in July, matched expectations. EU28 retail sales dropped -0.5% mom. Over the year, Eurozone retail sales rose 2.2%, EU28 retail sales rose 2.6%. Comparing monthly, among Member States for which data are available, the largest decreases in the total retail trade volume were registered in Croatia (-3.3%), Germany (-2.2%) and Belgium (-1.4%). The highest increases were observed in Ireland (1.9%), Slovenia (1.2%), Bulgaria and Malta (both 1.0%).
Ahead of BoJ’s June 19-20 monetary policy meeting, Governor Haruhiko Kuroda warned the parliament of risks from US-China trade war and China’s economy. And he pledged that the issues will “certainly” be debated.
Kuroda said, “as for recent overseas economic developments, there are strong downside risks regarding the Sino-U.S. trade friction and China’s economy.” And, “we’ll certainly debate such overseas developments” at the upcoming meeting.
He also reiterated that “BOJ will guide monetary policy appropriately taking into account the impact overseas economic changes could have on Japan’s economic outlook and the momentum for achieving our inflation target”.
Michael Pillsbury, a leading adviser to Trump on China issues, told Fox that Trump is “essentially giving the Chinese one last chance next week, and then perhaps … a short extension”, referring to the next round of trade negotiation in Washington this week. He pointed out, “notice how the president always refers to the tariffs as bringing in revenue, billions of dollars of revenue to us,” and “so he is not somebody who’s anti-tariff.”
Pillsbury also said “this coming week’s going to be awfully important, when the Chinese come here at the working level.” And, “We’re going to try to find out, I think, what will be in this memorandum of understanding,” he said, “whether it will “have enforcement and time limits and … be tough” or just “be a cosmetic agreement.”
Trump on the weekend tweeted “Important meetings and calls on China Trade Deal, and more, today with my staff. Big progress being made on soooo many different fronts! Our Country has such fantastic potential for future growth and greatness on an even higher level!”
Important meetings and calls on China Trade Deal, and more, today with my staff. Big progress being made on soooo many different fronts! Our Country has such fantastic potential for future growth and greatness on an even higher level!
— Donald J. Trump (@realDonaldTrump) February 17, 2019
Chinese delegation with travel to the US this week to work towards a memorandum of understanding, which should form the framework of a trade agreement, to be finalized through a Trump-Xi summit.
European Commission formally announced retaliation to US steel and aluminum tariffs today. The total EU exports to the US affected by the US measures is at EUR 6.4B. For now, EU will target US products in EUR 2.8B worth first, effective on Friday June 22. Duties on the remaining EUR 3.6B in US goods will take place at a later stage, “in three years’ time or after a positive finding in WTO dispute settlements.
Commissioner for Trade Cecilia Malmström said: “We did not want to be in this position. However, the unilateral and unjustified decision of the US to impose steel and aluminium tariffs on the EU means that we are left with no other choice. The rules of international trade, which we have developed over the years hand in hand with our American partners, cannot be violated without a reaction from our side. Our response is measured, proportionate and fully in line with WTO rules. Needless to say, if the US removes its tariffs, our measures will also be removed.”
Former BoJ Governor Masaaki Shirakawa said in a summit in Shanghai that there is a “Japanification” of monetary and fiscal policy in the world. And, “policy makers and mainstream academics are still obsessed with a specter of deflation.”
He added that the goal of monetary and fiscal stimulus should only be to “bring future demand to the present”. But, “the capacity to front-load will be restrained by the country’s potential growth rate, which will be kept low as perpetual low interest rates keep inefficient firms alive.”
Boston Fed President Eric Rosengren said yesterday that “the appropriate path of policy is to stay where we are.” He added, “with the recent positive economic news, and with monetary and fiscal policy already accommodative, I see no need to make the current stance of monetary policy more accommodative in the near term.” It’s appropriate to “take a patient approach to considering any policy changes, unless there is a material change in the outlook.””Hopefully this is going to be a boring year for monetary policy”. He had penciled in no change in interest rate through 2020.
On the economy, he said ” it is unlikely we will have an economic downturn in the coming year, given the generally positive financial conditions and the continued accommodative monetary and fiscal policies… Plentiful jobs and growth in income have provided improvements in confidence and bode well for holiday sales and beyond… Fortunately for the economy, many consumers seem to be in a buying mood.”
Separately, Dallas Fed President Robert Kaplan told Bloomberg that “we’re going to have weak manufacturing next year, sluggish global growth, pretty sluggish business investment, but with a strong consumer”. Still, “there would have to be some material change from that outlook” for him to back a rate change.
Germany PMI manufacturing dropped to 58.1, down from 58.2 and beat expectation of 57.5. GErmany PMI services rose to 54.1, up from 53.9 and beat expectation of 53.7. PMI compositive rose to 55.3, up from 55.1.
Comments from Phil Smith, Principal Economist at IHS Markit:
“Growth of Germany’s private sector steadied in April, to arrest the loss of momentum seen in February and March. With both manufacturing and services seeing slightly quicker increases in output, the data show the economy making a solid start to the second quarter.
“There was also a welcome pick-up in the rate of private sector job creation in April. Employment levels rose strongly on a broad-based basis by sector, albeit with the rate of hiring among manufacturers easing from the recent elevated levels.
“However, a further slowdown in new order growth to its weakest for over a year-and-a-half does raise some concerns. This seemed to be reflected in the survey’s measure of business confidence, which slipped further from the highs seen in 2017.”
Fresh selling is seen in GBP as it breaks Friday’s low against all but AUD and NZD.
EUR/GBP led the way higher earlier as rebound from 0.8620 resumed. 6H action bias turned upside blue earlier after stabilizing above 0.8790 resistance. H action bias is a bit slower in response to today’s rise. H action bias turning upside blue later in European session will affirm affirm underlying momentum.
GBP/USD 6H action bias remains all the way downside red, together with downside red D action bias. Clearly, the near term decline is in healthy state to 1.3711 support.
According to a poll by Nippon TV, support for Japan Prime Minister Shinzo Abe dropped to 26.7%, hitting the lowest point after taking office back in December 2012. Another survey by Kydo news agency also showed Abe’s supported from -5.4 points to 37%. Another poll by Asahi also showed Abe’s support at only 31%.
Recent suspected scandals have clearly hurt Abe’s popularity and raised doubts on whether can win a third term as PM as LDP leader in the September vote.
Former Prime Minister Junichiro Koizumi questioned whether Abe may “resign around the time parliament’s session ends (on June 20)?”, as quoted in weekly magazine Aera. Koizumi also said that “situation is getting dangerous”.
Swiss CPI rose 0.2% mom 0.7% yoy in April, matched expectations. Core CPI rose 0.3% mom, 0.5% yoy. The 0.2% mom increase in headline CPI compared with the previous month can be explained by several factors including rising prices for fuel and for air transport. In contrast, prices for hotel accommodation, glasses and contact lenses decreased.
Swiss SECO consumer confidence dropped to -6 in April, down from -4 and missed expectation of -3. SECO noted that: “Swiss consumer sentiment has worsened slightly. The index now comes in only just above average. The labour market has still been assessed positively. However, the likelihood of consumers making major purchases remains low.
St. Louis Fed President James Bullard, a known dove, told CNBC that “we should get lower here,” on interest rates. He added “The yield curve is inverted. We’ve got one of the higher rates on the whole yield curve. That is not a good place to be”.
Bullard also asked “How much risk are we facing from the fact that we’ve got a global manufacturing contraction going on and possibly more to come?”. And, “I’d like to take out more insurance against that downside risk.”
Cleveland Fed President Loretta Mester said she’s approach next month’s FOMC meeting with an open mind. She added if the economy continues where it is, I would probably say we should keep things the way they are.” Though, she is “very attuned to the downside risks to this economy and I want to make sure we’re always focused on our dual-mandate goals.”
Kiel Institute revised down 2019 Germany growth forecast to 0.4%, down from 0.6%. It noted that the economy is “facing one of the weakest years since the financial crisis” and “such weak figures were last seen in 2013”. GDP is expected to contract by -0.3% in Q3, following -0.1% in Q2. Though, growth is expected to pick up to 1.0% in 2020, and then 1.4% in 2021.
Referring to two consecutive quarters of contraction, “Germany thus formally meets the definition of a ‘technical recession’, but this is not yet associated with a macroeconomic underutilization of capacities. Only in such a case could we speak of a recession in the sense of a cyclical phenomenon,” said Stefan Kooths, Head of the Forecasting Centre at the Kiel Institute for the World Economy.
Kiel said the economic outlook has been adversely affected above all by the political uncertainty caused by trade conflicts and the Brexit crisis, with investment and exports coming under particular pressure. Kiel Institute President Gabriel Felbermayr criticized that “the real problem with Donald Trump’s trade disputes is not the tariffs themselves, but the great uncertainty about what is to come. Uncertainty is poison for investment decisions.”
Reuters reported, citing three unnamed sources, that Trump is considering to sign an executive order as early as in January to indirectly limit US companies purchases of equipment from China’s tech giants Huawei and ZTE. The executive order could invoke the so called International Emergency Economic Powers Act that gives the president authority to regulate companies on national securities ground. It’s believed that, though, Huawei or ZTE wouldn’t be directly named.
China’s Foreign Ministry spokesperson Hua Chunying declined to comment on the order. But she said “it’s best to let facts speak for themselves when it comes to security problems.” She added, “some countries have, without any evidence, and making use of national security, tacitly assumed crimes to politicize, and even obstruct and restrict, normal technology exchange activities.” And, “this in reality is undoubtedly shutting oneself off, rather than being the door to openness, progress and fairness.”
Entering into US session, Sterling remains the overwhelmingly strongest one. It started as a rumor earlier today. But it’s now widely reported that UK Prime Minister Theresa May is proposing to formally rule out a no-deal Brexit. There are many versions and one option is to have a vote on no-deal or Brexit delay for March 12 in the parliament, if the withdrawal agreement is voted down. May is due to speak soon and we’ll quickly finally within an hour.
Technically, GBP/USD broken 1.3173/3217 key resistance zone. A head and should bottom would be formed if GBP/USD can sustain above this zone. EUR/GBP also broke key support level at 0.8617/20, resuming medium term decline.
For now, Yen follows as the second strongest as global stock markets lose ground. Commodity currencies are all under pressure. Canadian Dollar is getting little help from oil prices, which is recovering from yesterday’s low. Dollar is mixed awaiting Fed chair Jerome Powell’s testimony.
In Europe, currently:
- FTSE is down -1.02%.
- DAX is down -0.29%.
- CAC is down -0.27%.
- German 10-year yield is up 0.0055 at 0.119.
Earlier in Asia:
- Nikkei dropped -0.37%.
- Hong Kong HSI dropped -0.65%.
- China Shanghai SSE dropped -0.67%.
- Singapore Strait Times dropped -0.33%.
- Japan 10-year JGB yield rose 0.0089 to -0.027.
Sterling surged overnight on news that UK and EU are closing in on a Brexit deal in Brussels. The Pound remains firm in Asian session, awaiting further developments. It’s reported that both sides have hammered out most of the differences over the past 48 hours. UK Prime Minister Boris Johnson is said to have made several major concessions. Most notably, he now accepts that there will be customs checks between Northern Ireland and the rest of UK.
Johnson’s move got support from fellow Conservatives. Steve Baker, chairman of the pro-Brexit European Research Group, said “I’m happy to say it was a very constructive conversation” and “I’m optimistic it is possible to reach a tolerable deal which I will be able to vote for.” Irish Prime Minister Leo Varadkar also gave a nod and said “the negotiations are moving in the right direction.”
However, Northern Ireland’s DUP sounds very skeptical on it. Party leader Arlene Foster said “it would be fair to indicate gaps remain and further work is required.” Also, DUP needs “a deal that respects Northern Ireland’s constitutional position as per the Belfast Agreement within the U.K. and indeed respects the economic integrity of the U.K. single market.” Johnson will certainly need support from DUP before giving greenlight to such a deal.
German Chancellor Angela Merkel said today in Lisbon that European Union will give a “smart, determined and jointly agreed” response to the US is Trump decides to impose steel and aluminum tariffs on them.
She noted “we don’t know the decision yet but if tariffs were to be imposed, then we have a clear stance within the European Union.” And she added “we are convinced that these tariffs are not in line with WTO rules.”
The temporary exemption of US steel and aluminum tariffs will expire tomorrow. It’s widely reported that US will decide to start imposing tariffs on Mexico, Canada and the EU. And the decision would be announced today.
China’s PBoC Governor Yi Gang said that the authority will ensure gradual, steady efforts to financial sector reforms.
He acknowledged that “our financial sector still has a lot room to open up relative to the requirements of economic and financial development.” And, “the three reforms — opening up the financial sector to internal and external firms, exchange rate mechanism, and capital account convertibility — have to be coordinated and pushed ahead together.”
Regarding Yuan internationalization, he said that requires “steady progress on capital account convertibility. And, “if many capital account items are restricted, then the financial sector opening is only in name instead of in reality. He added that “only when our capital account is basically convertible and that our financial sector opens up in both ways, will our currency mechanism and the entire financial sector achieve a coordinated development.”
At a news briefing regarding G20 summit, Chinese Vice Commerce Minister Wang Shouwen said talks are underway between China and US teams regarding trade negotiations. He gave no details on the highly anticipated meeting between Xi and Trump ahead. Though, he reiterated China’s stance on mutual respect and urged US to make concessions for compromises.
Wang said, “mutual respect means each side must respect the other’s sovereignty”, apparently referring US demand for China to implement the trade agreement with domestic laws. Wang also said “equality and mutual benefit means the consultations have to happen on an equal basis, the agreement to be reached has to be beneficial for both sides… Meeting each other half way means both sides have to compromise and make concessions, not just one side.”
Wang also noted Xi has asked Trump to treat Chinese companies fairly during last week’s telephone conversation. He added “we hope that the U.S. can remove certain unilateral measures inappropriately taken against Chinese companies, in the spirit of free trade and the World Trade Organization.”
US Trade Representative office affirmed that the administration is carrying on with the plan to impose new tariffs on China. In Federal Register notice, it’s noted that 15% tariffs will take effect on part of the USD 300B in Chinese goods, starting September 1.
The second batch of products include cell phones and laptop computers. 15% tariffs on this second batch will take effect of December 15.
US Treasury Steven Mnuchin calls the report about Trump wants to exit WTO “fake news” and an “exaggeration.”
Mnuchin added that “the president has been clear, with us and with others, he has concerns about the WTO, he thinks there’s aspects of it that are not fair, he thinks that China and others have used it to their own advantage, but we are focused on free trade. That’s what we’re focused on – breaking down barriers.”
Earlier today, Axios reported, quoting unnamed source” that Trump also said “I don’t know why we’re in it. The WTO is designed by the rest of the world to screw the United States.” The reported added that “sources with knowledge of the situation say the Trump administration will continue to call attention to various ways in which the U.S. encounters what some Trump advisers perceive is unfair and unbalanced treatment within framework of the WTO.”