China MOFCOM: US must put away its threatening stick

    Chinese Vice Premier Liu He will visit Washington next week to resume trade negotiations with the US. Commerce ministry (MOFCOM) spokesman Gao Feng confirmed today during a regular press the officials are preparing for the visit.

    But Gao reiterated China’s stance in opposing protectionism and unilateralism in trade relations. He warned that “the United States must put away its threatening stick. China’s position has not changed and will not change.” Gao added that “we hope that China-U.S. trade relations can become a powerful driving force for sustained growth of the global economy.”

    Separately, GAO also said the bilateral trade between China and Russia expanded quickly in the first four months of 2018. Gao noted “The Russian economy is steadily turning for the better and its market demand is rising, driving China’s exports to the country up 21 percent on a yearly basis during the January to April period.” According the last data, Sino-Russian trade grew 30% yoy to USD 31.2B between January and April.

    UK PMI services finalized at 29.0, deep cuts to corporate spending a major dragging factor

      UK PMI Services was finalized at 29.0 in May, up from April’s 13.4. PMI Composite was finalized at 30.0, up from April’s record low of 13.8. Markit said new works slumped amid cutbacks to business and consumer spending. Employment remains on sharp downward trajectory. Business expectations, however, rise again from March’s record low.

      Tim Moore, Economics Director at IHS Markit: “The COVID-19 pandemic continued to have a severe impact on UK service sector activity in May, despite a boost in some areas from the gradual easing of lockdown measures. Survey respondents noted that deep cuts to corporate spending had been a major factor dragging down business activity in May, leading to a lack of work to replace completed projects.

      Full release here.

      Pound dips as UK CPI unchanged at 2.4% yoy, GBP/USD heads to 1.3203

        Sterling dips notably as UK consumer inflation data missed expectation.

        Headline CPI was unchanged at 2.4% yoy in May, below consensus of 2.5% yoy. Core CPI was also unchanged at 2.1% yoy, met expectations. RPI dropped to 3.3% yoy, down from 3.4% yoy and missed expectation of 3.4% yoy.

        PPI input was at 2.8% mom, 9.2% yoy, versus expectation f of 1.7% mom, 7.0% yoy, and prior 0.6% mom, 5.6% yoy/

        PPI output was at 0.4% mom, 2.9% yoy, versus expectation of 0.3% mom, 2.9% yoy, and prior 0.4% mom, 2.5% yoy.

        PPI output core was at 0.2% mom, 2.1% yoy, versus expectation of 0.1% mom, 2.2% yoy, and prior 0.2% mom, 2.0% yoy.

        UK House price index rose 3.9% yoy in April, below expectation of 4.4% yoy.

        Also released in European session, Eurozone industrial production dropped -0.9% mom in April versus expectation of -0.5% mom. Eurozone employment rose 0.4% in Q1 versus expectation of 0.3% qoq.

        Swiss PPI rose 0.2% mom, 3.2% yoy in May versus expectation of 0.2% mom, 3.2% yoy.

        GBP/USD’s break of 1.3341 minor support should now confirm the completion of rebound from 1.3203. Deeper fall is expected to retest 1.3203 soon.

        US PCE price index unchanged at 4% yoy in Jun, core PCE rose to 3.5% yoy

          US personal income rose 0.1%, or USD 26.1B in June, better than expectation of -0.4% contraction. Personal spending rose 1.0%, or USD 155.4B, above expectation of 0.7%.

          Headline PCE price index was unchanged at 4.0% yoy. Core PCE price index accelerated to 3.5% yoy, up from 3.4% yoy, but missed expectation of 3.7% yoy.

          Full release here.

          NZD/USD and NZD/JPY surges, RBNZ not too concerned with strong Kiwi

            New Zealand Dollar surged after RBNZ rate decision, as the central bank didn’t sound particularly concerned about recent surge in exchange rate. “The gains from higher export commodity prices have been somewhat offset by the stronger New Zealand dollar” was the only thing that mentioned.

            In the key baseline scenario variables, RBNZ raised the trade weighed index of NZD significantly from 71.5 to 74.9, throughout the forecast horizon. CPI inflation variables were raised at the same time while GDP growth variables were kept largely unchanged. The table suggests that NZD’s strength hasn’t altered RBNZ’s outlook much, and the central bank should still be comfortable with it.

            NZD/USD surges to as high as 0.7382 so far today. Outlook will stay bullish as long a s0.7280 support holds. Current up trend from 0.5469 is on track to 61.8% projection of 0.6589 to 0.7314 from 0.7156 at 07604.

            NZD/JPY also extends recent rally and hits as high as 77.81 so far. Daily MACD suggests that it’s now in re-acceleration mode. Outlook will remain bullish as long as 76.77 support holds. Up trend from 59.49 should target 161.8% projection of 63.45 to 71.66 from 68.86 at 82.14 next.

            US PMI manufacturing finalized at 57.7 in Dec, rate of cost inflation eased

              US PMI Manufacturing was finalized at 57.7 in December, down from November’s 583. Markit said output expansion was muted, as firms registered slower upturn in new orders. Rate of cost inflation remained marked despite easing to softest since June. Backlogs of work rose at slowest pace for ten months.

              Siân Jones, Senior Economist at IHS Markit said:

              “December saw another subdued increase in US manufacturing output as material shortages and supplier delays dragged on. Although some reprieve was seen as supply chains deteriorated to the smallest extent since May, the impact of substantially longer lead times for inputs thwarted firms’ ability to produce finished goods yet again.

              “Adding to the sector’s challenges was an ebb in client demand from the highs seen earlier in 2021, with new orders rising at the slowest pace for a year, largely linked to a reluctance at customers to place orders before inventories were worked through. Alongside a slight pick-up in hiring, softer demand conditions contributed to the slowest rise in backlogs of work for ten months.

              “While shortages remained significant, the end of the year brought with it some signs that cost pressures have eased. The uptick in input prices was the slowest for six months, and firms recorded softer increases in selling prices amid efforts to entice customer spending.”

              Full release here.

              Markets pricing in negative rate for Fed but policymakers reject

                Dollar was sold off notably overnight, as stays pressured in Asian session, on talks that Fed might go into negative rates next year, despite objections by some policymakers. Fed fund futures are seeing a one-in-three chance of negative rates next year. Eurodollar options also cover rate at as low as -45bps by mid-2021. At the same time, two-year yield dropped to a record low below 0.14%.

                Richmond Fed President Thomas Barkin told CNBC, “I think negative interest rates have been tried in other places and I haven’t seen anything personally that makes me think they are worth a try here.” He also said the US is probably right at the trough down the economic down turn already.

                Philadelphia Fed President Patrick Harker said there would be a “high bar” for using negative interest rates as stimulus to the economic. Though, he also warned of re-opening the economy too quickly and “see a significant second wave of the virus”. There would be a “painful economic contraction of GDP in 2021 as shutdowns are reintroduced.”

                New Zealand goods export rose 22% yoy in Feb, imports rose 37% yoy

                  New Zealand goods exports rose 22% yoy to NZD 5.5B in February. Goods imports rose 37% yoy to NZD 5.9B. Trade deficit came in at NZD -385m, smaller than expectation of NZD -808m.

                  Exports to all top destinations increased, including China (up NZD 80m or 5.4%), Australia (up NZD 119m or 22.0%), US (up NZD 37m or 7.4%), EU (up NZD 62m or 25%), and Japan (up NZD 71m or 34%).

                  Imports from all top partners also rose, including China (up NZD 490m or 45%), EUR (up NZD 209m or 32%), Australia (up NZD 137m or 26%), US (up NZD 105m or 29%), and Japan (up NZD 167m or 60%).

                  Full release here.

                  Canada employment rose 94.1k, unemployment rate dropped to lowest since 1976

                    Canada employment market surged strongly by 94.1k in November, well above expectation of 10.0k. Unemployment rate dropped to 5.6%, down from 5.8%. That’s also the lowest level since 1976.

                    Full release here.

                    Canadian Dollar surges sharply after the release. In particular, against Dollar which is pressured by NFP miss.

                    AUD/NZD extending rally, AUD/CAD to follow

                      Aussie is outperforming other commodity currencies in the past two weeks. AUD/NZD’s rally extends today to as high as 1.0825 so far. The break of 1.0795 resistance confirms resumption of whole rise from 1.0278. Near term outlook will stay bullish as long as 1.0752 support holds, next target is 61.8% projection of 1.0314 to 1.0795 from 1.0613 at 1.0910.

                      More importantly, the strong support from 55 week EMA suggests some underlying medium term bullishness. The break of channel resistance from 1.1042 also argues that the correction from there has completed with three waves down to 1.0278. Rise from 0.9992 (2020 low) is likely resuming through 1.1042 towards 1.1289 long term resistance.

                      Meanwhile, AUD/CAD is still capped below 0.9460 short term top for now. But the strong support from 55 day EMA gives upside breakout a favor. Break of 0.9460 will resume the rebound from 0.8960 to 61.8% retracement of 0.9991 to 0.8906 at 0.9577. Sustained break there will further affirm the case that correction from 0.9991 has completed at 0.8906. Also, in this case, the larger rise from 0.8058 (2020 low) should be ready to resume through 0.9991 at a later stage.

                      ECB Schnabel: Predominant problem is weak demand, not capacity bottlenecks

                        ECB Executive Board member Isabel Schnabel said in an interview that “inflation is not dead. Compared to the long course of economic history, there are only a relatively few years in which inflation was as low as it is now”. In particular, the decline in energy prices was a ” major reason why inflation fell sharply in 2020″. Temporary sales tax reductions also has a “dampening effect”, especially in Germany.

                        For now,  there are no signs that one should worry about inflation being too high”. She added. “We are experiencing a pronounced weakness in demand. It is to be feared that the crisis will have longer-term effects on the labor market.

                        “Overall, the predominant problem is that economic demand is too weak, not that there are capacity bottlenecks, which is why prices are likely to rise too slowly,” she said.

                        Full interview here.

                        Australia exports rose to record high in Apr, on metalliferous ores

                          According preliminary estimates, Australia export of goods rose AUD 13m (0% mom) to AUD 35.95B in April, hitting a record high. Import of goods dropped AUD -1.9B, (-7% mom) to AUD 25.81B. Trade surplus widened to AUD 10.14B, up from March’s AUD 8.23B, the third highest on record.

                          ABS said, “following strong exports in March 2021, metalliferous ores increased another 1 per cent in April 2021 to record a historic high of $16.5 billion, driving record high exports”. The increase in coal exports was driven by thermal coal, up $203 million, with an increase of $116 million to India. Australian coal exports to India have been steadily rising since mid-2020, following a substantial reduction in Chinese demand for Australian coal.

                          Full release here.

                          Canadian Dollar soars as CPI hit 3%

                            Canadian consumer inflation data comes in much stronger than expected. And the Loonie soars.

                            Headline CPI rose 0.5% mom, 3.0% yoy versus expectation of -0.1% mom, 2.4% yoy. It’s also much stronger than June’s reading of 0.1% mom, 2.5% yoy.

                            CPI core Common was unchanged at 1.9% yoy. CPI core Median was unchanged at 2.0% yoy. CPI core Trim rose to 2.1% yoy, up from 2.0% yoy.

                            “While continued strength in energy prices contributed most to the year-over-year increase, higher prices for various services, including air transportation and travel tours, also contributed to consumer price growth in July,” Statistics Canada said.

                            Full release here.

                            Also from Canada, international securities transactions rose to CAD 11.5B in June versus expectation of CAD 4.9B.

                            So now, is an Oct BoC hike a done deal?

                            US oil inventories rose 0.1m barrels, WTI extending rebound

                              US commercial crude oil inventories rose 0.1m barrels in the week ending April 23. At 493.1m barrels, oil inventories are at the five year average for this time of year. Gasoline inventories rose 0.1m barrels. Distillate dropped -3.3m barrels. Propane/propylene rose 0.5m barrels. Total commercial petroleum inventories dropped -1.6m barrels.

                              WTI rebounded strongly after hitting 60.62 earlier this week. Today’s breach of 64.34 suggests that choppy rebound form 57.31 is resuming. But after all, the structure still suggests that it’s the second leg of the corrective pattern from 67.83. Hence, while strong rise might be seen, up side should be limited by 67.83 high. Meanwhile, break of 60.62 will extend the corrective pattern with another falling leg, towards 57.31 support.

                              Canadian Dollar jump as GDP grew 0.3% in Jan, well above expectation

                                Canadian Dollar jumps after stronger than expected GDP report. Real GDP grew 0.3% mom in January, well above expectation of 0.1% mom. It’s also strong enough to offset contraction in both December and November. On three month rolling average basis, real GDP edged up 0.1%, unchanged from the three-month rolling average in December. Manufacturing and construction contributed most to January’s GDP growth. Ning and oil and gas extraction contracted.

                                Full GDP release here.

                                Also from Canada, IPPI rose 0.3% mom in February while RMPI rose 4.6% mom.

                                BoE Vlieghe: In principle, economy should return approximately to the pre-virus trajectory afterwards

                                  BoE MPC member Gertjan Vlieghe said in a speech that “based on the early indicators, and based on the experience in other countries that were hit (by the coronavirus pandemic) somewhat earlier than the UK, it seems that we are experiencing an economic contraction that is faster and deeper than anything we have seen in the past century, or possibly several centuries.”

                                  “The economy’s potential is severely disrupted at the moment,” he added, “but once the pandemic is over, and other things equal, in principle it should return approximately to the pre-virus trajectory.”  “The current priority for monetary policy, with a lot of help from fiscal policy, is to return the economy to that pre-virus trajectory as soon as possible.”

                                  “The MPC stands ready to take further action to support the economy consistent with its remit,” Vlieghe noted.

                                  Full speech here.

                                  German ZEW dropped to lowest since 2012, anticipated negative effects on foreign trade weighs

                                    German ZEW Economic Sentiment dropped -8.6pts to -24.7 in July, missed expectation of -18.2. It’s also the lowest reading since August 2012 and well below the long term average of 23.2. Also, since the beginning of 2018, the index has dropped by a considerable -45.1 pts. Current Situation index dropped -8.2pts to 72.4, also missed expectation of 78.0.

                                    ZEW President Professor Achim Wambach said in the release that “the current survey period has been marked by great political uncertainty. In particular, fears over an escalation of the international trade war with the United States have dampened the economic outlook. The positive news regarding industrial production, incoming orders and the labour market have been greatly overshadowed by the anticipated negative effects on foreign trade”.

                                    Eurozone Economic Sentiment dropped -6.1pts to -18.7, well below expectation of -5.1. Current Situation index dropped -3.7pts to 36.2. ZEW also noted that as a result, the economic outlook for the Eurozone over the coming six months has worsened considerably. In accordance with the weaker economic outlook for both Germany and the Eurozone, inflation expectations also saw a noticeable drop compared to the previous month.

                                    ECB Kazimir: The new policy objective is clear and simple

                                      In a series of tweets, ECB Governing Council member Peter Kazimir said that the new inflation target of the strategic review was an “evolution that was necessary, we were looking for”. He added, “the redesign will enhance our abilities to guard & deliver on the primary objective – to maintain price stability in the euro area.”

                                      “Low inflation has become entrenched over the past few years and our revamped strategy says that we will not allow this to happen in the future,” he said. “To achieve that also means, that inflation may sometimes moderately and temporarily be above 2 percent.”

                                      “The policy objective is clear and simple. This clarity will strengthen our toolbox and enhance anchoring of inflation expectations as desired.

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                                      ECB Villeroy: No need to choose between fighting inflation and avoiding recession

                                        ECB Governing Council member Francois Villeroy de Galhau said the improved economic situation in Eurozone makes it easy to fight inflation with monetary policy.

                                        “I don’t think we have to choose between fighting inflation and avoiding a recession,” he added.

                                        Also, he believed that Eurozone was not very far from the peak of inflation.

                                        Eurozone growth projected to bottom lower in 2019, but rebound still expected in 2020

                                          In the latest Spring Economic Forecasts, European Commission downgrade 2019 Eurozone GDP growth projections slightly by -0.1%. Though, it would be the seventh year of growth in a row. And despite continuing global uncertainties, domestic dynamics are expected to support the European economy. More importantly, the Commission expects growth to bottom in 2019 and pick up again in 2020.

                                          Eurozone projections (Winter forecasts):

                                          • 2019 GDP at 1.2% (downgraded from Winter forecast at 1.3%)
                                          • 2020 GDP at 1.5% (downgraded from 1.6%)
                                          • 2019 HICP at 1.4% (unchanged)
                                          • 2020 HICP at 1.4% (downgraded from 1.5%)

                                          Germany projections

                                          • 2019 GDP at 0.5% (downgrade from 1.1%)
                                          • 2020 GDP at 1.5% (downgraded from 1.7%)

                                          France projections

                                          • 2019 GDP at 1.3% (unchanged)
                                          • 2020 GDP at 1.5% (unchanged)

                                          Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, said: “The European economy is showing resilience in the face of a less favourable external environment, including trade tensions. Growth is set to continue in all EU Member States and pick up next year, supported by robust domestic demand, steady employment gains and low financing costs. Yet risks to the outlook remain pronounced. On the external side, these include further escalation of trade conflicts and weakness in emerging markets, in particular China. In Europe, we should stay alert to a possible ‘no-deal Brexit’, political uncertainty and a possible return of the sovereign-bank loop.”

                                          Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said:“The European economy will continue to grow in 2019 and 2020. Growth remains positive in all our Member States and we continue to see good news on the jobs front, including rising wages. This means that the European economy is holding up in the face of less favourable global circumstances and persistent uncertainty. Nonetheless, we should stand ready to provide more support to the economy if needed, together with further growth-enhancing reforms. Above all, we must avoid a lapse into protectionism, which would only exacerbate the existing social and economic tensions in our societies.”

                                          Full release here.