Thu, Aug 22, 2019 @ 09:29 GMT

Eurozone PMI manufacturing finalized at 51.4, manufacturing boom faded away to near stagnation

    Eurozone PMI manufacturing was finalized at 51.4 in December, unrevised. It’s down from November’s 51.8 and hit the lowest since February 2016. Markit also noted that “fall in new work signalled for third month running” and “confidence about the future hits fresh six-year low”. Among the countries, Germany hit 33-month low at 51.5. Spain hit 28-month low at 51.5. France hit 27-month low at 49.7, in contraction. Italy, despite recovering to 2-month high at 49.2, remained in contraction.

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

    “A disappointing December rounds off a year in which a manufacturing boom faded away to near stagnation.

    “The weakness of the recent survey data in fact raises the possibility that the goods producing sector could even act as a drag on the overall economy in the fourth quarter, representing a marked contrast to the growth surge seen this time last year. The last three months of 2018 saw manufacturers report the worst quarterly performance in terms of production since the second quarter of 2013.

    “Worryingly, current production levels were achieved only by firms eating into backlogs of orders received in prior months and a dearth of new orders means capacity will be cut back in coming months unless demand revives. December saw a third consecutive monthly drop in new orders.

    “More encouragingly, some of the recent weakness could prove temporary, being the result of protests in France and the auto sector struggling to adjust to new emissions regulations. However, the undercurrent of weak demand and growing risk aversion evident across the surveys suggests that any rebound could prove modest at best, with Brexit representing a particularly worrying unknown for the outlook.”

    Full release here.

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    Kashkari: Fed should use forward guidance now to avoid recession

      In an op-ed article published in the Financial Times, Minneapolis Fed President Neel Kashkari said Fed should use forward guidance now to stimulate the economy. He explained that “forward guidance can also provide stimulus by signalling that overnight rates will be low in the future.” That is, Fed can “influence long-term rates by giving guidance about the future path of their short-term equivalents. The firmer the Fed’s commitment, the more influence it can have.”

      Kashkari added that “forward guidance should be used now, before the federal funds rate returns to zero.” He argued that “if a central bank cuts rates to zero in response to a downturn and then announces that it plans to keep rates low, that can actually be perceived as a sign of weakness rather than strength.” Instead, “it would be better to deploy guidance now in an effort to avoid hitting zero.

      Regarding the guidance, he said “at a minimum, we should commit to not raising rates again until core inflation returns to our 2 per cent target on a sustained basis.”

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      CAD extends broad based rally, GBP/CAD targets 0.6594, AUD/CAD targets 0.9201

        Canadian Dollar displays broad based strength today, as the post job data rally extends. Recent economic data from Canada suggesting that underlying backdrop is improving. GDP growth will likely regain momentum ahead to make up the short falls in the Q1. For now, BoC looks the least likely among global central banks to ease monetary policy. Indeed, should global trade tensions improve, BoC could be ready for policy normalization again.

        Technically, GBP/CAD’s break of 1.6093 support and today’s steep decline suggests resumption of fall from 1.7794. More importantly, the structure of the decline from 1.7794 affirms that it’s resuming that one from 1.8415 high too. A retest of 1.6594 low should be seen pretty soon. Break will target 100% projection of 1.8415 to 1.6594 from 1.7794 at 1.5973 in medium term. This will remain the favored case as long as 1.7135 near term resistance holds.

        AUD/CAD’s steep decline last week also suggests rejection by falling 55 day EMA, which is a bearish signal for near term. Further fall should be seen to 0.9201 support next and break will target 0.9105 low.

        Prior rejection by 55 week EMA also suggests medium term bearishness. However, over price actions don’t display clear downside impulsiveness. And AUD/CAD is relatively closely long term fibonacci level of 50% retracement from 0.7149 to 1.0784 at 0.8967. Hence, while a break of 0.9105 might be seen in medium term, 0.9 handle could contain downside.

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        Mnuchin: Trade war with China on hold

          Commenting on the US-China joint statement on trade, Treasury Secretary Steven Mnuchin said “we are putting the trade war on hold.” And he added, “we have agreed to put the tariffs on hold while we try to execute the framework”, referring to the agreement.

          Trump’s top economic adviser Larry Kudlow said they made “a lot of progress”, even surpassed their own expectation after the Beijing meeting. But it’s not at the stage of taking the threat of tariffs on USD 150B of products yet. And, it’s “too soon to lock that (USD 200B reduction in trade deficit) in” yet. Though he emphasized that “the direction here is the key”.

          Kudlow also added that Commerce Secretary Wilbur Ross will go to China and “looking into a number of areas where we’re going to have greatly significant increases,” including energy, liquefied natural gas, agriculture and manufacturing”.

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          Into US session: Yen is shallow retreat as sentiments stablized

            Entering into US session, market sentiments are generally stabilized today. While Asian stocks ended lower, major European indices are trading higher while DOW futures point to mild recovery. China confirmed that they’re still in negotiation with the US on trade. Trump also said again that a deal is close. Investors are temporarily holding their nerve, awaiting new developments. Nevertheless, further decline in German 10-year yield today is a sign of cautiousness. Gold is also holding firm at around 1300.

            Reactions to economic data are rather muted today. UK unemployment dropped to fresh 44-year low of 3.8% in March. Eurozone industrial production contracted -0.3% in March. German ZEW economic sentiment deteriorated to -2.1 in May. But these data triggered little movements in the markets. Euro is relatively firm while Sterling is weak.

            In the currency markets, currently, Yen is the softest one for today, followed by Sterling and the Swiss Franc. Though, the retreat in Yen is rather shallow today and more upside is in favor. Rally could resume very soon. New Zealand Dollar is the strongest one, followed by Canadian and then Dollar.

            In Europe, currently:

            • FTSE is up 0.97%.
            • DAX is up 0.54%.
            • CAC is up 1.17%.
            • German 10-year yield is down -0.0079 at -0.075.

            Earlier in Asia:

            • Nikkei dropped -0.59%.
            • Hong Kong HSI dropped -1.50%.
            • China Shanghai SSE dropped -0.69%.
            • Singapore Strait Times dropped -0.33%.
            • Japan 10-year JGB yield dropped -0.0061 to -0.052.
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            US initial jobless claims dropped -9k to 221k, Philly Fed manufacturing outlook rose to 13.7

              US initial jobless claims dropped -9k to 221k in the week ending March 16, better than expectation of 226k. Four-week moving average of initial claims rose 1k to 225k. Continuing claims dropped -17k to 1.75M in the week ending March 9. Fours week moving average of continuing claims rose 6k to 1.773M.

              Philadelphia Manufacturing Business Outlook jumped to 13.7 in March, up from -4.1 and beat expectation of 5. Prior month’s figure was the first negative reading in almost three news. For this month, new orders rose modestly from -2.4 to 1.9. Shipments index jumped 25 pts to 20.0.

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              BoJ Wakatabe: Maintaining currency policy could heighten inflation expectations

                BoJ Deputy Governor Masazumi Wakatabe urged patience in maintaining ultra loose monetary policy. He repeated that “inflation has yet to reach our 2 percent target” even though price growth is on an “upward trend”. And by “patiently maintaining our current policy”, BoJ could “heighten inflation expectations”.

                Waktatabe is not concerned with falling behind the curve as “even if for some reason inflation accelerates rapidly, we have the tools to deal with it.”

                Though, he noted that “the merits and demerits of the BOJ’s monetary policy change over time.” And he added that BoJ needs to be “mindful of the danger, or risk, a prolonged low-interest rate environment would weigh on bank profits and that such impact could accumulate.”

                Separately, the Japan Cabinet Office maintained the assessment that the economy is “recovering at a moderate pace”.

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                CAD dives on BoC Business Outlook Survey, global trade headwinds affecting firms’ operations

                  Canadian Dollar tumbles notably after poor results of BoC’s Business Outlook Survey. Business Outlook Survey indicator dropped from 2.31 in Q4 to -0.64 in Q1. It suggested “a softening in business sentiment.”Also, responses to several BOS survey questions moved below their historical averages.

                  BoC also warned that global trade headwinds and geopolitical tensions are affecting firms’ operations.

                  • Several respondents cited negative impacts on their outlooks from US policy changes and related uncertainty.
                  • Some firms reported impediments to their export sales resulting from US protectionism.
                  • Other respondents reported that US tax cuts and regulatory differences reduce their competitiveness vis-à-vis US firms.
                  • Several firms noted cost increases due either directly or indirectly to tariffs, notably those on steel and aluminum as well as those associated with Canadian countermeasures.
                  • Some firms noted that the US–China trade dispute weighs indirectly on their business.

                  Overall, respondents citing negative impacts generally have weaker foreign sales expectations, investment intentions and hiring plans than unaffected businesses.

                  Full report here.

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                  Trump proposes to triple down tariffs against China to USD 150b

                    US President Donald Trump is now intending to triple down on his trade actions against China. He has just ordered the Trade Representative to consider tariffs on additional USD 100b in Chinese imports, in addition to the USD 50b list of 1300 product lines. In his own statement, Trump condemned China’s retaliation as “unfair” to “harm our farmers and manufacturers”. He also ordered the Secretary of Agriculture to “implement a plan to protect our farmers and agricultural interests”. USTR Robert Lighthizer supported Trump’s proposal and said it’s an “appropriate response” to China’s recent threat of new tariffs.

                    Below are the statements from Trump and Lighthizer:

                    Statement from President Donald J. Trump on Additional Proposed Section 301 Remedies

                    Following a thorough investigation under section 301 of the Trade Act of 1974, the United States Trade Representative (USTR) determined that China has repeatedly engaged in practices to unfairly obtain America’s intellectual property. The practices detailed in the USTR’s investigation have caused concern around the world. China’s illicit trade practices − ignored for years by Washington − have destroyed thousands of American factories and millions of American jobs. On April 3, 2018, the USTR announced approximately $50 billion in proposed tariffs on imports from China as an initial means to obtain the elimination of policies and practices identified in the investigation.

                    Rather than remedy its misconduct, China has chosen to harm our farmers and manufacturers. In light of China’s unfair retaliation, I have instructed the USTR to consider whether $100 billion of additional tariffs would be appropriate under section 301 and, if so, to identify the products upon which to impose such tariffs. I have also instructed the Secretary of Agriculture, with the support of other members of my Cabinet, to use his broad authority to implement a plan to protect our farmers and agricultural interests.

                    Notwithstanding these actions, the United States is still prepared to have discussions in further support of our commitment to achieving free, fair, and reciprocal trade and to protect the technology and intellectual property of American companies and American people. Trade barriers must be taken down to enhance economic growth in America and around the world. I am committed to enabling American companies and workers to compete on a level playing field around the world, and I will never allow unfair trade practices to undermine American interests.

                    USTR Robert Lighthizer Statement on the President’s Additional Section 301 Action

                    “President Trump is proposing an appropriate response to China’s recent threat of new tariffs. After a detailed investigation, USTR found overwhelming evidence that China’s unreasonable actions are harming the U.S. economy. In the light of such evidence, the appropriate response from China should be to change its behavior, as China’s government has pledged to do many times. Economies around the world – including China’s own – would benefit if China would implement policies that truly reward hard work and innovation, rather than continuing its policies that distort the vital high-tech sector.

                    “Unfortunately, China has chosen to respond thus far with threats to impose unjustified tariffs on billions of dollars in U.S. exports, including our agricultural products. Such measures would undoubtedly cause further harm to American workers, farmers, and businesses. Under these circumstances, the President is right to ask for additional appropriate action to obtain the elimination of the unfair acts, policies, and practices identified in USTR’s report.”

                    Any additional tariffs proposed will be subject to a similar public comment process as the proposed tariffs announced on April 3, 2018. No tariffs will go into effect until the respective process is complete.

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                    Fed chair Powell’s testimony, live stream

                      Introductory statement.

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                      An update on GBP/CHF short

                        Based on the position trading strategy noted in the weekly report, we’ve sold GBP/CHF on break of 1.2971 this week.

                        Overall outlook is unchanged with the cross staying well below falling 55 day EMA. It’s also held well inside medium term falling channel from 1.3854. This decline fall from 1.3854 is expected extend to 61.8% projection of 1.3854 to 1.3049 from 1.3265 at 1.2768 as first target.

                        There is prospect of further decline to 100% projection at 1.2460 before bottoming. But we’ll monitor downside momentum in the current fall to gauge the chance.

                        Stop will be put slightly above today’s high at 1.3040.

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                        UK Lidington still hope to leave EU asap in orderly fashion

                          UK Cabinet Minister David Lidington told BBC radio the default for the government is still to leave the EU on March 29. He said “I hope still we can leave as soon as possible in an orderly fashion but that depends upon parliamentary approval both in principle of a withdrawal agreement but also then the implementing legislation that has to follow before lawfully we can ratify that treaty”.

                          And, by the end of March we have to have an alternative in place, not just a resolution of the House of Commons, a preference, but a solution in place that enables us to have an extension so there isn’t crash out on March 29.”

                          German Justice Minister Katarina Barley told rbb broadcaster that “the EU would be ready to delay Brexit, but one has to have a plan on what is supposed to happen during this period.” She added that delaying Brexit doesn’t bring a solution.

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                          New Zealand trade surplus at NZD 217m in Feb, import hits Feb record high, NZD broadly higher

                            NZD trades generally higher in Asian session after trade balance data.

                            Accord to Stats NZ Tatauranga Aotearoa, for February 2018 compared with February 2017:

                            • Goods exports rose NZD 446 million (11%) to NZD 4.5 billion.
                            • Goods imports rose NZD 187 million (4.6%) to NZD 4.2 billion, a new high for total imports in a February month. The previous high was NZD 4.1 billion, in February 2017.
                            • The monthly trade balance was a surplus of NZD 217 million (4.9% of exports).

                            NZD is trading higher together with commodity currencies in general, as seen in daily heatmap.

                            Against Dollar, NZD/USD extends the rebound from 0.7152 and reaches as high as 0.7276 so far. Further rise is now mildly in favor to 0.7354 resistance.

                            From the daily chart, NZD/USD has been in consolidation since hitting 0.7436. Firm break of 0.7354 will now be a strong signal of resumption of medium term rise from 0.6779.

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                            SNB Jordan: No need to change monetary policy even though EUR/CHF is back at 1.2

                              EUR/CHF continues to press the historical level at 1.2, the SNB imposed floor which was suddenly given up in 2015 and caused panic selling. Now the cross is back at this level.

                              SNB Chairman Thomas said in an interview that the depreciation of the Swiss Franc is in the “right direction”. Nonetheless, the currency as a safe haven is prone to change and the situation is “fragile”. So the SNB will “remain very prudent”.

                              Jordan added that “there’s no need to do anything regarding monetary policy at this moment”, as “we are convinced that the current monetary policy is still necessary.”

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                              Japan PMI manufacturing: Q3 average notably lower than Q1 & Q2

                                Japan PMI manufacturing was finalized at 52.5 in September. The key points are “output growth sustained amid solid demand pressures”, meanwhile, “input delivery times continue to lengthen sharply”, and “business confidence drops further”.

                                Joe Hayes, Economist at IHS Markit, noted that “growth in the Japanese manufacturing sector was sustained in September, rounding off a fairly robust quarter of expansion”. However, Q3 average at 52.4 was “notably weaker” that Q1 and Q2, “suggesting weaker momentum”. “Slowing input delivery times reportedly weighed on output capabilities”. “The degree of confidence dipped to a 22-month low, with some panellists raising concern towards the demand outlook.”

                                Full release here.

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                                US headline PCE slowed to 2.0%, core PCE unchanged at 2.0%

                                  In September, US personal income rose 0.2%, below expectation of 0.3%. Spending rose 0.4%, matched expectations. Headline CPI slowed to 2.0%, down from 2.2%. Core PCE was unchanged at 2.0% yoy.

                                  Dollar is mildly higher after the release but remains mixed for the day. The most notable development today is the selloff in Yen and Swiss Franc as stock markets rebound.

                                  Full release here.

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                                  Trump considering executive order to ban US purchase of China’s Huawei and ZTE products

                                    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.”

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                                    BoC stands pat, maintain tightening bias but sounds cautious

                                      Bank of Canada kept overnight rate target unchanged at 1.25% as widely expected.

                                      Some highlights of the statement:

                                      • Trade policy developments are an important and growing source of uncertainty for the global and Canadian outlooks.
                                      • The Bank continues to monitor the economy’s sensitivity to higher interest rates.
                                      • Inflation is running close to the 2 per cent target and the Bank’s core measures of inflation have edged up, consistent with an economy operating near capacity.
                                      • Wage growth has firmed, but remains lower than would be typical in an economy with no labour market slack.
                                      • While the economic outlook is expected to warrant higher interest rates over time, some continued monetary policy accommodation will likely be needed to keep the economy operating close to potential and inflation on target.
                                      • Governing Council will remain cautious in considering future policy adjustments, guided by incoming data in assessing the economy’s sensitivity to interest rates, the evolution of economic capacity, and the dynamics of both wage growth and inflation.
                                      • Full statement here

                                      There was no elaboration on NAFTA negotiations nor risk of trade war. BoC maintained tightening bias but sounds very cautious.

                                      USD/CAD is steadily in consolidation from 1.3000 temporary top.

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                                      China preparing quick, targeted retaliations to Trump’s $60b tariffs

                                        The WSJ reported that China is preparing to hit back at US President Donald Trump’s targeted tariffs against it. Trump is set to unveiled to list of products tomorrow, which could add up to as much as USD 60b of annual tariffs.

                                        It’s not really news that China is preparing counter measures. But what WSJ said is that China’s tit-for-tat tariffs would target Trump’s support base. That is, they will be aimed at agricultural exports from Farm Belt states.

                                        That raises a question on whether China views it as trade war with the US, the Republicans, or Trump himself. Trump war might be easy to win for a sized economy against smaller ones. It’s much tougher between two economies of comparable size.

                                        Would there be a chance if the trade war is between a political party, a family, or even a person, against a sized economy?

                                        Remember that it’s an authoritarian government in China. What they’d do very much depends on how their leader Xi Jinping views it. If Xi sees the provocation as from Trump only, rather than the whole of the US, then good luck to the latter.

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                                        BoE Haldane: Strong case to hold rates until road becomes clearer

                                          BoE Chief Economist Chief Haldane said today that business investment was “strikingly and significantly subdued” ahead of Brexit. And the economy stalled in the Q2. Though he added, “my personal view though is that I would be very cautious about considering a monetary policy loosening, barring some sharp economic downturn.”

                                          Additionally, “with the economic road ahead potentially forking, the case for holding rates until the road becomes clearer is strong.”

                                          On Brexit, Haldane warned “if a ‘no deal’ were to lead to a sharp fall in sterling and a sharp rise in inflation expectations, it is not clear the MPC could cut interest rates, as the market expects, if it was to meet its inflation mandate.”

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