US initial jobless claims dropped -29k to 348k in the week ending August 14, better than expectation of 362k. That’s also the lowest level since March 14, 2020. Four-week moving average of initial claims dropped -19k to 378k, lowest since March 14, 2020 too.
Continuing claims dropped -79k to 2820k in the week ending August 7, lowest since march 14, 2020. Four-week moving average of continuing claims dropped -111k to 2999k, lowest since March 21, 2020.
Fed Governor Christopher Waller said over the weekend, “we’re at a point we can start thinking maybe of going to a slower pace,” but “we’re not softening”.
“Quit paying attention to the pace and start paying attention to where the endpoint is going to be,” he urged. “Until we get inflation down, that endpoint is still a ways out there.”
Last week’s CPI report was “good, finally, that we saw some evidence of inflation starting to come down, but I just cannot stress [enough] this is one data point. We’re going to need to see a continued run of this kind of behavior and inflation slowly starting to come down, before we really start thinking about taking our foot off the brakes here,” he said.
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.
By loading the tweet, you agree to Twitter’s privacy policy.
Learn more
By loading the tweet, you agree to Twitter’s privacy policy.
Learn more
By loading the tweet, you agree to Twitter’s privacy policy.
Learn more
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.
Germany’s economy ministry cuts 2022 GDP growth forecast to 2.2%, down from January’s projection of 3.6%. Nevertheless, 2023 GDP growth forecast is upgraded slightly from 2.3% to 2.5%. It expects Russia’s invasion of Ukraine, resulted sanctions and higher energy prices will weigh on output.
Inflation is forecast to be at 6.1% in 2022 and 2.8% in 2023, on rising energy prices and consumer prices.
UK GDP grew 0.1% mom in October, below expectation of 0.3% mom. GDP remained -0.5% below pre-pandemic level in February 2020.
Services grew 0.4% mom, back at pre-pandemic level. Production dropped -0.6% mom, at -2.1% below pre-pandemic level. Manufacturing rose 0.0% mom, at -2.5% below pre-pandemic level. Construction dropped -1.8% mom, at -2.8% below pre-pandemic level.
Japan’s PMI Manufacturing for April was finalized at 49.5, marginally above March’s 49.2, marking the sixth consecutive month of contraction in the sector. Jibun Bank noted that new order volumes displayed further signs of stabilization, while output charges experienced their strongest rise in five months. Additionally, input delivery times only lengthened slightly.
Usamah Bhatti, an economist at S&P Global Market Intelligence, commented that the Japanese manufacturing sector remained in contraction territory at the start of Q2 2023. However, the rate of deterioration eased to the softest in the current six-month sequence, primarily due to the slowest reduction in new order inflows since July of last year.
Bhatti further observed that firms reported supply chains continued on the path to normalization, with the softest lengthening in delivery times in the current 39-month sequence. Inflationary pressures remained historically high, but manufacturers signaled that input prices rose at the softest pace since August 2021. To protect profit margins, firms increasingly passed higher cost burdens onto customers, resulting in charge inflation accelerating to a five-month high.
Entering into US session, Euro is trading as the weakest one for today, followed by Sterling. Yen is the strongest one, followed by Dollar. Euro is clearly troubled by surging Italian yield again, as 10 year yield breached 3.7 level and is now up 0.1091 at 3.676. German 10 year bund yield is also up 0.008 at 0.542. But German-Italian spread widens to over 3.1 now.
Additionally, the common currency is weighed down by IMF’s deep downgrade of 2018 Germany growth forecasts, from 2.5% to 1.9%. It’s reflected in European stocks indices too. German DAX is now down -1.14%, CAC down -0.74% and FTSE down -1.13%. Earlier today, Nikkei closed down -1.32%, Singapore Strait Times down -0.47%. Hong Kong HSI just lost -0.11%. China Shanghai SSE indeed closed up 0.17%.
Looking ahead, economic calendar is very light in US session today. Any Brexit news will drive volatility in Sterling for sure. But the main focus is whether, or how far, US yield would extends recent rally.
Chance of medium term bearish reversal in Dollar Index is quickly surging as markets are now very aggressive pricing in large rate cuts by Fed. As fed funds futures imply, there is 100% chance of a -50bps cut to 1.00-1.25% this month. More importantly, there is now 85.5% chance of at least one more cut to 0.75-1.00% after June FOMC meeting.
DXY dropped sharply again overnight to close at 97.36. 61.8% retracement of 96.35 to 99.91 at 97.71 was taken out decisively. And focus is now turned to 96.35 key support. Break there will confirm medium term topping at 99.91. Deeper fall should at least be seen to 38.2% retracement of 88.25 to 99.91 at 95.45. There is risk of further decline to 61.8% at 92.70, depending on the reactions fro 95.45.
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.
Fed keeps interest rate unchanged at 5.00-5.25% as widely expected, by unanimous vote. The new economic projections are rather hawkish, with 2023 median rate projections raised to 5.6% (two more 25bps hikes). GDP growth and core PCE inflation were revised higher while unemployment rate was revised lower.
FOMC leaves the door open for more tightening, as “the Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.:
Fed added that the assessments will take into account information including “readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”.
In the new economic projections, median federal funds rates for 2023 is raised from 5.1% to 5.6%, indicating two more 25bps hike. Median projections for 2024 was raised from 4.3% to 4.6%, for 2025 raised from 3.1% to 3.4%.
Regarding 2023 median economic projections, real GDP growth was raised sharply higher from 0.4% to 1.0%, unemployment rate sharply lower from 4.5% to 4.1%, core PCE inflation from 3.6% to 3.9%.
In the new dot plot, twelve members penciled in rate hikes to 5.50-5.75% this year, with four expecting rate at 5.25-5.50%, and only two at the current 5.00-5.25%.
US initial jobless claims rose 13k to 231k in the week ending November 11, above expectation of 222k. Four week moving average of initial claims rose 8k to 220k.
Continuing claims rose 32k to 1865k in the week ending November 4. That’s the highest level since November 27, 2021. Four-week moving average of continuing claims rose 34.5k to 1823k.
In the post meeting press conference, BoJ Governor Haruhiko Kuroda warned of downside risks to the economy “particularly via overseas economic developments”. He added, “if trade frictions persist, that could have a broad impact on Japanese and overseas economies.” Nevertheless, he also pointed to tankan survey and BoJ’s internal hearings, and noted “trade frictions on Japan’s economy is limited for now”. There is so far no change in the view that the economy is “expanding moderately”. Also, ” momentum for achieving our price target is sustained.”
Kuroda also sounded open to more easing and noted “If we think doing so would be necessary to sustain the momentum for achieving our price target, we will ease monetary policy further as appropriate.” The options for additional easing include cutting the short-term interest rate target, lowering the long-term yield target, ramping up asset buying and accelerating the pace of increase in base money.
US closed mixed overnight, but notable decline was seen in NASDAQ. The selloff came after Treasury Secretary, former Fed chair, Janet Yellen said that “it may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat, even though the additional spending is relatively small relative to the size of the economy”.
Nevertheless, later in the day, she clarified that she was neither predicting nor recommending a rate hike. “If anybody appreciates the independence of the Fed, I think that person is me,” she said. “I don’t think there’s going to be an inflationary problem. But if there is the Fed will be counted on to address them.”
NASDAQ’s strong break of 13698.66 support should confirm rejection by 14175.11. The index should now be in the third leg of the consolidation pattern from 14175.11. Deeper fall is likely back towards 12397.05 support for the near term. Still, there is no risk to the medium term up trend yet, as long as 12397.05 holds.
US PPI for final demand rose 0.2% mom in October, below expectation of 0.5% mom. Prices for goods rose 0.6% mom while services dropped -0.1% mom. PPI less foods, energy and trade services rose 0.2% mom.
For the 12 months period, PPI slowed from 8.4% yoy to 8.0% yoy. PPI less foods, energy, and trade services rose 5.4% yoy.
Eurozone PPI came in at 0.2% mom, -9.4% yoy in November, matched expectations. For the month, industrial producer prices increased by 1.0% mom in the energy sector and by 0.1% mom for durable consumer goods, while prices remained stable for capital goods, and prices decreased by -0.1% mom for non-durable consumer goods and by -0.3% mom for intermediate goods. Prices in total industry excluding energy decreased by -0.2% mom.
EU PPI was at 0.2% mom, -8.7% yoy. The biggest monthly increases in industrial producer prices were observed in Ireland (+4.9%), Italy (+2.2%) and the Netherlands (+0.7%), while the largest decreases were recorded in Luxembourg (-3.7%), Latvia (-2.7%) and Greece (-1.9%).
BoE’s Prudential Regulation Authority (PRA) said it will asset whether to extend the suspension on bank payouts like dividends and share buyback beyond the end of the year. The statement came after ECB’s decision.
PRA reiterated the decision to suspend dividends, share buybacks and cash bonuses back in March was “a sensible precautionary step given the unique role of banks in supporting the wider economy through the period of economic disruption.” PRA will “undertake its assessment of firms’ distribution plans beyond the end of 2020 in Quarter 4 2020.” ”
The assessment will be based on the current and projected capital positions of the banks and will take into account the level of uncertainty on the future path of the economy, market conditions, and capital trajectories prevailing at that time.”
Eurozone GDP grew 0.3% qoq in Q4, slightly below expectation of 0.4% qoq. EU GDP grew 0.4% qoq. The 2021 annual growth was at 5.2% based on first estimation for both Eurozone and EU.
Among the EU Member States for which data are available, Spain (+2.0%) recorded the highest increase compared to the previous quarter, followed by Portugal (+1.6%) and Sweden (+1.4%). Declines were recorded in Austria (-2.2%), Germany (-0.7%) and in Latvia (-0.1%). The year on year growth rates were positive for all countries.
NZD/JPY’s up trend resumed after brief consolidations, following broad based risk-on sentiment. Outlook stays bullish as long as 73.78 support holds, even in case of retreat. Next target is 100% projection of 63.45 to 71.66 from 68.86, at 77.07. As the current rally could be the end of a five wave sequence from 59.49, we’d look for topping signal around 77.07.
ActionForex.com was set up back in 2004 with the aim to provide insightful analysis to forex traders, serving the trading community for over a decade. Empowering the individual traders was, is, and will always be our motto going forward.
Contact us: contact@actionforex.com
© ActionForex.com © 2024 All rights reserved.
US farmers’ approval of Trump hits record after China trade deal
American farmers’ support for President Donald Trump hit records after completion of US-China trade deal phase one. According to the Farm Journal Pulse poll, 64% of 1286 respondents said they strongly approve of Trump. 19% said they somewhat approve. Only 13% said they disapprove of the president’s performance.
Trump said he would seriously enforce the trade agreement with China and he believed “it’s going to work out. He added that “China is going all out to prove that the agreement that we signed is a good agreement.” According to the deal, China will buy USD 36B of US agriculture products this year, and more than USD 43B in 2021.