Fri, Sep 30, 2022 @ 07:19 GMT

Eurozone Sentix Investor Confidence dropped to 12.0, emerging markets and US trade disputes weigh

    Eurozone Sentix Investor Confidence overall index dropped to 12 in September, down from 14.7, below expectation of 13.8. Current situation index dropped to 35.0, down from 37.3. Expectations index also dropped to -8.8, down from -5.8. Sentix noted that “the weakness of the emerging markets, especially in Asia and Latin America, is weighing on economic assessments. But also homemade European problems.”

    Sentix also noted that two developments are “particularly noticeable in the search for the causes” for the deteriorations. One is “weakness in the international arena”, in particular in Asia and Latin America. And, “due to the solid US dollar and political crises, the emerging markets are in the crossfire.”

    For Europe itself, there are problems “especially at the political level”. Also, “external, international catalyst, which is also intensified by the trade dispute between the USA and almost the rest of the world, is now having a noticeable negative impact.”

    Full release here.

    Fed Evans: More fiscal relief needed to limit further damage to households and businesses

      Chicago Fed President Charles Evans warned, “we are taking a very serious and unnecessary risk if we do not extend federal assistance to out-of-work households.” He added, “the potential hole in aggregate demand may be large, and in my view more fiscal relief is needed in order to limit further damage to households and businesses, especially those in vulnerable communities.”

      “The longer the dual challenges of the pandemic and recession continue, the greater is the risk of deepening the already stark inequities in our economy,” he added.

      New York Fed President John Williams said, “Structural inequality stifles growth, but there is no single silver bullet that can solve the problems laid bare by the pandemic”. “There is so much work that needs to be done to make sure that we are fostering an equitable recovery and ensuring that everyone is able to fulfill their economic potential,” he said.

      China released 36k-word white paper showing it’s not backing down on trade war with US

        China’s State Council release a “White Paper on China-US Economic and Trade Frictions and China’s Position” today. This 36000 words paper consists of six sections, detailing the benefits of the bilateral trade, the economic and trade relations, US protectionism and trade hegemonism, the threat of US practice to world economy and China’s own position.

        In particular, the paper condemns the under the “America First” bandwagon, the new US government “abandoned the basic norms of international exchanges such as mutual respect and equal consultation, and implemented unilateralism, protectionism and economic hegemonism.”And the US used different means to “carry out economic intimidation, and impose extreme pressure its own interests impose its own interests on China.” The paper also detailed the new protectionist measures of the US. These include measures that discriminate products of other countries, abused national security investigations, subsidies on local industries.

        China’s own position include defending the “dignity and core interests of the country”, “promote healthy trade relationship with the US”, “promote and improve multilateral trade system”, “protect property and intellectual property rights”, “protect rights of foreign businesses in China”, “continue deepening reforms on opening the markets”, work on win-win relationships with developed and developing countries”, etc.

        All-in-all, the main message is that China is not going to back down in the trade conflicts. That’s what we get. Below are the links to the details as reported by the official Xinhua (in simplified Chinese). Look like they’re pretty serious.

        Fed Bullard: Stay with very easy monetary policy inside the pandemic tunnel

          St. Louis President James Bullard said in a Bloomberg TV interview that “It’s too early to talk about changing monetary policy.” Policymakers want to “stay with our very easy monetary policy while we are still in the pandemic tunnel”. “If we get to the end of the tunnel,” he added, “it will be time to start assessing where we want to go next.”

          “When you start to get to 75% vaccinated, 80% vaccinated and CDC starts to give more hopeful messages that we are bringing this under better control and starts relaxing some of their guidelines, then I think the whole economy will gain confidence from that,” Bullard said. “Cases are up right now, that is a little bit concerning.”

          Economics professor Giovanni Tria might replace Paolo Savona as Italian Economy Minister

            It’s reported that  Italy’s anti-establishment 5-Star Movement and the far-right League party are close to finding that “point of compromise” in replacing Paolo Savona as economy minister in the government.

            The name of economics professor Giovanni Tria flow around in the media. Meanwhile, law professor Giuseppe Conte will likely remain as prime minister. Decision could come as soon as on Friday. And if these names are accepted by President Sergio Mattarella, a snap election could be averted and a coalition government would finally be formed.

            China announces additional tariffs on 5207 US imports, valued at USD 60B, rates from 5% to 25%

              More from China, the Finance Ministry announced the counter measures to US threat of imposing 25% products on USD 200B in Chinese goods. The State Council’s Customs Tariff Commission decided to impost additional levies on 5207 US products, totalling around USD 60B in value.

              Additional 25% tariff will be imposed on 2493 products, additional 20% on 1078 products, additional 10% on 974 products and additional 5% on 662 products. The effect date is to be determined.

              Here is the official statement in simplified Chinese.

              Trump got full support from Democrat Schumer on trade war escalation, but others unsure.

                Trump’s move to escalate trade war with China got full support from Democrat Senate leader Chuck Schumer. Schumer urged Trump to “hang tough on China” in a tweet” and “don’t back down”. He added “strength is the only way to win with China”.

                White House economic adviser Larry Kudlow tried to tone down the threat and said trump is merely “issuing a warning here”. He told Fox News that ” we bent over backwards earlier, we suspended the 25 percent tariff to 10 and then we’ve left it there. That may not be forever if the talks don’t work out”

                However, an informal trade adviser to Trump, Michael Pillsbury, clearly disagreed with Kudlow. He said “I take the president’s tweet at face value. I was disappointed that Larry Kudlow downgraded it to a mere warning, which may tend to undermine American credibility as the Chinese delegation prepares its position”.

                It’s unsure for now whether Trump is really intending to drop the negotiations abruptly. Or, he’s just trying to push China for last minute concessions on some key issues. But the act could firstly undermine credibility of the US in negotiations with other countries. And, it could also undermine Trump’s own credibility as he’s told the public numerous times that a deal was close.

                ECB minutes: Further appreciation of Euro constitutes a risk to both growth and inflation

                  In the account of September 9-10 monetary policy meeting, ECB attributed the recent appreciation in Euro exchange to two main drivers. The first and most important one was “substantial improvement in global risk sentiment” and “reversal of previous safe-have flows” into the US. The second was “likely related to monetary policies implemented in the United States and the euro area”. Looking ahead “market positioning remained tilted towards further euro appreciation”.

                  Members considered that a further appreciation of Euro “constituted a risk to both growth and inflation”. A “significant impact of the exchange rate appreciation on euro area inflation had been included in the September 2020 ECB staff projections.” Nevertheless, an argument was made that the ultimate impact of a “one-off adjustment” of the exchange rate would be seen in the “level of prices” rather than in “rate of inflation”. The economic impacts were also “difficult to reliably disentangle”.

                  Full accounts here.

                  USTR announced 10% tarrifs on Chinese imports, to increase to 25% on Jan 1 2019

                    US Trade Representative finally announced the tariffs on USD 200B of Chinese imports, effective September 24, 2018. The initial tariff rate is 10%. Staring January 1, 2019, the tariff rate will be increased to 25%. The list of products covers 5745 lines of the original 6031 lines proposed back in July 10. 297 lines were fully or partially removed from the list. Products include consumer electronics, certain chemical inputs for manufactured goods, textiles and agriculture; certain health and safety products such as bicycle helmets, and child safety furniture such as car seats and playpens.

                    The tariffs were part of the follow-up actions on Section 301 investigations. China’s unfair trade practices were repeated in the statement. These include, forced technology transfer, depriving UA companies to set market based terms in negotiations, unfairly facilitating systematic investment in acquisition of US technology companies, and cyber intrusions to US commercial computer networks for valuable business information.

                    Trump warned in a statement that new round of tariffs on around USD 267B of additional imports will be pursued if China retaliates. He added that “we have been very clear about the type of changes that need to be made, and we have given China every opportunity to treat us more fairly.” “But, so far, China has been unwilling to change its practices.”

                    EUR/CHF upside breakout, a look at GBP/CHF and CHF/JPY too

                      EUR/CHF’s rise from 1.0503 resumes by breaking through 1.1096 resistance, and hits as high as 1.1118 so far. Further rally should now be seen to 100% projection of 1.0503 to 1.0915 from 1.0737 at 1.1149. Sustained break there will indicate upside acceleration and carries larger bullish implications. Next target will be 161.8% projection at 1.1404.

                      Now, a focus will be on GBP/CHF to gauge the general selling pressure on Swiss Franc. Break of 1.2893 will resume the larger rise from 1.1102, Next target will be 1.3310 resistance, and probably further to 161.8% projection of 1.1102 to 1.2259 from 1.1683 at 1.3555.

                      CHF/JPY is another cross to look at. Firm break of 116.20 support will argue that whole rise from 106.71has completed at 118.84. Deeper fall would be seen back to 113.73 support first.

                      ECB increase PEPP by EUR 600B, extend to at least June 2021

                        ECB announced to increase the pandemic emergency purchase programme (PEPP)  by EUR 600B to a total of EUR 1350B today. Purchases will continue to conducted in a “flexible manner over time, across asset classes and among jurisdictions”.

                        Also, the horizon of PEPP net purchases will be extended to “at least the end of June 2021”. Additionally, “the Governing Council will conduct net asset purchases under the PEPP until it judges that the coronavirus crisis phase is over.” Maturing principal payments will also be reinvested “until at least the end of 2022”.

                        Asset purchase programme net purchase will continue at monthly pace of EUR 20B and it’s expected to “run for as long as necessary”. Reinvestments of principal payments will also continue, “for an extended period of time”.

                        Interest rates are held unchanged, with main refinancing rate at 0.00%, marginal facility rate at 0.25% and deposit rate at -0.50%.

                        Full statement here.

                        Fed kept interest rate at 0-0.25%, maintain asset purchast at least at current pace

                          Fed left federal funds rate target rate unchanged at 0.00-0.25% as widely expected, by unanimous vote. FOMC also pledged to maintain the target range “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” Additionally, Fed will “increase its holdings of treasury and MBS “at least at the current pace”.

                          In the accompanying statement, FOMC said that the coronavirus and containment measures “have induced sharp declines in economic activity and a surge in job losses”. Weaker demand and significantly lower oil prices are “holding down consumer price inflation”. Though, financial conditions “have improved” due to policy measures.

                          Fed also said it will “continue to monitor implications of incoming information” and pledged to “use its tools and act as appropriate to support the economy”. The range of information watched include “measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.”

                          Full statement below.

                          Federal Reserve Issues FOMC Statement

                          The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

                          The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. The virus and the measures taken to protect public health have induced sharp declines in economic activity and a surge in job losses. Weaker demand and significantly lower oil prices are holding down consumer price inflation. Financial conditions have improved, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

                          The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.

                          The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

                          To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor developments and is prepared to adjust its plans as appropriate.

                          Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles.

                          Ethereum heading to 2k, Bitcoin to 30k

                            The massacre of cryptocurrencies continues today as Ethereum resumes recent steep fall and hit as low as 2198.70 so far. The fall from 4863.75 is still in progress to 161.8% projection 4863.75 to 3439.00 from 4126.20 at 1820.95, which is below 2000 and above 1715.62 low. Considering deeply oversold condition in daily RSI, some support should be seen below 2000 to bring an overdue rebound. But in any case, break of 2927.20 support turned resistance is needed to indicate bottoming. Otherwise, risk will still stay on the downside.

                            Bitcoin also drops to as low as 33019 so far. Daily RSI is deeply oversold while BTC is close to 29261 support. There should be signs of bottoming ahead. But still, break of 39636 support turned resistance is needed to indicate bottoming, or risk will stay heavily on the downside. The more bearish scenario is not favored yet, but bitcoin could extend the down trend from 68986 to 100% projection at 25023 if it couldn’t defend 30k handle.

                            Eurozone industrial production rose 4.1% mom in Jul, strong rise in Portugal, Spain and Ireland

                              Eurozone industrial production rose 4.1% mom in July, above expectation of 2.8% mom. Production of capital goods rose by 5.3% mom, durable consumer goods by 4.7% mom, intermediate goods by 4.2% mom, non-durable consumer goods by 3.9% mom and energy by 1.1% mom.

                              EU industrial production also rose 4.1% mom in the month. The highest increases were registered in Portugal (+11.9% mom), Spain (+9.4% mom) and Ireland (+8.3% mom). Decreases were observed in Denmark (-4.9% mom), Latvia (-0.8% mom) and Belgium (-0.5% mom).

                              Full release here.

                              S&P downgrades Japan’s rating outlook as weak government finances deteriorated due to pandemic

                                S&P Global Ratings affirmed Japan’s A+ long-term and A-1 short-term sovereign credit ratings. However, outlook is downgraded from positive to stable as the “weak government finances have deteriorated further in fiscal 2020 owing to the COVID-19 pandemic”.

                                “The fiscal position should improve materially once the outbreak recedes and economic growth returns. Nevertheless, we expect the fiscal deficit will remain relatively high” in fiscal 2021 through 2023, it said.

                                However, “should real interest rates increase sharply at some point, this would severely strain the government’s debt dynamics,” it added. “This could occur if investors demand a higher risk premium and push up nominal interest rates. But we believe the greater risk is from renewed and persistent deflation.”

                                German ZEW: Dramatic deterioration in current situation, indicative of weak Q4

                                  German ZEW economic sentiment improved to -17.5 in December, up from -24.1, better than expectation of 025.0. However, current situation index dropped to 45.3, down from 58.2, missed expectation of 55.6. Eurozone ZEW economic sentiment improved slightly to -21.0, up from -22.0, and beat expectation of -23.2. Eurozone current situation dropped -6.1 to 12.1.

                                  ZEW President Achim Wambach noted in the release that the rise in expectation “should not be over-interpreted”. He added that “the assessment of the economic situation has worsened dramatically for both Germany and the Eurozone” And, this is “indicative of relatively weak economic growth in the fourth quarter”. Also, uncertainties remain in terms of the “looming international trade dispute and Brexit, which have a particularly negative impact on private investment and Germany’s exports”.

                                  Full release here.

                                  Eurozone industrial production rose 0.7% mom in Aug, EU up 1.0% mom

                                    Eurozone industrial production rose 0.7% mom in August, below expectation of 0.8% mom. Looking at some details, production of durable consumer goods rose by 6.8% mom, intermediate goods by 3.1% mom and energy by 2.3% mom, while production of both capital goods and non-durable consumer goods fell by -1.6% mom.

                                    EU industrial production rose 1.0% mom. Among Member States for which data are available, the highest increases in industrial production were registered in Portugal (+10.0% mom), Italy (+7.7% mom), Hungary and Sweden (both +6.7% mom). The largest decreases were observed in Ireland (-13.4% mom), Estonia (-2.1% mom) and Luxembourg (-1.2% mom).

                                    Full release here.

                                    Japan industrial production rose 1.7% mom, retail sales dropped -1.9% yoy

                                      Japan industrial production rose 1.7% mom in August, above expectation of 1.5% mom. That’s also the third straight month of growth, as boosted by automobiles and car parts, as well ass iron, steel and non-ferrous metals. Shipments rose 2.1% mom. Inventories dropped -1.4%. Inventory ratio dropped -2.5%. Over the year, production was down -13.3% yoy.

                                      On the other hand, retail sales dropped -1.9% yoy in August, better than expectation of -3.5% yoy. But that’s still the sixth consecutive month of decline, highlighting the weak recovery in consumer demand.

                                      New Zealand BusinessNZ PMI dropped to 52.8 and production dipped again

                                        New Zealand BusinessNZ Performance of Manufacturing Index dropped to 52.8 in June, down from 54.4. BusinessNZ’s executive director for manufacturing Catherine Beard said that the slow-down in expansion was mainly due to ongoing drops in a key sub-index.

                                        “Production (51.8) experienced another decrease in expansion levels for June, which meant it was down to its lowest point since January 2017. On a positive note, the other key sub-index of New Orders (57.1) remained in healthy territory, which at least should feed through to production levels in the coming months.

                                        In addition, the proportion of positive comments in June (51.7%) decreased from May (55.1%), and very similar to February (51.4%). Those who provided negative comments typically noted a general downturn and uncertainty in the market”.

                                        BNZ Senior Economist, Craig Ebert said that “broadly speaking, the PMI has settled down into a trend-like pace this year, averaging 53.8 (excluding April’s spike). This is after outperformance through most of 2017, when it averaged 56.2”.

                                        Full BusinessNZ Performance of Manufacturing Index release.

                                        UK DExEU Rycroft: No-deal Brexit plans in place, economic analysis of Chequers plan ongoing

                                          In UK, Philip Rycroft, Permanent Secretary at the Department for Exiting the European Union (DExEU) told the parliament that the plans for no-deal Brexit are “in place”. And, “they are at a level of detail which satisfies the team at DEXEU … we are constantly monitoring those plans to make sure they are kept up to date.”

                                          Also Rycroft said there were studies on the economic impact of Prime Minister Theresa May’s Chequers plan and “the work is ongoing”.