Tue, Oct 26, 2021 @ 06:11 GMT

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.

            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.

              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.

                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.

                  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.”

                    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.

                        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.

                          Fed Harker: Risks tilt very slightly to the downside, at most one hike this year

                            Philadelphia Fed President Patrick Harker said in a speech in London that “potential risks tilt very slightly to the downside” in the US. Though he emphasized the work “slight” as he saw “outlook as positive” and economy “continues to grow” and is on pace to the the longest economic expansion in history.

                            Harker added there was “continued strength” in the labor market. He’d “cautious against” getting caught up in a single data point in February’s dismal job data. Meanwhile, inflation is running around 2% target and “does not appear to be on a strong upward trajectory”. Rather inflation is “edging slightly downward”.

                            Combining all, Harker stays in “wait-and-see mode”. He expects “at most, on rate hike this year, and one in 2020”. But his stance will be “guided by data”.

                            Harker’s full speech here.

                            Into US session: Oversold Euro recovers broadly, markets won’t forget there are US trade tensions

                              Euro is making a strong come back today as market digest recent sharp losses. EUR/USD breached 1.1639 minor resistance while EUR/JPY break 126.43. Both developments suggest temporary bottoming. Though, they’re far from reversing recent down trend. And, at the time of writing, German (0.369) and Italy (2.864) yield spread are still close to 250, which suggests much nervousness in the markets.

                              Though, the news that 5-Star Movement is trying to find a point of compromise for economy minister is supporting sentiments. At least, they’re working on forming a government again. And while being highly critical, 5-Star has never committed themselves to leaving Euro. The news that anti-euro League is not interested, but is pushing for election again is also sentiment supportive. Additionally, Eurozone data released today are not bad.

                              Yen and Dollar, on the other hand, are trading broadly lower. Yen weaken on rebound in German, UK and US yields. Meanwhile, Dollar is weak as markets won’t forget that the US is in trade tension with many other countries/regions, even its own allies. NAFTA talk is going nowhere and there is no positive news regarding trade talk with EU. The steel tariff temporary exemption is going to expire on Friday and retaliations from Canada, Mexico and the EU are waiting on the line. Trump also made an about turn and issued a strong statement regarding China yesterday, indicating very little intention to carry on with negotiation.

                              For the week, Euro remains the weakest one, followed by Sterling. New Zealand Dollar and Japanese Yen are the strongest ones.

                              Into US session: Sterling recovers from GDP blip, Euro and Dollar firm too

                                Entering into US session, Sterling is trading as the strongest one for today so far. Weaker than expected UK GDP triggered very brief retreat in the Pound. And Sterling quickly find its footing on Brexit optimism again. At the time of writing, Euro is the second strongest as Italian yield drops for another day. The selling climax in Italian bonds could have passed the climax for the near, possibly until credit agency rating actions. Dollar trades mildly high as consolidative price actions extend. Yen is the weakest one as sentiments stabilized and turned mixed. Kiwi is the second weakest, followed by Loonie.

                                In Europe, CAC leads the way down by -0.71%, DAX is down -0.64% and FTSE is down -0.05%. Italian 10 year yield is dropping -0.0361 at 3.475. German 10 year bund yield is up 0.0049 at 0.556. German-Italian spread is no back below 300. Earlier in Asia, Nikkei rose 0.16%, Hong Kong HSI rose 0.08%, China Shanghai SSE rose 0.18%. But Singapore Strait Times dropped -1.11%. 10 year JGB yield dropped -0.0065 to 0.156, still way above BoJ’s allowed band of -0.1 to 0.1%.

                                Dollar drops as Fed Powell indicates uncertainties continue weigh on outlook since June meeting

                                  Dollar drops notably in response to Fed chair Jerome Powell’s prepared speech for the semi annual Congressional testimony. Most importantly, Powell said since June meeting, “based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook. Inflation pressures remain muted.”

                                  Powell, also reiterated Fed’s stance that “in light of increased uncertainties about the economic outlook and muted inflation pressures, we would closely monitor the implications of incoming information for the economic outlook and would act as appropriate to sustain the expansion.”

                                  However, just based on the prepared remarks, there is no clear nod to a July rate cut. Thus, selloff in Dollar is relatively limited so far. Powell will need to be really straightforward in the Q&A of the testimony.

                                  Full speech here.


                                  Japan CPI core accelerated to 0.7%, BoJ minutes show concerns on overseas

                                    Japan national CPI (all-item) accelerated from 0.8% yoy in December, up from 0.5% yoy, beat expectation of 0.7% yoy. CPI core (ex-fresh food), rose to 0.7% yoy, up from 0.5% yoy, beat expectations. CPI core-core (ex-fresh food, energy) also rose to 0.9% yoy, up from 0.8% yoy and matched expectations. While core CPI remains well below BoJ’s 2% target, the pickup should be welcomed by the central bank.

                                    In the minutes of December BoJ meeting, some members expressed concerns that gloomy global outlook could underscores market expectations. A few members noted “considering the risk that overseas economies could recover only to a small extent or slow further, the outlook for exports could not be viewed optimistically.”

                                    Falling global demand might also hurt household income. Some noted that “Close attention should be paid to how developments in corporate profits … would affect winter bonuses.” Capital spending has shown signs of weakness, which is a “matter of concern” too.

                                    Euro drops sharply as Italian populist duo could seek debt forgiveness

                                      Euro drops sharply in European session with EUR/USD taking out 1.1822 support with conviction finally. EUR/JPY also dropped through 129.99 minor support and is heading back to 129.22 low. EUR/CHF’s selloff accelerates and breaks 1.8 handle. Other currencies are relatively steady against each other.

                                      The main trigger of the selloff is Italy. it’s reported that the anti-establishment Five Star Movement and the anti-immigration League are discussing to seek EUR 250B write of in debt from ECB.

                                      From trend following point of view, EUR/USD is a good candidate for short as it just went through a period of consolidation. Action Bias are back in downside red across time frame.

                                      From trend reversal point of view, EUR/CHF could be a candidate for short. It just took out 1.1864 support with downside acceleration. Usually, we won’t jump to call for short when weekly Action Bias is still in upside blue. But as EUR/CHF was just rejected by 1.2 key resistance, selling the cross can be considered.

                                      Germany PMI services finalized at 56.2, set for more moderate period of growth

                                        Germany PMI Services was finalized at 56.2 in September, down from August’s 60.8., lowest since May. PMI Composite was finalized at 55.5, down from August’s 60.0. Markit said business activity rose at slowest rate for four months. Rates of growth in new business and employment also eased. Average prices charged by services firms rose at near-record rate.

                                        Phil Smith, Economics Associate Director at IHS Markit:

                                        “Services activity grew strongly in the third quarter, but the pace of recovery is slowing and we’re set for a more moderate period of economic growth in the final months of the year. Our current forecasts are for a 3.0% quarter-on- quarter rise in GDP in Q3, followed by a 1.2% gain in Q4.

                                        “The loss of momentum is partly natural as activity gets closer to pre-pandemic levels, but the drag on growth from material shortages is also becoming more noticeable, impacting services firms directly and also via a slowdown in manufacturing.

                                        “With cost pressures remaining stubbornly high and demand still picking up, the rate of services output price inflation continues to run at close to the quickest in the series history stretching back almost two decades.

                                        “Supply bottlenecks are no longer just a manufacturing problem, and the threat of a continued spillover to other parts of the economy, coupled with inflationary pressures, has dampened service providers’ growth expectations somewhat.”

                                        Full release here.

                                        CAD surges on BoC Business Outlook Survey, CADJPY resuming rebound

                                          Canadian Dollar surges as BoC’s Business Outlook Survey painted a positive picture. In particular, business sentiments were supported by “healthy” sales prospects. Capacity and labor pressures are “evident” in most regions due to strong demand.

                                          Here are highlights of the survey:

                                          • Forward-looking sales indicators remain positive across most regions and sectors. Some firms expect a moderation in sales activity from high levels in the past year or a gradual slowing of the pace of the recovery in the energy sector.
                                          • While firms’ expectations for US economic growth have strengthened further, some cited rising protectionism and reduced competitiveness as factors limiting the impact on their sales.
                                          • Although less so than in recent surveys, intentions to increase investment continue to be widespread. Employment intentions are solidly positive, based on firms’ plans for hiring to support expected sales growth or to expand operations.
                                          • Indicators of capacity pressures and labour shortages edged down but are still close to recent high levels. Remaining economic slack appears to be mostly concentrated in the energy-producing regions.
                                          • Despite expectations for faster input price growth overall, on balance, firms continue to anticipate only modest acceleration in the growth of their output prices due to competitive pressures. Partly driven by rising labour costs, inflation expectations picked up but are still well within the Bank’s inflation-control range of 1 to 3 per cent.
                                          • While credit conditions were unchanged for most firms, the indicator points to a slight tightening.
                                          • The Business Outlook Survey indicator continues to be high, signalling positive business sentiment.

                                          Full release here

                                          CAD is now the second strongest for the day while JPY remains the weakest one.

                                          H action bias in CADJPY turned positive again.

                                          CADJPY’s retreat was contained above 83.36 support, maintaining near term bullishness. The rebound from 80.52 is likely ready to resume for 38.2% retracement of 91.56 to 80.52 at 84.73.