Sun, Jul 21, 2019 @ 23:17 GMT

Dollar jumps as ISM services rose to 58.6, beat expectation

    ISM non-manufacturing composite rose to 58.6 in May, up from 56.8 and beat expectation of 57.4. Business activity index rose 2.2 to 61.3. New orders rose 0.5 to 60.5. Employment index rose 0.5 to 54.1.

    Dollar responses positive to the upside surprise. In particular USD/CAD finally takes out 1.3046 resistance to resume recent rally.

    ISM noted in the release that “the majority of respondents are optimistic about business conditions and the overall economy.” But “there continue to be concerns about the uncertainty surrounding tariffs, trade agreements and the impact on cost of goods sold.”

    Some quotes from respondents:

    “Material prices have been difficult to predict this year, and suppliers have struggled to hold prices for any extended period on quotes, specifically on lumber and lumber-related products. The instability has proven frustrating, but a larger problem is that we are starting to see longer lead times in many of the same areas that could start impacting timelines if they continue to get worse as we get into the main building season.” (Construction)

    “The trade discussions with NAFTA, Korea and the European Union will have critical impacts on our spend relating to steel products. Also, the potential of the U.S. pulling out of the Iran nuclear deal could push crude prices higher.” (Mining)

    “Oil price stabilization in the (US) $60 to $70 per barrel [is] having a positive impact on hiring, both contract labor and direct employees, in the oil and gas industry and supporting industries.” (Professional, Scientific & Technical Services)

    Full release here.

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    BoE Carney press confedence live stream

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      Into US session: Yen maintains gains, markets shrug renewed Turkish Lira selling

        Entering into US session, the forex markets decouple from the risk markets today. Global stock markets, from Asia to Europe, trade broadly higher today. But we’re seeing Yen as the strongest while commodity currencies are the weakest ones. Nevertheless, for now, with the exception of USD/JPY, all major pairs are trading in Friday’s range. It’s a consolidative market without a clear direction.

        News flow is slow with Germany Ifo as the only futures. Improvement in German business climate paint a positive picture for Q3. Ifo said the readings are consistent with 0.5% qoq in in Germany. But that doesn’t translate into strength in Euro.

        USD/TRY is given a up today and hits at high as 6.2975 so far. It’s currently up 3.8%. As long as 6.3460 minor resistance holds, there’s nothing to worried about yet. The pair is merely staying in a sideway pattern. And the selloff in Lira isn’t reflected in corresponding moment in the forex markets so far.

        In other markets, UK is on bank holiday today. DAX is up 0.46% while CAC is up 0.38% at the time of writing. Asian stocks flexed muscles with Hong Kong HSI gained 2.17%, China Shanghai SSE added 1.89%, Singapore Strait Times rose 0.39%. Nikkei also closed up 0.88%. WTI crude oil is nearly flat at 68.69, still some distance from 70 handle. Gold trades sligthly lower by -0.07%. But recent rebound from 1160 is still expected to extend higher.


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        US & China trade teams held constructive call, but no miracles yet

          Leaders of both US and China trade teams held “constructive” telephone conversations yesterday, as negotiations continued. US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin joined the talks. On the Chinese side, there were Vice Premier Liu He and Minister of Commerce Zhong Shan. The call was also confirmed by Chinese Commerce Minister in a brief statement today.

          White House economic adviser Larry Kudlow said the talks “went well” and were constructive, but “there are no miracles here”. He added, “there was headway last winter and spring, then it stopped. Hopefully we can pick up where we left off, but I don’t know that yet.”

          Kudlow also said yesterday that “President Xi is expected, we hope in return for our accommodations, to move immediately, quickly, while the talks are going on, on the agriculture (purchases).” However, it’s also reported by Hong Kong South China Morning Post that Xi had made no specific commitment regarding the purchases during the meeting with Trump at G20 in Osaka. So far, no significant increase in purchase is noted yet.

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          US CPI and Core CPI accelerated, But USD weak against Euro and Yen

            US headline CPI dropped -0.1% mom in March, below expectation of 0.0% mom. But annual rate accelerated to 2.4% yoy, up fro 2.2% yoy and met expectation. Core CPI rose 0.2% mom, 2.1% yoy, up from 1.8% yoy in February, and met expectations.

            CPI provides little support the USD. Rising geopolitical tension in Syria is weighing market sentiments and the greenback. Trump’s attention is now temporary away from China and back to Russia, with his tweeted to warn Russia of missiles in Syria.

            USDJPY’s immediate focus in now on 106.61 minor support in early US session. Break will put 105.65 into focus.

            EURUSD doesn’t bother much about the Syira news and is on track for 1.2475.

            FOMC minutes will be the next major focus in US session. But even something hawkish there is unlikely to give USD a lift.

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            Fed Harker: No immediate need to move interest rate in either direction

              Philadelphia Fed President Patrick Harker told WSJ that “there’s no immediate need to move rates in either direction at this point in my view”. He noted that the economy “continues to be strong” with “very strong labor market”. If the economy was “weakening substantially”, he would support a rate cut. But “at this point, I do not see that”.

              Harker acknowledged that inflation below 2% target is a concern. But he added, “it’s one that I don’t see as an imminent crisis”. Also, he believed “we can give it some time to move back up to 2%.

              Additional, he didn’t se December rate hike as a “particularly bad move” as it was not significant at that point. For now he thought the “prudent path” was to “hold steady and see how the economy evolves”.

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              China Caixin PMI manufacturing rose to 49.9, easing of the economic downturn

                China Caixin PMI manufacturing rose to 49.9 in February, up from 48.3 and beat expectation of 48.7. The key points are “renewed rise in output as total new business picks up, “backlogs continue to rise, but employment trend remains subdued”, and “selling prices increase for first time in four months”.

                Commenting on the China General Manufacturing PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:

                “The Caixin China General Manufacturing PMI picked up to 49.9 in February from a recent low of 48.3 in the previous month, pointing to an easing of the economic downturn.

                “The subindex for new orders returned to expansionary territory in February after staying in contraction for two months. Despite slipping back into contractionary territory following a rise the month before, the gauge for new export orders hit its second highest level since March 2018. Domestic manufacturing demand improved significantly, and foreign demand was not deteriorating as quickly as last year.

                “The output subindex also returned to positive territory. The employment subindex dropped slightly further into negative territory, suggesting no sharp rise in pressure on the job market. The measure for stocks of finished goods fell further into negative territory, and reached its lowest level since May 2016. The subindex for stocks of purchased items picked up despite staying in negative territory, indicating a marginal recovery in manufacturers’ willingness to replenish their inventories. The subindex for suppliers’ delivery times fell further into negative territory, indicating mounting pressure on their capital turnover.

                “Both gauges for input costs and output charges picked up, while the one for output charges rose more notably, implying that year-on-year growth in the producer price index was likely to have picked up slightly in February.

                “Overall, with the early issuances of local governments’ special-purpose bonds and targeted adjustments to monetary policy, the situation in the manufacturing sector recovered markedly in February due to the effect of increased infrastructure investment. Prices of industrial products also picked up due to improving demand and the rebound in international commodity prices. However, the pressure on manufacturers’ capital turnover became obvious again, which may reflect that the financing environment was not easing as expected, and the effect of credit expansion is not yet significant.”

                Full release here.

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                CAD rebounds as US dropped one of the toughest protectionist demand in NAFTA talks

                  Canadian Dollar rebounds strongly on news that US will drop contentious auto-content proposal in NAFTA talks. It’s seen as clearing and important road block in NAFTA renegotiation. The Loonie is trading as the strongest major currency in Asian session.

                  There was a demand for vehicles made in Canada and Mexico for export to the US contain at least 50% US content. But Canada’s Globe and Mail reported that this contentious demand was dropped during NAFTA meeting in Washington last week. This is seen by some as one of the US toughest protectionist demand.

                  CAD is now the strongest one as seen in heatmap for today, followed by Euro. NZD, AUD and USD are the weakest ones.

                  From Action Bias chart, 6H bias turned neutral after USD/CAD hit 1.3124. And H bias turned negative with current dip through 1.305. For now, it’s more of a correction then a change in trend.

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                  US Mnuchin on Chinese Yuan, trade and Fed

                    US Treasury Secretary Steve Mnuchin met with China PBoC Governor Yi Gang on the sidelines of the IMF summit in Indonesia. Mnuchin said after the meeting that “I expressed my concern about the weakness in the (yuan) currency and that as part of any trade discussions, currency has to be part of the discussion. And he added that “we had a productive explanation from his standpoint on those issues” regarding Yuan’s depreciation against Dollar. It’s reported that Yi told people in a closed-door session that China’s monetary policy was on an opposite cycle to that of the US.

                    Mnuchin declined to comment on whether China would be named a currency manipulator in the upcoming Treasury report. But he emphasized that “The currency report is something we report to Congress. It is done pursuant to two separate pieces of legislation. This is not a political document.”

                    But on trade, Mnuchin insisted that”It has to be that we can reach an agreement on action items that can rebalance the relationship. We’ve made it clear that if they have real action items that they want to discuss that we will listen.”

                    On Fed, Mnuchin said “The president likes low interest rates. The president is concerned about the Fed raising interest rates too much and slowing down the economy and those are obviously natural concerns.” Meanwhile he called this week’s stock market rout as a ” natural correction after the markets were up a lot”. And according to Mnuchin, it’s not related to high interest rates and Fed policy and “there’s really no new information in the market on the Fed or on trade for that matter.”

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                    DOW gaps lower as Trump is ready to start trade war, USD/JPY pressing 105.24 support

                      DOW gaps lower today and selling then intensifies in the second hour. The index is now trading down -1.5% at the time of writing. Worry on trade war is seen as a major bearish factor for stocks. And risk aversion also a major reason for Yen’s broad based strength for today. Trump is set to announce his tariffs targeted at China today. Testifying to Senate finance committee, Trade Representative Robert Lighthizer said the US has done a study on Intellectual Property theft problem of China. And the trade department is looking into at building a better fairer system.

                      For DOW, it’s on course for support zone between 23.6% retracement of 26616.71 to 23360.29 at 24128.80 and 24217.76. This zone will be key to determine DOW’s near term direction. Rebound from there will change the prior triangle like pattern into a sideway range. And there would then be prospect of revisiting 25000 and above soon. However, sustained break of this support zone will argue that it’s now in the third wave of the pattern from 26616.71 and should have a test on 23360.29 support and below. For the moment, we’re favoring the latter scenario.

                      USD/JPY is at a tricky point close to 105.24 support now. 4 hour MACD suggests that it’s on verge of breakout. And, firm break there will at least extend recent decline to medium term projection level of 100% projection of 118.65 to 108.12 from 114.73 at 104.20.

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                      Into US session: AUD strongest on China data, German and US yields jump

                        Entering into US session, Australian Dollar remains the strongest one for today, as boosted by better than expected Chinese data. The data further suggests stabilization of slowdown, which is an important factor for the easing global economic risks. While the optimism is not so much reflected in the stock markets, bonds are clearly responding well. German 10-year yield is is now back at 0.08 level while US 10-year yield breaches 2.6 handle.

                        Staying in the currency markets, Euro is the second strongest for today. German government halved 2019 growth forecast to just 0.5%. But it’s largely shrugged off. The key is, Eurozone economy as a whole will certainly be benefited if China could regain some momentum. Canadian Dollar is the third strongest, but could be dragged down by CPI release. On the other hand, New Zealand Dollar is the weakest one as poor Q1 CPI reading raises the chance of an imminent RBNZ cut at next meeting. Swiss Franc and Dollar are the next weakest. Sterling is mixed after slightly lower than expected March CPI.

                        In Europe, currently:

                        • FTSE is down -0.11%.
                        • DAX is up 0.32%.
                        • CAC is up 0.28%.
                        • German 10-year yield is up 0.0111 at 0.082.

                        Earlier in Asia:

                        • Nikkei rose 0.25%.
                        • Hong Kong HSI dropped -0.02%.
                        • China Shanghai SSE rose 0.29%.
                        • Singapore Strait Times rose 0.50%.
                        • Japan 10-year JGB yield rose 0.01 to -0.01.
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                        Trump approved Section 301 tariffs on USD 50B of Chinese imports

                          It’s reported that Trump has approved the Section 301 tariffs on USD 50B in Chinese imports and the formal announcement would be made today. That came after a 90-minute meeting with the core team of senior White House officials, national-security officials and senior representatives of the Treasury, Commerce Department, Trade Representative’s Office. The initial proposal include around 1,300 lines of products targeting the “Made in China 2025” plan. But it’s uncertain what changes would be made to the list after public hearing. Also, it’s uncertain when the tariffs will come into effect.

                          China has pledged retaliation yesterday if the tariffs are enforced. Foreign Minister Wang Yi warned yesterday that China and the US faced a choice between cooperation and confrontation. Wand said “China chooses the first”. But “of course, we have also made preparations to respond to the second kind of choice.”

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                          Australia consumer confidence dropped sharply despite RBA rate cuts

                            Australia Westpac Consumer Confidence dropped sharply by -4.1% to 96.5 in July, hitting a two year low. The deterioration came as a surprise as confidence was not supported by recent positive developments, including RBA’s rate cuts and easing US-China trade tensions.

                            Deepening concerns over Australian economic outlook were the main drivers in decreasing confidence. Expectations in economic conditions for the next 12 months dropped -12.3 to 87.1. That’s the lowest level in four years. For the next 5 years, expectations index dropped -6.7 to 91.6.

                            After two rate cuts in June and July, Westpac expects RBA to stand pat at next meeting on August 6. Updated economic projections to be released then would give the best guide to how the RBA sees the case for further policy action. Westpac expects a further 25bps cut most likely coinciding with a downgrade to the Bank’s growth and inflation forecasts in November. Though, it said “the timing of this next move remains highly uncertain”.

                            Full release here.

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                            South Korea the first that got indefinite exemption on US steel tariffs

                              The South Korea’s Ministry of Trade said today that is’ exempted from the US steel and aluminum tariffs. However, South Korea now received a quota of around 2.68m tonnes of steel exports. And that is 70% of the annual average of Korean steel exports to the US between 2015-2017. South Korean contributed to 9.7% of US steel imports in 2017.

                              In the mean time, Both countries also agreed on 20-year extension of Korean pickup trucks, until 2041. US automakers could also bring in 50000 vehicles to South Korean annually, doubling from prior amount of 25000.

                              That is the first of many US allies to receive an indefinite exemption on the steel and aluminum tariffs. Other six, Argentina, Australia, Brazil, Canada, Mexico and EU are just having the tariffs temporarily suspended.

                              At this point, there is no news regarding the expemption on Japan and Taiwan, two other major US allies in Asia, yet.

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                              UK unemployment rate stayed at 44-year low, wage growth accelerates, GBP/JPY to extend corrective recovery

                                UK unemployment rate remained unchanged at 3.8% in the three months to April. It’s the lowest reading since December 1974. Average weekly earnings, including bonus, rose 3.1% yoy, slowed from 3.3% yoy but beat expectation of 3.0% yoy. Average weekly earnings, excluding bonus, rose 3.4% yoy, accelerated from 3.3% yoy and beat expectation of 3.1% yoy.

                                GBP/JPY appears to be lifted mildly by the data. And the corrective from 136.55 will likely extend for a while before resuming larger decline.

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                                Fed Rosengren prefers inflation range targeting

                                  Ahead of a broad review on monetary policy framework, Boston Fed President Eric Rosengren said he’d prefer a range targeting approach on inflation. That is, Fed could be forced to accept inflation below 2% during recessions. On the other hand, Fed should commit to achieve above 2% inflation in good times. For example a range of 1.5-2.5%.

                                  Rosengren echoed other platemakers’ comment that the current 2% target is “symmetric”. But in practice, people saw that figure as a “ceiling”. He added, “even though we’re only missing by a little bit it actually does matter if you miss by a little bit on a regular basis.”

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                                  Today’s top mover: NZD/USD at key resistance zone just ahead of RBNZ statement

                                    NZD/USD is the top mover for today so far, up 0.80% at the time of writing. On the one hand, Dollar is broadly sold off after US mid-term elections. On the other hand, strong employment data came in at an ideal time, just before RBNZ rate decision in the upcoming Asian session.

                                    RBNZ is widely expected to keep the Official Cash Rate unchanged at 1.75%. And, the central was very clear in its last statement that it intend to keep OCR at this level “through 2019 and into 2020”. More importantly, RBNZ said “the direction of our next OCR move could be up or down.”. There has been some bets that the next move is a cut. The question is, with unemployment rate hitting decade low at 3.9%, and employment rate jumped to record at 68.3%, would RBNZ turn less dovish? We’ll see within a couple of hours.

                                    Technically, NZD/USD is now at a very important resistance zone. That is, 38.2% retracement of 0.7436 to 0.6424 at 0.6811, which is close to 0.6779 support turned resistance. Decisive break there will solidify the case of bullish medium term reversal. And further rally should at least be seen to 61.8% retracement at 0.7049 and above. This is our preferred case for now as long as 0.6689 minor support holds.

                                    However, break of 0.6689 will indicate rejection by this key 0.6779/6811 resistance zone. That will revive medium term bearishness and could bring retest of 0.6424 low as next step.

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                                    Yen broadly higher into US session, CAD/JPY increasing downside bias

                                      Yen staying strongest entering into US session. Commodity currencies are under pressure.

                                      CAD/JPY in down trend across time frame. With increasing intraday downside bias.

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                                      Dallas Fed Kaplan: Job report reaffirm view to move rate to neutral

                                        Dallas Fed President Robert Kaplan said in a Fox interview that “I believe in light of economic performance we ought to be moving toward neutral…that tells me over the next nine to 12 months we ought to be raising the fed funds rate probably at least three more times, maybe three or four times.”

                                        And referring to today’s strong NFP, he added “everything that is in this jobs report today just causes me to reaffirm that view.”

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                                        New Zealand ANZ business confidence dropped, RBNZ cut sooner rather than later

                                          New Zealand ANZ Business Confidence dropped to -38 in March, down from -30.9. Activity Outlook also dropped to 6.3, down from 10.5. ANZ noted that GDP growth has moderated but is still respectable. However, leading indicators are suggesting that the economy is “running out of steam quite rapidly”.

                                          In particular, export intentions dropped to levels lower than during the Asian Financial Crisis of 1998-9 and the Global Financial Crisis of 2008-9. Sharply lower export intentions despite a well-behaved exchange rate suggest global factors are a part of slowdown in momentum.

                                          Overall, ANZ expects next move in RBNZ to be a cut, “with a growing risk that it is sooner rather than later.”

                                          Full release here.

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