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Fed Kashkari: We need to do more to bring labor market into balance

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    ActionForex.com
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    Minneapolis Fed President Neel Kashkari said yesterday, “there’s not yet much evidence, in my judgment, that the rate hikes that we’ve done so far are having much effect on the labor market.”

    “We need to bring the labor market into balance so that tells me we need to do more,” he added.

    He noted that Fed will likely need to raise interest rates to around 5.4% in order to bring inflation down to the 2% target.

    SNB: Economic and financial conditions for the banking sector deteriorated markedly

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      ActionForex.com
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      SNB rate decision will be a focus in the markets today. It’s widely expected to keep expansionary monetary policy unchanged. Sight deposit rate should be held at -0.75%. It will also reiterate that “negative interest and interventions are necessary to reduce the attractiveness of Swiss franc investments and thus counteract the upward pressure on the currency.”

      Ahead of the policy decision, SNB also released the Financial Stability Report today. it’s noted that “economic and financial conditions for the Swiss banking sector deteriorated markedly during the last few months of the reporting period:. The coronavirus pandemic “triggered a significant correction on financial markets and a sharp drop in global economic activity”. Economic and financial outlook “has worsened considerably” and is “subject to unusually high uncertainty”.

      Full report here.

      Mexican EM Guajardo on NAFTA: We will not accept any type of restrictions in aluminum or steel

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        ActionForex.com
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        As Mexican Economy Minister Ildefonso Guajardo is meeting Canadian and US counterparts to continue NAFTA renegotiation, he emphasized that a deal “depends on the commitment and flexibilities around the table”. And he expressed firmly that “Mexico has been very clear: we will not accept any type of restrictions in aluminum or steel”.

        Earlier today, Moises Kalach expressed his optimism that “in the coming 10 days we can really have a new agreement in principle.” Kalach is head of the international negotiating arm of the CCE business lobby, which represents the Mexican private sector at the NAFTA talks.

        China Caxin PMI manufacturing dropped to 51.0, deteriorating exports and weak employment

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          ActionForex.com
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          China Caxin PMI manufacturing dropped 0.1 to 51.0 in June, met expectations. Caixin noted in the release that “productions expands as faster pace … despite softer rise in total new orders and further decline in export sales”. And, “staffing levels fall at quickest rate for nearly a year.”

          Quote from the release by Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group:

          “The Caixin China General Manufacturing PMI stood at 51.0 in June, dropping slightly from a month earlier but remaining in expansion territory. The output index continued to rise, suggesting that manufacturing supply was relatively strong. The new order index dropped marginally, and the employment index dropped for the second consecutive month, indicating worsening layoffs. The index for new export orders fell to a low for the year so far and remained in contraction territory, pointing to a grim export situation amid escalating trade disputes between China and the U.S., which led to weak demand across the manufacturing sector.

          “The indices for output charges and input prices both rose, with the latter jumping sharply, continuing to drive the output index upward and suggesting that the year-on-year growth of the producer price index probably continued to rise significantly in June. Corporate profits could have been squeezed due to the rapid rise in input prices, leading to a dip in the future output index. The two indices measuring stocks of finished goods and purchases both dropped, with the latter falling into contraction territory for the first time this year, reflecting that the manufacturing sector is stepping into a destocking phase amid weak demand. The suppliers’ delivery times index remained in contraction territory, indicating delivery delays and poor capital turnover among manufacturing suppliers.

          “Overall, the manufacturing PMI survey pointed to strengthening price pressures in June. Deteriorating exports and weak employment, along with companies’ destocking and poor capital turnover, put pressure on the manufacturing sector.”

          Full release here.

          Released over the weekend, the official China PMI manufacturing dropped -0.4 to 51.5 in June. Official PMI non-manufacturing rose 0.1 to 55.0.

          Mid-US update: Stock rally losing momentum, treasury yield jumps

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            ActionForex.com
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            US stocks surge in initial trading, with S&P 500 and NASDAQ extending recent record run. The moves seem to have exhausted their momentum. No follow through buying is seen after S&P 500 hit 2903.77 and NASDAQ hit 8046.31. Both indices have indeed turned red at the time of writing and DOW is up only 0.06%.

            In the currency markets, Canadian Dollar is now the strongest one, followed by Swiss Franc and then Euro. The US seems to be optimistic in the trade negotiations with Canada. Treasury Secretary Mnuchin said today that “the U.S. market and the Canadian markets are very intertwined.” And, ‘it’s important for them to get this deal and it’s important for us to get this deal.” He said the agreement could be concluded within this week.

            On the other hand, Sterling suffers fresh selling in US session, in particular against Euro and Swiss Franc. Yen follows as the second weakest. Dollar is the third weakest even though data showed consumer confidence rose to highest since October 2000.

            One development to note is the strong rally in treasury yields. It’s believed to have started from Germany as 10 year bund yield jumps 0.10 to 0.38. The move is on the back on news that Germany is considering to extend financial aid to Turkey, to prevent knock-on effect from deterioration in the latter’s economy. But the WSJ report also noted that the discussions are in very early stage, and the talk could eventually fall apart.

            Nevertheless, the over developments help lift 10 year US yield sharply higher. At the time of writing it’s up 0.27 at 2.875. The rebound also marks strong support from 2.811 and focus is back of 55 day EMA (now at 2.892). Break there will bring 3% handle back in radar.

            Market sentiment remains fragile despite CS takeover and coordinated central bank actions

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              ActionForex.com
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              Over the weekend, two significant actions were announced in an attempt to stabilize the markets amidst the ongoing banking crisis. These actions included the government-supported takeover of troubled Credit Suisse by UBS and a coordinated move by six major central banks to enhance the provision of US dollar liquidity. Despite these measures, market sentiment remains fragile, with stocks in Japan, Hong Kong, and Singapore extending declines.

              UBS’s takeover of Credit Suisse was made possible with the support of the Swiss federal government, FINMA, and SNB. SNB noted that this move aims to secure financial stability and protect the Swiss economy during these exceptional circumstances. Based on the Federal Council’s Emergency Ordinance, Credit Suisse and UBS can obtain a liquidity assistance loan with privileged creditor status in bankruptcy for a total amount of up to CHF 100B. Additionally, SNB can grant Credit Suisse a liquidity assistance loan of up to CHF 100B backed by a federal default guarantee.

              In a separate announcement, Fed, alongside BoC, BoE, BoJ, ECB, and SNB, revealed a coordinated action to increase the availability of liquidity via the standing US dollar liquidity swap line arrangements. To enhance the swap lines’ effectiveness, the central banks will increase the frequency of 7-day maturity operations from weekly to daily, starting on March 20, 2023, and continuing at least until the end of April.

              These swap lines between central banks serve as crucial liquidity backstops to ease strains in global funding markets. By mitigating these strains, central banks aim to maintain the supply of credit to households and businesses. However, the ongoing decline in stock markets across Asia signals that further actions may be needed to restore confidence and stability in the global financial markets.

              Hong Kong HSI is trading down -2.5% at the time of writing. The decline from 22700.85 (Jan high) is still in progress with the index bounded well inside the falling channel, and capped below 55 hour EMA. Outlook will stay bearish as long as 19804.56 support turned resistance holds. Next target is 100% projection of 22700.85 to 19804.56 from 21005.66 at 18109.37.

               

              Germany Bundesbank: Noticeable expansion in Q4 despite slow normalization in auto industry

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                ActionForex.com
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                In the latest monthly report, Germany’s Bundesbank warned that it may take more time for the auto industry to recovery from its recent “temporary” slump. It noted that “Normalization in the automotive industry may be slower than initially thought,” And, “the weak order intake from Germany and the slowdown in registration numbers could be an indication that domestic consumers are currently holding back on purchases”.

                Nevertheless, export orders remained strong and other segments of the economy performed well. In Q4, Bundesbank still expected “noticeable expansion.

                Full report in German.

                DOW down over 500 pts on debt ceiling and banking worries

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                  ActionForex.com
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                  Traders are growing increasingly cautious as US stocks open significantly lower today, with selloff gaining momentum throughout the early part of the session. At the time of writing, DOW is down by over -500 points. This decline appears to be a delayed response to Treasury Secretary Janet Yellen’s warning that the department “will be unable to continue to satisfy all of the government’s obligations” as early as June 1, unless Congress raises or suspends the debt limit beforehand. Yellen communicated this warning in a letter to House Speaker Kevin McCarthy. In addition, concerns surrounding regional banks persist, with major bank shares falling by more than -2.5%.

                  For now, DOW is still holding above near term structural support at 33233.85, which is close to 55 D EMA at 33351.58. The rise from 31429.82 is still intact for extending at a later stage through 34712.28 resistance. Nevertheless, break of 33233.85 will suggest that the corrective pattern from 34712.28 is extending with another falling leg before completion. Let’s see if the deciding move would happen before or after FOMC rate announcement tomorrow.

                  China’s manufacturing PMI slips further to 49.4, indicating continued contraction

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                    ActionForex.com
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                    China’s NBS Manufacturing PMI slightly declined from 49.5 to 49.4 in November, marking the weakest reading since December 2022 and falling below market expectation of 49.6. This decline indicates that China’s manufacturing sector has been struggling to maintain consistent growth, having been in contraction for five consecutive months since April, briefly returning to expansion in September, and then slipping back into contraction in October.

                    NBS statistician Zhao Qinghe attributed this downturn to several factors, including “traditional off-season” effects in some manufacturing industries and “insufficient market demand”. This explanation points to both cyclical and demand-driven challenges impacting the manufacturing sector.

                    Within manufacturing PMI, there was a drop in new-orders subindex to 49.4 from 49.5, further reflecting the demand-side struggles. Additionally, new-export-orders subindex fell to 46.3, down from 46.8, indicating challenges in external markets and potentially reflecting global economic conditions.

                    PMI Non-Manufacturing also witnessed a decrease, moving from 50.6 to 50.2, which was below expected 51.1. However, within the non-manufacturing PMI, construction subindex showed an improvement, rising to 55 from 53.5. The official composite PMI, which combines both manufacturing and services, fell to 50.4 from 50.7.

                    New Zealand BusinessNZ services rose slightly to 55.4, sustained improvement

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                      ActionForex.com
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                      New Zealand BusinessNZ Performance of Services Index ticked up from 55.3 to 55.4 in June, staying above long term average of 53.6 or the survey. Activity/sales dropped from 59.4 to 56.5. But employment improved notably from 49.0 to 53.1. New orders/business rose from 62.0 to 61.7. Stocks/inventories dropped from 54.7 to 54.1. Supplier deliveries rose from 45.6 to 47.8.

                      BNZ Senior Economist Craig Ebert said that “the move to traffic light Orange in mid-April, along with the expedited opening of the border, is clearly providing a basis for sustained improvement in New Zealand’s services sector”.

                      Full release here.

                      ECB Knot: Inflation problem won’t go away with a little of slowdown in economy

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                        ActionForex.com
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                        ECB Governing Council member Klass Knot said, “we need at least two more significant hikes before we enter the range of plausible estimates for neutral… That’ll take us into next year.”

                        “This problem will not go away with a little of slowdown in the economy — it will require continued effort from our side, and the Council is unanimous on that,” he said.

                        “The way the Fed is dealing with QT — that’s clearly also going to be an example for us, they managed to move it into the background very quickly,” Knot said. “A process like QT — it should be predictable, it should be gradual, it should be even a little bit boring.”

                        UK PMI manufacturing finalized at 48.9, signs of a two-speed economy persisted

                          By
                          ActionForex.com
                          -

                          UK PMI Manufacturing was finalized at 48.9 in November, revised up from 48.3, down from October’s 49.6. Markit noted that output, new orders and employment all declined. Stocks depleted and purchasing reduced following Brexit delay.

                          Rob Dobson, Director at IHS Markit, which compiles the survey:

                          “November saw UK manufacturers squeezed between a rock and hard place, as the uncertainty created by a further delay to Brexit was accompanied by growing paralysis ahead of the forthcoming general election. Downturns in output and new orders continued amid a renewed contraction in exports. The pace of job losses also hit a seven-year high as firms sought to reduce overheads in the face of falling sales. Destocking at manufacturers and their clients following the latest Brexit delay was a major contributor to the weakness experienced by the sector. Inflationary pressures meanwhile showed signs of moderating further, with input costs falling slightly for the first time since March 2016.

                          “Signs of a two-speed economy persisted, with intensifying business uncertainty leading to a further steep drop in demand for machinery and equipment as firms cut back on investment, but rising demand for consumer goods suggests that households continue to provide some support to the economy.

                          “Manufacturers across all sectors will be hoping that the New Year brings clarity on the political, trade and economic fronts, providing a more certain foundation to plan and rebuild as the next decade begins.”

                          Full release here.

                          UK PM May: Brexit negotiations in the endgame, but significant issues remain

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                            ActionForex.com
                            -

                            Addressing the lord mayor’s banquet at the Guildhall in London on Monday night, UK Prime Minister Theresa May declared that “the negotiations for our departure are now in the endgame”. She added, “we are working extremely hard, through the night, to make progress on the remaining issues in the withdrawal agreement, which are significant.”

                            May believed that “both sides want to reach an agreement”even though “what we are negotiating is immensely difficult:”. But she also emphasized that “this will not be an agreement at any cost”.

                            Germany Gfk consumer sentiment rose to -37.8, slowly working its way out of depression

                              By
                              ActionForex.com
                              -

                              Germany Gfk Consumer Sentiment for January improved from -40.1 to -37.8. In December, economic expectations rose from 17.9 to -10.3. Income expectations rose from -54.3 to -43.4. Propensity to buy rose form -18.6 to -16.3.

                              “The third increase in a row indicates that consumer sentiment is slowly working its way out of the depression. The light at the end of the tunnel is getting a little brighter”, explains GfK consumer expert Rolf Bürkl.

                              “The measures taken by the federal government to mitigate skyrocketing energy costs are apparently having an effect. However, it is still too soon to give the all-clear. The recovery of the consumer sentiment, as we are currently experiencing, is still on shaky ground. For example, if the geopolitical situation were to worsen again, leading to significantly higher energy prices, the light at the end of the tunnel would very quickly become dimmer again or even go out altogether.”

                              Full release here.

                              BoJ Kuroda: Economy in increasingly severe situation, likely to remain the case

                                By
                                ActionForex.com
                                -

                                In the Semiannual Report on Currency and Monetary Control, BoJ Governor Haruhiko Kuroda said the “powerful monetary easing measures” will support economic and financial activities, together with the government’s coronavirus measures. He also reiterated the pledge to monitor the coronavirus impacts and BoJ “will not hesitate to take additional easing measures if necessary.”

                                He noted again that the economy has been in an “increasingly severe situation” and is “likely to remain the case”. But thereafter. the economy is “likely to improve” supported by accommodative financial conditions and government’s measures, as well as through the “expected materialization of pent-up demand and a projected recovery in production from the decline brought about by the spread of COVID-19.”

                                Still, outlook is “extremely unclear” depending on ” the timing of the spread of COVID-19 subsiding and on the magnitude of the impact on domestic and overseas economies”. Risks are “skewed to the downside.

                                Kuroda’s full statement here.

                                IMF’s Georgieva: US on track for soft landing

                                  By
                                  ActionForex.com
                                  -

                                  In a CNN interview aired overnight, Kristalina Georgieva, Managing Director of IMF, provided an optimistic outlook for the US economy. She firmly stated that US is on track for “soft landing,” suggesting a scenario where the economy will experience slowdown without slipping into recession.

                                  Georgieva attributed this positive forecast to Fed’s “decisiveness” in tightening monetary policy, which, according to her, has successfully started to mitigate inflationary pressures while avoiding a full-blown economic downturn.

                                  In her message, Georgieva conveyed a sense of optimism for the general public, encouraging them to view the current economic scenario positively. She said, “You have a job, and interest rates are going to moderate this year because inflation is going down. Cheer up. It is a new year, people.”

                                  NIESR expects UK GDP growth to pick up to 0.7% in Aug and 0.8% in Sep

                                    By
                                    ActionForex.com
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                                    Despite weaker than expected 0.1% monthly GDP growth in UK, NIESR expects growth to pic up in August to 0.7%, followed by 0.8% in September. That would lead to overall 1.6% growth in Q3. It added that however, there are “notable downside risks” to a consumption led recovery, including the re-emergence of Covid-19 and the response of household and business spending to the end of the furlough scheme and the planned reduction in Universal Credit.

                                    “GDP growth of under 0.1 per cent in July would have been negative had it not been for the reopening of an oil field previously closed for temporary maintenance. There was also relatively good news for the arts and recreation sector, thanks to the lifting of restrictions on 19th July, but clearly the boost to GDP from reopening had slowed by the summer. The Delta variant and supply issues – some but not all of which are linked to Covid-19 – have also provided headwinds to growth in the third quarter but there remains potential for ‘catch-up’ in transport, hospitality and arts, which remained between 7 and 19 per cent below their February 2020 levels.” Rory Macqueen Principal Economist – Macroeconomic Modelling and Forecasting.

                                    Full release here.

                                    Kansas Fed George: FOMC is very focused on mandate given by Congress

                                      By
                                      ActionForex.com
                                      -

                                      Kansas City Fed President Esther George said in TV interviews today that two more rate hikes could be “appropriate this year”. And Fed aims to have a few more hikes next year around 3%.

                                      Regarding Trump’s comments on Fed rate hikes, George said “expressions of angst about higher interest rates are not unique to this administration.. She added that “we know higher interest rates cause adjustments in the economy.”

                                      George added that she doesn’t feel any political heat and “I don’t feel personally that it impedes our ability to make decisions.” She emphasized that “this committee is very focused on the mandate given to us by Congress to try to make decisions that are in the long-run interest of a growing economy.”

                                      EUR/USD breaks 1.1525 support as Italy-EU budget spats continue

                                        By
                                        ActionForex.com
                                        -

                                        EUR/USD drops through 1.1525 near term support today as selling intensified. Technically, that should confirm completion of corrective rebound from 1.1300, with three waves up to 1.1814, after hitting 38.2% retracement of 1.2555 to 1.1300 at 1.1779. Retest of 1.1300 should be seen next.

                                        The renewed selloff was triggered by comments from the euroceptic politicians and government in Italy. Firstly, president of the lower house budget committee Claudio Borghi, economics spokesman of the League, told Reuters that ” I am personally convinced that Italy would be better off with its own currency”. Though, he also repeated again and again that “leaving the euro is not in the government’s program and it has no plans to do so.” Borghi’s position is well known and it’s actually nothing new.

                                        Secondly, from 5-Star Movement Leader, Deputy PM Luigi Di Maio, insisted that “We are not turning back from that 2.4 percent target, that has to be clear … We will not backtrack by a millimetre”. Another Deputy PM Matteo Salvini, leader of the League also said yesterday that “No-one in Italy is taken in by Juncker’s threats.”

                                        Meanwhile, European Commission Vice President Valdis Dombrovskis reitereated today that “what we see currently now seems to be not compliant with the Stability and Growth Pact but we are open to dialogue with the Italian authorities and hope that the budget will be brought in line with the requirements of the Stability and Growth Pact.”

                                        In short, Italy is in clash with EU on budget and no one is backing down.

                                        WTI oil above 70, 10 year yield at 2.99, JPY weakens after Trump’s Iran deal withdrawal

                                          By
                                          ActionForex.com
                                          -

                                          Reactions to Trump’s pull out of the Iran deal were rather muted. DOW ended up 0.01% at 24360, S&P 500 down -0.03%, NASDAQ up 0.02%. WTI crude oil reversed initial loss and is back above 70.5. 10 year jumped together with oil and is back at 2.99. Yen is thus, under some pressure and trades broadly lower in Asian session.

                                          Elsewhere in the currency markets, Canadian Dollar recovers broadly, follow oil price. Dollar is supported by rebound in yields while NZD is trading higher ahead of tomorrow’s RBNZ rate decision.

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