US initial jobless claims fell to 237k, better than expectation

    US initial jobless claims dropped -12k to 237k in the week ending July 8, below expectation of 250k. Four-week moving average of initial claims dropped -7k to -247k.

    Continuing claims rose 11k to 1729k in the week ending July 1. Four-week moving average dropped -11k to -1735k.

    Full US jobless claims release here.

    China considering Yuan devaluation as trade weapon against US?

      Bloomberg reported that Chinese officials are studying the impact of yuan depreciation on two fronts. Firstly, analysis was taken to look at using currency depreciation as a weapon in the trade war with the US. Secondly, it’s also studied how yuan depreciation could help offset any trade deal with US that curb exports.

      However, one important point to note is that the source for the information is obviously unnamed. And further than that, Bloomberg just said it’s from “people familiar with the matter”. So it looks unlikely that the information is from any Chinese officials.

      At the same time, it’s firstly seen by many that yuan devaluation could destabilize the China’s own markets, and that could do more harm to itself than to the US. And more important, China has been trying to portrait itself as rule follower that complies with the WTO book. It keeps blaming the US for unilateralism and protectionism and tries to to use that to draw international support. Devaluation of the Yuan will put China up against other countries too.

      President Xi Jinping probably won’t mind US President Donald Trump reiterating the label that China is a currency manipulator. But he most certainly doesn’t prefer other countries to jump on that bandwagon.

      So, while the news is currently in Bloomberg’s headline, its accuracy is suspectable.

      Eurozone PMI manufacturing finalized at 55.5, 15-month low

        Eurozone PMI manufacturing was finalized at 55.5, unrevised from initial reading.

        The Netherlands, Germany and Austria remain strongest performing nations despite some deterioration. Netherlands PMI manufacturing, despite hitting an 8-month low, was at 60.3. Austria PMI manufacturing hit 14-month low at 57.3. Germany PMI manufacturing hit 15 month low at 56.9.

        Commenting on the final Manufacturing PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

        “The eurozone manufacturing sector reported its weakest expansion for 15 months in May. Some of the weakness may have been related to a higher than usual number of holidays during the month, but risks appear tilted towards growth remaining subdued or even cooling further in coming months.

        “Slowing export sales have been a key drag on both production and order book growth, with the May survey indicating that new export orders rose at the weakest rate for nearly two years, linked in part to the appreciation of the euro alongside reports of weakened demand for imports from key markets, notably the US.

        “There are signs that the soft patch has further to run. Despite the production trend slowing markedly in recent months, the order book slowdown has been even sharper. Output has consequently grown at a faster rate than new orders in each of the past six months, which suggests that manufacturers will come under pressure to rein-in production and staffing levels in coming months unless demand revives. Not surprisingly, manufacturers’ expectations of future production have sunk to a 20-month low, underscoring the gloomier economic picture.”

        Full release here.

        NFP to test stock market optimism

          The upcoming US non-farm payroll report is set to capture the market’s full attention today, with investors seeking signs that could affirm Fed’s interest rate has already peaked. In light of Fed Chair Jerome Powell’s comments this week emphasizing the need for “some slower growth and some softening in the labor market” to stabilize prices, the details of the job data, particularly wage growth, will be under intense scrutiny.

          The market consensus pegs the headline growth of employment at 172k for October, a significant decrease from September’s robust 336,000 figure. Unemployment rate is projected to hold steady at 3.8%, with average hourly earnings expected to notch up by 0.3% mom.

          Preceding indicators present a mixed picture: ISM Manufacturing employment showed a notable decline 51.2 to 46.8, ADP reported a modest private employment increase of 113k that fell short of expectations, and initial unemployment claims hovered around the 210k mark on a four-week moving average, indicating stability.

          Wage growth emerges as the unpredictable factor in the equation, with the potential to sway Fed’s monetary policy direction. This data point has been particularly scrutinized for inflationary signals and the possibility of triggering another rate hike.

          Equity markets have reflected a sense of optimism this week, with strong rebound in DOW and other major indexes. DOW’s correction from August high at 35679.13 could have already concluded at 32327.20. To further strengthen the case, DOW will need to break through 34147.63 resistance decisively. However, rejection by 34147.63 will retain near term bearishness for another decline through 32327.20.

          The impending non-farm payroll report could be a critical determinant of the market’s direction in the closing months of the year.

           

          Canada retail sales dropped -1.2%, ex-auto sales dropped -0.1%, core CPI moderated

            Canadian Dollar drops sharply after very weak retail sales data. Headline sales dropped -1.2% mom in April versus expectation of 0.0% mom. Ex-auto sales dropped -0.1% mom versus expectation of 0.2% mom.

            Inflation data is not helping neither. CPI rose 0.1% mom, 2.2% yoy in May, below expectation of 0.4% mom, 2.6% yoy. CPI core common was unchanged at 1.9% yoy. CPI core median dropped to 1.9% yoy, down from 2.1% yoy. CPI core Trim dropped to 1.9% yoy, down from 2.1% yoy.

            USD/CAD resumes recent rally after brief retreat, and is on course for 1.3404 projection level.

            Bullish developments in GBPUSD and EURUSD after FOMC

              USD’s post FOMC selloff extends in Asia session, except versus AUD. Aussie pares back some gains after disappointment from its own employment data.

              For the week, USD remains the worst performing one, followed by JPY. GBP and CAD remain nearly equally strong.

              Two technical developments are worth noting after FOMC.

              Firstly GBP/USD has now surged past 1.4144 resistance. The development further solidify the case that correction from 1.4345 has completed at 1.3711, as supported by 55 day EMA. And it’s held above 1.3651 resistance turned support. That, thus, keep GBP/USD well supported in the healthy medium term up trend. Current rise should now extend to 1.4345 resistance technically. But of course, that will be subject to the outcome of today’s BoE rate decision. While there is practically no change for BoE to hike, any hawkish twist of the language, or votes for hike, could shoot GBP/USD up through 1.4345.

              Euro is actually the third strongest for the week, following Sterling and Canadian Dollar. EUR/USD’s breach of 1.2358 following FOMC also affirms the case that price action from 1.2455 are corrective. And the pattern could have completed at 1.2238 already. Further rise is now expected to 1.2445. Break will target 1.2555, the real key resistance level. So far, EUR/USD is also staying in healthy up trend as supported by rising 55 day EMA and above 1.2091 resistance turned support. Just that 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516 is an important hurdle to overcome.

              ECB’s Knot pencils in for Jun rate cut, eyes Sep and Dec meetings too

                ECB Governing Council member Klaas Knot told reporter today that he has “pencilled in June for a first rate cut”. After that, Know said the subsequent path would be “data-dependent”.

                Highlighting the significance of ECB’s meetings in September and December, which will include new economic projections, Knot positions these gatherings as crucial junctures for assessing and adjusting the bank’s monetary policy strategy.

                Moreover, Knot opens the door for action outside the traditional schedule of projection-inclusive meetings. “But if incoming data tells us we can do more, the interim meetings should also be available,” he stated.

                Australia NAB business conditions rose to record 37, entering growth period after rapid rebound

                  Australia NAB business conditions rose from 32 to 37, setting another record high. Trading conditions rose from 41 to 47. Profitability conditions rose from 34 to 40. Employment conditions rose from 20 to 25. All three sub-components also reset last month’s highs. Business confidence dropped from 23 to 20 in May.

                  NAB said: “Overall, this was another very strong read for the business sector – and forward indicators point to ongoing strength in the near-term. This is a pleasing result coming after last week’s national accounts which showed that the economy has now surpassed its pre-COVID level. The economy now appears to be entering a new period of growth after a very rapid rebound”.

                  Full release here.

                  Fed raised federal funds rate to 2.00-2.25%, full statement

                    Fed raised federal funds rate to 2.00-2.25%, on unanimous vote. Full statement below.

                    Federal Reserve issues FOMC statement

                    Information received since the Federal Open Market Committee met in August indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.

                    Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.

                    In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 2 to 2-1/4 percent.

                    In determining the timing and size of future adjustments to the target range for the federal funds rate, 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.

                    Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Richard H. Clarida; Esther L. George; Loretta J. Mester; and Randal K. Quarles.

                    ECB Mersch: Imperative for all Eurozone states to adhere to the common rules

                      ECB Executive Board member Yves Mersch said in a speech that “it is imperative for all Member States to adhere to the common rules”, without naming Italy. And he emphasized ” two principles that are at the heart of effective policy in a democratic society.” “First, liability and control must be aligned, with important decisions taken only by those who will bear their consequences.” “Second, the discharge of democratic control must lie at the level at which policy decisions are taken.

                      Separately, Chief Economic Peter Praet warned in a Handelsblatt interview published yesterday that “Italy’s current financing conditions are much too tight for a country with weak growth and low inflation.” For now, Praet didn’t see any contagion effect so far. And, ECB won’t intervene if the problems are confined only to Italy. ECB conducts monetary policy for the Eurozone as a whole.

                      UK PM May gives statement in parliament on Brexit, live stream

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                        Hawkesby: RBNZ has genuine neutral bias, rates could stay low for a long time

                          RBNZ Assistant Governor Christian Hawkesby said in a Bloomberg interview that the central bank has a “genuine neutral bias” on rates, and “a genuine openness about where things go from here.” For now, “we can stay on hold, keep rates low for a long time”.

                          Regarding the impact of China’s coronavirus outbreak, disruptions to New Zealand economy could last just six weeks and save only 0.3% off Q1 growth. “If things are a lot worse, then the projections will look different and the policy response will look different,” he said. “At the moment the markets are probably more relaxed than they were earlier in the month. But equally we know that it’s asymmetric. If the median is six weeks it can’t be a whole lot shorter than that but it could be quite a lot longer.”

                          On the idea of rate hike, RBNZ is currently adopting a wait and see approached. He said, “When you’re in a period when there is no spare capacity left and we haven’t had inflation below target for a long time then you are in an environment where it’s safer to start lifting interest rates. We’re not close to that time. We’ve still got a long period when we can wait and watch.”

                          BoC to pause today, EUR/CAD down in consolidation pattern

                            BoC is widely anticipated to maintain its current interest rate of 5.00% today. This expected pause in rate adjustments comes on the heels of surprising economic contraction in Canada, with the GDP shrinking at an annualized rate of -0.2% in Q2. The contraction signals the onset of economic slowdown, a stark contrast to the relatively robust performance seen in previous quarters.

                            Although July’s inflation rate of 3.3% remains well above BoC’s target, weakening economic backdrop is likely to bolster policymakers’ confidence that inflation will gradually fall back to target over time. The slower economy could apply downward pressure on prices, providing the central bank with some breathing room to keep rates unchanged for now.

                            EUR/CAD’s decline since last week suggests that recovery from 1.4482 has completed at 1.4822 already, ahead of 1.4879 resistance. For now, price actions from 1.4879 are seen as a consolidation pattern only, and thus, rise from 1.4280 should resume after this pattern completes. Hence, while deeper fall is in favor in the near term as long as 1.4700 resistance holds, downside should be contained by 100% projection of 1.4879 to 1.4482 from 1.4822 at 1.4425.

                            On a broader scale, price actions from 1.5111 are seen as a corrective pattern only and the up trend from 1.2867 is not over. The lingering question is whether the rise from 1.4280 constitutes the second leg of a medium-term pattern or signifies a resumption of the upward trend. More clarity on this could emerge once the current consolidation phase from 1.4879 completes.

                            Fed Harker: I’d like to get above 3%

                              Philadelphia Fed President Patrick Harker said interest rates should go above 3% by the end of the year. Then Fed would assess how much more tightening is needed to bring inflation down.

                              “We don’t have to overreact in terms of the fed funds rate,” Harker said during a conference held by the regional Federal Reserve bank. “We need to get above neutral, again I’d like to get above three, but I don’t think you have to accelerate rapidly beyond that at this point until we get a better understanding of what exactly the quantitative tightening is doing.”

                              UK PMI manufacturing dropped to 55.5, but services rose to 61.0

                                UK PMI Manufacturing rose dropped from 58.0 to 55.5 in March, below expectation of 57.7, a 13-month low. PMI Services rose from 60.5 to 61.0, above expectation of 58.0, a 9-month high. PMI Composite dropped from 59.9 to 59.7.

                                Chris Williamson, Chief Business Economist at S&P Global said: “The survey indicators point to potentially sharply slower growth in the coming months, accompanied by a further acceleration of inflation and a worsening cost of living crisis, which paints an unwelcome picture of ‘stagflation’ for the economy in the months ahead.”

                                Full release here.

                                EU forecasts deeper contraction of -8.7% this year, on slow lockdown easing

                                  In the Summer Economic Forecasts released today, European Commission projects a deeper recession in Eurozone and EU in 2020, due to coronavirus pandemic. Because “lifting of lockdown measures is proceeding at a more gradual pace than assumed” in the Spring forecast, impact on the economy will be “more significant than anticipated.

                                  Some highlights:

                                  • Eurozone GDP to contract -8.7% in 2020 (down from Spring forecast of -7.7%).
                                  • Eurozone GDP to grow 6.1% in 2021 (down from 6.3%).
                                  • EU GDP to contract -8.3% in 2020 (down from -7.4%).
                                  • EU GDP to grow 5.8% in 2021 (down form 6.1%).
                                  • Germany GDP to contract -6.3% in 2020 (down form -6.5%).
                                  • Germany GDP to grow 5.3% in 2021 (down from 5.9%).
                                  • France GDP to contract -10.6% in 2020 (down from -8.2%).
                                  • France GDP to grow 7.6% in 2021 (up from 7.4%).

                                  Valdis Dombrovskis, Executive Vice-President for an Economy that works for People, said: “The economic impact of the lockdown is more severe than we initially expected… If anything, this forecast is a powerful illustration of why we need a deal on our ambitious recovery package, NextGenerationEU, to help the economy.”

                                  Paolo Gentiloni, Commissioner for the Economy, said: “The policy response across Europe has helped to cushion the blow for our citizens, yet this remains a story of increasing divergence, inequality and insecurity. This is why it is so important to reach a swift agreement on the recovery plan proposed by the Commission – to inject both new confidence and new financing into our economies at this critical time.”

                                  Full report here.

                                  Eurozone retail sales rose 0.1%, led by automotive fuels

                                    Eurozone retail sales rose 0.1% mom in September, matched expectations. Volume of retail trade increased by 0.4% for automotive fuels and by 0.1% for non-food products while food, drinks and tobacco fell by 0.4%.

                                    EU28 retail sales rose 0.2% mom. Among Member States for which data are available, the highest increases in the total retail trade volume were registered in Croatia (2.6%), Ireland (2.4%) and Romania (0.7%). The largest decreases were observed in Portugal (-2.4%), Latvia (-1.0%) and Slovenia (-0.7%).

                                    Full release here.

                                    UK Lidington said Brexit deal possible in 24-48 hours, but Hunt doesn’t know when

                                      Comments from UK officials regarding Brexit negotiation are rather confusing today. Cabinet Office Minister David Lidington said that “we’re not quite there yet”. But he emphasized “we are almost within touching distance now. ” And, a deal in the next 24 or 48 hours is “possible but not at all definite”. He was “cautiously optimistic”.

                                      On the other hand, Foreign Minister Jeremy Hunt said “we don’t have a solution yet”. He added “both sides draw encouragement form the fact that so much has been agreed”. And the figure 95% used was “probably accurate”. The 5% is a “difficult 5 percent though”. Hence, “we don’t know when it’s going to be possible to conclude those negotiations.”

                                      Fed Kashkari: Coronavirus impacts potentially even worse than financial crisis

                                        Minneapolis Fed President Neel Kashkari “how the virus progresses is really going to determine what the ultimate economic impact is”. He’s rather pessimistic, noting “it unfortunately could be devastating, like the financial crisis, or potentially even worse.”

                                        Meanwhile, he told the Congress that “speed is of the essence here”. “Whatever Congress is going to do, the faster they can do it, and the more aggressively they can do it, the more people we can help.”

                                        Japan’s exports grow at slowest pace since Feb 2021 despite setting record high for Apr

                                          Japan’s exports grew by a modest 2.6% yoy to JPY 8288B in April. Although this represented the lowest growth in exports since February 2021, it still marked the largest export figure for April on record.

                                          A closer examination of the data reveals a shift in trading dynamics. Exports to China fell by -2.9% yoy, marking the fifth consecutive month of decline. The decrease was driven by downturns in shipments of cars, car parts, and steel. Similarly, exports to Asia overall declined by -6.6% yoy, continuing a contraction trend for the fourth month in a row.

                                          However, things looked rosier elsewhere. Exports to the US and EU showed robust growth, rising by 10.5% yoy and 11.7% yoy respectively. This uptick was led by a rebound in exports of cars and car parts, which have seen easing supply constraints.

                                          Contrasting with export trends, imports fell by -2.3% yoy to JPY 8721B, the first annual decline witnessed in 27 months. This decrease was largely attributed to a slump in imports of crude oil and liquefied natural gas. Consequently, Japan recorded a trade deficit of JPY -432B for the 21st month running.

                                          In seasonally adjusted term, the situation presents a slightly different picture. Exports rose by 2.5% mom to JPY 8259B, while imports inched up by 0.1% mom to JPY 9276B. In light of this, trade deficit narrowed to JPY -1017B.