Wed, May 27, 2020 @ 06:28 GMT

ECB Coeure: Eurozone economy in best shape for many years

    ECB Executive Board member Benoit Coeure said in a speech yesterday that “the euro area economy has now enjoyed five years of uninterrupted growth”. And, GDP is “well above the levels we observed before the great financial crisis.”

    He also pointed out that labor market has “improved notably” in recent years. Employment has risen by 9.2m since mid-2013. Unemployment rate dropped to 8.1% in August and hit the lowest level in 10years. Participation rate also rose 1.5 to 64% from a decade ago.

    On inflation, Coeure added that “with stronger growth and rising employment, we also see a gradual build-up in price pressures”. Employee compensation have “finally started to recover” Also, he noted that as they are growing faster than the rate of inflation, many people are seeing their real incomes rising.

    Overall, he said, it is fair to say that the euro area economy is in the best shape it has been in for many years.

    Full speech here.

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    Into US session: Dollar broadly lower as Trump asks Fed to feel markets rather than read numbers

      Risk sentiments stabilized in European markets as major indices are trading mixed. US futures also point to a mild recovery at open. Focus turned to selloff in Dollar today as Trump continued with his verbal intervention on Fed’s monetary policy. In, he asked Fed policy makers to abandon “meaningless numbers”. Instead, they should “feel the market”.

      Dollar is currently the weakest one for today. Canadian follows as second weakest as WTI crude oil extends recent decline to as low as 48.09, in spite of Dollar weakness. Swiss Franc is the third weakest. On the other hand, New Zealand Dollar is the strongest one for today, followed by Sterling, and then Yen.

      But technically, EUR/USD, GBP/USD AUD/USD and USD/CAD are staying in range. USD/JPY is trying to draw support from 112.23 support. There is not follow through selling in USD/CHF yet after breaching 0.9911. Dollar bears seem refusing to commit yet, as meaningless or not, Fed will release another set of numbers in economic projections tomorrow. They’re the ones critical for 2019 rate path.

      In European markets, at the time of writing:

      • FTSE is down -0.41%
      • DAX is up 0.38%
      • CAC is down -0.14%.
      • German 10 year yield is down -0.0178 at 0.242
      • Italian 10 year yield is up 0.004 at 2.953

      Earlier in Asia:

      • Nikkei closed down -1.82%
      • Singapore Strait Times dropped -2.21%
      • Hong Kong HSI dropped -1.05%
      • China Shanghai SSE dropped -0.82%
      • Japan 10 year JGB yield dropped another -0.0088 to 0.028
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      Japan GDP grew 0.4% in Q2, solid investments despite weak exports

        Japan GDP grew 0.4% qoq in Q2, well above expectation of 0.1% qoq. Annualize growth rate slowed from 2.8% to 1.8%, but beat expectation of 0.5%. Looking at some details, private consumption, which accounts for around 60% of GDP, grew 0.6% qoq. Capital expenditure was solid and grew 1.5% qoq, accelerated from 0.4% qoq in Q1. Exports were weak but contracted just 0.1% qoq.

        The set of data argues that uncertainty from global trade war has relatively controlled impacts on the economy. In particular, companies were not prompted to rein in investment spending. This echoed BoJ’s assessment that global uncertainties had so far limited impact on the Japanese economy. Though, domestic demand would weaken ahead later in the year due to the planned sales tax hike. That’s something BoJ policymakers need to continue to monitor.

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        Eurozone retail PMI rose to 52.3 in Feb, up from Jan’s 50.8

          Eurozone retail PMI rose to 52.3 in Feb, up from Jan’s 50.8.

          Key points from release

          • Headline Retail PMI rises to 52.3 from 50.8 in January
          • Sales broadly unchanged on annual basis
          • Gross margins remain under pressure


          “The latest data highlight another positive month for the eurozone retail sector, with sales up at a quicker pace on a monthly basis. In turn, this contributed to a renewed bout of optimism, with the survey’s measure of business confidence among the highest over the last year. Further expansions in purchasing activity and employment underscore retailers’ positive outlook. Nevertheless, gross margins continued to be squeezed, suggesting business conditions remain challenging.”

          Full release here.

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          Eurozone CPI finalized at 1.0%, core CPI at 1.3%

            Eurozone CPI was finalized at 1.0% yoy in November, up from October’s 0.7% yoy. Core CPI was finalized at 1.3% yoy, up from October’s 1.1%. The highest contribution came from services (+0.82%), followed by food, alcohol & tobacco (+0.37%), non-energy industrial goods (+0.10%) and energy (-0.33%).

            EU28 CPI was finalized at 1.3%, core CPI at The lowest annual rates were registered in Italy, Portugal (both 0.2%) and Belgium (0.4%). The highest annual rates were recorded in Romania (3.8%), Hungary (3.4%), Slovakia (3.2%) and Czechia (3.0%).

            Full release here.

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            Into US session: Sterling selloff intensifies as Scottish Sturgeon talks no-deal Brexit

              Entering US session, Sterling is trading as the weakest one today and selling has indeed intensified. Canadian Dollar follows Sterling as the second weakest for today. Japanese Yen surges broadly in early European and is trading as the strongest one for today so far. Euro pares back some gains today but it’s still the strongest one for the week.

              Now, it seems a no-deal Brexit is an acceptable fact. It started last week when BoE Governor Mark Carney said risk of no-deal Brexit is “uncomfortably high”. Then Trade Minister Liam Fox assigned a 60-40 chance of it. Scotland’s First Minister Nicola Sturgeon also jumps in, blasting Prime Minister Theresa May’s handling of Brexit negotiation. Sturgeon said that “with every day that passes, the prospect of a no deal Brexit or a Brexit with very, very little information about the future relationship seems to become more and more likely.” She added that “both of those outcomes would be completely unacceptable, absolutely disastrous for our economy, so I hope she (Theresa May) can reassure me that neither of those things are going to happen.” “But if she can’t, then I hope she will outline her plan B, because we cannot simply take a step off that Brexit cliff-edge next March without knowing what comes next.”

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              Sterling drops as UK seeks to reopen Brexit negotiation

                Sterling dropped broadly after the Parliament voted 317 to 301 for Conservative MP Graham Brady’s Brexit deal amendment. Prime Minister Theresa is now required to go back to EU to renegotiate the deal to replace the Irish backstop with “alternative arrangements”. At the same time, the Parliament rejected Labour MP Yvette Cooper’s proposal to force Article 50 extension to avoid no-deal Brexit. Though, the symbolic amendments opposing no-deal Brexit was passed.

                May’s spokesman said that “tonight parliament has sent a clear message that there is a way forward to secure this deal if we are able to secure changes in relation to the backstop.” And, “the EU’s position remains that they want the United Kingdom to leave with a deal. They want the UK to leave with a deal because it’s in their interests as well as those of the UK.”

                However, EU repeated its stance that there will be no renegotiation. And, it’s uncertain what exactly alternative arrangements on the Irish border backstop are.

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                RBA keeps cash rate at 0.75%, no indication of rate cut

                  RBA left cash rate unchanged at 0.75% as widely expected. Australian Dollar recovers as there is no clear sign of imminent rate cut. The central just said “due to both global and domestic factors, it is reasonable to expect that an extended period of low interest rates will be required.” The board “remains prepared to ease monetary policy further if needed”.

                  RBA expects the economy have a “step up” and grow around 2.75% in 2020 and 3.00% in 2021. Bushfires and coronavirus will “temporarily weigh on domestic growth”. But overall outlook is “supported by the low level of interest rates, recent tax refunds, ongoing spending on infrastructure, a brighter outlook for the resources sector and, later this year, an expected recovery in residential construction.”

                  Unemployment rate is expected to “remain around” 5.1% for some time, before “gradually declining” to a little below 5% in 2021. Wage growth is “subdued” and is expected to “remain” at current rate for some time. Inflation remains “low and stable”. CPI is expected to be around 2% in the near term and “fluctuate around that rate over the next couple of years”.

                  Full statement here.

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                  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.”

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                    RBNZ Hawkesby: It would be better to do too much too early

                      RBNZ Assistant Governor Christian Hawkesby explained the decision of the surprised -50bps rate cut in speech today. He said “we judged that it would be better to do too much too early, than do too little too late”. The alternative approach of cutting by -25bps “risked inflation remaining stubbornly below target, with little room to lift inflation expectations later with conventional tools in the face of a downside shock.”

                      On the other hand, “a more decisive action now gave inflation the best chance to lift earlier, reducing the probability that unconventional tools would be needed in the response to any future adverse shock.”

                      Hawkesby also noted that neutral rate is currently in a “wide range centred on 3.25 percent, down from around 5 percent before the GFC”. And, “all else equal, a lower neutral rate implies that we need to set our Official Cash Rate lower to deliver the same amount of monetary stimulus to the economy.”

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                      There could be a cross-party brexit deal in UK, but not this week

                        According to a BBC’s political editor Laura Kuenssberg, there is a way for the UK government and opposition to compromise on a Brexit deal. however, it’s unlikely to be reached this week. Kuenssberg tweeted that “Senior govt source says it IS possible though to see a way to a deal, but unlikely to be resolved this week.” But the aim is “to set out a path to get the Withdrawal Bill to Commons with a fair wind.”

                        Foreign Secretary Jeremy Hunt indicated to BBC radio that he’s “not a believer in a customs union” as a “sustainable long-term solution” of Brexit. It’s clear that customs union is the way Labour would like to go forward with. Hunt urged that “this is a time when we have to be willing to make compromises on all sides because the message of last week was that voters for both main parties are very, very angry about the fact Brexit hasn’t been delivered.”

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                        UK May has faithfully and firmly reflected backstop concerns to EU, Brexit deal vote again in week of Jan 14

                          UK Prime Minister Theresa May told MPs that she has “faithfully and firmly” reflected the Commons’ concerns about the Irish border backstop to EU. And she described some of the exchanges with EU leaders as being “robust”. She added that “but I make no apology for standing up for the interests of this house and for the whole of the United Kingdom.

                          Nevertheless, May also repeated what the EU has said. That is, EU hoped that the backstop would not be triggered. And even if the backstop was used, it should be temporary. May also mentioned that French President Emmanuel Macron said no one is trying to lock up the UK to the backstop. Though, May also said further discussions will take place with the EU.

                          On the timing of the vote, May said debate on the Brexit deal with resume in the week beginning Monday January 7. Vote will be held in the following week, that is, the week beginning January 14.

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                          UK Johnson urges parliament ot vote for the Brexit deal to turn the page

                            The UK parliament is due to vote on, finally, Prime Minister Boris Johnson’s Brexit Withdrawal Agreement Bill today. Ahead of that, Johnson told the parliament that “if we pass this deal and the legislation that enables it we can turn the page and allow this parliament and this country to begin to heal and unite”. Additionally, if the bill is approved, the government would de-escalate no-deal Brexit preparations.

                            Additionally, the tight time table for the bill will also be voted on. Johnson’s spokesman said earlier that “Voting down a program motion has serious implications. It means legislation can drift on and on … Voting down the program motion risks handing control over the situation to the European Union and therefore making no deal more likely.”

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                            Japan automakers slam Trump’s tariffs as Abe kept silence

                              Japan Prime Minister Shinzo Abe has been so far very quiet regarding trade tensions with the US. Abe and his cabinet members have repeatedly said that they do not want bilateral trade agreements. But Trump is insisting to force Japan into it. And that’s not to mention that Japan was the only close ally that was not even given a temporary exemption on the steel and aluminum tariffs. It’s even unsure what retaliation they’ll take. The meeting between Abe and Trump ahead of G6+1 submit also produced no progress on trade.

                              But back in his homeland, Abe is facing increasing pressure on him to take a stance. The Japan Automobile Manufacturers Association issued a statement today slamming the US probe of automobile imports using national security as excuse again. In the statement, JAMA expressed “gravely concerned” of the investigation. It emphasized that “automobiles are sold to consumers on the basis of their own choices, and it is consumers themselves who would be penalized, through increased vehicle prices and reduced model options”. Additionally, “business plans of automobile and auto parts manufacturers as well as imported vehicle dealers could be seriously disrupted, with potentially adverse impacts on the U.S. economy and jobs.”

                              JAMA also pointed to “facts” that their member companies operate “24 manufacturing plants and 44 R&D/design centers in 19 U.S. states and in 2017, nearly 3.8 million vehicles were produced by American workers at those facilities.” “Of that total, over 420,000 units were exported to countries around the world, further underscoring our contributions to employment and economic growth in the United States.”

                              JAMA concluded that “free and fair trade and a competitive climate in line with global rules benefit consumers in the United States and strengthen the sustainable growth of the U.S. auto industry and its economy. We will continue to monitor this situation closely and to uphold the vital importance of free trade worldwide.”

                              Full statement here.

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                              BoJ stands pat, sharp downward revision in fiscal 2019 inflation forecast

                                BoJ left monetary policies unchanged today as widely expected. New economic projections are also released with upgrade in fiscal 2019 and 2020 GDP forecasts. But inflation forecasts was lowered rather sharply for fiscal 2019.

                                The short term interest rate is held unchanged at -0.1%. And under the yield curve control frame work, BoJ will continue to kept 10-year JGB yield at around 0%, with some upward and downward movements allowed. The annual amount of JGB purchase will be kept at JPY 80T.

                                Member G. Katakoa dissented as usual, pushing to strengthen monetary easing. Y Harada also dissented again, criticizing that allowing the long-term yields to move upward and downward to some extent was too ambiguous

                                On economy, BoJ maintained that “Japan’s economy is likely to continue on an expanding trend through fiscal 2020.” Also, “overseas economies are expected to continue growing firmly on the whole, although various developments of late warrant attention such as the trade friction between the United States and China.”

                                In the new GDP projections, comparing with October forecasts:

                                • Fiscal 2018 is revised to 0.9% to 1.0% (median 0.9%), down from 1.3% to 1.5% (median 1.4%).
                                • Fiscal 2019 is revised to 0.7% to 1.0% (median 0.9%), up from 0.8% to 0.9% (median 0.8%).
                                • Fiscal 2020 is revised to 0.7% to 1.0% (median 1.0%), up from 0.6% to 0.9% (median 0.8%).

                                The revisions showed that while BoJ is optimistic for 2019, it also sees larger uncertainties.

                                In new core CPI projections, comparing with October forecasts, and exclude effect of sales tax hike:

                                • Fiscal 2018 is revised to 0.8% to 0.9% (median 0.8%), down from 0.9% to 1.0% (median 0.9%).
                                • Fiscal 2019 is revised to 0.8% to 1.1% (median 0.9%), down sharply from 1.3 to 1.5% (median 1.4%).
                                • Fiscal 2020 is revised to 1.2% to 1.4% (median 1.4%) down from 1.4% to 1.6% (median 1.5%).

                                The downside revision in fiscal 2019 core CPI is rather steep.

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                                Dollar ignores strong PPI as focus turns to FOMC

                                  Dollar ignores stronger than expected PPI reading and is trading down against all but Sterling and Yen for the day.

                                  Headline PPI rose 0.5% mom, 3.1% yoy in May, versus expectaiton of 0.2% mom, 2.8% yoy. Core PPI rose 0.3% mom, 2.4% yoy, versus expectation of 0.2% mom, 2.3% yoy.

                                  Focus will now turn to FOMC rate decision today. Fed is widely expected to raise federal funds rate by 25bps to 1.75-2.00%. Voting will be the first thing to watch even though it will very likely be unanimous. Fed will also release updated economic projections.

                                  Here are some previews

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                                  France sets 15 day deadline to resolve digital tax issue with US

                                    French Finance Minister Bruno Le Maire said he set a deadline of 15 days with US to resolve issues regarding digital tax. He said, “I had a long talk with U.S. Treasury Secretary Steven Mnuchin. We have decided to step up efforts to try and find a compromise, within the OECD, on digital tax”. He added,”We gave each other precisely 15 days, until our next meeting, which is planned on the sidelines of Davos at the end of January”.

                                    Le Maire explained that it’s not just an issue between the US and France, as other EU nations were planning their own digital taxes. Also, any international agreement on digital taxation would immediately supersede the French tax. He noted, “this is a more general issue between the United States and Europe.”

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                                    WTI’s corrective rise sets to extend, for a short while

                                      WTI crude oil jumps notably in Asian session today and it’s now back above 61 handle. With strong support seen from 4 hour 55 EMA, current rebound should be setting the stage for resumption of whole rise form 50.86, through 61.38 temporary top.

                                      However, we’d reiterate our view that such choppy rise from 50.86 should be corrective in nature, as part of the pattern that started back at 66.49. At this point, we don’t expect We don’t expect strong pick up in upside momentum with the next move.

                                      Indeed, WTI shouldn’t sustain above channel resistance for now and upside should be limited below 63.04 resistance. Meanwhile, break of 59.95 support should indicate short term topping and at least bring test on channel support (now at 56.83).

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                                      BoE to stand pat tomorrow, August hike uncertain

                                        BoE will most likely keep the Bank Rate unchanged at 0.50% tomorrow. Known hawks Ian McCafferty and Michael Saunders are expected to vote for rate hike while others would vote for standing pat. There will be no inflation report but just the meeting minutes. And attention will on whether the minutes give any hint on an August hike.

                                        According to the latest Bloomberg survey, only 55% of respondents forecast a hike in August. That’s even down from 60% in a similar survey in May. The economists projected UK economy to growth 1.4% in 2018, better than May projection of 1.3%, after some positive economic data. Inflation forecast was unchanged at 2.5% yoy in 2018 and 2.1% yoy in 2019.

                                        One side note to mention is that McCafferty will end his term on August 31. He will be replaced by Jonathan Haskel, an professor of economics at Imperial College Business School. At this point, it’s unsure how the replace with reshape the MPC.

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                                        WTI oil in near term consolidation below 66.49, 57.15 fib level to contain downside

                                          WTI crude oil’s sharp decline last week suggests short term topping at 66.49, on mild bearish divergence condition in daily MACD. Deeper retreat is in favor towards 55 day EMA (now at 60.41). But we’d expect strong support above 38.2% retracement of 42.05 to 66.49 at 57.15 to contain downside to bring rise resumption.

                                          Rise from 42.05 is seen as a leg inside the sideway pattern from 77.06. Another rally is expected to 78.6% retracement of77.06 to 42.05 at 69.56, which is close to 70 handle, before reversal.

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