EUR/USD dips on Draghi’s press conference, but quickly recovers

    Euro drops broadly after ECB President Mario Draghi sounds rather cautious and downbeat in the post meeting press conference. In particular, Draghi noted that “The risks surrounding the euro area growth outlook have moved to the downside on account of the persistence of uncertainties related to the geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility.” As he added that “The persistence of uncertainties, in particular relating to geopolitical factors and the threat of protectionism, is weighing on economic sentiment.”

    Later in the Q&A, Draghi said today’s ECB meeting was devoted to an “assessment” on the slowdown. And about the questions of “Where are we? Why we’re here? And how long will the slowdown last”. The meeting was not about the implications on monetary policy. And ECB policymakers were “unanimous” on acknowledging weaker momentum” and “changing of the balance of risks for growth”. The Governing Council will give itself more time to assess the risk factors, and there will be another discussion in March with new economic projections.

    EUR/USD dips to as low as 1.1306 but is now back at 1.1352. While Draghi was cautious, he didn’t bring out any “new” dovishness in the press conference.

    Bundesbank Weidmann: Monetary and fiscal stimulus must be scaled back after crisis

      Bundesbank President Jens Weidmann urged that after the pandemic crisis, “the emergency monetary-policy measures must be scaled back again”. Further, “if the price outlook so requires, then monetary policy as a whole must be normalized” as risks and side effects “can increase over time.”

      Also, “fiscal policy should also not get used to an easy course, nor should it rely on interest rates to remain so low over the long term.” “The state has to be careful not to interfere too much in corporate decisions, for example in the case of new investments,” Weidmann said. “The state is not the better entrepreneur.”

      Japan PMI manufacturing dropped to 50, exports drop steepest in over 2.5 years

        Japan PMI manufacturing dropped to 50.0 in December, down from 52.6. That also marked the end of the longest expansionary run for over a decade. In particular, exports decline at strongest pace in two-and-a-half years. And, production scaled back for first time since July 2016, while confidence lowest in over six years.

        Commenting on the Japanese Manufacturing PMI survey data, Joe Hayes, Economist at IHS Markit, which compiles the survey, said:

        “Preliminary PMI data for January bodes ill for Japan’s manufacturing sector, indicating the end of a near two-and-a-half-year growth run as the index dropped to 50.0. The underlying picture will raise concern given renewed reductions were seen in new orders and output. Further signs that the downturn in the global trade cycle could yet worsen were also signalled, with new export orders falling at the sharpest rate since July 2016. The widely-anticipated rebound in Q4 should not distract from the bigger picture. Domestic economic weakness compounded with slowing global growth coincided with the lowest level of business confidence for over six years.”

        Full release here.

        WTI oil plunged in worst day since Sep, pressing 59 support

          Oil price plunged sharply overnight on the worst selloff since last September. Concerns over slowdown in global vaccination was a factor that triggered pull back in optimism over oil demand. More than a dozen European countries are still suspending AstraZeneca. Even UK, the best performer in vaccinations, warned over significant reduction in weekly supply from April, relating to manufacturing issue in India.

          Technically, WTI’s failure to sustain above 65.43 structural resistance at this first attempt is not too surprising. A short term top should have be formed at 67.83 with breach of 59.17 support. Focus is now on whether WTI could hold on to the support zone between 55 day EMA (now at 57.97) and 59.17. If so, sideway consolidation should follow for the near term, to digest recent up trend, and build the base for another rally. However, firm break of 57.97/59.17 support zone would trigger deeper pull back to 38.2% retracement of 33.50 to 67.83 at 54.71 at least.

          ECB accounts: Higher for longer inflation scenario cannot be ruled out

            In the accounts of ECB’s December 15-16 meeting, Governing Council members concurred that the “recent and projected near-term increase in inflation was driven largely by temporary factors that were expected to ease in the course of 2022. ” However, it was also “cautioned” that a “‘higher for longer’ inflation scenario could not be ruled out.”

            Thus, ECB should “communicate clearly that it was ready to act if price pressures proved to be more persistent and inflation failed to fall below the target as quickly as the baseline projections foresaw.” On the other hand, concerns were also expressed about “premature scaling back of monetary stimulus and asset purchases.”

            A “large majority” of members agreed with the policy changes, including scaling back the pace of PEPP purchases in Q1, extend the PEPP reinvestment horizon until at changes end of 2024, increase APP net purchases temporarily.

            But some couldn’t support the overall package on some reservations on “recalibration of APP purchases and the extension of the minimum PEPP reinvestment period, as well as the statement about flexibility in future asset purchases beyond the confines of the specific circumstances of the present pandemic.”

            Full meeting accounts here.

            Dovish ECB hike, peak reached already, 2024 & 2025 core inflation and growth downgraded

              ECB delivers a dovish 25bps rate hike today. The accompany statement indicated that the current tightening cycle could have reached its peak already. Also, core inflation and growth forecasts for 2024 and 2025 were revised down.

              The newly set rates are as follows: main refinancing operations rate at 4.50%, marginal lending facility rate at 4.75%, and deposit facility rate at 4.00%.

              ECB President cited the persistent nature of inflation being “too high for too long” as the primary motivator behind this strategy to “reinforce progress” in ushering inflation back to the target in a “timely manner”.

              ECB added, “the Governing Council considers that the key ECB interest rates have reached levels that, maintained for a sufficiently long duration, will make a substantial contribution to the timely return of inflation to the target”. Future decisions will “ensure” that the interest ares are set at “sufficiently restrictive levels for as long as necessary.

              In the new economic projections, inflation is forecast to be at 5.6% in 2023 (prior projection at 5.1%), 3.2% in 2024 (prior 3.0%) and 2.1% in 2025 (prior 2.3%).  The upward revision for 2023 and 2024 mainly reflects a higher path for energy prices.

              Core inflation is projected to average 5.1% in 2023 (unchanged), 2.9% in 2024 (prior 3.0%), and 2.2% in 2025 (prior 2.3%).

              Growth is projected to be at 0.7% in 2023 (prior 0.9%), 1.0% in 2024 (prior 1.5%), and 1.5% in 2025 (prior 1.6%).

              Full ECB statement here.

              Australia manufacturing in worst contraction in five years, coronavirus disruption deepens slowdown

                Australian AiG Performance of Manufacturing index dropped to 44.3 in February, down from 45.4. That’s the fourth straight months of contraction in the manufacturing sector, last occurred back in 2014. It’s also the lowest monthly reading in nearly five years. All sectors were in contraction except for food & beverages.

                Australian Industry Group chief executive Innes Willox warned, “The disruptive effects of the coronavirus, including on supply chains, are deepening and adding to the slowdown that has been in train since the closing months of 2019… The coronavirus is negatively impacting the exports of fast-moving consumable items to China and a number of businesses reported supply chain difficulties arising from factory shutdowns in China.”

                TD securities inflation gauge dropped -0.1% mom in February. Company gross operating profits dropped -3.5% qoq in Q4 versus expectation of -1.2% qoq.

                ECB stands pat, issues new forward guidance

                  ECB keeps interest rate unchanged today, with main refinancing rate, marginal lending facility rate, and deposit facility rate at 0.0)%, 0.25%, and -0.50% respectively. Net purchase under APP will continue at monthly pace of EUR 20B. The EUR 1850PEPP will continue “until at least the end of March 2022”. Purchase pace remain at “significantly higher pace” than during first months of the year.

                  Also, ECB now expects key interest rates to ” remain at their present or lower levels until it sees inflation reaching two per cent well ahead of the end of its projection horizon and durably for the rest of the projection horizon, and it judges that realised progress in underlying inflation is sufficiently advanced to be consistent with inflation stabilising at two per cent over the medium term.” It added that this may also imply “a transitory period in which inflation is moderately above target.”

                  Full statement here.

                  AUD/NZD extending correction towards 55 day EMA at 1.08

                    AUD/NZD’s pull back from 1.1043 short term top extends lower today, partly in reaction to disappointment over Australia GDP data. Deeper fall would be seen to 55 day EMA (now at 1.0806) and possibly below. It’s early to tell if the rebound from 0.9994 has completed, and how deeper the decline would be. Bearish divergence condition in daily MACD is a bearish sign. Also, 1.1043 is close to the edge of a long term range. Reaction to 38.2% retracement of 0.9994 to 1.1043 at 1.0642 will be crucial to determine the next move.

                    RBA Lowe hints at more easing in November

                      RBA Governor Philip Lowe hinted in a speech that the central bank is ready for deliver more monetary easing in the upcoming meeting in November. He noted that “as the economy opens up, though, it is reasonable to expect that further monetary easing would get more traction than was the case earlier.”

                      Lowe also noted that that financial stability considerations “have changed somewhat”. To the extent that an easing of monetary policy helps people get jobs it will help private sector balance sheets and lessen the number of problem loans. In so doing, it can reduce financial stability risks.”

                      Also, while RBA’s balance sheet has “increased considerably” since March, “large increases have occurred in other countries. RBA is “considering the implications os this as we work through out own options”.

                      Lowe’s comments are in line with market expectations of another cut in cash rate to 0.10%, with expansion of asset purchases to longer maturities.

                      Full speech here.

                      Japan PMI manufacturing dropped to 48.5, lowest since June 2016

                        Japan PMI Manufacturing dropped to 48.5 in October, down from 48.9 and missed expectation of 49.2. That’s the sixth successive sub-50 reading, and lowest since June 2016. PMI Services dropped to 50.3, down from 52.8. PMI Composite dropped to 49.8, down from 51.5.

                        Joe Hayes, Economist at IHS Markit said: “Japan’s economy hit a widely-expected bump in October following the consumption tax increase which took effect during the month. However, the impact has been somewhat obscured by the typhoon, which panelists, particularly in the service sector, were disrupted by…. Overall it seems that temporary domestic factors have been the primary cause of reduced output at the start of the fourth quarter, suggesting there is potential for some pay-back in November.”

                        Full release here.

                        Canada retail sales down -1.4% mom in March

                          Canada retail sales decreased -1.4% mom to CAD 65.3B in March, slightly worse than expectation of -1.3% mom. Sales decreased in 5 of the 9 subsectors, representing 55.5% of retail trade, led by decreases at motor vehicle and parts dealers (-4.4%) and gasoline stations and fuel vendors (-3.9%).

                          Core retail sales—which exclude gasoline stations and fuel vendors and motor vehicle and parts dealers—increased 0.3% mom.

                          In volume terms, retail sales decreased -1.0% mom.

                          Advance estimate suggests that sales increased 0.2% mom in April.

                          Full Canada retail sales release here.

                          China retail sales down -11.1% yoy in Apr, industrial production down -2.9% yoy

                            China retail sales dropped -11.1% yoy in April, worse than expectation of -6.0% yoy. Industrial production dropped -2.9% yoy, versus expectation of 0.7% yoy. Fixed asset investment rose 6.8% ytd yoy, also below expectation of 7.0%.

                            The “increasingly grim and complex international environment and greater shock of [the] Covid-19 pandemic at home obviously exceeded expectation, new downward pressure on the economy continued to grow.” The NBS said in a statement. But it added, “with progress in Covid controls and policies to stabilize the economy taking effect, the economy is likely to recover gradually.”

                            Yuan’s decline has somewhat slowed a little last week. USD/CNH is now close to 61.8% retracement of 7.1961 to 6.3057 at 6.8560. Considering bearish divergence condition in 4 hour MACD, USD/CNH could be about to top for the near term. Break of 6.730 support will confirm the turn into a corrective phase in the uptrend.

                            Into US session: Sterling strongest on BoE, but it’s not bullish yet

                              Entering into US session, Sterling is now the strongest one today as boosted by hawkish BoE hold. Most importantly, heavy weight Chief Economist Andy Haldane joined known hawks Ian McCafferty and Michael Saunders to vote for a hike. Euro is now trading as the second weakest, followed by Yen and New Zealand Dollar.

                              GBPUSD H and 6H action bias has turned neutral with the rebound, after a string of downside red bars. Still, it’s kept well below 1.3471 near term resistance. Overall outlook remains bearish though but some more consolidation could come first.

                              Meanwhile, EUR/GBP is still clearly held in range with a neutral outlook.

                              GBP/JPY is also neutral as the corrective pattern from 144.37 extends.

                              US GDP grew 4% annualized in Q4, missed expectations

                                According to advance estimate, US GDP grew at an annual rate of 4.0% in Q4, below expectation of 4.2%. BEA said: “The increase in real GDP reflected increases in exports, nonresidential fixed investment, personal consumption expenditures (PCE), residential fixed investment, and private inventory investment that were partly offset by decreases in state and local government spending and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased”.

                                Full release here.

                                RBA minutes reveal hawkish tilt, another hike in Nov?

                                  Minutes of RBA’s October meeting surprised market participants with a more hawkish tone than anticipated. The board seriously contemplated a rate hike at the meeting, but opted to hold due to a lack of “sufficient new information.

                                  Additionally, the central bank underscored its “low tolerance” for a delayed return of inflation to target. It suggested that “some further tightening” might be imminent if inflation proves to be more persistent than current expectations.

                                  As RBA steers ahead, its forthcoming November meeting is expected to be crucial. The board will be equipped with additional economic data on factors such as inflation, labour market dynamics, and overall economic activity. Additionally, they will have at their disposal revised staff forecasts

                                  The minutes highlighted, “members considered two options for monetary policy at this meeting: raising the cash rate target by a further 25 basis points; or holding the cash rate target steady.” However, the decision to maintain the status quo was reached as “members agreed that the case to leave the cash rate target unchanged at this meeting was the stronger one.” This consensus was influenced by the absence of “sufficient new information over the preceding month from economic data or financial markets to necessitate an adjustment in the stance of monetary policy.”

                                  However, the upcoming November meeting might paint a different picture. The board is set to receive “additional data on economic activity, inflation and the labour market, as well as a set of revised staff forecasts.”

                                  “In reaching their decision, members noted that some further tightening of policy may be required should inflation prove more persistent than expected. The Board has a low tolerance for a slower return of inflation to target than currently expected,” the minutes detailed.

                                  Full RBA minutes here.

                                  US jobless claims dropped to 212k, housing starts, Philly Fed survey

                                    US initial jobless claims dropped -16k to 212k in the week ending May 11, below expectation of 220k. Four-week moving average of initial claims rose 4.75k to 225k. Continuing claims dropped -28k to 1.66M in the week ending May 4. Four week-moving average of continuing claims rose 1.5k to 1.668M.

                                    Building permits rose 0.6% mom to 1.296k annualized rate. Housing starts rose 5.7% to mom to 1.235M.

                                    Philadelphia Fed Business Outlook diffusion index jumped to 16.6 in May, up from 8.5 and beat expectation of 9.0.

                                    New Zealand ANZ business confidence rose to 11.8, no more RBNZ cut expected

                                      New Zealand ANZ Business Confidence rose to 11.8 in February’s preliminary reading, up from December’s 9.4. Own activity outlook rose to 22.3, up from 21.7. Looking at some more details, employment intensions rose to 10.6, up from8.8. Investment intentions improved notably to 17.8, up from 8.56. But export intensions dropped to 6.3, down from 10.3.

                                      ANZ said: “We are forecasting wobble in demand in the first few months of this year as the true cost of the closed border for the tourism industry starts to become apparent. But it’s fair to say there’s not much sign of it yet, with the roaring housing and construction sectors filling the void, albeit fuelled by credit rather than foreign exchange earnings. Further monetary stimulus is looking less necessary by the week, and we no longer expect any more OCR cuts this cycle.”

                                      Full release here.

                                      US oil inventories rose 1.9m, WTI recovery capped below 60

                                        US commercial crude oil inventories rose 1.9m barrels in the week ending March 19, versus expectation of 1.4m. At 502.7m barrels, US crude oil inventories are about 6% above the 5-year average for this time of year. Gasoline inventories rose 0.2% barrels. Distillate rose 3.8m barrels. Propane/propylene rose 0.2% barrels. Total commercial petroleum inventories rose 4.8m barrels.

                                        WTI recovered after dipping to 57.29, as it’s tentatively drawing support from 55 day EMA (now at 58.23). Rebound form the current level, followed by break of 62.08 minor resistance will indicate completion of the pull back from 67.83. Retest of this high should be seen next.

                                        Nevertheless, sustained break of the 55 day EMA will indicate that WTI is in a medium term correction. Deeper fall should be seen to 38.2% retracement of 33.50 to 67.83 at 54.71 at least, before the correction completes.

                                        Eurozone exports rose 17.2% yoy, imports up 20.2% yoy in Nov

                                          Eurozone export of goods to the world rose 17.2% yoy to EUR 264.7B in November. Imports rose 20.2% yoy to EUR 276.3B. Trade deficit came in at EUR -11.7B. Intra-Eurozone trade rose 16.8% yoy to EUR 241.5B.

                                          In seasonally adjusted term, exports rose 1.0% mom to EUR 251.5B. Imports dropped -3.8% mom to EUR 266.7B. Trade deficit narrowed from October’s EUR -28.1B to EUR -15.2B, versus expectation of EUR -20.0B. Intraday Eurozone trade dropped from October’s EUR 233.4B to EUR 232.2B.

                                          Full release here.