Tue, Aug 11, 2020 @ 07:29 GMT

US extends temporary steel tariffs exemptions for EU, Mexico and Canada

    Just before the temporary exemptions on the steel and aluminum tariffs expire today, Trump announced to a 30-day extension on European Union, Mexico and Canada, allowing for further negotiation. Meanwhile, the US has reached trade agreements-in-principle with Argentina, Australia and Brazil and details with be finalized “shortly”.

    The White House said in a statement that “in all of these negotiations, the administration is focused on quotas that will restrain imports, prevent transshipment, and protect the national security.” And it added that “these agreements underscore the Trump administration’s successful strategy to reach fair outcomes with allies to protect our national security and address global challenges to the steel and aluminum industries.”

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    US initial jobless claims unchanged at 230k, above expectations

      US initial jobless claims was unchanged at 230k in the week ending April 27, above expectation of 220k. Four-week moving average of initial claims rose 6.5k to 212.5k. Continuing claims rose 17k to 1.671m in the week ending April 20. Four-week moving average of continuing claims dropped -13.75k to 1.674m.

      Also released, non-farm productivity rose 3.6% in Q1, much higher than expectation of 1.2%. Unit labor cost dropped -0.9%, much lower than expectation of 2.1%.

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      Eurozone Sentix investor confidence dropped to 8.8, the zenith is clearly passed

        Eurozone Sentix Investor Confidence dropped to 8.8 in November, down from 11.4 and missed expectation of 9.9. Sentix noted “The problem areas in Europe and the global economy remain largely the same, which does not make it any better. Germany’s weakness is also weighing on the Euroland economy.” Also, “the Eurozone economy passed its zenith in January. Since then, economic expectations have reversed and since April they have been negative.”

        Sentix noted factors such as “US President’s trade policy”, “discussion about the future of the car industry in Germany”, the “weakness of the banking sector” and the “budget question in Italy” are contributing to the development. Additionally, there is an “increasing perception of inflation” as “investors expect inflation to continue to rise. Thus, “central banks can hardly deviate from their current course towards a more restrictive monetary policy, at least not only because of an economic slowdown.”

        Full release here.

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        An update on GBP/CHF short, lower stop to 1.2725

          Swiss Franc overtakes Euro as the strongest currency for today and the week so far as buyers jump in during early part of European session. On the other hand, Sterling was left behind by others in the broad based selloff in Dollar. As a result, GBP/CHF dips notably to as low as 1.2588 so far today and is set to recent down trend. As planned in the last weekly report, we’ll now lower the stop of our GBP/CHF short (sold at 1.2971) to 1.2725, which is slightly above 1.2722 minor resistance.

          Overall view is unchanged that fall from 1.3854 is in progress and should target cluster level at 100% projection of 1.3854 to 1.3049 from 1.3265 at 1.2460 and 61.8% retracement of 1.1638 to 1.3854 at 1.2485. We plan to exit our short position at 1.2500, which is slightly above this 1.2460/85 support zone. Consider that there is loss of downside momentum, as seen it daily MACD’s stay above signal line. There is no compelling reason to change this plan.

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          UK Barclay: No Brexit is the bigger risk than no-deal

            UK Brexit Minister Stephen Barclay said today that no Brexit is the bigger risks than no-deal Brexit for the UK. He said that “no deal is going to be very disruptive for the economy and I think no deal also has serious questions for the union”. However, ” no Brexit is catastrophic for our democracy. Between those very unpleasant choices, I think no Brexit is the bigger risk.”

            Germany’s Economy Minister Peter Altmaier expressed said After divisive debates & votes, today can become a turning point.” “Rejecting No-deal-Brexit by a large cross-party majority will unite millions in the UK & in Europe.”

            European Union’s Economic Commissioner Pierre Moscovici said “we have done everything we could do.” And, “it is tome now for the British to say what they want, now that they said what they don’t want.”

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            Dollar and DOW drop on poor ISM manufacturing and Trump’s steel tariffs

              Dollar drops sharply in US morning as partly weighed down by US President Donald Trump’s decision to restore steel tariffs on Brazil and Argentina. Further selloff is seen, together with stocks too, after poor ISM manufacturing index. For now, the greenback is only slightly better than the sleeping Sterling and oil price pressured Canadian.

              DOW is currently down over -200 pts. Considering that daily MACD is staying below signal line, today’s steep decline should confirm short term topping at 28174.97. Deeper pull back in now in favor for the near term, to 55 day EMA (now at 27319.3). But we’d expect stronger support from there to bring rebound and then up trend resumption.

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              Canada employment rose 953k in June, well above expectation

                Canada employment rose 953k, or 5.8% in June, well above expectation of 675k. Full-time jobs rose 488k, or 3.5% while part-time jobs rose 465k, or 17.9%. Still, employment in June was 1.8m or -9.2% lower than in February.

                Unemployment rate dropped to 12.3%, down from May’s 13.7%, but missed expectation of 11.9%. That’s still more than double of February’s 5.6%. Labor force participation rate rose 2.4% to 63.8%, which is a positive sign even though it’s below February’s 65.5%.

                Full release here.

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                Philly Fed manufacturing business outlook jumped to 17

                  Philadelphia Fed Manufacturing Business Outlook jumped to 17.0 in January, up from revised 2.4 in December, beat expectation of 3.7. The percentage of the firms reporting increases (39 percent) was greater than the percentage reporting decreases (22 percent).

                  All of the survey’s broad indicators remained positive and increased from their readings in December. The survey’s future indexes indicate that respondents continue to expect growth over the next six months.

                  Full release here.

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                  German Maas: Ball is in London and there is not a lot of time left

                    German Foreign Minister Heiko Maas has urged the UK to come back with concrete proposal on solving the Brexit deadlock in its parliament. He tweeted that “So far, unfortunately, the British Parliament has only said what it does not want. What we need now are concrete proposals from the British. The ball is in London, there is not a lot of time left. We #Brexit will also be talking about this in Brussels today. ”

                    Separately, German Economy Minister Peter Altmaier said “Personally I’m optimistic that we can avoid a hard Brexit but the German government is of course prepared for all possible scenarios.”

                    Ireland’s European Affairs Minister Helen McEntee said today Ireland wont’ engage in bilateral negotiation with the UK on the Irish border backstop issue. She said, “What we can’t do and what we won’t do, because we have not throughout this entire process, is engage in any kind of bilateral negotiations with the DUP or any other political party in Northern Ireland or the UK. This is a negotiation between the EU and the UK.”

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                    UK PMI composite dropped to 48.5, 41-month low

                      UK PMI Manufacturing dropped to 47.4 in December, down from 48.9, missed expectation of 49.4. That’s also the lowest level in 4 months. PMI Services dropped to 49.0, down from 49.3, missed expectation of 49.6. That’s the lowest level in 9 months. PMI Composite dropped to 48.5, down from 49.3, lowest in 41 months.

                      Commenting on the latest survey results, Chris Williamson, Chief Business Economist at IHS Markit, said:

                      “December’s PMI survey data sadly lacked festive cheer, indicating that the economy contracted for the third time in the past four months. The latest decline was the second largest recorded over the past decade, and increases the likelihood that the economy contracted slightly in the fourth quarter as Brexit-related uncertainty intensified in the lead up to the general election.

                      “New orders fell for a fifth straight month, causing jobs to be cut for a fourth successive month as firms scaled back operating capacity in line with weakened demand.

                      “The principal drag on order books was falling export sales, with overseas demand for UK-produced goods and services slumping in the past two months to an extent not seen since at least 2014.

                      “Manufacturing production is falling at a rate exceeded only once since the height of the global financial crisis in early- 2009, but output of the vast service sector has now also fallen in each of the past two months, representing the first back-to-back declines since 2009.

                      “Any positive aspects of the survey came largely from the sentiment indicators, with future expectations rising to the highest since June as firms hope that the election will bring clarity on the outlook and remove some of the uncertainty that has been holding back demand.”

                      Full release here.

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                      France Q1 GDP revised down to -5.3%, consumer spending dropped -20.2% in Apr

                        According to second estimate, France GDP dropped -5.3% in Q1, revised down from -4.8% in first estimate. Household consumption expenditure recorded an unprecedented drop (-5.6%). Total gross fixed capital formation (GFCF) fell even more sharply (-10.5%). All in all, total domestic demand (excluding changes in inventories) contracted: it contributed -6.0 points to GDP growth.

                        Imports fell (-5.7%), but less sharply than exports which fell by -6.1%. Overall, the contribution of foreign trade balance to GDP growth was zero. Conversely, changes in inventories contributed positively to GDP growth (+0.6 points).

                        Also released, CPI slowed to 0.2% yoy in May, down from 0.4% yoy, missed expectation of 0.3% yoy. Consumer spending dropped -20.2% mom in April, worse than expectation of -15%

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                        France PMI composite rose to 2 month high, diverging trends

                          French PMI manufacturing dropped to 53.1 in June, down from 54.4 and missed expecttation of 54.0. But PMI services rose to 56.4, up from 54.3 and beat expectation of 54.3. PMI composite rose to 55.6, up from 54.2, and hit a 2 month high.

                          Commenting on the Flash PMI data, Paul Smith, Economics Director at IHS Markit said:

                          “France’s economy showed noticeably divergent trends at the end of the second quarter, with the manufacturing and service sectors heading in markedly different growth directions.

                          “Whilst the services economy strengthened on the back of increased market activity, manufacturers faced a number of headwinds including a general loss of external demand momentum, ongoing vendor delivery delays and rising price pressures, especially for metals (in part linked to higher tariffs).

                          “Although the surveys suggest that underlying economic growth is continuing at a decent clip, on balance the latest data support the current IHS call for a 0.3% rise in GDP for Q2 as a whole.”

                          Full release here.

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                          Swiss CPI rose 0.2% mom, 0.8% yoy. Foreign currency reserves rose to CHF 757B

                            Swiss CPI rose 0.2% mom, 0.8% yoy in April, below expectation of 0.3% mom, 0.9% yoy.

                            Core CPI rose 0.3% mom, 0.5% yoy. Domestic products CPI rose 0.0% mom, 0.4% yoy. Imported products CPI rose 0.9% mom, 2.1% yoy.

                            Also from Swiss, foreign currency reserves rose to CHF 757B in April, up from CHF 738B.

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                            BoJ stands pat, economy to remain severe, CPI to stay negative

                              BoJ kept monetary policy unchanged today as widely expected. Under yield curve control, short term policy rate is kept at -0.1%. BOJ will also continue to purchase a “necessary amount”, “without setting an upper limit”, to to keep 10-year JGB yields at around 0%. The decision was made by 8-1 vote, With Goushi Kataoka dissented, pushing to ease further by lowering short- and long-term interest rates.

                              On outlook, BOJ said the economy is “likely to remain in a severe situation for the time being”. CPI is likely to be “negative for the time being”, affected by the coronavirus pandemic and decline in oil prices. But it’s expected to “turn positive and then increase gradually” as the economy improves.

                              On risks to outlook, BoJ said “there have been extremely high uncertainties over the consequences of COVID-19 and the magnitude of their impact on domestic and overseas economies”. Also, “it is necessary to pay close attention to whether, while the impact of COVID-19 remains, firms’ and households’ medium- to long-term growth expectations will not decline substantially and the smooth functioning of financial intermediation will be ensured with financial system stability being maintained.”

                              Full statement here.

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                              EU Malmstrom reiterated US should end steel tariff threats

                                EU trade Commissioner Cecilia Malmstrom reiterated today that the US should end the steel tariff threats to the EU. And EU’s position is clear that there would be discussion of closer trade ties only if EU is granted permanent exemptions from the steel tariffs. However, Malmstrom also noted that “they don’t think it is enough”, referring to the lack of response from the US.

                                Separately, German economy minister Peter Altmaier urged more work on trade deal with the US as time is running out for a deal over the steel tariffs.

                                The current temporary exemption for EU will expire on June 1.

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                                US oil inventories rose 9.3m barrels, well above expectation of 2.7m

                                  US commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 9.3m barrels in the week ending October 11, much higher than expectation of 2.7m barrels. At 434.9m barrels, crude oil inventories are about 2% above the five year average for this time of year.

                                  WTI crude oil remains in tight range after the release, showing little reactions. Outlook is unchanged that further decline cannot be ruled out. But we’d expect strong support form around 50 psychological level to contain downside. This level is also close to 61.8% retracement of 42.05 to 66.49 at 51.38. On the upside, break of 54.71 will target 63.04 resistance.

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                                  Into US session: Dollar fails to hold gains, Yen stays firm

                                    Entering into US session, Dollar turned weak earlier today and failed to sustain gains. On the other hand, the Japanese Yen is holding broadly firm. Australian Dollar and New Zealand Dollar turned the corner. Much focus will be on US treasury yields and some solid gain there is needed to give the greenback some support. Otherwise, recent correction will likely continue with some more downside potential in the greenback.

                                    In other markets, Europe indices are trading generally higher, with DAX up 1.34%, CAC up 0.81% and FTSE up 0.81% at the time of writing. That follows the strong rally in Asian equities. China Shanghai Composite jumped 1.61% to 2905.56 as boosted by the governments stimulus policies. While the announce measures are just fine-tunings and are hardly anything dramatic, that’s seen as a sign of the director where the Chinese government is heading towards. That is do more to support growth.

                                    The SSE’s rebound is set to extend to 55 day EMA (now at 2944.64) and above. But for now, we’re seeing no reason for it to regain 3000 handle.

                                    Nikkei also rose 0.51% to close at 22510.48 and pared back much of Monday’s loss. However, the day high was seen at the open at 22555.05 and there was no follow through momentum back then. Overall strength of support from the 55 day EMA is rather weak. We’ll keep monitor this level, which will decide whether Nikkei would head for test on 21462.94 support before an upside breakout.

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                                    RBA Kent: Markets expect next RBA move to be down than up

                                      RBA Assistance Governor Christopher Kent delivered a speech on “Financial Conditions and the Australian Dollar – Recent Developments” today. There he acknowledged that developments in Australian financial markets have been similar to those offshore, with falling equity prices, rising credit spreads and increased volatility. Such development is “a story of risk premia increasing from low levels and were associated with rising concerns about downside risks, both internationally and domestically.”

                                      The outlook for domestic economy has “also shifted” with downward revision in both growth and inflation forecasts. And market expectations for the next move in cash rate have “switched signs too”. Kent noted that “markets have assessed that the next move is more likely to be down than up.”. And that’s reflected in lower bond yields.

                                      Fall in Australian bond yields is “likely to have contributed somewhat to the modest depreciation of the Australian Dollar of late”. On the other hand, “higher commodity prices appear to have worked to limit the extent of Australian dollar depreciation”.

                                      Full speech here.

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                                      Trump to China: 16 months PLUS is a long time to be hemorrhaging jobs and companies

                                        In his tweets, US President Donald Trump suggested that China love to deal with new administration after next year’s election. However, he warned that “16 months PLUS is a long time to be hemorrhaging jobs and companies on a long-shot….”

                                        Trump further warned that if he wins, “Deal would get MUCH TOUGHER! In the meantime, China’s Supply Chain will crumble and businesses, jobs and money will be gone!”

                                        At the same time, he also repeated that “EU & all treat us VERY unfairly on Trade also.” And, Germany, and so many other countries, have negative interest rates, “they get paid for loaning money,” and our Federal Reserve fails to act! Remember, these are also our weak currency competitors!

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                                        Eurozone Sentix Investor Confidence rose to 12.1 in technical counter-movement

                                          Eurozone Sentix Investor Confidence rose to 12.1 in July, up from 9.3 and beat expectation of 9.0. Sentix noted in the release that Eurozone expectations may “stabilize slightly” after the sharp fall in June. But that seems more of a “technical counter-movement”. It noted that the Economic Index for Germany had dropped for the sixth time in a row to just 16.2.

                                          Also, the next of of trade dispute between the US and the rest of the world “has been reached and countermeasures by the EU and China are under way. Sentix noted if Trump now targets the European car industry, the “trade dispute could lead to more than a slowdown in economic sentiment.” At the same time, central banks, at the path of stimulus remove, are “unlikely to play a support role”.

                                          Sentix added that the global environment is also showing more and more signs of an economic slowdown. For Japan, for example, we are recording the sixth consecutive decline in the overall index and economic expectations for Asia ex Japan are slumping by more than 10 points. US economic expectations are also falling to their lowest level since August 2012.

                                          Full Sentix Economic Index release here.

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