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Eurozone PPI up 0.7% mom, 36.3% yoy in May

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    Eurozone PPI rose 0.7% mom, 36.3% yoy in May, versus expectation of 1.0% mom, 36.7% yoy. For the month, industrial producer prices increased by 1.7% for intermediate goods, by 1.3% for non-durable consumer goods, by 0.9% for durable consumer goods and by 0.6% for capital goods, while they decreased by -0.2% in the energy sector. Prices in total industry excluding energy increased by 1.3%.

    EU PPI rose 0.8% mom, 36.4% yoy. Among Member States for which data are available, the highest monthly increases in industrial producer prices were recorded in Finland (+5.5%), Estonia (+5.4%) and Lithuania (+4.9%). Decreases were observed in Ireland (-19.4%), Slovakia (-4.4%), the Netherlands (-0.8%), Bulgaria and France (-0.1% both).

    Full release here.

    Bundesbank: Germany economy to stagnate, inflation to stay above 2%

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      In its latest monthly report, Bundesbank paints a sobering picture of the German economy, which remains ensnared in a weak phase. Key factors hampering growth include tepid foreign demand combined with escalating financing costs. The bank foresees the economic output remaining largely stagnant for the summer quarter.

      Yet, it’s not all gloom. Bundesbank highlights several silver linings. Stable employment conditions paired with robust wage hikes amidst decreasing inflation rates are expected to stimulate private consumption, continuing its recovery trajectory. This, in turn, offers a promising uplift for the service sector.

      Nevertheless, the manufacturing sector poses significant concerns. Weak industrial production, attributed to a continued slump in demand for industrial goods, threatens to stymie the nation’s broader economic progress. Interestingly, the report underscores that the recent recovery in demand is predominantly driven by large orders, typically characterized by extended processing times. In the absence of these large-scale orders, demand, both domestically and internationally, would plummet more precipitously.

      Peering into the future, Bundesbank’s experts anticipate declining inflation rate in the autumn, largely influenced by dropping energy prices. On the flip side, the institution projects wage growth to persistently remain strong, extending beyond 2023. This dynamic of robust wage growth amid other economic pressures is pinpointed as a primary factor likely to keep the inflation rate hovering above the 2 percent mark for an extended duration.

      Full Bundesbank monthly report release here.

      Australia Jan trade balance: Massive AUD 1.06b surplus

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        Australia recorded massive trade surplus of AUD 1.06b in January, a turnaround from December’s AUD -1.15b trade deficit.

        Exports jumped 4% mom to AUD 33.9b, with 4% rise in non-rural goods, 54% rise in non-monetary gold. Much more than offsetting -8% fall in rural goods.

        Imports, on the other hand, dropped -2% to AUD 32.9b. Consumption goods dropped -7%, non-monetary gold dropped -19%, capital goods dropped 1%.

        AUD/JPY is tentatively drawing strong support from key medium term cluster at 81.48, 50% retracement of of 72.39 (2016) low to 90.29 (2017 high) at 81.34. But the bigger hurdle is on 84.34 support turned resistance for confirming short term bottoming. Otherwise, risk will remain on the downside.

        Yuan recovers after China warns of short selling

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          Chinese Yuan stages on strong rebound today, with USD/CHN breaching below 6.9 handle. Guo Shuqing, head of China’s banking and insurance regulator warned i a speech over the weekend that “shorting the yuan will inevitably suffer from a huge loss.”

          He criticized that Trump’s administration is worried about Yuan’s depreciation as that could reduce the impact of higher tariffs imposed on China. At the same time,developed countries have long asked for more currency flexibility. It was “ridiculous” that as Yuan’s exchange rate becomes more market oriented, some people in the US showed fear.

          At the moment, we’re not seeing any determination by the Chinese government to block USD/CNH breaking through the psychologically important 7 handle. There might be more verbal interventions. But the aim is seen as for slowing Yuan’s decline, rather than giving it a floor. USD/CNH’s could have formed a short term top at 6.9488. But we’d expect further rise through 6.9800 high after some brief consolidations.

          Japan EM Motegi to meet USTR Lighthizer for trade talk on Sep 21

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            Japanese Economy Minister Toshimitsu Motegi is said to be meeting US Trade Representative Robert Lighthizer on September 21 in the US. That will be a follow up to an inconclusive meeting on trade back in August. Back then Motegi said acknowledged the importance of expanding trade. Also, both sides exchanged views individual areas but nothing had been decided. Earlier this week, Motegi was quoted saying that the US and Japan have some difference in views but will seek to proceed with the discussions.

            It’s known that Japan has been insisting in bring the US back to the Trans Pacific Partnership, which Trump pulled out soon after taking office. The multilateral framework is what Japan has been pushing for, which is clearly shown in its leadership role in the TPP too. On the other hand, Trump has been trying to force Japan into bilateral agreement, which he fails o far. It’s uncertain how this fundamental difference could be bridged.

            The meeting between Motegi and Lighthizer will precede summit between Japanese Prime Minister Shinzo Abe and Trump on the sidelines of a UN meeting starting September 25.

            NZD/USD pressing channel support, could it bounce from here?

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              In recent weeks, the antipodean currencies have encountered turbulent waters, contending for the title of the month’s poorest performers. Reserve Banks of both Australia and New Zealand are widely perceived to have reached the peaks of their ongoing tightening cycles. In contrast, ECB and BoE (and less certaintly Fed) seem poised for further rate hikes. Also, the broader sentiment, underpinned by belief that global interest rates may remain elevated longer than previously anticipated, has notably dampened risk appetites.

              However, recent economic concerns stemming from China have played a pivotal role in the accelerated depreciation of these currencies in the last fortnight. China’s less-than-stellar economic recovery post its stringent Covid lockdowns, coupled with looming deflation risks and challenges in its property and finance sectors, have further intensified the pressure on the antipodean currencies. Additionally, PBoC milder than anticipated rate cut today further dampened sentiments towards these currencies.

              Technically speaking, however, there is prospect of a near term bounce in NZD/USD, given that it’s now pressing a medium term channel support on oversold condition. Break above 0.5995 resistance will trigger a rebound to 55 D EMA (now at 0.6117). However, deeper decline and firm break of 100% projection of 0.6537 to 0.5984 from 0.6410 at 0.5857 could prompt downside acceleration to 161.8% projection at 0.5515, which is close to 0.5511 long term support (2022 low).

              Fed Harker: Reopening too soon might be a health catastrophe and reverse economic recovery

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                Philadelphia Fed President Patrick Harker warned of the risk of reopening the economy too soon. In a more pessimistic scenario, there is a second wave of the coronavirus after reopening. “Not only would this be a health catastrophe, but it would reverse the recovery as well”, he said.

                Harker also said that Q2 data will be “brutally painful. “What happens after that to a large extent depends on how the virus moves through our society, and our reaction to it in terms of balancing stay-at-home policies versus an intelligent — and I want to stress, intelligent — reopening.”

                US PCE inflation accelerated, jobless claims stay low, Canada GDP missed

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                  US personal income rose 0.3% in July, spending rose 0.4%, both matched expectations. Headline PCE accelerated to 2.3% yoy, up from 2.2% yoy and beat expectation of 2.2%. PCE core also accelerated to 2.0% yoy, up from 1.9% yoy and matched expectation of 2.0% yoy. Core inflation now formally meet Fed’s target.

                  Initial jobless claims rose 3k to 213k in the week ended August 25, below expectation of 214k. Four-week moving average dropped -1.5k to 212.25k. That’s the lowest level since December 13, 1969. Continuing claims dropped -20k to 1.708m in the week ended August 18. Four-week moving average of continuing claims dropped -4.5k to 1.73125m.

                  Canada data was slightly less impressive. GDP rose 0.0% mom in June versus expectation of 0.2% mom. For Q2, GDP grew 2.9% annualized, slightly below expectation of 3.0%. Exports was the main driver to Q2’s growth, up 2.9%. Consumer spending growth also rose 0.6%. However, there was deceleration in business investments, contraction in inventories and imports. The set of data doesn’t add any additional reason for BoC to hike in September instead of October.

                  USD/CAD recovers strongly after the release with focus now back on 1.2981 minor resistance Break will bring stronger rebound.

                  BoE Pill: A significant monetary policy response required in Nov

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                    BoE Chief Economist Huw Pill said in a speech, “Given the uncertain world and volatile markets we face, November can seem a long time away. At present, I am still inclined to believe that a significant monetary policy response will be required to the significant macro and market news of the past few weeks.”

                    “But I will see when we get to November how events have evolved in the meantime. As always, my policy choices will be driven by the data and guided by pursuit of the inflation target,” he added.

                    Full speech here.

                    China industrial profits dropped -14%. Autos, oil processing, steel and chemicals dragged

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                      ActionForex.com
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                      China’s industrial profits in January-February period slumped -14.0% yoy to CNY 708B. It’s the biggest contraction since 2011. National Bureau of Statistics (NBS) said the contract was mainly due to distortions caused by the timing of Lunar New Year.

                      Meanwhile, there were notable declines in profits in auto, oil processing, steel and chemical industries. Ex-factory prices of Auto, oil processing, steel and chemicals dropped -0.4%, -1.3%, -2.5% and -2.3% respectively. Profits dropped CNY 37B, CNY 32B, CNY, 29B and CNY 19B respectively. Combined the contributed to -14.2% contraction in profits. Excluding them, industrial profits rose 0.2%.

                      While the set of data is largely ignored by the stock markets, it’s putting some more weight to the upcoming round of trade talks. US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will visit Beijing on March 28-29. Even though an eventual trade might might not help reverse the slowdown in China, at least, the drag on exports will likely be eased.

                      Full NBS Statement in simplified Chinese.

                      Japan government: economy shows movements of picking up

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                        ActionForex.com
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                        In the latest Monthly Economic Report, Japan’s Cabinet Office upgraded economic assessment for the first time in 17 months. It said, “the Japanese economy shows movements of picking up recently as the severe situation due to the Novel Coronavirus is gradually easing.” Back in November, it said the economy “continues to show weakness in picking up”.

                        Private consumption is “picking up”, dropping “while some weakness remains”. However, business investments “appears to be pausing for picking up”. Exports are “almost flat”. Industrial production continues to appear to be “pausing for picking up”. Corporate profits are “picking up”. Employment situations shows “picking up in some components”, comparing to November’s “shows steady movement”. Consumer prices continues to “show steady movements.

                        Full release here.

                        NIESR: BoE may cut rates earlier due to subdued growth

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                          ActionForex.com
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                          NIESR forecasts that UK’s GDP will remain flat Q3. An early prediction for Q1 of 2024 indicates a modest GDP growth of 0.3%, primarily driven by the services sector. NIESR noted that these projections align with UK’s long-term trend of low but stable economic growth.

                          Today’s subdued GDP data, as suggested by NIESR, might be interpreted as a sign by BoE that “no further monetary tightening is needed”. This could pave the way for BoE to “start cutting interest rates earlier than previously expected”, depending on future inflation trends.

                          Full NIESR release here.

                          UK PMI composite ticked up to 48.3, downturn will deepen into new year

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                            UK PMI Manufacturing was unchanged at 46.2 in November. PMI services was also unchanged at 48.8. PMI Composite ticked up from 48.2 to 48.3.

                            Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:

                            “A further steep fall in business activity in November adds to growing signs that the UK is in recession, with GDP likely to fall for a second consecutive quarter in the closing months of 2022.

                            “If pandemic lockdown months are excluded, the PMI for the fourth quarter so far is signalling the steepest economic contraction since the height of the global financial crisis in the first quarter of 2009, consistent with the economy contracting at a quarterly rate of 0.4%. ”

                            Forward-looking indicators, notably an increasingly steep drop in demand for goods and services, suggest the downturn will deepen as we head into the new year.”

                            Full release here.

                            UK Gfk consumer confidence dropped to -31, a wall of worry is confronting

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                              UK Gfk Consumer Confidence Index dropped from -26 to -31 in March. That’s the lowest level since November 2020. Personal Financial Situation over last 12 months dropped from -11 to -13. Personal Financial Situation over next 12 months dropped from -14 to -18. General Economic Situation over last 12 months dropped slightly from -50 to -51. Genera Economic Situation over next 12 months dropped from -43 to -49.

                              Joe Staton, Client Strategy Director GfK, says: “A wall of worry is confronting consumers this month and there is an unmistakable sense of crisis in our numbers. Consumers across the UK are experiencing the impact of soaring living costs with 30-year-high levels of inflation, record-high fuel and food prices, a recent interest-rate hike and the prospect of more increases to come, and higher taxation too – all against a background of stagnant pay rises that cannot compensate for the financial duress. This is the fourth month in a row that UK consumer confidence has dropped.”

                              Full release here.

                              Markets shrug Trump’s unsubstantiated tax cut for middle class

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                                Trump talked about the plan to give middle class 10% tax cut yesterday. He said “we’re putting in a resolution some time in the next week and a half to two weeks [and] we’re giving a middle-income tax reduction of about 10 percent.” He insisted that the plan will go through Congress rather than executive order. And the vote will be done after mid-term election.

                                But the initiative is widely criticized as unsubstantiated as Republican congressional leaders and White House officials were reported to have heard nothing about the plan. Additionally, Congress is in recess ahead of mid-term election and there is no plan to return to Washington for the matter.

                                White House spokeswoman Lindsay Walters clarified yesterday that “as part of Tax Reform 2.0, the first elements of which were passed the House in September, the President would like to see an additional tax cut of 10% for middle-income families.” That effectively confirmed that the idea of 10% tax cut is something entirely new.

                                The three bills of the so called Tax Reform 2.0 was passed in the House in late September. And it’s already facing a tough batter in the Senate. It is seen as nearly impossible to add additional deficit ballooning 10% tax cut to the plan and get through either House or Senate. The claimed 10% tax cut for the middle class is seen as campaign gimmick rather than anything with substance.

                                The US markets shrugged off the news with DOW closing down -0.50% at 25317.41. Consolidation from 24899.77 is in progress but fall from 26951.81 medium term should resume sooner or later.

                                Silver extends rally above 20, Gold still struggling in range

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                                  Silver’s rally from 18.13 resumes this week and breaks above 20 handle. In the bigger picture, 18.13 is tentatively seen as a medium term bottom, made after hitting 100% projection of 30.07 to 21.41 from 26.93 at 18.27.

                                  For now further rally is expected as long as 19.54 holds. The key resistance zone lies around 22.50, which is close to 55 week EMA (now at 22.61), and 38.2% retracement of 30.07 to 18.13 at 22.69. Reaction from there will reveal whether rise from 18.13 is a corrective rebound, or the start of an up trend (the preferred case).

                                  Gold is struggling in range for now, but further rally is expected as long as 1754.14 support holds. Break of 1794.68 will resume the rise from 1680.83 low. Key resistance level lies in 38.2% retracement of 2070.06 to 1680.83, which is close to 55 week EMA (now at 1826.89). Sustained break there will solidify the case that whole corrective pattern from 2074.84 has completed with three waves to 1680.83.

                                  Fed’s Kashkari suggests rate cuts may wait until next year

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                                    ActionForex.com
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                                    Minneapolis Fed President Neel Kashkari told Fox News Channel that he wants to be “patient” regarding monetary easing. He added that the first rate cut could “potentially” be inappropriate until 2025.

                                    “I’m in the view of, we need to wait and see, be patient as long as it takes, until we get convinced that inflation is on its way back down to 2%,” he said.

                                    RBA holds cash rate steady, maintains tightening bias

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                                      ActionForex.com
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                                      RBA has decided to keep the cash rate target unchanged at 3.60% amid ongoing uncertainty, but maintained its tightening bias. The central bank stated that some further tightening might be necessary, depending on developments in the global economy, household spending, inflation, and the labor market outlook.

                                      In the official statement, RBA noted, “The Board expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target.”

                                      RBA’s central forecast anticipates inflation to decline over the next couple of years, reaching around 3% by mid-2025. The statement highlighted that “medium-term inflation expectations remain well anchored, and it is important that this remains the case.”

                                      Despite the slowing growth in the Australian economy, labor market remains very tight. However, as economic growth slows, RBA expects unemployment to increase. The Board remains alert to the risk of a “price-wages spiral”, given the limited spare capacity in the economy and the historically low rate of unemployment.

                                      Full RBA statement here.

                                      US-China trade talks may end in deadlock as mood turned sour

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                                        ActionForex.com
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                                        Ahead of the top-level US-China trade negotiations today, Chinese officials appeared to be toning down expectations. According to a Reuters report, the Chinese government is not optimistic on any agreement out of the meetings in Washington today and tomorrow. The talks could just end up in a deadlock. Also, more time is needed to improve the overall ties between the two countries.

                                        The mood turned sour this week after US Commerce Department blacklisted 27 Chinese entities and imposed some visa restrictions for abuse of human rights in Xinjiang. Meanwhile, it’s reported that China is insisting on not addressing the core issues including intellectual property theft, forced technology transfer, subsidies on state-owned enterprises and enforcement of the agreement. Instead, they aiming at a partial deal which the US is not after.

                                        Fed Bostic: We are going to get our policy rate certainly to a neutral space

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                                          Atlanta Fed President Raphael Bostic said yesterday, “we are going to get our policy rate certainly to a neutral space where we are no longer providing accommodation. If inflation stays at high levels or levels that are too high — by too high, it’s really not moving back towards our 2% target — then I am going to be supporting moving more.”

                                          “We moved our policy rate 25 basis points and the 30 year (mortgage) moved 2 percentage points. That is tremendous responsiveness,” Bostic also noted. “The moves that we have seen in rates and in yields are a sign that the markets still believe the Fed has credibility. They have said what we are going to do and they have priced in us doing them … That is an important dimension in the marketplace.”

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