US initial jobless claims dropped to 751k, continuing claims dropped to 7.3m

    US initial jobless claims dropped -7k to 751k in the week ending October 31, slightly above expectation of 746k. Four-week moving average of initial claims dropped -4k to 787k.

    Continuing claims dropped -538k to 7285k in the week ending October 24. Four-week moving average of continuing claims dropped -827k to 8245k.

    Full release here.

    Australia’s NAB business confidence and conditions decline, signaling continued soft growth

      Australia NAB Business Confidence fell from -3 to -9 in November. Business Conditions fell from 13 to 9. Trading conditions fell from 19 to 13. Profitability conditions fell from 11 to 6. Employment conditions were unchanged at 8.

      NAB Chief Economist Alan Oster remarked, “Both confidence and conditions declined in the month and after a period of relative stability through mid-2023 appear to be softening further.” He pointed out that, excluding the pandemic period, business confidence is at its weakest since around 2012. This was a time characterized by significantly weaker conditions and slowing growth in advanced economies.

      Despite these declines, Oster noted that business conditions remain above average, reflecting their strong starting point. He emphasized the importance of monitoring whether this drop in confidence continues and if a trend develops in business conditions. For the moment, these indicators suggest “ongoing soft growth in Q4”.

      Full Australia NAB business confidence release here.

      Australia PMI composite dropped to 15-month low, heavily impacted by restrictions

        Australia PMI Manufacturing dropped from 56.9 to 51.7 in August, hitting a 14-month low. PMI Services dropped from 44.2 to 43.3, a 15-month low. PMI Composite dropped from 45.2 to 43.5, also a 15-month low.

        Jingyi Pan, Economics Associate Director at IHS Markit, said: “Australia’s private sector remained stuck in decline in August… as activity remained heavily impacted by current mobility restrictions brought about by the spread of the COVID-19 Delta variant. Not only were demand and business activity hit, employment conditions also deteriorated, with private sector staffing levels falling for the first time since October 2020… The one bright spot had been an improvement in the outlook amongst Australian private sector firms in August, with hopes of an improvement in the COVID-19 situation expected to spark an eventual rebound for the Australian economy.”

        Full release here.

        Germany Ifo business climate dropped to 94.7 in Dec, sentiment clouded over for Christmas

          Germany Ifo Business Climate dropped from 96.6 to 94.7 in December, below expectation of 95.4. Current Assessment index dropped from 99.0 to 96.9, below expectation of 97.5. Expectations index dropped from 94.2 to 92.6, below expectation of 93.3. Looking at some more details, manufacturing rose from 16.7 to 17.3. Services dropped from 11.6 to 4.5. Trade dropped from 2.7 to -4.1. Construction dropped from 11.7 to 7.4.

          Ifo said: “Sentiment at German companies has clouded over for Christmas. The deteriorating pandemic situation is hitting consumer-related service providers and retailers hard. The ifo Business Climate Index fell from 96.6 points  in November to 94.7 points in December. Companies assessed their current business situation as less positive. Pessimism regarding the first half of 2022 also increased. The German economy isn’t getting any presents this year.”

          Full release here.

          US and Canada employment awaited, USD/CAD ready for breakout

            Focus turns to employment data from US and Canada today. US non-farm payroll report is expected to show 265k growth in September. Unemployment rate is expected to be unchanged at 3.7%. Average hourly earnings is expected to rise 0.3% mom in September.

            Looking at related data, ISM manufacturing employment dropped from 54.2 to 48.7, back into contraction region. But ISM services employment rose from 50.2 to 53.0. ADP private employment grew a solid 208k, up from prior month’s 185k. Four-week moving average of initial claims dropped notably from 246k to 207.

            Overall, the headline print and unemployment rate are unlikely to deviate much from expectations. The surprise factor is probably in wage growth.

            Meanwhile, from Canada, employment is expected to rebound and grow 22.5k in September, with unemployment rate unchanged at 5.4%.

            USD/CAD’s pull back from 1.3832 might have completed at 1.3501, after hitting 38.2% retracement of 1.2952 to 1.3832. An upside breakout looks ready after the above mentioned event risks are cleared. Nevertheless, even in case of another fall to extend the corrective pattern, downside should be contained by 1.3501.

            Italy 5-Star/PD coalition calls for flexibility on excessive rigidity of EU budgets rules

              Italy’s Five-Star Movement and Democratic Party have agreed to form new coalition. A 26-point program was published underpinning the government. And, supporters of Five-Star are now holding an online ballot for the proposed coalition.

              Five-Star said that “this is a very delicate moment for the country. It must be tackled by focusing on the interests and needs of citizens, of the community that we all form together.”

              One of the commitments of the program is to use the upcoming budget to boost the stalled without endangering public finance. Though, the coalition called for greater flexibility from EU regarding the “excessive rigidity” of existing budget rules.

              Fed’s Collins favors “actively patient” stance amid tariff-driven inflation risks

                Boston Fed President Susan Collins said overnight that the Fed should remain “actively patient” in its stance. Despite the complexity of current conditions, she argued that “solid” fundamentals give the Fed room to carefully assess incoming data before making policy moves. “Calibrating appropriate policy in this context is challenging,” she acknowledged in her speech.

                Collins highlighted the inflationary impact of newly imposed trade tariffs, which she said are beginning to show up in the prices of some goods. She projected core inflation to climb toward 3% by the end of the year, while warning that growth and employment may slow as a result.

                However, she pointed to mitigating factors—such as firms narrowing profit margins and consumers maintaining spending. “As a result, the adverse impact of tariffs on labor market conditions and economic growth may be more limited,” she said.

                Canada retail sales flat in Dec, ex-auto sales rose 0.5%

                  Canada retail sales were virtually unchanged at CAD 52.6B in December, matched expectations. Ex-auto sales rose 0.5% mom, above expectation of 0.4% mom. Sales were up in eight provinces. Ontario rose 0.4% as a result of higher sales at motor vehicle and parts dealers. In Toronto, sales were up 1.8%. In Alberta, sales grew 1.0%. In Quebec, sales dropped -1.4%, largest monthly decline in more than a year.

                  Full release here.

                  US House Speaker Ryan urged NAFTA agreement notification by May 17

                    US House Speaker Paul Ryan told the NAFTA negotiation parties that May 17 is the deadline for the new NAFTA deal for eventual passage for the current Congress to vote on within this year. Ryan said “We have to have the paper – not just an agreement, we have to have the paper – from USTR by May 17 for us to vote on it this year, in December, in the lame duck”. But later, his spokesman said he referred to a notification of intent to sign the NAFTA agreement, not the full text. The new elected Congress will take office in January.

                    Canadian Foreign Minister Chrystia Freeland said after meeting with US legislators that “we are definitely getting closer to the final objective.”

                    Mexico’s Economy Minister Ildefonso Guajardo said he’ll know by the end of Friday ” if we really have what it takes to be able to land these things in the short run.”

                    BoC hikes 25bps, confirms a pause

                      BoC raises overnight rate by 25bps to 4.50% as widely expected. The Bank Rate and deposit rate are also lifted to 4.75% and 4.50% respectively.

                      In the statement, BoC said, “If economic developments evolve broadly in line with the MPR outlook, Governing Council expects to hold the policy rate at its current level while it assesses the impact of the cumulative interest rate increases.”

                      That is, a pause is going to follow. But, BoC is still “prepared to increase the policy rate further if needed to return inflation to the 2% target.”

                      BoC also noted, that recent economic growth has been “stronger than expected” with the economy remains in “excess demand” Labor markets are “still tight”. But there is “growing evidence that restrictive monetary is slowing activity”. It expects the effects of tightening to “continue to work through the economy” while weaker foreign demand will weigh on exports.

                      BoC projects growth of about 1% in 2023 and 2% in 2024. Inflation is projected to fall to around 3% in the middle of 2023, and then 2% in 2024.

                      Full statement here.

                      Brexit crisis deepens as Leadsom resigns on second referendum

                        Brexit crisis in UK deepened further after a key Cabinet Minister resigned in opposition to Prime Minister Theresa May’s inclusion of a second referendum in the new Brexit plan.

                        Andrea Leadsom Leader of the House of Commons, said “I no longer believe that our approach will deliver on the referendum result”. And, “I do not believe that we will be a truly sovereign United Kingdom through the deal that is now proposed”.

                        Leadsom went further and said “I have always maintained that a second referendum would be dangerously divisive and I do not support the government willingly facilitating such a concession.”

                        May’s spokesman just praised Leadsom and expressed disappointment at her decision, but added: “The prime minister remains focused on delivering the Brexit people voted for.”

                        There is practically no chance for May to get her Brexit deal through the Commons. The question now is who will take her place and lead Brexit after she steps down as promised. Sterling remains the weakest one for the week as markets are pricing in the chance of a pro-Brexit hardliner leading UK to a no-deal Brexit.

                        HSI gapped down on risk aversion, but selling eased

                          Risk aversion continues in Asian session today with Hong Kong HSI gapped down and hit as long as 23895.03. But the index then recovered as selling eased somewhat, down -1.3% only after morning session. Prior rebound to 25303.77 was a surprise to us but the overall view isn’t changed. Price actions from 21139.26 are seen as a corrective pattern. The question now is whether such correction has completed. Focus will be on 22519.73 support for the next week or two. Firm break there would pave the way to 21139.26 and below, as larger down trend resumes.

                          EUR/CHF heading back to 1.2, after drawing support from 4H 55 EMA

                            EUR/CHF rebounds strongly in early US session. That’s primarily driven by selloff in “safe-haven” currencies as the movements in CHF and JPY are in sync. At the same time, EUR is extending consolidation against USD.

                            Technically, EUR/CHF’s pull back from 1.2004 was held comfortably above 4 hour 55 EMA. That suggests near term bullish momentum remains intact. And the cross could break 1.2 handle, on its second attempt on one take. (Well yes, it’s actually the second take). With that, we’ll be looking at 61.8% projection of 1.0629 to 1.1832 from 1.1445 at 1.2188 as next target.

                            Action bias table also support this view. As seen in D action bias chart, EUR/CHF is maintain solid upside action bias. The neural and two red bars indicated consolidation. And H action bias turned blue again, suggesting pick up in upside bias.

                            Trade war concern caps Dollar gains as Trump is ready to impose Section 301 tariffs on China

                              Fed delivered the widely expected rate hike overnight, with hawkish statement and economic projections. FOMC is now projecting two more rate hikes this year, a total of four, and another three next year. But Dollar is failing to extend it’s gain despite the announcement. The greenback is indeed trading down against all but Australian and New Zealand Dollar in Asian session.

                              The concern of trade war is a main factor that’s weighing down the greenback. It’s reported that Trump is ready to snap tariffs on USD 50B of Chinese imports. The original list consists of around 1300 product lines. Trade advisor Peter Navarro’s comments suggested that the tariffs could be on a “subset” of the original list. The decision would be made on Thursday today, and the final list of products would be unveiled on Friday.

                              To recap, that’s the action under section 301 investigation in response to forced transfer of U.S. technology and intellectual property. It’s different from the section 232 steel and aluminum tariffs against the world. The section 301 tariffs solely targeted at China.

                              Eurozone PMI services finalized at 47.8, stagflation concerns mount

                                Eurozone PMI Services slumped to 47.8 (final reading) from September’s 48.7. PMI Composite index, which tracks both manufacturing and services, descended to a 35-month low of 46.5 from 47.2. The rate at which new business is falling has reached levels not seen since 2012, with the exception of the pandemic period.

                                This downturn is evident across key Eurozone economies, with member states reporting troubling metrics. Spain hit a 2-month low at the brink of stagnation with PMI Composite of 50.0, while Ireland descended to an 11-month low at 49.7. Italy and Germany both reported figures suggesting continuing contraction in service sector activity, with PMIs at 47.0 and 45.9 respectively. France, although at a 2-month high, still sits in a contractionary phase at 44.6.

                                Cyrus de la Rubia of HCOB offers a stark analysis: “The Eurozone service sector appears to be struggling at the onset of Q4, continuing a three-month trend of decline. A steep decrease in new business intake is a worrying harbinger for future activity. Although there is a slight uptick in future expectations, they still linger well below the historical average.”

                                The economic situation seems paradoxical, with prices rising without the typical accompanying demand, pointing to a condition of “stagflation”. De la Rubia questions how long this “odd stagflation zone” will persist, a query that also plagues ECB. With PMI data suggesting no quick exit from these conditions, it appears ECB is not in a position to lower interest rates just yet, as it balances the dual threats of sluggish growth and persistent inflation.

                                Full Eurozone PMI Services release here.

                                UK PMI services dropped to 50.2, all surveys point to -0.1% GDP contraction in Q2

                                  UK PMI Services dropped to 50.2 in June, down from 51.0 and missed expectation of 51.0. That’s a also a three-month low, just above 50 no-change mark. All Sector PMI dropped to 49.2, down from 50.7, signalling a reduction in overall private sector business activity for the first time in 35 months.

                                  Chris Williamson, Chief Business Economist at IHS Markit, which compiles the survey:

                                  “The near-stagnation of the services sector in June is one of the worst performances seen over the past decade and comes on the heels of steep declines in both manufacturing and construction. Collectively, the PMI surveys indicate that the economy has slipped into contraction for the first time since July 2016, suffering the second-steepest fall in output since the global financial crisis in April 2009.

                                  “The June reading rounds off a second quarter for which the surveys point to a 0.1% contraction of GDP.

                                  “The latest downturn has followed a gradual deterioration in demand over the past year as Brexit-related uncertainty has increasingly exacerbated the impact of a broader global economic slowdown. Risks also remain skewed to the downside as sentiment about the year ahead is worryingly subdued, suggesting the third quarter could see businesses continue to struggle.

                                  “One ray of hope came from a further rise in employment as firms continued to hire new staff despite the drop in output, but the resulting decline in productivity signalled was the largest in the survey’s 20-year history.

                                  “Average selling prices for goods and services meanwhile rose at one of the slowest rates seen over the past three years, despite steeply rising costs, boding ill for corporate profits.

                                  “The worsening picture will put further pressure on the Bank of England to add stimulus. For policymakers to not loosen policy with the all sector PMI at its current level would be unprecedented in the survey’s two-decade history.”

                                  Full release here.

                                  RBA’s Kohler warns of bumpy road ahead in tackling inflation

                                    In a speech, Marion Kohler, Acting Assistant Governor of RBA, remarked that decline in inflation is expected to be a “more gradual process than previously thought.”

                                    This outlook stems from the current economic environment characterized by “still-high level of domestic demand” and “strong labour” alongside other cost pressures. These factors contribute to the prediction that inflation will hover just below 3% by the end of 2025.

                                    The Assistant Governor pointed out that the recent trend of declining inflation has primarily been “driven by lower goods price inflation.” In stark contrast, “domestically sourced inflation” – especially in the services sector – has shown resilience, being “widespread and slow to decline.”

                                    Kohler also underscored the nuanced challenges in the next phase of controlling inflation, which she anticipates to be “more drawn out than the first.” This outlook aligns with experiences in other advanced economies that have faced similar inflationary patterns.

                                    Furthermore, she cautioned about the potential for unforeseen challenges, citing the recent increase in fuel prices as an example of supply shocks that could unpredictably influence headline inflation.

                                    Kohler emphasized the uncertain nature of the journey ahead in managing inflation, stating, “the road ahead could be bumpy.”

                                    Full speech of RBA Kohler here.

                                    Australia consumer sentiment jumped 9.4% on RBA pause

                                      Australia Westpac Melbourne Institute Consumer Sentiment Index witnessed a significant 9.4% increase in April, jumping from 78.4 in March to 85.8. This remarkable recovery can be largely attributed to RBA’s decision to pause rate hikes during its April meeting, breaking a sequence of ten consecutive meetings with cash rate increases.

                                      However, confidence remains weak, sitting -10.4% lower than April of the previous year, before the tightening cycle began. Respondents continue to exercise caution, with 34.11% still expecting the Standard Variable Rate to rise by more than 1% over the year, although this figure is down from 44.55%.

                                      Regarding the RBA’s meeting on May 2, Westpac noted that the central bank would benefit from a clean read on underlying inflation from the March quarter Inflation Report, set to be released on April 26, as well as staff’s refreshed economic forecasts. Westpac anticipates that a final 0.25% increase in the cash rate during the May Board meeting would be the best policy approach, rather than waiting for additional information and risking higher rates later in the cycle.

                                      Full Australia Westpac consumer sentiment release 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.

                                        US PPI surges 0.9% mom in July, undermining case for aggressive Fed easing

                                          US producer prices surged in July, with final demand PPI jumping 0.9% mom, far exceeding expectations of a 0.2% rise and marking the sharpest monthly gain since mid-2022.

                                          The increase was broad-based, with over three-quarters driven by final demand services, which climbed 1.1% mom, while goods prices rose 0.7% mom. The core measure excluding food, energy, and trade services climbed 0.6% mom, the largest increase since March 2022.

                                          On an annual basis, headline PPI accelerated from 2.4% to 3.3% yoy, well above the 2.5% yoy forecast and the highest since February. PPI excluding food, energy, and trade services rose to 2.8% yoy.

                                          The data may temper market enthusiasm for an aggressive September Fed rate cut, despite political pressure and calls from Treasury Secretary Bessent for a 50 bps move.

                                          Full US PPI release here.