Tue, Jul 14, 2020 @ 11:19 GMT

South Korea the first that got indefinite exemption on US steel tariffs

    The South Korea’s Ministry of Trade said today that is’ exempted from the US steel and aluminum tariffs. However, South Korea now received a quota of around 2.68m tonnes of steel exports. And that is 70% of the annual average of Korean steel exports to the US between 2015-2017. South Korean contributed to 9.7% of US steel imports in 2017.

    In the mean time, Both countries also agreed on 20-year extension of Korean pickup trucks, until 2041. US automakers could also bring in 50000 vehicles to South Korean annually, doubling from prior amount of 25000.

    That is the first of many US allies to receive an indefinite exemption on the steel and aluminum tariffs. Other six, Argentina, Australia, Brazil, Canada, Mexico and EU are just having the tariffs temporarily suspended.

    At this point, there is no news regarding the expemption on Japan and Taiwan, two other major US allies in Asia, yet.

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    Chinese Yuan in free fall on coronavirus outbreak

      USD/CNH surges sharply as offshore Yuan is in suffering heavy selloff on China’s coronavirus outbreak. Rebound from 6.8452 is now targeting channel resistance (7.0135). Decline from 7.1953 high is seen as a corrective move, which might has completed at 6.8452 already. Sustained break of the channel resistance should confirm this case and bring retest of 7.1953 high. Nevertheless, rejection by the channel resistance will retain near term bearishness. Break of 6.9209 will target a test on 6.8452 low instead.

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      US Q4 GDP finalized at 2.9%, Muted Reaction, DOW Can’t take out 24000 yet

        US data wrap up:

        • GDP annualized Q4 F : 2.9% vs exp 2.7% vs prior est 2.5%
        • GDP price index Q4 F: 2.3% vs exp 2.3% vs prior est 2.3%
        • Personal consumption Q4 F : 4.0% vs exp 3.8% vs prior est 3.8%
        • Core PCE Q4 F Q/Q: 1.9% vs exp 1.9% vs prior est 1.9%
        • Wholesale inventories mom Feb: 1.1% vs exp 0.5% vs prior 1.0%
        • Trade balance (USD) Feb: -75.4b vs exp -74.4b vs prior -75.3b
        • Pending home sales M/M Feb: 3.1% vs exp 2.0% vs prior -4.7%

        Reactions to the data are rather muted. DOW posts slight gains in early US session but is struggling to break through 24000 handle so far. It remains to be seen whether today’s recovery could sustain. We maintain the near term bearish view that as long as 24453.14 resistance holds, DOW will more likely revisit 23360.29 than not.

        With markets back to risk on mode, JPY and CHF suffer much selling pressure. So far for today, USD/CHF and USD/JPY are the biggest winner.

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        France Macron warns: Pass the Brexit deal and get short extension, or no deal

          EU officials are generally raising the pressure on UK for passing the Brexit deal. French President Emmanuel Macron said in Brussels that “I am quite open to a technical extension – it should be as short as possible – in the case of a positive vote.” However, “in the case of a negative vote in the British parliament, we will be going to a no-deal. We all know that.”

          He emphasized: “It is absolutely essential to be clear in these days and these moments, because it is a matter of the good functioning of the EU. We cannot have what I would call an excessive extension which would harm our capacity to decision and to act.”

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          EU releases proposals on WTO reforms, defend multilateral trade system

            European Commission released their comprehensive approach for the modernisation of the World Trade Organisation today.

            In presenting the ideas, Commissioner for Trade Cecilia Malmström said: “The multilateral trading system has for the past decades provided a stable, predictable and effective framework for companies across the world, helping many economies to grow rapidly. Also today, the WTO is indispensable in ensuring open, fair and rules-based trade. But despite its success, the World Trade Organisation has not been able to adapt sufficiently to the rapidly changing global economy. The world has changed, the WTO has not. It’s high time to act to make the system able to address challenges of the today’s global economy and work for everyone again. And the EU must take a lead role in that.”

            The ideas in the proposal are related to three key ares:

            • updating the rule book on international trade to capture today’s global economy
            • strengthening the monitoring role of the WTO
            • overcoming the imminent deadlock on the WTO dispute settlement system.

            EU also noted that the US and Japan are engaged in the framework of trilateral discussions. A dedicated workgroup was set up during the latest EU-China summit. And EU pledged to discuss the ideas with other WTO partners in the coming weeks.

            Here is the press release. And a 17-page document detailing the proposals.

            Earlier today, the European Union Chamber of Commerce in China released an annual position paper. The 33-page paper detailed 14 common concerns faced by European companies in China, and listed out a accumulative total of 828 recommendations.

            This is how adults work!

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            US oil inventory rose 1.6m barrels, WTI stays in consolidation

              US commercial crude oil inventories rose 1.6m barrels in the week ending March 20, below expectation of 2.9m. At 455.4m barrels, oil inventories are about 3% below the five year average for this time of year.

              WTI crude oil continues to stay in tight range above 20.40 temporary low after the release. More sideway consolidation could be seen but outlook will remain bearish as long as 36.54 resistance holds. Long term down trend should enter into 10.65/17.12 support zone before finding a bottom.

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              Italian EM Tria: Makes no sense to borrow more on higher yields

                Italian Economy Minister Giovanni Tria pledged on Sunday that the coalition will respect EU fiscal rules. And, more progressive budget plans would only be introduced gradually. The programs include both a new welfare tool advocated by the Five Star Movement and tax cuts promoted by the League. But he emphasized that “almost all reforms will start to be implemented gradually.” And, “we are looking into Italy’s big state balance sheet to find financial resources to be shifted toward these measures.”

                Also, he acknowledge the need to bring down the 130% debt to output ratio, which is the second highest in Eurozone. And such reduction “may bring about a strengthening and consolidation of Italy’s presence on financial markets, which will free up resources and attract investments.”He added “it makes no sense to seek two or three billion euros of extra deficit if we then have to pay three or four billion more due to higher yields”. Further, “as the government puts words into actions, the (bond yield) spread will return to more normal levels.”

                Italian 10 year yield dipped notably from August high at 3.281 after the coalition government pledged not to break the bank. But, currently above 3%, it’s still notably higher than 1.75-2.00% range before the coalition took office.

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                Australia trade surplus widened to AUD 5.8B as exports jumped

                  In seasonally adjusted term, Australia goods and services exports rose AUD 706M to AUD 40.89B in November. Goods and services imports dropped AUD 1020m to AUD 35.09B. Trade surplus widened by AUD 1.73B to AUD 5.80B.

                  Balance on Goods and Services

                  Full release here.

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                  Dollar falls on cautious Fed Brainard, 30-yr yield hits record low

                    Dollar reverses some of this week’s strong gains as pressured by surprisingly cautious comments from Fed Governor Lael Brainard, in the background of record low in 30-year yield, below 1.9 handle.

                    Brainard said in a speech that “with trend inflation running below the symmetric 2 percent objective, there is a risk that inflation expectations have slipped. . And, “with price inflation showing little sensitivity to resource utilization, policy may have to remain accommodative for a long time to achieve 2 percent inflation following a period of undershooting.”

                    Meanwhile, 30-yaer yield hits new record low at 1.892 today. The development argues that TXY might even be resuming long term down trend. it’s a bit early to say. But we’re tentatively looking at 61.8% projection of 3.455 to 1.905 from 2.393 at 1.435 at the next medium term target.

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                    Fed Powell: Roughly neutral interest rate appropriate with muted inflation

                      In CBS’s 60 Minutes show, Fed Chair Jerome Powell reiterated that current interest rates are “appropriate” while inflation is “muted”. He also described the current rate setting as “roughly neutral”. Fed is patient regarding policy adjustment and that means “we don’t feel any hurry to change our interest rate policy”.

                      On the economy, he said “the outlook for the U.S. economy is favorable.” And, “the principal risks to our economy now seem to be coming from slower growth in China and Europe and also risk events such as Brexit.”

                      Powell added that “what’s happened in the last 90 or so days is that we’ve seen increasing evidence of the global economy slowing down” and “we’re going to wait and see how those conditions evolve before we make any changes to our interest-rate policy.”

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                      Japan still aiming for a US trade deal by the end of the month

                        Japanese Foreign Ministry spokesman Masato Ohtaka reiterated the target to sign a trade agreement with US by the end of this month. He noted that “we still have some time and all my colleagues in the government are making their best efforts to actually meet this target”. Separately, Japanese Chief Cabinet Secretary Yoshihide Suga also said that “With the U.N. General Assembly meeting in mind, we are accelerating the remaining work, including the wording of a trade agreement.”

                        Japan officials and business executives have expressed concern of signing a trade deal with assurance from the US on not imposing tariffs on Japanese cars. That’s the key issue that might drag the negotiations through the self-imposed deadline. However, Japanese Foreign Minister Toshimitsu Motegi, said alongside US Trade Representative Robert Lighthizer, that he had no concern on the auto tariff threats. Motegi expected no much of a delay on the trade agreement.

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                        BoE Governor Mark Carney press conference live stream

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                          China PBoC Yi outlines specifics on opening financial market access at Boao

                            New People’s Bank of China Governor Yi Gang pledged to further open the financial markets in the Boao Forum for Asian in China. And some specifics were offered by Yi too.

                            Firstly, the government will remove foreign ownership caps on Chinese banks by the end of June.

                            Secondly, foreign securities and life insurance companies will be allowed to hold majority stakes in their Chinese counterparts. That is, ownership could be raised from 49% to 51%. And such restriction will also be abolished in three years.

                            Thirdly, by the end of June, the permitted business scope for foreign insurance agents will be expanded.

                            Fourthly, the daily quota for foreign investors to buy Chinese stocks and for Chinese investors to buy Hong Kong traded stocks will be quadrupled.

                            In addition, by the end of 2018, China will launch a trading link between Shanghai stock markets to London’s.

                            Separately, Yi also said that China won’t devalue Yuan as part of the moves of trade war with the US.

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                            Australia CPI slowed to 1.9% yoy in Q3, AUD/USD dips briefly

                              Australia CPI rose 0.4% qoq, 1.9% yoy in Q3, versus expectation of 0.5% qoq, 1.9% yoy. The annual rate slowed quite notably from 2.1% yoy. Trimmed mean CPI was unchanged at 1.8% yoy. Weighted median CPI was also unchanged at 1.7% yoy.

                              Chief Economist for the ABS, Bruce Hockman said: “Annual growth in the CPI fell back below 2 per cent in the September quarter 2018. Modest rises in housing costs, including rents, utilities and property rates, and a fall in child care out-of-pocket expenses, saw a subdued rise in the CPI this quarter.”

                              Full release here.

                              AUD/USD dips after the release but quickly recovered.

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                              Japan national CPI core ticked up to 0.5%

                                Japan national CPI core (ex-fresh food), accelerated to 0.5% yoy in November, ticked up from 0.4% yoy. However, taking away the effect of sales tax hike, started in October, core inflation came in at just 0.2% yoy. All item CPI rose from 0.2% yoy to 0.5% yoy. CPI core-core (ex-fresh food and energy) rose from 0.7% yoy to 0.8% yoy.

                                While it’s the 35th straight month of core price increases, it remained well below BoJ’s 2% target. An official from the Ministry of Internal Affairs and Communications said, “although at a slower pace, the index continues to rise, so there is no change in our view that the prices are rising moderately.”

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                                Today’s top mover: AUD/JPY completed post flash crash rebound

                                  AUD/JPY is currently the top mover for today, down over -1.6%. Australian Dollar is knocked down by comments from RBA Governor Philip Lowe. Meanwhile, Yen is lifted by falling global treasury yields. Yen crosses also generally display signs of bearish reversal.

                                  Back to AUD/JPY, current development argues that corrective rebound from 70.27 flash crash low has completed at 79.84 already. This is supported by mild bearish divergence condition in 4 hour MACD, as well as rejection by 55 day EMA. Focus is now on 77.51 support. Break there will confirm this bearish case.

                                  As the 70.27 is an abnormal spike low, it’s hard to judge whether it would be taken out in near term at this point. The momentum through 77.51 should be watched to assess the chance. But in any case, risk will now stay on the downside as long as 79.84 holds, even in case of strong recovery.

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                                  Gold range-bound but eventual upside breakout expected

                                    Gold is still bounded in consolidation pattern from 1214.30 and outlook is unchanged. With 1182.90 minor support intact, rebound from 1160.36 is expected to resume with an upside breakout eventually. Break of 1213.40 will target 55 day EMA (now at 1219.68) and above.

                                    However, we’d expect strong resistance from 38.2% retracement of 1365.24 to 1160.36 at 1238.62 to limit upside to complete the rebound.

                                    Meanwhile, on the downside, break of 118229 will argue that the rebound has completed much earlier than expected. In that case, retest of 1160.36 low should be seen next.

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                                    DOW gaps lower as Trump is ready to start trade war, USD/JPY pressing 105.24 support

                                      DOW gaps lower today and selling then intensifies in the second hour. The index is now trading down -1.5% at the time of writing. Worry on trade war is seen as a major bearish factor for stocks. And risk aversion also a major reason for Yen’s broad based strength for today. Trump is set to announce his tariffs targeted at China today. Testifying to Senate finance committee, Trade Representative Robert Lighthizer said the US has done a study on Intellectual Property theft problem of China. And the trade department is looking into at building a better fairer system.

                                      For DOW, it’s on course for support zone between 23.6% retracement of 26616.71 to 23360.29 at 24128.80 and 24217.76. This zone will be key to determine DOW’s near term direction. Rebound from there will change the prior triangle like pattern into a sideway range. And there would then be prospect of revisiting 25000 and above soon. However, sustained break of this support zone will argue that it’s now in the third wave of the pattern from 26616.71 and should have a test on 23360.29 support and below. For the moment, we’re favoring the latter scenario.

                                      USD/JPY is at a tricky point close to 105.24 support now. 4 hour MACD suggests that it’s on verge of breakout. And, firm break there will at least extend recent decline to medium term projection level of 100% projection of 118.65 to 108.12 from 114.73 at 104.20.

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                                      Japan Q2 GDP finalized at 0.3% qoq, private consumption driven

                                        Japan Q2 GDP growth was finalized at 0.3% qoq, revised down from 0.4% qoq. The economy grew at annualized pace of 1.3%, sharply lower than preliminary reading of 1.8%. GDP deflator was finalized at 0.4% yoy, unrevised.

                                        Growth was primarily driven by consumer spending, which grew 0.6% qoq. While continued growth in private consumption is expected ahead, it could take a hit from the planned sales tax hike in October.

                                        Meanwhile, business investment was weak and just grew 0.2% qoq. Considering global slowdown and uncertainties from trade tensions, business investment has already shown some resilience. Yet, as US-China trade war intensified in Q3, there is more headwind for businesses for the rest of the year.

                                        Also from Japan, current account surplus narrowed to JPY 1.65T in July, slightly below expectation of JPY 1.70T.

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                                        ECB de Guindos: Monetary policy not reached limits, but negative impact increasingly evident

                                          ECB Vice President Luis de Guindos warned that the “collateral effects” of the ultra-loose monetary policy are “increasingly significant”. Hence, monetary policy “can’t be the only response to the economic slowdown” in the Eurozone. He added, “monetary policy can provide liquidity in the case of the risk of Brexit or trade wars, but it’s not the solution to these issues, which are the factors behind the slowdown”. He emphasized, “we can alleviate the situation but we can’t resolve it.”

                                          De Guindos also added that “I wouldn’t say that monetary policy has in any way reached its limits, but I would say that the negative impact on financial stability is increasingly evident, which means it needs to be complemented with fiscal policy.” the advantage of negative rates is that “it has boosted investment, consumption and that’s behind the recovery”. But on the negative side, some real estate markets in Europe are of overly buoyant valuations of assets, and banks’ earnings have also taken a hit.

                                          Separately, Governing Council member Ignazio Visco said “Eurozone inflation remains at an excessively low level and the risk of a de-anchoring of medium-long term expectations is appearing.” He added monetary policy will remain expansionary to sustain demand.

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