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China preparing quick, targeted retaliations to Trump’s $60b tariffs

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    ActionForex.com
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    The WSJ reported that China is preparing to hit back at US President Donald Trump’s targeted tariffs against it. Trump is set to unveiled to list of products tomorrow, which could add up to as much as USD 60b of annual tariffs.

    It’s not really news that China is preparing counter measures. But what WSJ said is that China’s tit-for-tat tariffs would target Trump’s support base. That is, they will be aimed at agricultural exports from Farm Belt states.

    That raises a question on whether China views it as trade war with the US, the Republicans, or Trump himself. Trump war might be easy to win for a sized economy against smaller ones. It’s much tougher between two economies of comparable size.

    Would there be a chance if the trade war is between a political party, a family, or even a person, against a sized economy?

    Remember that it’s an authoritarian government in China. What they’d do very much depends on how their leader Xi Jinping views it. If Xi sees the provocation as from Trump only, rather than the whole of the US, then good luck to the latter.

    Dollar higher into US session. 0.9490 in USD/CHF watched

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      ActionForex.com
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      Dollar rises broadly entering into a rather busy US session. 

      ECB will announce rate decision at 12:45 GMT. But focus is on Mario Draghi’s press conference at 13:30 GMT.

      US will release challenger job cuts, jobless claims.

      Canada will release housing starts, building permits, new housing price index.

      Also BoC governor Stephen Poloz will speak.

      And, Trump will formally sign the order for steel and aluminum tariff. Canada and Mexico are expected to get temporary exemptions.

      Based on CHF’s broad based weakness, 0.9490 in USD/CHF will be a level to watch.

      Japan industrial production rose 1.1% mom in Oct, more growth expected in Nov and Dec

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        Japan industrial production rose 1.1% mom in October, below expectation of 1.8% mom. That’s nonetheless the first rise in four months.

        The seasonally adjusted index of production at factories and mines stood at 90.5 against the 2015 base of 100. The index of industrial shipments increased 2.0% to 88.3 while that of inventories was up 0.8% at 98.9.

        The Ministry of Economy, Trade and Industry expects industrial production to grow 9.0% mom in November and then 2.1% mom in December.

        Unemployment rate dropped from 2.8% to 2.7% in October, better than expectation of 2.8%.

        Australia GDP slowed to 0.2% in Q4, RBA may need to revise down forecasts in May

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          Australia GDP grew only 0.2% qoq in Q4, slowed from prior quarter’s 0.3% qoq and missed expectation of 0.5% qoq. Annual growth slowed to 2.3%, down from Q3’s 2.7%. Looking at some details, terms of trade rose 3.2% qoq, 6.1% yoy. But consumer spending rose only 0.4% qoq, 2.0% yoy. Home building contracted -3.4% qoq, slowed to 2.5% yoy. Farm output dropped -4.0% qoq, -5.8% yoy. Full release here.

          Australian Treasurer Josh Frydenberg tried to talk down the slowdown. He noted that “the moderation in part reflects the impact of the drought, lower mining investment and as we continue to move from the construction to the production phase, as well as a decline in residential construction activity from record levels”.

          However, the country “continues to grow faster than any G7 nation except for the United States”. And, 0.2% growth was “within the range of market expectations” to him. Also, “over the past 12 months, more than 270,000 new jobs were created and more than 8 out of every 10 of these jobs were full-time.”

          Westpac noted that the data now posts a “challenge” for RBA to “credibly maintain its GDP growth forecasts at 3% in 2019 and 2.75% in 2020”. Thus RBA is likely to revise down its growth forecasts in May SoMP. And the policy stance could then shift to steady with a clear easing bias. Westpac continued to expect RBA to cut twice this year in August and November.

          Japan’s core CPI slips below 3% mark to 2.8% yoy

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            ActionForex.com
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            Inflationary momentum in Japan showed signs of easing in September, with all-item CPI decelerating to 3.0% yoy, down from 3.2% yoy in the prior month. Core CPI, which strips out the volatile food prices, also showed a downtrend, registering at 2.8% yoy, a dip from 3.1% yoy. Furthermore, core-core CPI, which excludes both food and energy prices, declined marginally from 4.3% yoy to 4.2% yoy.

            Remarkably, core inflation dipped below the 3% mark for the first time since August 2022. Nevertheless, it remains above BoJ’s 2% target, marking the 18th consecutive month of surpassing this benchmark.

            The detailed breakdown of the data indicates that energy prices were a significant drag, plunging by -11.7% yoy. This downturn can be attributed to the government’s proactive measures to trim utility bills, resulting in double-digit falls in electricity and city gas prices. On the contrary, food prices remained on an upward swing, posting 8.8% yoy increase.

            There are reports suggesting an upward revision in BoJ’s core CPI forecast for fiscal 2023. Sources familiar with the bank’s deliberations indicate a possible revision from 2.5% to nearly 3.0%. All eyes will now be on BoJ ‘s policy meeting scheduled for Oct 31, where a new outlook report is anticipated.

            Germany Gfk consumer confidence dropped to -6.8, down on Omicron and prices

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              Germany Gfk consumer confidence for January dropped sharply from -1.8 to -6.8. In December, economic expectations dropped from 31.0 to 17.1, lowest since April. Income expectations dropped from 12.9 to 6.9. Propensity to buy dropped from 9.7 to 0.8.

              Rolf Bürkl, GfK consumer expert said: “Consumer sentiment continues to be under a lot of pressure from two sides as the year draws to a close. High case numbers due to the fourth wave of the Corona pandemic with further restrictions, as well as significantly increased prices, are putting more and more pressure on consumer sentiment…. The outlook for the beginning of next year is also muted against the backdrop of the rapid spread of the Omicron variant.”

              Full release here.

              UK May said to target to complete Brexit negotiation with Labour by mid next week

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                Several British media, including BBC and Guardian, reported today that Prime Minister Theresa May is now targeting to reach a Brexit compromise with opposition Labour Party by the middle of next week.

                May’s spokesman had declined to set an end date for the talks, and described the latest round of talks as “serious and constructive”.

                Separately, Labour Party is meeting today to hammer out its position on whether to demand a second referendum on any Brexit deal as part of its campaign for the European parliament election next month.

                ECB Kazimir: We will have to keep raising interest rates for longer than anticipated

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                  ECB might need to keep raising interest rates for longer than initially anticipated, according to Governing Council member Peter Kazimir. His comments indicate an evolving stance within ECB as it grapples with stubbornly high inflation in the Eurozone.

                  “Based on today’s data, we will have to keep raising interest rates for longer than anticipated,” Kazimir stated. He suggested a slower pace of rate hikes, at 25 basis points increments, as a measured approach that allows for longer-term adjustments, should incoming data warrant it. “So, slowing down the pace to 25 bps is a step that will allow us to go gradually higher for longer, should that be necessary and warranted by incoming data,” he explained.

                  Kazimir pointed to core inflation trends, rising wage pressures, and high-profit margins as factors necessitating vigilance and the continued pursuit of the ECB’s current monetary policy trajectory. “The development of core inflation, the continued buildup of wage pressures, and high-profit margins call for vigilance and reconfirm the need to continue on our path,” he said.

                  However, the true effectiveness of the ECB’s measures and the trajectory of inflation towards the target will not be fully assessed until the September forecast. “Our September forecast will be the earliest date to answer how effective our measures are and whether inflation is moving towards the target,” Kazimir added.

                  BoJ Noguchi: Commitment has no strong effect in changing inflation expectations

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                    BoJ is clear on its commitment to bring inflation “stably exceeds” 2% target. But board member Asahi Noguchi criticized, “personally, I don’t think this commitment has a strong effect in changing inflation expectations”

                    “It may take some time, but a more realistic policy would be to maintain the current powerful monetary easing to steadily improve the output gap, so that demand increases enough to prop up wages and inflation”, he added.

                    He’s also an advocate to push bond yield target to 15- to 20-year bonds. In particular, if a shock event pushes the economy into a serious downturn, BoJ should ease further “without hesitation”. “What’s important is to look at the basic trend of the economy, “he said. “Unless this trend is broken, it’s important to patiently sustain the current very powerful monetary easing.”

                    Germany poised for mild economic contraction in 2023, DIW reports

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                      Germany stands on the brink of being the only major economy to register a contraction in 2023, with German economic research institute, DIW, projecting a -0.4% dip in the nation’s economic output for the year. This downturn is primarily attributed to sluggish domestic consumption and a falter in export dynamics, exacerbated by a slowed Chinese economy.

                      Looking forward, however, the institute holds a more positive outlook, forecasting a steady 1.2% growth in both 2024 and 2025. Geraldine Dany-Knedlik, the co-head of forecasting and economic policy at DIW, envisages that a pronounced increase in wages and salaries would spur household expenditure, kickstarting a recovery phase.

                      Timm Bönke, also a co-head at the DIW’s forecasting department, anticipates a notable improvement in the consumer sentiment owing to a substantial dip in inflation rates in the forthcoming period. Households will be encouraged to enhance their spending, propelled by improved financial conditions and a potentially steadier inflation environment.

                      Full DIW release here.

                      New Zealand PPI input jumped 2.1% qoq, output rose 1.2% qoq, electricity price surged

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                        ActionForex.com
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                        New Zealand PPI input jumped 2.1% qoq in Q1, versus expectation of 0.0% qoq. PPI output rose 1.2% qoq, above expectation of 0.0% qoq. The largest output industry contributions were from electricity and gas supply, which was up 17.4%. Petroleum and coal product manufacturing rose 12.2%. daily cattle farming rose 5.1%.

                        The largest input industry contributions were from electricity and gas supply, which was up 28.7%. Dairy production manufacturing rose 4.7%. Petroleum and coal product manufacturing rose 9.3%.

                        “Lower lake levels in the South Island have driven up wholesale prices for electricity generation, while an unexpected fall in production at the Pohokura gas field has seen gas supply prices also increase,” business prices delivery manager Bryan Downes said. “The quarterly price change is the largest since 2018 but is nowhere near the magnitude seen in the 2008 power crisis.”

                        Full release here.

                        RBA Debelle: Economy probably recorded positive growth in Q3, rather than negative

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                          ActionForex.com
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                          RBA Deputy Governor Guy Debelle told Senate that the first recession in 30 years could have already ended in Q3. “At the moment our best guess is it looks like the economy probably recorded positive growth rather than negative,” he said. “The strength elsewhere in the country was more than the drag from Victoria, and possibly the drag from Victoria was a little less than what we had guessed.”

                          Separately, Assistant Governor Michele Bullock said the Australian financial system “remains profitable, notwithstanding substantial loan loss provisions”. Their “strong capital position allows them to continue to lend to support the Australian economy.” But she also warned warned that “the economic recovery is expected to be unpredictable and uneven so there will be rising business insolvencies and problems for some households in servicing their debts.”

                          BoE Broadbent: Quite possible that more monetary easing will be needed

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                            BoE Deputy Governor Ben Broadbent said today that “the committee are certainly prepared to do what is necessary to meet our remit with risks still to the downside.” And, it’s “quite possible that more monetary easing will be needed over time”. But there are pros and cons of cutting interest rates further from the current 0.1% level. “These are the balanced questions the committee has to think about and … has been thinking about for the past decade,” Broadbent said.

                            Broadbent also rejected the idea that BoE is financing the government’s fiscal measures. “It is not surprising when you have a huge hit to the economy, as is the case now, as was the case in 2009, that you see easing on both fiscal and monetary fronts,” he said. “That is the connection — they are both responses to a weaker economy. It is not the case that one is a response to the other.”

                            US CPI slowed to 8.2% yoy in Sep, but core CPI rose to 6.6% yoy

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                              ActionForex.com
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                              US CPI rose 0.4% mom in September, above expectation of 0.2% mom. Core CPI (all item less food and energy) rose 0.6% mom, above expectation of 0.5% mom. Energy index dropped -2.1% mom, with gasoline down 4.9%. Food index rose 0.8% mom.

                              For the 12 months ending September, CPI slowed from 8.3% yoy to 8.2% yoy, above expectation of 8.1% yoy. Core CPI, on the other hand, accelerated from 6.3% yoy to 6.6% yoy, above expectation of 6.5% yoy. Energy index slowed from 23.8% yoy to 19.8% yoy. Food index was up 11.2% yoy.

                              Full release here.

                              Eurozone CPI finalized at 1.0%, highest contribution from services

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                                ActionForex.com
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                                Eurozone CPI was finalized at 1.0% yoy in August, unchanged from July’s reading. Core CPI was finalized at 0.9% yoy. In August, the highest contribution to the annual Eurozone inflation rate came from services (0.60%), followed by food, alcohol & tobacco (0.40%), non-energy industrial goods (0.08%) and energy (-0.06%).

                                EU 28 CPI was also stable at 1.4% yoy. The lowest annual rates were registered in Portugal (-0.1%), Greece (0.1%) and Spain (0.4%). The highest annual rates were recorded in Romania (4.1%), Hungary (3.2%), the Netherlands and Latvia (both 3.1%). Compared with July, annual inflation fell in nine Member States, remained stable in six and rose in twelve.

                                Full release here.

                                ECB de Guindos: De-anchoring of inflation expectations needed before more monetary stimulus

                                  By
                                  ActionForex.com
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                                  Over the weekend, ECB Vice President Luis de Guindos said current monetary policy is “fully compatible with both inflation and real activity.” And, “de-anchoring of inflation expectations” is needed before ECB ease monetary policy again.

                                  He told Italian newspaper Corriere della Sera that “what we need to see is a de-anchoring of inflation expectations” for more policy stimulus. However, “this has not yet happened, despite the fact that there has been a drop in market-based inflation expectations.” “If there is a further deterioration, then we will react,” de Guindos added. “But for now, our monetary policy stance is fully compatible with both inflation and real activity.”

                                  On the impact of global trade tensions, de Guindos said “you can certainly smooth the impact with monetary policy, but you will not be able to address and fix this kind of problems with monetary policy”.

                                  Separately, Governing Council member Ewald Nowotny said it would be “reasonable” to have “some more flexibility” on inflation target. And, he was “in favor of keeping the 2 percent target but with a corridor of 0.5 or 1 percent, up or down. A precision landing is hardly possible.”

                                  Fed Daly: Our tools are starting to work in the market

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                                    ActionForex.com
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                                    San Francisco Fed President Mary Daly said in an interview that it’s “absolutely appropriate” to have Fed working with fiscal agents to help small businesses and households to “weather this near term shutdown” due to coronavirus. The fiscal stimulus from Congress and the response moves by Fed this week are “exactly what we need to do to offset some of the near-term disruption”.

                                    She noted that Fed’s tools are “starting the work in the market we care about”. “It’s encouraging to see that there’s more borrowing at the discount window; it’s encouraging to see that some of the volatility in markets has settled down,” Daly said.

                                    Dollar gets no support from hawkish FOMC minutes, Dollar index breakout yet to occur

                                      By
                                      ActionForex.com
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                                      The minutes of the March FOMC meeting revealed nothing surprising. Almost all policymakers supported a rate hike even though there were a couple of them pointed to benefits of waiting a bit longer. All policymakers expected inflation to rise in the coming months, showing receding worry on the inflation outlook. Nonetheless, the pick-up in inflation is not enough to alter the projected rate path yet. Regarding the economy, it’s a consensus view that outlook has strengthened in recent month. Meanwhile, a strong majority of the members viewed escalation in trade tension and retaliation by other countries as downside risks for the economy.

                                      The minutes are seen as hawkish in general, but not more hawkish than expected.

                                      After the minutes, pricing of a June hike is little changed. Fed fund futures are pointing to over 95% chance of a June hike.

                                      Little change in USD’s performance too. It’s staying as the weakest one for the week.

                                      While dollar index weakened notably this week, it’s still staying in range above 88.25. We’d maintain that as it’s close to medium term trend line resistance, breakout is imminent. But probably a little more time is needed for selling to gather momentum.

                                      AUD/JPY resumes up trend, NZD/JPY to follow?

                                        By
                                        ActionForex.com
                                        -

                                        AUD/JPY’s up trend finally resumes today by breaking 94.29 near term resistance. Immediate focus is now on 61.8% projection of 59.85 (2020 low) to 85.78 from 78.77 at 94.79. Sustained break there could prompt upside acceleration, for next medium term target at 100% projection at 104.70, which is close to 105.42 (2013 high). However, break of 93.06 support will suggest rejection by 94.79 and bring deeper correction, back towards 55 day EMA (now at 88.55).

                                        NZD/JPY is lagging behind and it’s still staying below 86.94 resistance. The next move will probably need from help from AUD/JPY. Break of 86.94 in NZD/JPY (following break of 94.79 in AUD/JPY) will resume larger up trend through 61.8% projection of 59.49 to 80.17 from 75.22 at 88.00. However, break of 85.11 (following AUD/JPY’s break of 93.06) will bring deeper pull back towards 55 day EMA (now at 82.09).

                                        UK PM May repeated her warnings over no-deal Brexit

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                                          UK Prime Minister Theresa May repeated her warning that voting down her Brexit agreement in the parliament will put the UK into “uncharted territory”. And she added, “I don’t think anybody can say exactly what will happen in terms of the reaction that we’ll see in Parliament.”

                                          She also reiterated that the Irish backstop “is not intended to be used in the first place, and if it is, it’s only temporary”. And, “ensuring that we actually get the future relationship in place to replace the backstop if it’s used is actually a crucial element of this.”

                                          May also reiterated her opposition to a second referendum as that would “divide our country” and require a delay to Brexit.

                                          Separately, a cross party group of Conservative and Labour MPs are seeking to amend the government’s Finance Bill to ensure the “no deal” provisions in it can only be implemented if Parliament votes to allow it.

                                          Debate on the Brexit agreement will resume this Wednesday, with the vote due in the week beginning January 14.

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