Sun, May 31, 2020 @ 19:30 GMT

Swiss KOF rose to 100.9, retail sales dropped -0.1%

    Swiss KOF Economic Barometer rose to 100.9 in February, up from 100.1, above expectation of 97.0. That’s the third rise in a row and it “lingers just above its long-term average”. KOF said “clearly positive growth rates would be expected for the Swiss economy in the near future”. But it also noted that the result is “based on the sentiment before the outbreak of the coronavirus in northern Italy.”

    Also, the development was “primarily driven by an improvement in sentiment in the manufacturing sector”. Only financial sector had a “slightly negative impact. The other indicator groups considered in the Barometer (demand for exports, construction, hospitality, other services and domestic consumer demand) show a practically unchanged picture compared to the previous month.

    Also released, retail sales dropped -0.1% yoy in January, below expectation of 0.3% yoy.

    - advertisement -

    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.

      - advertisement -

      New Zealand unemployment rate could peak at 26% without additional fiscal support

        New Zealand Treasury published a report analyzing the economic impacts of the coronavirus pandemic. Assuming no additional fiscal measures beyond the announced NZD 20B direct support, contraction in GDP in the year to March 2021 could range from 13% (the least restrictive scenario), to closer to one-third (with tight restriction through the year).

        Unemployment rate could peak at 13% in the least restrictive scenario, or 26% in the tight restriction scenario. However, with additional NZD 20B in fiscal spending directed to households and businesses, unemployment rate could be limited to less than 10% in the least restrictive scenario Inflation will remain below 2% midpoint of RBNZ’s target range.

        Separately, Finance Minister Grant Robertson said that the government will announce further support for businesses this week and more in the Budget next month. He said, “the Budget is also another important part of the response, and it will include significant support to respond to and recover from Covid-19. As is usual with the Budget, there may well be pre-announcements, especially where they relate to urgent Covid-19 response activities.”

        - advertisement -

        BoJ Maeda: Economy suffered big contraction in Q4

          BoJ Executive Director Director Eiji Maeda said Japan’s economy have suffered a “big contraction” in Q4 due to sales tax hike and sluggish global demand. But he maintained that the “economy is expected to continue expanding moderately as a trend, thanks to robust capital expenditure and government spending. He also warned that “we need to be vigilant against various risks such as the impact the coronavirus outbreak could have on output and spending by inbound tourists”.

          The government announced today to spend JPY 10.3B from budget reserves to ease the impact from China’s coronavirus. Finance Minister Taro Aso said the government was ready to take additional steps depending on how big the impact from the outbreak could be. Economy Minister Yasutoshi Nishimura also said the economy was expected to pick up but the coronavirus outbreak could pose a risk to growth.

          - advertisement -

          UK GDP dropped -0.1% in February, no growth before coronavirus outbreak

            UK GDP contracted -0.1% mom in February, below expectation of 0.1% mom. Index of services rose 0.0% mom. Index of production rose 0.1% mom. Manufacturing rose 0.5% mom. Construction dropped -1.7% mom. Agriculture dropped -0.1% mom.

            For the three months to February, GDP grew just 0.1% 3mo3m. Index of services rose 0.2% 3mo3m, the only positive contribution to GDP growth, by 0.15%. Index of production dropped -0.6% 3mo3m, contributed to -0.08% GDP growth. Construction dropped -0.2% 3mo3m, contributed to -0.01% GDP growth.

            Rob Kent-Smith, Head of GDP, Office for National Statistics: “Today’s figures show that in the three months to February, which was before the full effects of Coronavirus took hold, the economy continued to show little to no growth. Most elements of the services sector grew, though manufacturing continued to decline. Construction saw a notable fall in February, as wet weather and flooding hampered housebuilding. The underlying trade balance moved into surplus in the latest 3-months, the first seen since comparable records began over 20 years ago. This surplus was caused by a large fall in goods imported from EU countries.”

            Full release here.

            Also from the UK, industrial production came in at 0.1% mom, -2.8% yoy in February, versus expectation of 0.3% mom, -2.8% yoy. manufacturing production came in at 0.5% mom, -3.9% yoy, versus expectation of 0.3% mom, -3.9% yoy. Goods trade deficit widened sharply to GBP-11.5B, versus expectation of GBP -6.0B.

            - advertisement -

            Study shows 112 constituencies switched from Brexit to Bremain

              According to a latest study, more than 100 parliamentary seats have flipped from pro-Brexit in 2016 to pro-Bremain now. Focaldata, a consumer analytic company, compiled the breakdown data by modelling two YouGov polls conducted before and after Prime Minister Theresa May’s Chequers Deal. The study was jointly commissioned by anti-Brexit group Best for Britain and anti-racist group Hope Not Hate.

              The study found that 112 seats out of 632 in England, Scotland and Wales have switched from leave to Remain. And there are now 341 seats with majority Remain support, up from 229 seats at the referendum in 2016. Among the switches, 97 was in England, 14, in Wales and 1 in Scotland. Also, there is now a majority for Remain in both Scotland and Wales.

              Eloise Todd, the chief executive of Best for Britain, said: “the sands of public opinion are shifting and politicians risk falling behind”, and “the deal must be put to the people.” Nick Lowles, head of Hope not Hate, said “the rate of change appears to be quickening as the realities of what Brexit would mean become more apparent and the fears of a no-deal Brexit grow”.

              The UK and EU are due to reconvene Brexit negotiation on Thursday in Brussels. UK is believed to be pushing the deadline for negotiation to October while EU is insisting to conclude it in September.

              - advertisement -

              NIESR: UK GDP to contract 15% to 25% in Q2

                NIESR said UKeconomy could have declined by -5% in Q1. And if lockdown continues, GDP could contract by -15% to -25% in Q2. The lockdown is “causing the largest contraction in economic activity since 1921”

                “The UK economy is now almost certain to experience a major contraction in the second quarter of the year. The forceful impact of COVID-19 and the global lockdown has thrust the economy into unknown territory where we could see GDP declining at a record quarterly rate. Nonetheless, instant and significant recovery remain a distinct possibility if the spread of the virus comes to halt quickly.” – Dr Kemar Whyte Senior Economist – Macroeconomic Modelling and Forecasting

                Full release here.

                - advertisement -

                EU Juncker: One crisis in Greece was enough, not another in Italy

                  European Commission President Jean-Claude Juncker said yesterday that “Italy is distancing itself from the budgetary targets we have jointly agreed at EU level.” He warned “one crisis was sufficient, one crisis was enough” and “after the toughest management of the Greece crisis, we have to do everything to avoid a new Greece — this time an Italy — crisis.” He added “we have to prevent Italy from being able to get a special treatment here that, if everybody were to get it, would mean the end of the euro.”

                  The chairman of Eurozone finance ministers Mario Centeno said after the group’s meeting that “recent announcements by the Italian government have raised concerns over its budgetary course, concerns that need to be addressed soon.” He added “we are all bound by the euro and we need sound policies to protect it. It is up to the Italian government to show it has a sustainable and credible budgetary plan.”

                  On the other hand, Italian Deputy Prime Ministers Luigi Di Maio insisted the government “will never sacrifice workers on the altar of the spread and of the crazy rules which have been imposed on us” And, “this government doesn’t butcher people, the music has changed.”

                  - advertisement -

                  DOW extends losing streak on trade war, 24247 support in focus

                    DOW closed down -196.10 pts or -0.8% overnight to 24461.70. Trade war fears extended the losing streak to eight days, longest in more than a year.

                    Technically, the break of near term trend line support this week, and the failure to regain 55 day EMA argues that rise from 23344.52 has completed earlier that expected at 25402.83. It couldn’t reach 25800.35/26616.71 resistance zone. Immediate focus will be on 24247.84 today and next week. Break there could accelerate the selloff to 23344.52 support.

                    Overall, there there are a few interpretations of the price actions from 26616.71 high, they all point to the case that it’s a correction that’s not completed. That is, fall from 25402.83 could be a falling leg of the whole medium term correction pattern that could break through 23344.52 low. We’d maintain our view that the correction from 26616.71 should at least extend to 38.2% retracement of 15450.56 to 26616.71 at 22351.24 before completion.

                    - advertisement -

                    RBNZ kept OCR unchanged at 1.75%, maintains dovish bias

                      RBNZ kept OCR unchanged at 1.75% as widely expected. It also maintined dovish bias by noting “monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.”

                      Here is the full statement:

                      The Reserve Bank today left the Official Cash Rate (OCR) unchanged at 1.75 percent.

                      The outlook for global growth continues to gradually improve. While global inflation remains subdued, there are some signs of emerging pressures. Commodity prices have continued to increase and agricultural prices are picking up. Equity markets have been strong, although volatility has increased. Monetary policy remains easy in the advanced economies but is gradually becoming less stimulatory.

                      GDP was weaker than expected in the fourth quarter, mainly due to weather effects on agricultural production. Growth is expected to strengthen, supported by accommodative monetary policy, a high terms of trade, government spending and population growth. Labour market conditions are projected to tighten further.

                      Residential construction continues to be hindered by capacity constraints. The Kiwibuild programme is expected to contribute to residential investment growth from 2019. House price inflation remains moderate with restrained credit growth and weak house sales.

                      CPI inflation is expected to weaken further in the near term due to softness in food and energy prices and adjustments to government charges. Tradables inflation is projected to remain subdued through the forecast period. Non-tradables inflation is moderate but is expected to increase in line with a rise in capacity pressure. Over the medium term, CPI inflation is forecast to trend upwards towards the midpoint of the target range. Longer-term inflation expectations are well anchored at 2 percent.

                      Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain and policy may need to adjust accordingly.

                      - advertisement -

                      Ifo: Germany business think they will most likely return to normal in nine months

                        Ifo updated their German economic forecasts and now expects GDP to shrink by -6.6% this year. A strong rebound of 10.2% GDP growth is expected in 2021.  “This is based on our evaluation of the ifo survey conducted among companies in May. On average, participants consider it most likely that their own business situation will return to normal in nine months,” says Timo Wollmershaeuser, Head of Forecasts at ifo.

                        The forecast depends heavily on how quickly companies’ business situation returns to normal. In the best case, companies indicate that this might take an average of only five months. GDP could shrink only -3.9% this year and grow 7.4% next.

                        In the worst case, with an average normalization period of 16 months, economic output would shrink by -9.3% this year and grow by 9.5% next year. The recovery would then be drawn out well into 2022.

                        Also, the new forecast was prepared based on the assumption not that the coronavirus is defeated in the coming months, but that its spread can be contained and a second wave of infection avoided.

                        Full release here.

                        - advertisement -

                        UK Fox: Changes in EU’s Brexit position due to economic slowdown

                          UK Trade Minister Liam Fox said today that EU is now more afraid of no-deal Brexit due to economic slowdown , including Germany and France. Fox said “there have been some changes in the positions in recent times, dictated by reality”.

                          And, “We’ve seen, for example, the German economy weakening, we’ve seen the French economy weakening, and I think this (EU) view that ‘we can simply weather out any disturbance that would occur from a no deal’, I think there’s much less appetite for that.”

                          - advertisement -

                          DOW had limited rebound as US still some way from coronavirus relief package

                            US stocks rebounded notably overnight but DOW’s 1167pts rise was way short of Monday’s -2000 pts loss. President Donald Trump disappointed the markets as he failed to deliver the coronavirus response measures he mentioned on Monday. There was no resolution at his meeting with Republicans. Trump just said after the meeting, “Be calm. It’s really working out. A lot of good things are going to happen.” It’s reported that Republicans are skeptical on the payroll tax cut pushed by economic adviser Peter Navarro.

                            Also, after the meeting, Trump sent Treasury Secretary Steven Mnuchin to meet House Speaker Nancy Pelosi to kick start a congressional response. After meeting with Pelosi, Mnuchin just said it’s too early to call the talks “negotiations”. Arguably, the US is still some way from concluding a certain relief package.

                            High volatility will very likely continue in the financial markets ahead. DOW might be able to close Monday’s gap should there be any positive news out of the White House in the coming days. But there is no sign of a major bottoming yet. Corrective from 29568.57 is expected to extend to 100% projection at 22214.78 ahead, sooner or later.

                            - advertisement -

                            Fed Mester: We are beyond maximum employment

                              In a speech delivered yesterday, Cleveland Fed President Loretta Mester talked down recent market slump again. And as a known hawk, she continues to support further gradually remove of monetary policy accommodation ahead.

                              She said that “while a deeper and more persistent drop in equity markets could dash confidence and lead to a significant pullback in risk-taking and spending, we are far from this scenario.” And, “similar to the swings in the market we saw earlier this year, the movements of late do not seem to be signaling that investors are becoming overly pessimistic.”

                              On labor market, she noted that “we are beyond maximum employment”. Much of the explanation of “moderate wage growth”, lies with ” low levels of inflation and productivity growth over this expansion”. And, “I wouldn’t expect to see a strong acceleration in wages unless we see a strong pickup in productivity growth.” Meanwhile, she also emphasized that “maintaining stable inflation expectations will be the key to maintaining inflation at target.

                              Her full speech “The Economic Outlook, Monetary Policy, and Normal Policymaking Now and in the Future“.

                              - advertisement -

                              Corbyn tells May to move red lines and give big offer on Brexit

                                UK opposition Labour Jeremy Corbyn said there is no big offers from Prime Minister Theresa May on Brexit yet. An he urged May to move her red lines.

                                Corbyn said “So far in those talks there’s been no big offer and the red lines are still in place.” “Its actually quite difficult negotiating with a disintegrating government, with cabinet ministers jockeying for succession rather than working for an agreement.”

                                “Quite honestly, the government has to move its red lines. We cannot go on having MV1, MV2, MV3 and then coming on for possibly MV4 or a bill we have yet to actually see” he added.

                                May’s spokesperson said there are significant work to do to reach a unified way forward to break a parliamentary impasse over Brexit. And the government is working hard to introduce the Brexit Withdrawal Agreement bill as soon as possible.

                                - advertisement -

                                China PMI services rose to 53.9, employment gauge slipped further into negative territory

                                  China Caixin PMI services rose to 53.9 in December, up from 53.8 and beat expectation of 53.1. PMI composite also rose from 51.9 to five-month high of 52.2.

                                  Commenting on the China General Services PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said: “The Caixin China General Services Business Activity Index rose to 53.9 in December after a big jump the previous month.

                                  “Among the gauges included in the survey, the one for new business dipped slightly in December after a rebound the month before, suggesting steady demand across the services sector. The employment measure stayed in positive territory but edged down further, indicating that the employment absorption capacity of the services industry weakened mildly. The gauges for prices charged by service providers and input costs both edged up. The measure for business expectations also rose, reflecting service providers’ strengthening confidence in their prospects.

                                  “The Caixin China Composite Output Index picked up marginally to 52.2 in December, reflecting easing downward pressure on China’s economic growth.

                                  “Although the index for new export business rose, the one for overall new orders dropped, reflecting weakening domestic demand. The employment gauge slipped further into negative territory, implying increasing challenges to stabilizing employment, which was the broader context of December’s central government policies to increase jobs. The gauges for input costs and output charges continued to drop, pointing to easing inflationary pressures. The measure for future output, which reflects business confidence, edged up marginally, although it remained on a downtrend.”

                                  Full release here.

                                  - advertisement -

                                  ECB de Guindos didn’t foresee recession in Eurozone

                                    ECB Vice President Luis de Guindos said he didn’t foresee Eurozone entering into recession. However, low growth could extend for a longer time. Meanwhile, latest news regarding US-China trade negotiations were positive. De Guindos also warned that low profitability of banks would lead to low valuation, “making the inevitable consolidation of the sector very difficult.” Low profitability of Eurozone banks was also related to costly structures and excess capacity.

                                    Separately over the weekend, ECB policymaker Robert Holzmann complained that the current ECB monetary policy is “wrong” and “a different policy is needed in the future”. He added that ECB should think about lowering inflation target, temporarily, from 2% to 1.5%. Also, “I am convinced that she has heard the dissenting voices, that she will take them seriously and will try to find a new approach here.”

                                    - advertisement -

                                    China won’t adjust global quota on wheat, corn and rice for US trade deal

                                      China’s Vice Agriculture Minister Han Jun told Caixin media that the country is not going to adjust overall annual quota for the three staple food despite the US-China trade deal phase one. The annual quotas are 9.64 million tonnes for wheat, 7.2 million tonnes for corn and 5.32 million tonnes for rice.

                                      “This is a global quota. We will not adjust for one country,” Han said. “China imports wheat, corn and rice from the international market, mainly to moderate the domestic surplus”. Han’s comments were in line with some expectations that China has to cut imports from other markets to accommodate the agreed increase in US agricultural products.

                                      Chinese Vice Premier Liu He has scheduled to travel to Washington from January 13 to 15, to sign the phase one trade deal with the US.

                                      - advertisement -

                                      Trump highly unlikely to hold off 25% tariffs on $200B Chinese goods, threaten another $267B

                                        In an interview with the WSJ, Trump said it was “highly unlikely” for him to hold off on raising tariffs on USD 200B in Chinese goods from 10% to 25% on January. We went further to threaten China for more tariffs if they cannot make a deal.

                                        Trump said, “the only deal would be China has to open up their country to competition from the United States”. And, “as far as other countries are concerned, that’s up to them.”

                                        Then Trump warned “If we don’t make a deal, then I’m going to put the $267 billion additional on”.

                                        - advertisement -

                                        German Finance Ministry: Turkish crisis adds to risks of Brexit and trade war

                                          In its monthly report, the German Finance Ministry the “economic developments in Turkey present a new, external economic risk” to the economy. Germany is the second largest foreign investor in Turkey.

                                          That adds on trop of Brexit as “risks remain particularly with regards to uncertainty over how Brexit is going to pan out”.

                                          US trade policy is another main risk as “the persistent debate about tariffs and the threat of a trade war are choking trade activity.”

                                          Nonetheless, despite the risks, the Minstry said the economy remains supported by state spending, private consumption, low interest rates, a robust labor market and rising real wages.

                                          - advertisement -
                                          - advertisement -