UK retail sales rose 1.4% mom in November, above expectation of 0.8% mom. Sales were 7.2% higher than their pre-coronavirus February 2020 levels. Ex-automotive fuel sales rose 1.1% mom. For the 12 month period, headline sales rose 4.7% yoy while ex-automotive fuel sales rose 2.7% yoy.
Over the three months to November 2021, however, sales fell by -0.6% when compared with the previous three months.
Swiss CPI came in at 0.3% mom, 1.2% yoy in October, above expectation of 0.1% mom, 1.1% yoy. Annual rate also accelerated from September’s 0.9% yoy. The 0.3% increase compared with the previous month is due to several factors including rising prices for heating oil. Gas also recorded a price increase, as did fuel. In contrast, prices for salads and fruiting vegetables decreased.
Retail sales rose 2.5% yoy in September, above expectation of 1.4% yoy.
In a speech, New York Fed President John Williams said he expects the FOMC to “move expeditiously in bringing the federal funds rate back to more normal levels this year”. The ongoing pandemic and Ukraine war “bring a tremendous amount of complexity and uncertainty”. Fed will “need to be  data dependent and adjust our policy actions as circumstances warrant.”.
For 2022, Williams expects core inflation to be nearly 4%, before falling to around 2.50% next year, then further decline to close to 2% long-run goal in 2024. He also expects GDP growth to be around 2% in 2022 while unemployment rate to remain around its current low level.
New York Fed President John William said, that the December interest rate projection “still seems a very reasonable view of what we’ll need to do this year in order to get supply and demand in balance and bring inflation down.” Median projection was a peak rate of 5.1% by the end of this year.
He added that further increase of 24bps “seems like the right size”. But the pace would remain dependent on incoming data. “We still have our work cut out for us.”
“The Fed will watch the data to determine the path of rate rises,” Williams added. “Maybe services prices stay elevated, and if that happens we’ll need higher rates.”
Hong Kong stocks tumble notably in Asian session today while off-shore Chinese Yuan also breached to a new low. US-China tensions intensified further over the proposed national security law for Hong Kong. (More details regarding the laws here). US Secretary of State Mike Pompeo told Congress on Wednesday that Hong Kong no longer qualifies for its special status as China has undermined the city’s autonomy so fundamentally.
Pompeo said China’s plan on the national security legislation was “only the latest in a series of actions that fundamentally undermine Hong Kong’s autonomy and freedoms… No reasonable person can assert today that Hong Kong maintains a high degree of autonomy from China, given facts on the ground. He certified to the Congress that Hong Kong no longer warrants treatment under U.S. laws “in the same manner as U.S. laws were applied to Hong Kong before July 1997.” “It is now clear that China is modeling Hong Kong after itself,” he added.
Separately, US also requested an emergency UN meeting over issue. Washington’s UN mission staid in a statement, that China’s proposal will “fundamentally undermine Hong Kong’s high degree of autonomy and freedoms as guaranteed under the Sino-British Joint Declaration of 1984, which was registered with the UN as a legally binding treaty… This is a matter of urgent global concern that implicates international peace and security.” However, it said that China has “refused to allow this virtual meeting to proceed”. “This is another example of the Chinese Communist Party’s fear of transparency and international accountability for its actions,” the US statement said.
China’s ambassador to the UN Zhang Jun just tweeted “Legislation on national security for Hong Kong is purely China’s internal affairs. It has nothing to do with the mandate of the Security Council.”
Hong Kong HSI is currently down around -1.6% but it’s holding above this week’s low at 22519 so far. Technically, corrective rebound from 21139.26 should have completed at 24855.47 after rejection by 55 day EMA, and further decline is expected to retest this low. Nevertheless, break of 22519 support needs to happen first.
USD/CNH breached 7.1953 resistance to 7.1961, but there was no follow through buying there. We’d maintain that 7.1953 should provide technical resistance to limit upside, and bring another fall to extend the consolidation pattern. However, sustained trading above 7.1953 will indicate serious deterioration in US-China tension, which could prompt rather sharp selloff in Yuan to extend medium term up trend in USD/CNH.
Dollar jumps as Fed raised median federal funds rate projection in 2023 to 0.6%, from 0.1%. That is, there could be two rate hikes by the end of 2023. Also, seven FOMC members penciled in a rate hike or more in 2022, comparing to four in March. 13 members expected at least one hike by 2023, comparing the just seven in March.
EUR/USD is now eyeing 1.1985 support next, as fall from 1.2265 accelerates downwards.
German Gfk consumer confidence for August dropped -0.1 to 9.7, matched expectations. Economic expectations dropped from 2.4 to -3.7. Income expectations improved from 45.5 to 50.8. Propensity to buy dropped from 53.7 to 46.3. Gfk noted that “It is apparent that the global economic slowdown, trade conflict and Brexit discussions are having an ever increasing impact on consumer confidence. Thus, economic expectations continue to decline and the propensity to buy has dropped off slightly as well.”
Economic expectation fell below its long-standing average of 0 for the first time since March 2016. It’s also the lowest reading since November 2015. Gfk said: “The trade war with the US, ongoing Brexit discussions and the global economic slowdown continue to drive fears of a recession. Employees in export-driven sectors in particular, such as the automotive industry and its suppliers, are most immediately affected by this. In addition, reports of downsizing add to employees’ fears of losing their jobs.”
Entering into US session, Sterling pares back some losses and recovers broadly today. The recovery is believed to be triggered by rumor that the EU is considering to offer a major Brexit concession to the UK. But there is so far no detail on the deal, and it remains just a rumor. Nonetheless, it’s no too surprising for the oversold Pound to have a mild recovery. On the other hand, Dollar is trading as the second strongest one for today. But upside is capped by yesterday’s high except versus New Zealand Dollar.
Kiwi remains the weakest one for today after more dovish than RBNZ statement. Australian Dollar truly lacks a clear direction. It was the strongest one in Asian session as lifted by stocks rebound. But it’s now the second weakest. Euro follows as the third weakest for today as it’s rebound lost steam.
Over the week, New Zealand Dollar is the weakest one, followed by Sterling. Australian Dollar is the strongest one, followed by Euro.
In other markets, European stocks are trading generally softer today with DAX and CAC both down -0.4%. FTSE is down -0.74%. Earlier in Asia, major indices closed mixed. China Shanghai SSE closed up 1.83% at 2794.38, can’t hold on to 2800 handle. Hong Kong HSI rebounded 0.88%. But Nikkei and Singapore Strait Times are down -0.2% and -0.4% respectively.
WTI crude oil is extending weakness after rejection from 70 handle. It’s now back below 67 at 66.92 and looks set to dip further. The boring gold continues to engage in sideway consolidation around 1210.
Looking ahead, Canada will release housing starts and new housing price index. US will release PPI, jobless claims and wholesale inventories.
ECB Vice President Luis de Guindos defended the central bank’s decision to ended the asset purchase program this month, without any further stimulus exit said. He said that “We’re in a dark room that sometimes gets a bit darker, and when you are in a dark room you have to be very cautious and try to keep your optionality at the maximum level,”
Governing Council member Vitas Vasiliauskas warned of growing risks in 2019. He said “next year the balance of risk is more likely to turn in a negative direction but for the moment, because risks and economic data are quite mixed, yesterday’s meeting still described the risk outlook as balanced,”
Another Governing Council member Ewald Nowotny said the central bank should ends the negative deposit rate policy as son as possible. He said, “My personal view is that specifically this rate, that is this phenomenon of negative interest rates, should be reconsidered as soon as economically possible.” He added, “It is also a specificity of the ECB. The U.S. never had a negative rate.”
Germany’s ZEW Economic Sentiment for September experienced an uptick, rising from -12.3 to -11.4, surpassing the anticipated drop to -15.0. However, not all was rosy for the nation, as Current Situation index witnessed a downturn, descending from -71.3 to -79.4, which was a more significant dip than forecasted 75.0.
On a broader scale, Eurozone’s ZEW Economic Sentiment slid from -5.5 to -8.9, trailing the predicted -6.2. Current Situation for the zone also decreased marginally, moving by -0.6 to rest at -42.6.
Shedding light on these figures, ZEW President Professor Achim Wambach remarked, “The assessment of the current economic situation in Germany by the financial market experts is even more pessimistic than in August 2023.” While this paints a subdued picture of the present scenario, Wambach highlighted a silver lining, pointing to the “slight improvement in expectations regarding Germany’s economic situation over the next six months.”
Drawing connections to the international arena, Wambach added, “The brighter economic prospects for Germany align with a notably more optimistic view of international stock market developments.” He attributed this, in part, to the growing segment of respondents who foresee stability in interest rates within both Eurozone and US. Furthermore, experts are looking eastwards, projecting a relaxation in China’s interest rate policy.
Strong rebound in US stocks continued overnight with DOW wrapped up its strongest three-day rally since 1931. At the same time number of confirmed coronavirus cases in the US surged through China, and Italy, as the pandemic worsens. Total infections now reached 85,594, versus 81,340 as “reported” in China and 80,589 in Italy. Coronavirus deaths in the US hit 1,300, relatively low comparing to Italy’s 8,215, Spain’s 4,365 and China’s “reported” death of 3,292.
New York state is hardest hit with 38,977 infections and 466 deaths. New Jersey (6,876), California (4,044), Washington(3,207) and Michigan (2,856) are quite far behind. New York Governor Andrew Cuomo warned, “any scenario that is realistic will overwhelm the capacity of the healthcare system.” The projected shortfall in ventilators is “astronomical” according to Cuomo.
DOW rose 1351.62 pts or 6.38% to close at 22552.17. Corrective target of 38.2% retracement of 29568.57 to 18213.65 at 22551.22 is met already. Upside momentum is starting to diminish as seen in hourly MACD. But there is no sign of topping yet. Thus, further rally could still be seen into early part of next week.
However, we’d expect the correction to complete anywhere between 22551 and 61.8% retracement at 25230.99. Break of 55 hour MACD would likely indicate completion of the rebound and bring retest of 18213.65 low.
BoJ Governor Haruhiko Kuroda told the parliament today, “with our monetary easing steps, we sought to stimulate economic activity and tighten the labour market so that prices and wages would rise more.”
“This was a necessary approach and one that is shared by other central banks,” he said. There was “no better way” to aim at sustainably achieving its 2% inflation target.
BoJ Deputy Governor Masazumi Wakatabe said today that the first characteristic of the current economy is it’s being “widespread”. And it’s “bring about benefits to a wide range of economic entities.” And, the second characteristic is that “inflation rate turning positive”, “which is different from the case in the mid-2000s”.
On outlook, he reiterated the bank’s rhetorics that the economy is expected to continue on an “expanding trend”. But he also noted various risks including US-China trade friction. On prices, he said CPI is likely to “increase gradually” as the economic expansion continues.
Though, Wakatabe also warned that for now, inflation remained at around 1%, “only halfway” to 2% target. And, “in a case where downward pressure is exerted on the economy again, it may revert to deflation. Thus, it’s appropriate to continue with the “large-scale monetary easing”.
Brexit debate will resume in the House of Commons today to find a majority for a way forward that breaks the current impasse. Prime Minister Theresa May said she hopes to hold a vote on her deal again this week. But so far, there is no signs the twice-defeated deal could make a turnaround. Instead, May could unveil plans to hold indicative votes.
The push for second referendum gained momentum over the weekend with with over a million people joined the “Put It To The People” March in London. Speakers at the rally included Labour’s deputy leader Tom Watson, Scotland’s First Minister Nicola Sturgeon, London Mayor Sadiq Khan. Separately, the “Revoke Article 50 and remain in the EU” petition now gathered over 5.3M signatures.
It appears that Chancellor of Exchequer Philip Hammond doesn’t object to a referendum. He said: “I’m not sure there’s a majority in parliament in support of a second referendum… Many people will be strongly opposed to it, but it’s a coherent proposition and it deserves to be considered along with the other proposals.”
However, Brexit Minister Stephen Barclay warned that “at its logical conclusion, the risk of a general election increases because you potentially have a situation where parliament is instructing the executive to do something that is counter to what it was elected to do.”
Meanwhile, the Sunday Times reported that 11 unidentified senior ministers could try to oust May today as she has become a toxic and erratic figure whose judgment has “gone haywire”. Two leading candidate Cabinet Minister David Lidington and Environment Secretary Michael Gove backed May though. Also, it’s reported that hardline Brexiteer including Jacob Rees-Mogg & Iain Duncan Smith demanded May to set a timeline to step done for get their support on the Brexit deal.
With short Article 50 extension granted by EU last week, if UK parliament could approve a deal, Brexit is delayed to May 22. If no deal is approved, UK will have to leave with no withdrawal agreement on April 12, or provide an alternative.
Australia employment grew just 0.5k in June, below expectation of 9.1k. Full-time jobs increased 21.1k while part-time jobs decreased -20.6k. Unemployment rate was unchanged at 5.2% with participation rate steady at 66.0%.
ABS Chief Economist Bruce Hockman said, “Australia’s participation rate was at 66 per cent in June 2019, which means nearly two of every three people are currently participating in the labour market. The participation rate for 15 to 64 year olds was even higher and closer to four out of every five people.”
AUD/USD recovers strongly today despite the job data miss. With 0.6983 minor support intact, further rise is mildly in favor. Break of 0.7047 resistance will resume the rebound from 0.6831 to 61.8% retracement of 0.7295 to 0.6831 at 0.7118.
Germany’s economic outlook has dimmed yet again, as indicated by the Ifo Business Climate Index which registered its fourth consecutive monthly drop. In August, the index tumbled from 87.4 to 85.7. The downward trajectory was visible across both Current Situation Index, which slid from 91.4 to 89.0, and Expectations Index, which descended from 83.6 to 82.6.
A sectoral breakdown of the data highlighted broad-based concerns. Manufacturing saw a decline from -13.9 to -16.6. Meanwhile, Services sector took a more significant hit, plummeting from a modest 1.0 to a concerning -4.2. Trade and Construction sectors also continued their downward spiral, recording readings of -25.5 and -29.3 respectively, from their previous standings of -23.7 and -24.6.
Ifo’s commentary on the data was stark. They noted, “Assessments of the current situation fell to their lowest level since August 2020.” The institution also flagged a growing pessimism among companies regarding the forthcoming months, adding, “The German economy is not out of the woods yet.”
By loading the video, you agree to YouTube’s privacy policy.
Learn more
Eurozone exports of goods rose 13.3% yoy to EUR 235.5B in July. Imports rose 44.0% yoy to EUR 269.5B. Trade deficit with the rest of the world came in at EUR -34B. Intra-Eurozone trade rose 24.0% yoy to EUR 224.8B.
In seasonally adjusted term, Eurozone exports dropped -1.7% mom to EUR 236.7B. Imports rose 1.5% mom to EUR 277.0B. Trade deficit widened to EUR -40.3B, larger than expectation of EUR -32.5B. Intra-Eurozone trade rose from EUR 225.1B to EUR 229.3B.
San Francisco Fed President Mary Daly said in a CBS New interview, “if you’re out in the economy, you don’t feel like you’re in a recession. That’s the bottom line. The most important risk out there is inflation. And I think the job market just confirms that.”
She added that a 50bps hike in September is still “absolutely” appropriate. “And we need to be data dependent. It could. We need to leave our minds open. We have two more inflation reports coming out, another jobs report. We continue to collect all the information from the context we talk to you to see how this is working its way through the economy,” She said.
ActionForex.com was set up back in 2004 with the aim to provide insightful analysis to forex traders, serving the trading community for over a decade. Empowering the individual traders was, is, and will always be our motto going forward.
Contact us: contact@actionforex.com
© ActionForex.com © 2024 All rights reserved.
BoJ opinions emphasize importance to maintain monetary easing
In the Summary of Opinions of the March 17-18 meeting, BoJ noted, “unlike the United States and the United Kingdom, Japan is not in a situation where the inflation rate will likely exceed the price stability target of 2 percent in a continuous manner.” Hence, “it is important for the Bank to continue with monetary easing to support the economic recovery from the pandemic.”
Situations surrounding Ukraine have “caused price rises of energy and other items”, and this will “push down domestic demand while raising the CPI.” Under these circumstances, it is “necessary to improve labor market conditions and provide stronger support for wage increases”.
One member warned that “if downward pressure on economic activity and prices increases, the economy may instead be in danger of falling into deflation again. If it becomes difficult to achieve the price stability target, the Bank should act nimbly and without hesitation.”
Full Summary of Opinions here.