Bundebank Weidmann sees not reason to deviate from ECB’s assessment

    Bundesbank President Jens Weidmann said ECB’s monetary stance is “currently appropriate” and “at the moment I see no reason to deviate from our assessment.”

    Indeed, he argued that the economy could turn out to be better than ECB’s baseline scenario, because the EUR 750B EU recovery package wasn’t counted in, nor the EUR 100B fiscal measures of France.

    Weidmann warned that Fed’s average inflation targeting could result in an asymmetric target. Central bank would be loath to cause a recession just to bring inflation back to an average after a period of overshooting.

    US update: AUD/CHF the top mover as risk appetite returns

      Risk appetite appears to be rather strong today. It’s reported that Trump is undecided on the congressional deal to avert another shutdown. But investors couldn’t care less and they seem optimistic that Trump will eventually find an excuse to bow down, like claiming that the 90km border fence is a first step. But anyway, S&P 500 has already broken recent high to extend rally. DOW and NASDAQ might follow soon.

      In the currency markets, Swiss Franc is the worst performing one, followed by Yen and then Dollar. Australian Dollar is the strongest one, followed by Canadian and then Euro. Sterling is mixed after little reactions to UK Prime Minister Theresa May’s Brexit statement in Commons. Kiwi is also mixed ahead of tomorrow’s RBNZ rate decision.

      AUD/CHF is currently the top mover today, up 0.69%. The recovery ahead of 0.7046 support argues that rebound from 0.6646 low might not be completed yet. Intraday bias stays neutral first. Break of 0.7262 will target 0.7376 resistance next. Though, firm break of 0.7046 should confirm near term reversal and target a retest on 0.6646 low.

      In other markets:

      • DOW is up 1.39%.
      • S&P 500 is up 1.14%.
      • NASDAQ is up 1.27%.
      • 10-year yield is up 0.025 at 2.686.
      • 30-year yield is up 0.028 at 3.027, back above 3% handle.

      In Europe:

      • FTSE rose 0.06%.
      • DAX rose 1.01%.
      • CAC rose 0.84%.
      • German 10-year yield rose 0.0102 to 0.132.

      New Zealand goods exports dropped -2.3% yoy, imports rose 11.0% yoy in March

        New Zealand goods exports dropped -2.3% yoy to NZD 5.7B in March. Imports rose 11.0% yoy to NZD 5.6B. Trade surplus narrowed to NZD 33m, down from NZD 201m, matched expectations.

        Exports to China was up NZD 423m to NZD 1.8B. But exports to all other top trading partners were down, with USA down NZD -52m, EU down NZD -49m, AU down NZD -105m, Japan down NZD -25m.

        Imports from China was up NZD 624m to NZD 1.3B, from EU was up NZD 132m, from AU was up NZD 65m, from Japan was up NZD 19m. But imports from USA was down NZD -74m.

        Full release here.

        Japan PMI manufacturing finalized at 41.9, suggests output dropped -15% annualized

          Japan PMI Manufacturing was finalized at 41.9 in April, down from March’s 44.8, hitting an eleven-year low. Markit said plummeting demand led to further sharp production cutbacks. Supply chain disruptions intensified as coronavirus pandemic continued. Manufacturing employment fell at strongest rate since mid-2009.

          Joe Hayes, Economist at IHS Markit, said: “Based on comparisons with official statistics, the latest survey data suggest manufacturing output declined by approximately 15% on an annual basis in April… The latest figures show that until we’re past the peak of the COVID-19 pandemic and export demand can begin its slow recovery, a sizeable chunk of Japan’s manufacturing economy is set to remain effectively shut down.”

          Full release here.

          FOMC minutes reveal uncertainty over future policy tightening

            According to minutes from May 2-3 meeting of FOMC, there’s a cloud of uncertainty over the prospect of future policy tightening. The committee’s participants “generally agreed” that the cumulative effects of monetary policy tightening and the possible impact of further tightening on the economy render the extent of future target range increases “less certain”.

            The minutes report, “Participants generally expressed uncertainty about how much more policy tightening may be appropriate.” This theme of uncertainty was echoed throughout the document, with the committee members emphasizing the need to “‘retain optionality” after the meeting.

            Moreover, the minutes reveal, “Several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary.” This implies that should economic conditions continue on their current trajectory, additional policy tightening may not be required, underscoring the tentative stance adopted by the FOMC.

            Trump to raise tariffs on China by another 5% as trade war escalates

              In a second series of furious tweet yesterday, US President Donald Trump announced to raise tariffs on China, in response the latter’s retaliation announced earlier in the day. Starting on October 1, tariffs on USD 250B in China imports will be raised from current 25% to 30%. The rate of the planned tariffs, to take effect on September 1, on USD 300B of Chinese products, will be raised from 10% to 15%.

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              Fed to keep rate unchanged at 1.50-1.75%, some previews

                FOMC rate decision is a major focus today. Fed is widely expected to keep interest rate unchanged at 1.50-1.75%. The accompanying statement will, at most, contain only minor changes from December’s. There will be no update on economic projections and median dot plot at the meeting. Fed Chair Jerome Powell would reiterate that monetary policy is at the right place. Overall, the decision and press conference is more likely a non-event than not.

                Currently, fed fund futures are indeed pricing in 87.3% chance of no change for today, and 12.7% chance of a hike to 1.75-2.00%. For June meeting, markets are pricing in 74.1% chance of federal funds rate being at 1.50-1.7% or above.

                Here are some suggested previews:

                US initial jobless claims dropped to 385k, continuing claims ticked up to 3.77m

                  US initial jobless claims dropped -20k to 385k in the week ending May 29, better than expectation of 410k. Four-week moving average of initial claims dropped -30.5k to 428k. Both figures were lowest since March 14, 2020.

                  Continuing claims rose 169k to 3771k in the week ending May 22. Four-week moving average of continuing claims rose 23k to 3688k.

                  Full release here.

                  Australia retail sales dropped -4.4% mom in Dec, but turnover remains strong

                    Australia retail sales dropped -4.4% mom in December, much worse than expectation of -1.9% mom. That’s also the largest monthly decline since April 2020.

                    “Despite this month’s fall, retail turnover remains strong, up 4.8 per cent on December 2020, with strong consumer spending continuing post the Delta Outbreak,” Ben James, Director of Quarterly Economy Wide Statistics, said.

                    Full release here.

                    Bank of France business survey suggests 0.3% Q2 GDP growth

                      According Bank of France business survey results, the economy could be expanding by 0.3% in Q2.

                      The survey noted that:

                      • In the manufacturing industry, the business sentiment indicator stood at 99 in April, after 100 in March. Industrial production slowed down in April but business leaders expect it to pick up in May.
                      • In services, the business sentiment indicator stood at 100 in April, after 101 in March. Service sector improved moderately and growth is expected to continue in May.
                      • In construction, the business sentiment indicator stood at 105 in April, after 106 in March. Construction activity decelerated but improvement is expected.

                      Full release here.

                      Fed’s Beige Book: Tariffs getting more attentions from businesses

                        Fed’s Beige Book economic report warned that “manufacturers reported raising prices of finished goods out of necessity.” Such price hikes were attributed to higher raw materials costs  “which they attributed to tariffs.” Though, overall inflation pressure were just “modest-to-moderate” in all districts. In the 32-page report, the word “tariff” or its derivations were mentioned a total of 51 times. And, with the exception of St. Louis, all districts made reference to tariffs one way or the other. That’s quite a sharp jump from 42 times in September.

                        For example, In Dallas, it’s noted that “among manufacturers, roughly 60 percent of contacts said the tariffs announced and/or implemented this year have resulted in increased input costs. The share was even higher among retailers, at 70 percent.” In Minneapolis, “a producer of dry beans reported that a large regular annual order from European Union countries was canceled due to tariffs.” In Philadelphia, “other firms reported difficulty meeting the prices of foreign competitors who are not exposed to tariffs on the primary input commodities of their products.”

                        Full Beige Book here.

                        ECB Liikanen: Time needed for underlying inflation to accelerate

                          ECB Governing Council member, Finnish Central Bank Governor Erkki Liikanen, tells the Finnish parliament today that it takes time for underlying inflation in the Eurozone to accelerate. And that would support rise in headline inflation.

                          Also, he pointed out that there was an exceptional amount of uncertainty on how ECB’s unconventional monetary policy worked out. However, loose policy is still necessary to boost inflation back to 2% target.

                          China GDP grew 6.5% in Q4, but Dec data mixed

                            China’s GDP grew 6.5% yoy in Q4, accelerated from prior quarter’s 4.9% yoy, beat expectation of 6.1% yoy. Overall, GDP grew 2.3% in 2020, making it the only major economy that avoided a contraction, due to the coronavirus pandemic that started with outbreak in Wuhan.

                            December data were mixed. Industrial production grew 7.3% yoy, accelerated from 7.0% yoy, beat expectation of 6.9% yoy. Fixed asset investment grew 2.9% ytd yoy, below expectation of 3.2% ytd yoy. Retail sales grew only 4.6% yoy, slowed from 5.0% yoy, missed expectation of 5.50% yoy.

                            Hong Kong HSI trades mildly higher today in response to the releases. HSI is now pressing an important resistance level, with 100% projection of 21139.26 to 26782.61 from 23124.25 at 28767.60, as well as medium term channel. Decisive break of the level will confirm upside acceleration. More importantly, rise from 21139.26 should finally b e seen as developing into a long term up trend.

                            RBA Bullock: Further increases in interest rates will be required

                              RBA Deputy Governor Michele Bullock said in a speech that “further increases in interest rates will be required” to meet the inflation target. Meanwhile, the “size and timing of future increases” will depend on the data.

                              She added that inflation is “increasingly broad based” and it “won’t peak until the end of the year”. After that, RBA expects ” rising interest rates and cost-of-living pressures to drive a moderation in consumption that brings demand more in line with supply”. And that should help to get inflation back to target “over the next couple of years”.

                              Bullock also discussed four uncertainties around the central forecasts. Firstly, in the international environment, a “significant concern” is the “downside risks in China”. Second is what the current high inflation and cost-of-living pressures might do to price and wage expectations in Australia. Third is the  behavior of households as interest rates and inflation rise. Fourth is  around energy and other supply shocks that could boost inflation and lower growth.

                              Full speech here.

                              Eurozone CPI dropped to -0.2% yoy in Aug, unemployment rose to 7.9% in Jul

                                Eurozone CPI dropped to -0.2% yoy in August, down from 0.4% yoy, missed expectation of 0.2% yoy. All items exclude energy dropped from 1.4% yoy to 0.7% yoy. Ex-energy, food, alcohol & tobacco dropped from 1.2% yoy to 0.4% yoy.

                                Eurozone unemployment rate edged up to 7.9% in July, up from 7.7%. EU unemployment rose to 7.2%, up from 7.1%.

                                Silver’s down trend continues, targeting 20.92 projection level

                                  Silver’s down trend resumes this week and hits as low as 21.41 so far. The larger down trend from 30.07 is in progress for 61.8% projection of 28.73 to 22.36 from 24.86 at 20.92 next. Also prior rejection both 55 day and 55 week EMA affirmed near term and medium term bearishness. Firm break of 20.92 will target 61.8% retracement of 11.67 to 30.07 at 18.69 before completing the current down trend.

                                  Meanwhile, break of 23.13 resistance is needed to be the first sign of short term bottoming. Otherwise, outlook will stay bearish in case of recovery.

                                  Asian update: Yen mildly lower as Chinese stocks rise after holiday

                                    Yen trades generally lower today as Chines stocks are back from holiday opening mildly higher. Canadian Dollar follows as the second weakest and dragged down by oil prices. Sterling is also heavy on Brexit uncertainty. Australian and New Zealand Dollar are paring some of last week’s losses. But upside momentum is rather weak so far. Overall, trading is subdued with Japan on holiday.

                                    Though, activity will likely surge again in European session. A batch of important economic data will be released from the UK, including GDP, trade balance and productions.

                                    In Asia:

                                    • Hong Kong HSI is up 0.23%.
                                    • China Shanghai SSE is up 0.83%.
                                    • Singapore Strait Times is down -0.48%.
                                    • Japan is on holiday.

                                    Former Brexit Minister Davis predicts rejeciton by Commons and PM May will have to renegotiate with EU

                                      Former Brexit Minister David Davis, the one before resigned Dominic Raab, criticizes that PM Theresa May’s Brexit agreement is a “dreadful deal” that is “”very, very favourable” to the EU. And, “It really does not fly by any measure, it doesn’t meet the requirements of the people, it’s not what they voted for, it doesn’t meet the requirements of the Conservative manifesto.”

                                      And he predicts that the agreement will be rejected by the House of Commons. Then, the government will have to come up with an alternative. And, May “will have to go back to renegotiate”.

                                      Eurozone PMI composite finalized at 29.7, GDP contracting near to -10% annualized

                                        Eurozone PMI Services was finalized at 26.4 in March, down from February’s 52.6. PMI Composite was finalized at 29.7, own from February’s 51.6. that’s the biggest single monthly fall, as well as a survey record low. Looking at some member states, Germany PMI Composite dropped to 35.0, France to 28.9, Spain to 26.7, Italy to 20.2, all record lows.

                                        Chris Williamson, Chief Business Economist at IHS Markit said: ” The data indicate that the eurozone economy is already contracting at an annualised rate approaching 10%, with worse inevitably to come in the near future… No countries are escaping the severe downturn in business activity, but the especially steep decline in of Italy’s service sector PMI to just 17.4 likely gives a taste of things to come for other countries as closures and lockdowns become more prevalent and more strictly enforced in coming months… The ultimate economic cost of the COVID-19 outbreak cannot be accurately estimated until we get more clarity on the duration and scale of the pandemic.”

                                        Full releaes here.

                                        BoJ Kataoka: Uncertainty heightened if current monetary easing is prolonged

                                          BoJ board member Goushi Kataoka continued his call for more monetary stimulus in a speech to business leaders today. He argued that the central bank should ramp up its monetary easing to achieve inflation target earlier.

                                          And he warned, “if the current monetary easing is prolonged, it would mean the period in which Japan’s economy faces various uncertainties will be longer. That means uncertainty on achieving our price target will heighten.”

                                          Kataoka is a known dove who persistently vote against BoJ’s policy in push for more easing.