US exports of goods rose 2.5% mom or USD 4.4B to USD 181.5B in June. Imports of goods dropped -0.5% mom or USD -1.5B to to USD 279.7B. Good trade deficit came in at USD -98.2B, smaller than expectation of USD -103.2B.
Wholesale inventories rose 1.9% mom, 25.6% yoy to USD 896.0B. Retail inventories rose 2.0% mom, 19.9% yoy to USD 723.0B.
Dallas Fed President Robert Kaplan said yesterday that “the best argument” for him to support rate cut is the “shape” of the yield curve, inversion. And, a “tactical” reduction of a quarter point could address the risks seen by bond investors.
He also said that inflation is likely to remain low because of the change in the economy and the link between wages and prices. He added businesses are not able to pass on higher costs to customers because of stiff competition. They have to absorb lower profits so they don’t lose market share.
Separately, San Francisco Fed President Mary Daly said she’s not leaning one way or the other on July interest rate decision. And, she will learn a lot in the next two months regarding whether rates would be lower by year end.
On the one hand, she noted it’s too early to tell if additional stimulus was needed. And she saw no clouds looming on consumer spending and labor market. On the other hand, Daly noted business felt uncertain. She saw potpourri of headwinds, including trade, mood, uncertainty, global slowdown.
At the time of writing, Canadian Dollar is the worst performing major currency for today, as dragged down by oil prices. Yen is the strongest ones as Caterpillar and Nvidia warnings punish US stocks. At the time of writing, all DOW, S&P 500 and NASDAQ are down more than -1%.
WTI crude oil is back pressing 52 handle and takes our 4 hour 55 EMA. The development affirmed the case that corrective rebound from 42.05 has completed at 54.44, on bearish divergence condition in 4 hour MACD. It also faced rejection from 54.61 resistance, 55 day EMA and below 38.2% retracement of 77.06 to 42.05 at 55.42.
Focus is now back on 50.59 support, decisive break there will confirm and will bring deeper pull back to 61.8% retracement of 42.05 to 54.44 at 46.78. Nevertheless, defending 50.59 will maintain near term bullishness for another rise through above mentioned resistance zone of 54.61/55.42.
DOW initially gained 244 pts to 24446.22 but reversed to closed down -344.89 pts or -1.43% at 23857.71. Considering that it hit as low as 23708.73, that was indeed a massive 737 pts swing. The reversal was mainly because tech stocks were crushed. S&P 500 lost -45.93 pts or -1.73% to 2612.62. NASDAQ suffered most and closed down -211.73 pts or -2.93% at 7008.81. Selloff continues in Asia with Nikkei down -1.8%, HK HSI down -0.9% at the time of writing.
Technically, we’ve mentioned before (here) that there will be no change in near term direction before a break of 24453.14 resistance. That is, DOW is expected extend recent decline to 23360.29 and below. The development is no far in line with our near term bearish view.
BoJ Deputy Governor Masayoshi Amamiya said today the central bank has no plan to issue digital currency in the near future. And he disagreed to the idea that central banks can boost the effectiveness of negative interest rate policies by issuing digital currencies. “To overcome the nominal zero lower bound, central banks would need to eliminate cash,” Amamiya said. “Eliminating cash would make settlement infrastructure inconvenient for the public, so no central bank would do this.”
On the economy, Amamiya still expected to climb to 2% target. But he repeated BOJ wouldn’t hesitate to ease policy further if momentum to hit inflation target is disrupted. While downside risks are strong, he noted many global central bankers share the view that global economy will recover in the second half.
German Gfk consumer confidence dropped -0.1 to 9.6 in January. Economic expectations dropped sharply to -4.4, down from 1.7. Gfk said that ” impression among consumers that the German economy will weaken significantly has been reinforced.”. Also, “The trade conflicts between the US and China, on the one hand, and the US and the EU, on the other, continue to smolder, hanging like a sword of Damocles over Germany, a nation highly dependent on exports”.
WTI crude oil’s rally resumes today and reaches as high as 59.46 so far. It’s now very close to key resistance zone around 60 psychological level. There are also 50% retracement of 77.06 to 42.05 at 59.55 and 55 week EMA at 59.25. For now, we do not expect a firm break of this 59.25/60.00 resistance zone. Bearish divergence condition in 4 hour MACD should also limit upside momentum. Break of 57.96 will indicate short term topping and bring pull back to 54.72 support. However, sustained break of 60 will pave the way to 61.8% retracement at 63.68 next.
ECB Vice President Luis de Guindos said that headline inflation could fall from 8.5% to 6% by mid-2023. However, core inflation could be more stable.
“In March we’ll have some projections, we’ll have more data on the evolution of underlying inflation,” Guindos said at CUNEF University. “Underlying inflation is very, very important.”
De Guindos also emphasized that inflation will have to clearly converge towards 2% target before the central bank could pause the tightening cycle.
Markets await key US consumer inflation data scheduled for release today, with projections centered on a 0.2% mom uptick for both headline and core CPI. On a yoy basis, headline CPI is anticipated to climb from 3.0% to 3.3%, while core CPI is projected to remain steady at 4.8%.
This anticipated rise in headline inflation, marking the first surge in over a year, can be attributed to unfavorable base effects and a moderate uptick in gas prices. Thus, this shouldn’t particularly alarm Fed officials.
If the inflation figures align with expectations, the 0.2% monthly increase in both core CPI would be largely consistent with Fed’s 2% inflation target. Such a scenario would strengthen the case for Fed to pause again in its September meeting, adopting a wait-and-see approach.
Following broad decline in US stocks, NASDAQ closed down -1.17% overnight. Current development suggests that a short term top at least formed at 14446.55. Deeper decline is expected to 55 D EMA (now at 13600.45).
The grappling question is whether rise from 10088.82, as the second wave of the medium term corrective pattern from 16212.22, has run off its course. It just missed target of 161.8% projection of 10088.82 to 12269.55 from 10982.80 at 14511.22.
Robust support from 55 D EMA would maintain near term bearishness for another rise through 14446.55 at a later stage. However, sustained break of this EMA would raise the chance of a bearish reversal. That is, the third leg of the medium term pattern has already started. NASDAQ would then test the second line of defense at 38.2% retracement of 10088.82 to 14446.55 at 12781.89 to determine its fate.
Canada employment dropped -24.2k in July, worse than expectation of 10.0k. Unemployment rate rose to 5.7%, up from 5.5%, above expectation of 5.5%. Also from Canada housing starts dropped to 222k in July, above expectation of 210k.
From US, PPI rose 0.2% mom, 1.7% yoy in July, matched expectation. PPI core dropped -0.1% mom, slowed to 2.1% yoy in July, below expectation of 0.2% mom, 2.3% yoy.
USD/CAD recovers notably after the releases but it’s staying below 1.3345 temporary top. Intraday bias remains neutral and some more consolidative trading could be seen. But as long as 1.3177 support holds, further rally is expected in the pair through 1.3345 in a later stage.
Gold edged higher to 1955.14 earlier today and appears to be losing some upside momentum. Nevertheless, there is no clear sign of topping yet. Current rise from 1764.31 is still on track to take on 1965.65 resistance next. Firm break there will pave the way to retest 2075.18 high. The momentum after taking out 1965.65 could reveal the chance of resuming larger up trend.
Though, rejection by 1965.50, followed by break of 1934.12 minor support, would prompt a corrective pull back. Gold might correct towards 1906.74 resistance turned support in this case, before staging another rise.
China’s Caixin PMI Services rose from 50.4 to 51.5 in November, above expectation of 50.8. PMI Composite rose from 50.0 to 51.6.
Wang Zhe, Senior Economist at Caixin Insight Group said: “Overall, the macroeconomy showed signs of a positive recovery, with steady growth in consumer spending, solid progress in industrial production and improved market expectations.
“However, due to various unfavorable factors, both domestic and external demand still face challenges and employment pressures remain relatively high. The foundation for economic recovery needs to be further consolidated.”
ECB chief economist Peter Praet said in a speech today that “factors related to protectionism, financial market volatility and vulnerabilities in emerging markets are creating headwinds that are becoming increasingly noticeable”.
He added that “surveys of euro area business activity and sentiment indicators have softened perceptibly relative to their earlier highs, although they remain in expansionary territory and are still above long-term averages for most sectors and countries.”
Here is his full speech. It’s actually identical to the one delivered on November 13.
July saw a marked deceleration in UK’s CPI, falling from 7.9% yoy to 6.8% yoy , precisely in line with market expectations. Core CPI, which strips out variables like energy, food, alcohol, and tobacco, stood unchanged at 6.9% yoy, above the expected 6.8%.
CPI figures pertaining to goods showed a noticeable slowdown, dropping from 8.5% yoy to 6.1% yoy. On the flip side, CPI services ramped up from 7.2% yoy to 7.4% yoy , registering its peak since the staggering 9.5% yoy rate observed in March 1992.
On a month-to-month analysis for July, CPI receded by -0.4%, a figure slightly above than forecasted decline of -0.5%. Core CPI saw a monthly rise of 0.3% mom. While the CPI for goods plunged by -1.7% mom. , services CPI exhibited an increase, registering growth of 1.0% mom. .
Office for National Statistics remarked, “The slowdown in the annual CPI rate into July 2023 was driven by downward contributions to change from 8 of the 12 divisions.”
Notably, housing and household services emerged as the primary sectors applying downward pressure. Expanding on this, ONS stated, “Within this division, the downward effect came mainly from gas and electricity.”
Eurozone industrial production rose 0.6% mom in August, well above expectation of 0.1% mom. Production of durable consumer goods grew by 1.2% mom, non-durable consumer goods by 0.5% mom and capital goods by 0.3% mom, while production of intermediate goods fell by -0.3% mom and energy by 0.9% mom.
EU industrial production rose 0.6% mom. Among Member States for which data are available, the highest monthly increases were registered in Ireland (+6.1%), Slovakia (+4.5%) and Lithuania (+3.7%). The largest decreases were observed in Hungary (-2.4%), Croatia (-2.2%) and Belgium (-1.8%).
Sterling trades mildly lower after UK GDP miss. UK GDP was flat in August, grew 0.0% mom, below expectation of 0.1% mom. Though July’s figure was revised up from 0.3% mom to 0.4% mom. For the three months from June to August, GDP grew 0.7% from the March to May quarter.
Commenting on today’s GDP figures, Head of GDP Rob Kent-Smith said: “The economy continued to rebound strongly after a weak spring, with retail, food and drink production and housebuilding all performing particularly well during the hot summer months. However, long-term growth continues to lag behind its historical trend.”
All three main sectors contributed to GDP growth in the three months to August. Services grew 0.42%, production grew 0.10%, construction grew 0.17%.
Also from UK, industrial production rose 0.2% mom, 1.3% in August, above expectation of 0.1% mom, 1.1% yoy. Manufacturing production dropped -0.2% mom, rose 1.3% yoy, below expectation of 0.2% mom, 1.5% yoy.
Visible trade deficit widened to GBP -11.2B in August, above expectation of GBP -10.9B.
US PPI for final demand rose 0.4% mom in September, above expectation of 0.2% mom. Two-thirds can be traced to a 0.4% mom prices for services. The index for goods rose 0.4%. Prices less food, energy, and trade services rose 0.4% mom.
For the 12 months ended in the period, PPI slowed from 8.7% yoy to 8.5% yoy. PPI ex food, energy and trade was unchanged at 5.6% yoy.
In an interview, ECB chief economist Philip Lane pointed to the December economic projections, and said, ” inflation will fall this year, and that it will go below our 2 per cent target in 2023 and 2024.”
While the 5% December inflation number is “unusually high”, Lane said that’s dominated by the 26% rise in energy prices last year. He added, “we do not see behaviour that would suggest inflation will remain above our target into the medium term.”
As inflation will “settle below our target in 2023 and 2024”, he added, “The criteria for moving interest rates up are therefore not in place. This remains our view.”
On growth, Lane said that bottlenecks are “temporary factors” and the order book is very good. “Overall, in Europe we see a solid growth engine this year, next year and the year after that.”
Markets are generally staying in risk-off mode today as there is no sign of de-escalation in Russia-Ukraine situation. Nikkei tumbled sharply by -616.49 pts, or -2.23%, to close at 27079.59.
Near term bearishness in Nikkei remains after rejection by 55 day EMA. The choppy decline from 30795.77 is in progress for retesting 26044.52 low. But, the major line of defense is at 38.2% retracement of 16358.9 to 30795.77 at 25280.61. We’d expect strong support from there to bring rebound.
However, the rejection by 55 week EMA is also a medium term bearish sign, which argues that the fall from 30795.77, as a correction to the up trend from 16358.19, might last longer than originally expected. Indeed, sustained break of 25280.61 could send Nikkei further to the zone between 50% retracement at 23576.98 and 61.8% retracement at 21873.34 before bottoming.
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Villeroy: ECB ready to accept inflation above 2% for some time
ECB Governing Council member Francois Villeroy de Galhau emphasized that the central bank “has frequently re-affirmed its commitment to symmetry” of its inflation target. As a result, “we might be ready to accept inflation higher than 2% for some time.” Still, “we should examine whether the current formulation casts doubt on this.”
Villeroy also dismissed chatter that it’s running out of ammunition. “If needed, the ECB has ample room for maneuver,” he said. “Have no doubt about our determination to act as much as needed, and about our capacity to act.”