US PPI for final demand rose 0.2% mom in October, below expectation of 0.5% mom. Prices for goods rose 0.6% mom while services dropped -0.1% mom. PPI less foods, energy and trade services rose 0.2% mom.
For the 12 months period, PPI slowed from 8.4% yoy to 8.0% yoy. PPI less foods, energy, and trade services rose 5.4% yoy.
Germany Gfk consumer sentiment for May dropped to a historic low of -23.7, down from April’s 2.3. Economic expectations dropped further from -19.2 to -21.4. That was slightly better than the lowest reading of -26 recorded in May 2009. Income expectations, on the other hand, plunged from 27.8 to -19.3. A higher monthly loss in income expectations has never been recorded since monthly data collection on consumer sentiment began in 1980.
“Given that the economy is largely frozen, this unprecedented cliff dive is hardly surprising. Retailers, manufacturers and service providers must prepare for a tough recession in the immediate future,” explains Rolf Bürkl, GfK Consumer Expert. “Since it now seems evident that the easing of the COVID-19 containment measures will be very slow in order to take a cautious approach, the consumer climate can expect to face tough times in the coming months too.”
Both NASDAQ and S&P 500 closed at new record highs overnight. NASDAQ’s consolidation form 14175.11 should have completed at 13002.52, and the long term up trend should be resuming. Based on yesterday’s strong close, buying momentum might accelerate further this week, subject to reactions to FOMC statement and projections. We’re now looking at next medium term target at 61.8% projection of 10822.57 to 14175.11 from 13002.53 at 15074.39. In any case, outlook will stay bullish as long as 55 day EMA (now at 13660.23) holds.
As for S&P 500, it’s staying healthily in medium term up trend, well inside channel and above rising 55 day EMA. Outlook will also stay bullish as long as 55 day EMA (now at 4135.30) holds. Next target is 100% projection of 2191.86 to 3588.11 from 3233.94 at 4630.19.
Bitcoin is experiencing a significant surge this week, effortlessly crossing its previous resistance at 31815 and making its mark beyond 35k. Notably, Bitcoin is now approaching a critical long-term fibonacci resistance near 36k. While it’s uncertain whether Bitcoin can clear this barrier on its first attempt, a definitive break past this resistance could lead to profound long-term bullish implications. Such a move might propel Bitcoin swiftly past 40k next.
A potential catalyst for this robust rally is the market’s anticipation of a spot BTC ETF approval. Despite last week’s false report, the consensus among market participants suggests that this approval could materialize within the upcoming three months, if not sooner. Another factor worth considering is the role of geopolitical tensions in influencing Bitcoin’s demand. As many in the investment community have come to regard Bitcoin as the “digital gold”, it’s plausible that some are turning to the cryptocurrency as an alternative safe haven amid global uncertainties.
From a technical standpoint, near term outlook will stay bullish as long as 30021 resistance turned support holds. The key resistance is 38.2% retracement of 68986 to 15452 at 35901. Sustained break there will argue that it’s already reversing, rather than correcting, the whole down trend from 68986 (2021 high). Next near term target will be 100% projection of 15452 to 31815 from 24896 at 41259.
US retail sales rose 9.8% mom to USD 619.6B in March, well above expectation of 5.5% mom. That’s the best figure since Mary 2020. Ex-auto sales rose 8.4% mom, above expectation of 4.8% mom. Ex-gasoline sales rose 9.7% mom. Ex-auto, ex-gasoline sales rose 8.2% mom.
According to second estimate, US GDP contracted -5.0% annualized in Q1, worse than first estimate of-4.8% annualized. A downward revision to private inventory investment was partly offset by upward revisions to personal consumption expenditures (PCE) and nonresidential fixed investment. PCE price index was unrevised at 1.3% yoy. PCE core price index was revised down to 1.6% yoy, down from 1.8% yoy.
Swiss KOF Economic Barometer rose notably to 102.2 in September, up 3.3 pts from 98.9. It also beat expectation of 100.1. KOF noted the this may imply that the downward trend, which has been visible since the beginning of 2018, might have come to a halt.
The strongest positive contributions came from manufacturing sector. And among manufacturing, “positive development can be attributed mainly to the metal processing industry, followed by the machine building and the food processing as well as the textile industries and finally the chemical industry.” Meanwhile, overall improvement in manufacturing is driven by “a more optimistic assessment of employment, followed by the assessments of production and the overall business situation”.
UK PMI Manufacturing dropped to 53.3 in October, down from 54.1, above expectation of 53.1. PMI Services dropped to 52.3, down from 56.1, missed expectation of 54.0. PMI Composite dropped to 52.9, down from 56.5, a 4-month low.
Chris Williamson, Chief Business Economist at IHS Markit, said: “The slower growth of output, the renewed fall in demand and further deterioration in the labour market suggest the economy started the fourth quarter on a weakened footing. While Brexit preparations may cause a short-term boost to some parts of the economy ahead of 31st December, rising COVID-19 cases and the imposition of local lockdown measures bode ill for the near-term economic outlook. While the fourth quarter still looks likely to see the economy expand, the rate of growth looks to have slowed sharply and the risk of a renewed downturn has risen.”
Japan industrial production rose 1.7% mom in August, above expectation of 1.5% mom. That’s also the third straight month of growth, as boosted by automobiles and car parts, as well ass iron, steel and non-ferrous metals. Shipments rose 2.1% mom. Inventories dropped -1.4%. Inventory ratio dropped -2.5%. Over the year, production was down -13.3% yoy.
On the other hand, retail sales dropped -1.9% yoy in August, better than expectation of -3.5% yoy. But that’s still the sixth consecutive month of decline, highlighting the weak recovery in consumer demand.
European Commission President Jean-Claude Juncker reiterated EU’s stance that Brexit agreement is not open for renegotiation. He said before a meeting of EU leaders in Brussels, “I will have a short meeting with Theresa May, but I was crystal clear. There will be no renegotiation.”
That’s in complete opposite of what some UK ministers believe in. Foreign ministers Jeremy Hunt wrote in Tuesday’s Daily telegraph. He noted “trying to deliver no deal through a general election is not a solution; it is political suicide… “A different deal is, therefore, the only solution – and what I will pursue if I am leader.”
Trade Minister Liam Fox also said “If the EU doesn’t want to negotiate any changes – which I think would be unfortunate and I think would be quite surprising – then I think that of course does increase the chance of a no-deal exit.”
In an interview published on Sunday, ECB Vice President Luis de Guindos reiterated that ECB decided to end asset purchases in Q3. “In my opinion, there’s no reason why this shouldn’t happen in July,” he said.
As for rate hike, “it could be months, weeks or days” after ending the asset purchases. “July is possible, but that’s not to say it’s likely,” he added.
After the first hike, “we are driven by data, not by markets. Markets can sometimes be wrong. Within the Governing Council we haven’t discussed any predetermined path for rate rises.”
Canadian Dollar turned from being one of the strongest after CPI, to the weakest after dovish BoC. In short, BoC left the option of rate cut open. It noted in the statement “Governing Council will be watching closely to see if the recent slowdown in growth is more persistent than forecast.”
However, outlook in Canadian dollar is not overwhelmingly bearish, except probably against Dollar only, despite today’s sharp fall.
USD/CAD’s development now argues that correction from 1.3664 might have completed as a triangle at 1.2951, on bullish convergence condition in daily MACD. Sustained trading above 55 day EMA will solidify this case and target 1.3327 resistance for confirmation.
The case is building up for CAD/JPY that rise from 78.50 has completed with three waves up to 84.56, after hitting 61.8% retracement of 78.50 to 83.55 from 81.28 at 84.40. But 82.80 support is needed to trigger near term bearishness first. Otherwise, further rise could still be seen.
Despite the today’s rebound EUR/CAD is held below 1.4581 near term resistance so far. There is no indication of short term bottoming yet. And, even if 1.4581 is taken out, that could mean EUR/CAD is in the third leg of consolidation pattern from 1.4415. That is, larger down trend will remain in tact in that case.
AUD/CAD is also staying below 0.9038 resistance. Fall from 0.9150 is in favor to extend to retest 0.8835 low. For now, even in case of another fall, break of 0.8835 is not anticipated. Overall, consolidation form 0.8835 will likely extend further.
In an interview over the weekend, ECB Governing Council member Martins Kazaks, chief of Latvia’s central bank, sought to temper market expectations regarding rate cuts. He emphasized that any anticipations of rate cuts in the spring or early summer are “not really consistent with the macro scenario” that is currently envisioned.
Kazaks underscored his contentment with the present rate levels, expressing that they stand aptly. He clarified, “While I’m comfortable with where rates are at the moment, if necessary we will take the right decisions.” However, he declined to affirm the notion that the rates have reached their peak, thus leaving room for more tightening based on future economic developments.
Stressing the urgency to effectively address the inflation issues in a decisive manner, he said, “I would like to see that we solve inflation in one attempt, that we are not forced to come back,” to avoid a scenario necessitating “larger interventions” down the line.
Separately, another Governing Council member Yannis Stournaras, Greek central bank head, said, “I would have preferred to hold rates last week. But there were arguments in favor of both outcomes — hiking and holding — so I’m fine with the decision we took.”
Last Thursday saw ECB raising the interest rates by 25bps, marking the tenth consecutive hike, thereby elevating deposit rate to a record 4%. Additionally, ECB signaled interest rates have probably peaked in the currency cycle.
Fed announced massive liquidity injection to ease market strains due to coronavirus outbreak. Up to USD 1.5T will be pumped into the financial system. New York Fed said that the fund will be made available in three tranches of USD 500B, starting with purchases of a broader range of treasury securities.
New York Fed said, “these changes are being made to address highly unusual disruptions in Treasury financing markets associated with the coronavirus outbreak..
Some analysts noted that the move was basically restarting QE, or at least, a point towards restarting QE. More measures could be announced with the rate decision on March 18 next week. Currently, fed fund futures are pricing in 94.5% of -100 bps rate cut to 0.00-0.25%.
Swiss KOF Economic Barometer rose to 96.4 in December, up from 92.6, beat expectation of 94.5. The indicator has now fully recovered the decline this year, back to the closing level in 2018. Nevertheless it’s still below it’s long run average. And KOF said “the outlook for the Swiss economy at the beginning of 2020 is brightening somewhat, but remains subdued.
KOF added: “The distinct increase is primarily due to bundles of indicators from the manufacturing sector. Positive signals also result from indicators covering other services and foreign demand. Indicators concerning private consumption as well as hotel and catering activities show a moderate increase.”
The Sunday Times reported that BoE Governor Andrew Bailey has sent a letter to bankers telling them “negative rates were one of the potential tools under active review”. It’s one of the options if more stimulus was needed to lift inflation back to 2% target. And it would be a “significant operational undertaking for firms” as a year could be needed to alter computer systems and update contracts.
Additionally, it’s said that Bailey emphasized “every tool they have is on the table” at a meeting with bankers at the end of June.
ECB Executive Board member Isabel Schnabel stressed the necessity of maintaining a proactive approach to monetary policy amid persistent inflation risks. In a speech today, she noted that “risks to the inflation outlook are tilted to the upside, reflecting both supply- and demand-side factors.”
Referencing IMF’s recent guidance, Schnabel noted, “The IMF has recently issued a clear recommendation: if inflation persistence is uncertain, risk management considerations speak in favour of a tighter monetary policy stance.”
She further explained the rationale behind this approach. “First, the costs of protecting the economy from upside risks to inflation are comparatively small, as the policy rate can be brought back to neutral levels faster than if policymakers acted under the assumption of low inflation persistence,” Schnabel said.
The second reason revolves around the high costs of reactive policies. Schnabel pointed out, “it is very costly to react only after upside risks to inflation have materialized, as this could destabilise inflation expectations and thus require a sharper contraction in output to restore price stability.”
Overall, Schnabel emphasized the need for data-dependent decisions that lean towards more action rather than less. “We need to remain highly data-dependent and err on the side of doing too much rather than too little,” she asserted.
She insisted, “We thus need to keep raising interest rates until we see convincing evidence that developments in underlying inflation are consistent with a return of headline inflation to our 2% medium-term target in a sustained and timely manner.”
ECB governing council member Klaas Knot told Dutch radio BNR today, “We expect inflation to keep rising in the coming months, so that means we only have one problem on our plate: inflation. And that will mean that we will have to slow economic growth at least a bit to reduce inflation”.
Another Governing Council member Peter Kazimir said , “Inflation remains unacceptably high. The priority now is to vigorously continue the normalization of monetary policy.” While not commenting on the terminal rate of the current cycle, he said that ECB was still “quite far” from neutral rate.
Francois Villeroy de Galhau said, the central bank must be “orderly and determined” with rate hike. He expects inflation to stay high next year and come back to 2% target by 2024.
Yen surges broadly in the later part of Asian session, early European session. The selloff in Chinese stocks in the final two hours could be a factor driving risk aversion. The Shanghai SSE index closed down -1.27% at 2744.07. European indices open mixed with German DAX slightly down by -0.2% at the time of writing.
Despite the strong rebound from 128.49, EUR/JPY was limited below 129.52 minor resistance and drops sharply. 128.49 is back into focus and break will resume whole decline from 131.97. Based on the position strategy as our weekly report, we sold EUR/JPY at 128.60 at open this week. We’ll hold on to the short position, with stop at 129.60, slightly above 129.52 minor resistance. 127.13 is the first target but we’d expect at least a test on 124.61 low if things turns out as we expected.
Also, we’re holding on GBP/CHF short, sold at 1.2971. The development so far is in line with out expectation. We’ll lower the stop to break even at 1.2971. 61.8% projection of 1.3854 to 1.3049 from 1.3265 at 1.2768 as first target. And there is prospect of extending to 100% projection at 1.2460 in medium term.
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New Zealand trade deficit at NZD 501m as imports and exports plunged
New Zealand goods exports dropped -4.4% yoy to NZD 4.8B in October. Exports to China, Australian Japan declined, and rose to US and EU. Imports dropped -13.0% yoy to NZD 503B. Imports from all major partners declined, including China, EU, Australia, USA and Japan. Monthly trade deficit came in at NZD -501m, in line with expectations.
Annual trade surplus reached a 28-year high of NZD 2.2B in the year ended October. “This is the largest annual surplus since the July 1992 year, driven mainly by much lower imports after the global COVID-19 pandemic hit, while New Zealand’s exports have held up,” international trade manager Alasdair Allen said.
Full release here.