Canada GDP grew 0.2% in June, 0.9% in Q2

    Canada GDP grew 0.2% mom in June, above expectation of 0.1% mom. That’s also the fourth consecutive month of expansion. Growth in 17 of 20 industrial sectors more than compensated for a decline in manufacturing. Goods-producing industries declined 0.2% as a result of lower manufacturing, largely offsetting the growth in May. Services-producing industries were up 0.3%.

    For Q2, GDP grew 0.9% qoq, after just 0.1% growth in each of the previous two quarters. This growth was led by a 3.2% rise in export volumes, while final domestic demand edged down (-0.2%). Expressed at an annualized rate, real GDP advanced 3.7% in Q2.

    BoE Pill: Self-sustaining, second-round-effect momentum could keep inflation high

      BoE Chief Economist, Huw Pill, voiced his concern about the enduring momentum of inflation in the UK during an online event yesterday. Pill warned of the risk of a self-sustaining inflation cycle, where despite the dissipation of key short-term inflation drivers like rising energy and food costs, businesses and workers would continue to seek substantial price and wage increases.

      He said, “The risk is … that self-sustaining, second-round-effect momentum within the UK economy keeps inflation running at above-target levels.”

      This trend could still align with a significant drop in headline inflation, Pill noted, but he expressed concern that headline inflation could stagnate at around 4% or 5% over the next two to three years.

      “That’s still compatible with quite a big fall in headline inflation, but maybe headline inflation – other things equal – getting stuck at that 4%, 5% level over the next two or three years,” he clarified.

      Meanwhile, Pill also highlighted the potential of AI to increase productivity and, subsequently, living standards. He emphasized, “Using AI to make ourselves more productive is one example of how we can do that to boost living standards. This is a win-win if we all get better off because we’re all more productive.”

      Sterling jumps as UK lawmakers agreed to seek Brexit delay by legislation

        Sterling jumps on news that opposition parties agreed to try to pass a law to see another Brexit delay to prevent a no-deal Brexit on October 31. MP Anna Soubry tweeted : “Excellent meeting between all the opposition party leaders this morning. We agree we will work together to stop a no deal #Brexit by legislation”. Green Party MP Caroline Lucas also told BBC that MPs agreed “that the legislative way forward is the most secure way to try to extend Article 50, to get rid of that 31st October deadline towards which the prime minister is careering with ever greater recklessness”.

        GBP/USD rises sharply today and the rebound from 1.2014 is likely resuming through last week’s high at 1.2293.

        Australia NAB Business Confidence rose to 14 in Q4, strong rebound in conditions

          Australia NAB Business Confidence rose to 14 in Q4, up from -8. Current Business Conditions rose to 9, up from -5. Next 3 months Business Conditions rose to 19, up from -3. Next 12 months Business Conditions rose from 0 to 24. Capex plans rose from 13 to 31. Looking at some more details, trading condition rose from 1 to 16. Profitability condition rose form -1 to 14. Employment condition rose from -14. to -1.

          According to Alan Oster, NAB Group Chief Economist “like many other indicators the survey shows that the economy continued to rebound strongly late in Q4. Optimism in the business sector continued to strengthen as the impacts of severe lockdowns faded”.

          “What is even more encouraging is the fact that businesses have seen a strong rebound in actual conditions – particularly in trading conditions and profitability. This likely reflects the huge support provided to the economy by policy makers” said Oster.

          Full release here.

          Dollar dives as Senator Hatch threatens Trump with legislative confrontation for tariffs policies

            Dollar suffers steep selloff in the early US session as WSJ reports that Senate Finance Committee Chairman Orrin Hatch sent a letter to Trump requesting him to reconsider his trade policies. And Hatch warned that GOP senators may be ready to risk a legislative confrontation with Trump if he doesn’t reverse course. Hatch is a seven-term Utah Republican Senator who’s seen as a reliable Trump ally.

            As we pointed out before, Dollar has been benefiting from Trump’s confrontation trade war threats. It remains to be seen if it’s true. But it looks like no trade war, no dollar rally.

            ECB officials highlight persistent core inflation, emphasize data-dependent approach

              ECB Vice President Luis de Guindos recently highlighted the persistence of core inflation, stating that it may be more persistent than markets anticipated. He emphasized that “core inflation remains very sticky,” and while he believes it will eventually come down, the starting point is very high.

              De Guindos also stressed that ECB will continue to communicate monetary policy on a meeting-by-meeting basis, with a data-dependent approach, rather than shifting to a forward-guidance strategy for several months. He added, “I believe that the current approach will be maintained for a few months until the evolution of inflation and the effects of our measures become clearer.”

              In a separate statement, ECB Governing Council member Ignazio Visco echoed de Guindos’ concerns regarding stubborn core inflation. He emphasized the need for caution when setting policy, recommending that decisions be made on a meeting-by-meeting basis.

              SNB Jordan: Monetary policy is still too loose

                SNB Chairman Thomas Jordan, stated that the current monetary policy is too loose to bring inflation back to price stability in the medium term, and further tightening cannot be ruled out. The comment came after recent data showed that consumer inflation reaccelerated to 3.4% in February, staying well above SNB’s 0-2% target.

                “The SNB’s monetary policy is still too loose to return inflation back to price stability in the medium term,” Jordan yesterday at Zurich University. “We cannot exclude that we have to tighten further.”

                “The SNB has to act to reach price stability in the medium term again,” he said. “The barren Swiss labor market can lead to second- and third-round effects happening more easily.”

                Meanwhile Jordan also pointed out that the central bank has more than one option, as “we can raise rates, but also sell foreign currency — and we have sold foreign currency in the past.”

                SNB will meet on March 23 to decide on monetary policy.

                Fed Kaplan expect solid growth this year, interest rate roughly appropriate

                  Dallas Fed President Robert Kaplan said yesterday that he expects US to have “solid” growth this year. And, “based on my base-case outlook for the U.S. economy, the current setting of the federal funds rate at 1.5 to 1.75 percent is roughly appropriate.”

                  Kaplan saw boosts to the economy from ratification of the USMCA, trade deal phase one with China, and clarity over Brexit. And, “these developments, combined with a strong U.S. consumer … should lead to solid growth in 2020.” Though, he added that he will continue to monitor risks, in particular from China’s coronavirus. But, “still too soon to predict with confidence the ultimate impact of this virus on the US and global economies.”

                  FOMC minutes will be featured today they’re unlikely to deliver any deviation from chair Jerome Powell’s press conference. The minutes will likely repeat the message that policy is in a good place and Fed is in wait-and-see mode, monitoring the effect of last year’s three rate cuts, as well as the play out of global risks.

                  ECB Coeure wants more clarity on pace of rate hike when conditions warrant

                    ECB Executive Board member Benoit Coeure urged the central to give more details in the forward guidance, regarding the pace of rate hike when it starts. He said, “should economic conditions warrant, there might be a case for the Governing Council to go beyond the timing to lift-off (rates) in further clarifying the pace at which it expects to remove policy accommodation.”

                    And, “a further clarification of our reaction function might help market participants and the broader public to better anticipate the likely future path of short-term interest rates.”

                    Currently, ECB’s plan is to half the monthly asset purchase to EUR 15B starting October, and stop it after December. Interest rates would stay at present levels through the summer of 2019.

                    CADJPY on verge of rise resumption

                      As seen in the D heat map, CAD is the strongest one today while JPY is the weakest one.

                      A look at the top mover chart also sees CADJPY as the biggest mover. It’s natural to have a look at how CADJPY is performing.

                      In CADJPY action bias table, H action bias momentum is very apparent, not so in the 6H row.

                      But the 6H action bias chart clearly shows that CAD/JPY was in a consolidation pattern since hitting 85.75 back in April. And the strong H action bias momentum suggests that it’s possibly completed at 83.88 earlier this week. A long trade in CADJPY should be in place for position trading.

                      And, recalling a short note here, CAD/JPY formed a bottom at 80.52 in March, after drawing support from 80.55 key support. Rise from 80.52 is seen as at the same degree as fall from 91.56 to 80.52. Pull back from 85.75 was contained above mentioned 83.52 support and thus maintained bullishness.

                      Hence, for a long trade, one could buy at a dip or break of 85.75 resistance. First target is 61.8% projection of 80.52 to 85.75 from 83.88 at 87.11. Second target is 100% projection at 89.11.

                      German Merkel to Trump: Tariff exemptions first, before reciprocal trade talks

                        Regarding US steel tariffs, German Chancellor Angela Merkel said “we have a common position. We want a permanent exemption and then we are ready to talk how we can reciprocally reduce the barriers to trade.” That’s seen as having a firm stance as US has to concede the steel tariffs before trade talks. And the talks have to be “reciprocally.

                        Separately, French President Emmanuel Macron expressed his backing on the proposals by the European Commission to protect European companies affected by US sanctions for Iran. Macron said arriving a summit of EU in Sofia, Bulgaria that EU must stand by smaller companies which were willing to carry on Iran businesses.

                        He added “international companies with interests in many countries make their own choices according to their own interests. They should continue to have this freedom.”

                        “But what is important is that companies and especially medium-sized companies which are perhaps less exposed to other markets, American or others, can make this choice freely.”

                        ECB press conference live stream

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                          Full introductory statement here.

                          CAD/JPY’s recovery might have completed at 81.18

                            CAD/JPY’s mild decline this week, with 4 hour MACD crossed below signal line, argues that corrective recovery from 80.12 might have completed at 81.18 already. Focus will be on 80.12 support for the next few days. Break there will resume whole fall from 82.10 to 79.22 support first. Also, such development, if happens, will bring CAD/JPY firmly back below 55 day EMA. That could prompt deeper selling back to the bottom of prior range at 77.91. Nevertheless, above 81.18 would extend the recovery to retest 82.10 high instead.

                            CAD/JPY ready for rebound resumption after mixed data

                              A batch of mixed economic data is released from from Canada today, IPPI dropped -0.4% mom in October versus expectation of 0.0% mom. RMPI rose 0.5% mom versus expectation of -2.0% mom. Building permits dropped -14.6% mom versus expectation of-3.8% mom. Current account deficit narrowed slightly to CAD -7.5B in Q3, smaller than expectation of CAD -8.6B.

                              Canadian Dollar is currently one of the strongest for today. CAD/JPY after drawing support from 4 hour 55 EMA. Break of 0.80.42 will resume the rebound from 79.22 to 81.42 resistance. Still, it’s uncertain if CAD/JPY is ready to breakout from range pattern started at 81.91. We’ll see.

                              US initial claims dropped to 547k, lowest since March 2020

                                US initial jobless claims dropped -39k to 547k in the week ending April 17, better than expectation of a rise to 642k. That’s also the lowest level since March 14, 2020. Four-week moving average of initial claims dropped 28k to 651k, lowest since March 14, 2020 too.

                                Continuing claims dropped -34k to 3674k in the week ending April 10, lowest since March 21, 2020. Four-week moving average of continuing claims dropped -42k to 3713k, lowest since March 28, 2020.

                                Full release here.

                                US CPI rose 0.4% mom in Sep, core CPI up 0.3% mom

                                  In September, US CPI rose 0.4% mom, above expectation of 0.3% mom. CPI core (ex-food and energy) rose 0.3% mom, matched expectations. Energy index rose 1.5% mom. Food index rose 0.2% mom.

                                  Over the last 12 months. CPI was unchanged at 3.7% yoy, above expectation of 3.6% yoy. CPI core slowed from 4.3% yoy to 4.1% yoy , matched expectations. Energy index was down -0.5% yoy while food index was up 3.7% yoy.

                                  Full US CPI release here.

                                  BoE’s Bailey: Rates to stay high for an extended period

                                    BoE Governor Andrew Bailey, in a press conference today, stated that “rates are likely to need to remain at these levels for an extended period to bring inflation back to target on a sustained basis,” referring to the current bank rate at 5.25%.

                                    He also noted that the full impact of the higher interest rates is yet to be fully realized, and highlighted the central bank’s vigilance towards potential financial stability risks that might emerge as a result.

                                    Separately, BoE’s half-yearly Financial Stability Report noted, “The overall risk environment remains challenging, reflecting subdued economic activity, further risks to the outlook for global growth and inflation, and increased geopolitical tensions.”

                                    The report also drew attention to the strains on household finances due to rising living costs and higher interest rates. It pointed out that some effects of these higher rates, particularly in terms of mortgage repayments, have yet to fully manifest.

                                     

                                    ECB to hike another 25bps, EUR/CHF accelerating downwards

                                      ECB is widely expected to raise interest rates for the ninth time in a row today. The main refinancing rate will be lifted by 25bps to 4.25%. Deposit rate, once negative will be raised by 25bps to 3.50%. The question remains on what the central bank would do next, and whether there would be further tightening in September. But it’s unlikely for President Christine Lagarde to provide any concrete answer, other likely pointing to incoming data and the new economic projections to be prepared before next decision.

                                      EUR/CHF’s decline from 1.0095 is showing sign of downside acceleration this week, by breaking through near term falling channel support, and as displayed in D MACD too. Next target is 100% projection of 0.9995 to 0.9670 from 0.9840 at 0.9515. Sustained break there will put 0.9407 (2022 low) in focus. Regardless of any recovery, outlook will remain bearish as long as 0.9670 support turned resistance holds.

                                      Meanwhile, it should also be noted that prior rejection by 55 W EMA keeps medium term outlook in EUR/CHF bearish. That is, the down trend from 1.2004 (2018 high) is in favor to continue. Firm break of 0.9407 would set the stage for 61.8% projection of 1.1149 to 0.9407 from 1.0095 at 0.9018 in the medium term. The unfolding of this bearish scenario would depend significantly on the evolution of increasing recession risks in the latter half of the year and the impact on timing of the first ECB rate cut.

                                      Japan PMI manufacturing finalized at 49.8, potential banana skins lie ahead

                                        Japan PMI manufacturing was finalized at 49.8 in May, revised up from 49.6, down from 50.2 in April. Markit noted that domestic and external demand conditions deteriorate. Firms slow the rate of hiring amid production cutbacks. And, output expectations turn negative for first time since November 2012.

                                        Joe Hayes, Economist at IHS Markit: “There were no signs a let-up in the recent manufacturing downturn during May, as output and new orders both slipped for fifth successive months. Weak demand from Japan’s key trade partner, China, as well as signs of an increasingly sluggish domestic economy, have impacted sales volumes…. Given the importance of capital goods to Japan’s foreign trade, it would suggest further difficulties lie ahead for Japanese exporters.

                                        “With the upcoming sales tax hike and upper house elections in July, there lies ahead potential banana skins for Japanese firms to avoid. Re-escalated trade tensions between China and the US merely add to existing concerns for manufacturers. Subsequently, businesses cast a downbeat assessment for the year ahead for the first time in six-and-a-half years.”

                                        Also from Japan, capital spending rose 6.1% in Q1, beat expectation of 2.6%.

                                        Sterling recovers as leadership challenge is out the window … for now

                                          Sterling stays weak for today and the week on UK political turmoil. GBP/USD dipped to as low as 1.3189 overnight in reaction to Boris Johnson’s resignation as Foreign Minister. But it somewhat recovered after initial selloff and is now back at around 1.3250. While the situation seems to be stabilized, the Pound is certainly not out of the woods yet. The coming few days, leading up to the publication of the new Brexit plan, will be crucial to Prime Minister Theresa May and the Pound.

                                          For now, May’s position seems to be safe as Conservative Party chairman Brandon Lewis said he’s not expecting a confidence vote. High profile eurosceptic Jacob Rees-Mogg also said there is no call for May to resign. Robert Buckland, Solicitor General for England and Wales, was also quoted by Reuters saying that “the question of a leadership challenge, I think it’s out the window, gone.” The development helped stabilized Sterling.

                                          Meanwhile, former Health secretary, a member of the Remain camp, was appointed as Foreign Minister to replace Johnson.