NIESR expects 0.1% UK GDP growth in Q4, Q1 risk on the downside

    After today’s UK GDP release, NIESR forecasts that GDP in December will fall relative to November. But overall, service-driven GDP growth of 0.1% in Q4 is estimated.

    Paula Bejarano Carbo, Associate Economist, NIESR, said: “Given that PMIs for services, manufacturing and construction all posted below the neutral 50 for December, we expect to see a slight fall in GDP in December relative to November; but this means a rise in quarterly GDP, possibly a sign that households are enjoying a last hurrah before they tighten their belts in 2023.

    ” Looking towards the first quarter of 2023, the risks to GDP seem to remain on the downside, driven by anaemic growth in the major sectors, fragile consumer and business confidence and a widespread fall in real incomes.”

    Full release here.

    Trump believe China Xi meant what he said during the meeting

      Trump expressed his confidence on trade negotiation with China with his tweets again today. He said he believe “President Xi meant every word of what he said at our long and hopefully historic meeting”. And, Trump also hailed China’s move to criminalise sale of “deadly Fentanyl” to the US.

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      Gold downside breakout, heading to 1750

        Gold’s selloff today finally pushes it to a downside break out. For now, near term outlook will stay bearish as long as 1879.75 minor resistance holds. Sustained trading below 1848.39 support will confirm resumption of whole decline from 2075.18. Such fall is seen as a correction to the long term up trend from 1160.17. Next medium term target will be 55 week EMA (now at 1750.89). Though, we’d expect strong support from 38.2% retracement of 1160.17 to 2075.18 at 1725.64 to contain downside. Meanwhile, break of 1879.75 resistance will dampen this bearish view and turn outlook neutral first.

        EU Centeno: Italy’s growth and social issues can be achieved without putting fiscal consolidation at risk

          Talking about Italy, Eurogroup President Mario Centeno expressed his empathy and said “I understand and share Italy’s concerns about sluggish growth and complex social issues”. However, he also emphasized that “this can be achieved without placing a trajectory of fiscal consolidation at risk.”

          He also emphasized that adhering to fiscal rules is “not only in each country’s individual interest, but also in our collective interest”. He pointed to the Eurozone debt crisis and said it “has taught us that in an economic and monetary union, the responsibility to conduct sound and responsible policy does not stop at national borders.”

          Regarding the Franco-German proposal of Eurozone budget, he said “a common fiscal capacity should not discharge countries from their obligation to conduct sound fiscal policies and respect the fiscal rules.” On the other hand, Eurozone statement would be better on reacting to asymmetric shocks, without overburdening the ECB.

          Separately, ECB Governing council member Ewald Nowotny said Italy is not “an immediate threat” but rather a “political problem”. However, “in the longer term there is the question of whether I have enough trust on the capital markets.”

          ECB Schnabel: Tightening to continue until clear sustained decline in core inflation

            ECB Executive Board member Isabel Schnabel reaffirmed the bank’s commitment to stringent measures to restore inflation to 2% target during an event in Frankfurt yesterday. Citing current data, she stated, “there is no doubt that we have to do more to bring inflation back to our 2% target in a timely manner.”

            Schnabel emphasized ECB’s readiness to “raise rates decisively until it becomes clear that core inflation is also declining on a sustained basis.” This stance aligns with recent remarks by ECB President Christine Lagarde, who Schnabel notes, “has made it absolutely clear that the slowdown in rate hikes is not an indication that we’ll stop raising rates any time soon.”

            Contrary to market expectations for potential rate cuts this year, Schnabel argued such predictions were “highly unlikely for the foreseeable future,” pointing to the likelihood of prolonged high rates.

            She observed that inflation momentum in Eurozone remained high for all items except energy, and price pressures were spreading across most consumption basket components. Despite the fading supply-side shocks from bottlenecks and energy prices, Schnabel highlighted the strength of the labor market, the uptick in wage growth, and high corporate profit margins. These factors underline the complex economic the ECB must navigate to achieve its inflation target.

            Fed kept interest rate at 0-0.25%, maintain asset purchast at least at current pace

              Fed left federal funds rate target rate unchanged at 0.00-0.25% as widely expected, by unanimous vote. FOMC also pledged to maintain the target range “until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” Additionally, Fed will “increase its holdings of treasury and MBS “at least at the current pace”.

              In the accompanying statement, FOMC said that the coronavirus and containment measures “have induced sharp declines in economic activity and a surge in job losses”. Weaker demand and significantly lower oil prices are “holding down consumer price inflation”. Though, financial conditions “have improved” due to policy measures.

              Fed also said it will “continue to monitor implications of incoming information” and pledged to “use its tools and act as appropriate to support the economy”. The range of information watched include “measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.”

              Full statement below.

              Federal Reserve Issues FOMC Statement

              The Federal Reserve is committed to using its full range of tools to support the U.S. economy in this challenging time, thereby promoting its maximum employment and price stability goals.

              The coronavirus outbreak is causing tremendous human and economic hardship across the United States and around the world. The virus and the measures taken to protect public health have induced sharp declines in economic activity and a surge in job losses. Weaker demand and significantly lower oil prices are holding down consumer price inflation. Financial conditions have improved, in part reflecting policy measures to support the economy and the flow of credit to U.S. households and businesses.

              The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0 to 1/4 percent. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.

              The Committee will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, as well as global developments and muted inflation pressures, and will use its tools and act as appropriate to support the economy. In determining the timing and size of future adjustments to the stance of monetary policy, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

              To support the flow of credit to households and businesses, over coming months the Federal Reserve will increase its holdings of Treasury securities and agency residential and commercial mortgage-backed securities at least at the current pace to sustain smooth market functioning, thereby fostering effective transmission of monetary policy to broader financial conditions. In addition, the Open Market Desk will continue to offer large-scale overnight and term repurchase agreement operations. The Committee will closely monitor developments and is prepared to adjust its plans as appropriate.

              Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; Richard H. Clarida; Patrick Harker; Robert S. Kaplan; Neel Kashkari; Loretta J. Mester; and Randal K. Quarles.

              Australia consumer sentiment rose 6.3%, back around pre-COVID levels

                Australia Westpac-Melbourne Institute consumer sentiment rose 6.3% to 93.7 in June, up from May’s 88.1. Confidence is now “back around pre-COVID levels”, and has recovered “all of the extreme 20% drop” seen after the pandemic exploded. It’s been buoyed by the country’s “continued success” in bringing the coronavirus control and further easing of restrictions. The index is now just 2% below the average between September and February.

                Westpac said that the survey would “boost confidence” around the RBA board table as they meet again on July 7. RBA Governor Philip Lowe has been clear that he’s having a wait-and-see approach on monetary policy. Negative rate is “extraordinarily unlikely”. “An earlier than expected recovery in the economy will ease pressure on that current entrenched policy stance”

                Full release here.

                US trade delegation said to visit China for negotiations next week

                  A Hong Kong newspaper SCMP reported today that US trade delegation will likely visit China next week, for the first face-to-face meeting since G20. US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will be on the US side as expected. Vice Premier Liu He will lead the Chinese team.

                  According to unnamed source, the initial arrangements for the meeting would include exemptions to 110 Chinese products, including medical equipment and key electronic components, from import tariffs. on the other hand, several Chinese companies would finally start buying American agricultural products.

                  Eurozone economic sentiment jumped to 105.1, driven by industry and France

                    Eurozone Economic Sentiment rose to 105.1 in May, up from 103.9 and beat expectation of 103.9. The improvement of euro-area sentiment resulted from higher confidence in industry and, to a lesser extent, in services and among consumers, while confidence remained virtually flat in retail trade and cooled down significantly in construction.

                    Amongst the largest euro-area economies, the ESI increased sharply in France (+4.0), markedly also in Italy (+1.7) and Spain (+1.3) and mildly in Germany (+0.4). Sentiment eased only in the Netherlands (-1.3).

                    Industrial Confidence rose to -2.9, up from -4.3 and beat expectation of -4.2. Services Confidence rose to 12.2, up from 11.8 and beat expectation of 11.0. Consumer Confidence was finalized at -6.5.

                    For EU28, ESI was muted, up 0.2 to 103.8 only. That was mostly due to a strong deterioration in the largest non-euro area EU economy, the UK (-4.8).

                    Also released, Business Climate dropped -0.12 to 0.30, below expectation of 0.40. Managers’ views on the past production, as well as export order books deteriorated sharply, as did, to a lesser extent, their assessments of overall order books, while the production expectations and appraisals of the stocks of finished products improved.

                    AUD/JPY uptrend resumes, follows CAD/JPY

                      AUD/JPY rises to as high as 87.05 today, following broad based selloff in Yen. The break of 86.24 high confirms resumption of larger up trend from 59.85 (2020 low). The next near term target is 161.8% projection of 78.77 to 84.27 from 80.34 at 89.23, which is close to 90.29 long term resistance.

                      In the bigger picture, the whole down trend from 105.42 (2013 high) has completed with three waves down to 59.85. The support from 55 week EMA was a medium term bullish sign, and argues that AUD/JPY is reversing the whole down trend from 105.42. Sustained break of 90.29 would confirm this case and target 105.42 again.

                      CAD/JPY’s picture is similar. It’s now extending the up trend from from 73.80, (2020 low). Break of 100% projection of 87.42 to 92.16 from 89.21 at 93.95 should pave the way to 161.8% projection at 96.87 next.

                      The down trend from 106.38 (2014 high) has completed with three waves down to 73.80. 91.62 key resistance has been taken out already (corresponding to 90.29 in AUD/JPY). Further rally is now expected as long as 89.;21 support holds, towards 106.48 high.

                      Eurozone PMI composite dropped to 31.4, scope for downturn to intensify further

                        Eurozone PMI Manufacturing dropped to 44.8 in March, down from 49.2, hitting a 92-month low. PMI Services dropped to 28.4, down from 52.6, hitting a record low. PMI Composite dropped to 31.4, down form 51.6, hitting a record low too.

                        Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

                        “Business activity across the eurozone collapsed in March to an extent far exceeding that seen even at the height of the global financial crisis. Steep downturns were seen in France, Germany and across the rest of the euro area as governments took increasingly tough measures to contain the spread of the coronavirus.

                        “The March PMI is indicative of GDP slumping at a quarterly rate of around 2%, and clearly there’s scope for the downturn to intensify further as even more draconian policies to deal with the virus are potentially implemented in coming months.

                        Full release here.

                        Australia GDP grew 0.4% in Q1, driven mainly by government spending

                          Australian GDP grew 0.4% qoq in Q1, matched expectations. Annually, growth slowed to 1.8% yoy, down from 2.3% yoy and matched expectations too. But the details are rather weak. Government spending was the main contributor to growth, while rose 0.8%. Household spending slowed to 0.3% and contributed a modest 0.1%. And, dwelling investment contracted by -2.5% while slowing housing market has resulted in significant falls in ownership transfer costs. Non-mining investment rose 2.0% while mining investment dropped -1.8%.

                          Gross domestic product, Volume measures: Seasonally adjusted

                          Separately, RBA Head of Economic Analysis Alexandra Heath said in a report that ” mining investment is probably around its trough and is likely to pick-up gradually over the next year or so”. And, “resource exports are also expected to contribute to GDP growth before plateauing at a new, higher level.”

                          Australia PMI composite dropped to 52.5 in Apr, still a solid expansion

                            Australia PMI Manufacturing dropped from 58.8 to 55.3 in May. PMI Services dropped from 56.1 to 53.0. PMI Composite dropped from 55.9 to 52.5. All are 4-month lows.

                            Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence said:

                            “The expansion of the Australian economy continued in May at a solid pace… Although manufacturing output was affected by issues of COVID-19 disruptions and poor weather conditions, manufacturing demand remained robust, which had been a reassuring sign.

                            “Persistent supply chain constraints continue to pose challenges for firms in the private sector, both in terms of input acquisition and price fluctuations. Anecdotal evidence also suggested that firms are concerned with the rising interest rate outlook and the effect on their businesses, all of which are worth monitoring moving ahead.”

                            Full release here.

                            Japan PMI manufacturing finalized at 52.7, optimism improved

                              Japan PMI Manufacturing was finalized at 52.7 in June, down from May’s 53.3. S&P Global said output growth slowed amid near-stagnation in new orders. Prices charged for goods rose at sharpest pace on record. Business optimism improved to three-month high.

                              Usamah Bhatti, Economist at S&P Global Market Intelligence, said: “June PMI data pointed to a softer expansion of the Japanese manufacturing sector… Panel members often commented that rising price and supply pressures amid sustained disruption and delays had held back activity in the sector… That said, the degree of optimism regarding the 12-month outlook for output strengthened to a three-month high in June… This is broadly in line with the estimate for industrial production to grow just 2% in 2022 before an acceleration in 2023.”

                              Full release here.

                              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.

                                US initial jobless claims dropped to 203k, trade deficit narrowed to $47.2B

                                  US initial jobless claims dropped -10k to 203k in the week ending November 30, below expectation of 215k. Four-week moving average dropped -2k to 217.75k.

                                  Continuing claims rose 51k to 1.693m in the week ending November 23. Four-week moving average of continuing claims was unchanged at 1.681m.

                                  US trade deficit dropped -7.6% mom to USD -47.2B in October, smaller than expectation of USD -48.7B. Imports dropped -1.7% mom to USD 254.3B. Exports dropped -0.2% to USD -207.1B.

                                   

                                  German ZEW rose to 28.1, but current situation still unfavorable

                                    Germany ZEW Economic Sentiment rose form 16.9 to 28.1 in February, above expectation of 22.8. Current Situation index rose from -58.6 to -45.1, above expectation of -50.0.

                                    Eurozone ZEW Economic sentiment rose form 16.7 to 29.7, above expectation of 22.3. Current Situation Index rose 13.2 pts to -41.6.

                                    ZEW President Professor Achim Wambach said: “Meanwhile a large fraction of the survey participants expects the economic situation to improve in six months’ time. However, the current situation is still assessed as relatively unfavourable.

                                    “As in the previous month, the increase in expectations can be traced back to higher profit expectations in the energy- and export-oriented sectors as well as the consumer-related parts of the economy. Expectations for long-term interest rates are also rising and the banking sector indicator has reached its highest level since 2004.”

                                    Full release here.

                                    Eurozone unemployment rate dropped to 7.3% in Oct, EU unchanged at 6.7%

                                      Eurozone unemployment rate dropped to 7.3% in October, down from 7.4%, matched expectations. EU unemployment rate was unchanged at 6.7%.

                                      Eurostat estimates that 14.312 million men and women in the EU, of whom 12.045 million in Eurozone, were unemployed in October 2021.

                                      Full release here.

                                      Former BoJ Kiuchi: Core inflation to be slightly negative for three years, but BoJ actions unlikely

                                        Former BoJ policy maker Takahide Kiuchi said the central bank is unlikely to ease further due to risks of banking-sector problems. He said, “Japan will likely see more small and midsized firms go under as the pandemic’s pain deepens, which could boost credit costs for lenders through next year… The pandemic has forced the BOJ to be more mindful of the risk of banking-sector problems, which means it can’t cut interest rates easily,”

                                        Kiuchi expected GDP to take around give years to return to pre-pandemic levels. Also, core consumer inflation will hove in “slightly negative territory for about three years”. Nevertheless, “the BOJ has already detached its policy from its 2% inflation target, which means it won’t take action to prop up prices.”

                                        US initial jobless claims rose 2k to 208k

                                          US initial jobless claims rose 2k to 208k in the week ending September 14, slightly below expectation of 210k. Four-week moving average of initial claims dropped -0.75k to 212.25k. Continuing claims dropped -13k to 1.661m in the week ending September 7. Four-week moving average of continuing claims dropped -3.75k to 1.678m.

                                          Full release here.