Wed, Aug 21, 2019 @ 02:46 GMT

China industrial production slowed to 4.8%, lowest in 17 year, other data missed too

    In July, industrial production grew merely 4.8% yoy, down from 6.3% yoy and missed expectation of 6.0% yoy. It’s also the slowest growth rate in more than 17 years. Retail sales grew 7.6% yoy, down from 9.8% yoy and missed expectation of 8.6% yoy. Fixed assets investment ex rural grew 5.7% yoy, down from 5.8% yoy and missed expectation of 5.9% yoy. Surveyed unemployment rate rose from 5.1% to 5.3%.

    The National Bureau of Statistics of China insisted in a statement that the national economy performed “within the reasonable range” and “sustained generally stable growth while making further progress.” NBS spokesmen Liu Aihua also said the impact of the Sino-U.S. trade war on China’s economy is controllable

    USD/CNH dropped sharply yesterday as Yuan rebounded on news of delay in some US tariffs. But the Yuan quickly lost momentum on today’s big data misses. A short term top was formed after USD/CNH hit 61.8% projection of 6.235e to 6.9800 from 6.6699 at 7.1301, As long as 6.9620 resistance turned support holds, we’d expect recent uptrend to resume sooner or later. Break of 7.1394 will target 100% projection at 0.7414.

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    Australia wage price index rose 3.6% qoq, on the back of strong public sector growth

      Australia Wage Price Index rose 3.6% qoq in Q2, but couldn’t reverse the -4.1% fall in Q1. Annually, Wage Price Index rose 2.3% yoy comparing to Q2 2018.

      ABS Chief Economist, Bruce Hockman said: “Wage growth continues at a steady rate in the Australian economy on the back of strong public sector growth over the quarter. The most significant contribution to wage growth this quarter came from the public sector component of the health care and social assistance industry, where a number of large increases were recorded in Victoria under a plan to ensure wage parity with other states.”

      Full release here.

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      Australia Westpac Consumer Confidence rose 3.6%, superficially a surprise

        Australia Westpac Consumer Confidence rose 3.6% to 100 in August, up from 96.5. Westpac said: “Superficially this result comes as somewhat of a surprise given that the survey was conducted against a turbulent backdrop with global financial markets roiled by escalating trade tensions between the US and China, the ASX down 3.4% and the AUD off 3¢ US since the July survey.” However, it’s came in the “aftermath” of the unexpected -4.7% fall in July, despite back-to-back RBA rate cuts. Also, there was political certainty restoration following the May Federal election.

        Regarding RBA, Westpac expects the central bank to stand page in September, before delivering another -25bps rate cut in October. Also, there wold be a final -25bps move to take Cash Rate to 0.50% in February. Westpac noted that the “signals from the RBA are quite clear”. And, In its recent Statement on Monetary Policy the RBA lowered its forecasts for inflation, wages and growth, while lifting its forecasts for the unemployment rate. Those forecasts were despite basing them on the technical assumption of adopting market pricing, which anticipates two more rate cuts.

        Full release here.

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        Yen recovers after limited loss as markets digest delay of US tariffs on China

          Asian markets open generally higher, following the strong rebound in US stocks overnight. Though, strength is relatively limited as none of the major indices are gaining over 1% at the time of writing. Yen is also paring some of yesterday’s losses and recover broadly. It would take more time to see the real implications of US announcement to delay some tariffs on Chinese imports. The move was generally well received by industry groups. But some analysts criticized that it’s merely an incremental positive sign. It’s too late and insufficient.

          In short, the tariffs on a 21-page list of products would be delayed until December, subject to further negotiations between US and China. Both sides are continuing telephone conversations in preparation for a meeting in Washington in September. According to Wells Fargo‘s estimation, the tariff delay involves around 60%, or roughly USD 155B worth of goods. The products range from cellphones, laptops and other consumer goods including  baby monitors and strollers, microwaves, instant print cameras, doorbells, high chairs, musical instruments, ketchup dispensers, baby diapers, fireworks, sleeping bags, nativity scenes, fishing reels, paint rollers and food products.

          In response to the news, Retail Industry Leaders Association said “removing some products from the list and delaying additional 10% tariffs on other products, such as toys, consumer electronics, apparel and footwear, until Dec. 15 is welcome news as it will mitigate some pain for consumers through the holiday season.”

          The Consumer Technology Association also welcomed the the delay on some items, but added: “Next month, we’ll begin to pay more for some of our favorite tech devices – including TVs, smart speakers and desktop computers. The administration should permanently remove these harmful tariffs and find another way to hold China accountable for its unfair trading practices.”

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          Stock surges, yen dives as US delay some new tariffs on China to Dec 15

            US stocks surge sharply while Yen dives after US Trade Representative announced to delay new tariffs on some Chinese products to December 15.

            The 10% tariffs on approximately USD 300B of Chinese products will still take effect on September 1. However, certain products are removed from the list based on “health, safety, national security and other factors”.

            Also, tariffs on products including cell phones, laptop computers, video game consoles, certain toys, computer monitors, and certain items of footwear and clothing, will be delayed to December 15.

            DOW rises strongly after the release and is currently up more than 1.5%. Though, sustained break of 55 day EMA (now at 26500, is needed to be the first indication of near term reversal. Otherwise, further decline will remain in favor through last week’s low of 25440.39.

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            US CPI accelerated to 1.8%, core up to 2.2%

              US CPI rose 0.3% mom in July, matched expectations. Core CPI rose 0.3% mom, above expectations. Annually, CPI accelerated to 1.8% yoy, up from 1.6% yoy, beat expectation of 1.7% yoy. Core CPI accelerated to 2.2% yoy, up from 2.1% yoy and beat expectation of 2.1% yoy.

              Full release here.

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              Trump said to request Japanese PM Abe to buy farm products

                Japanese Kyodo news agency reported that Trump is urging Japanese Prime Minister Shinzo Abe to increase purchase of US agricultural products, worthing several hundred millions USD including transport costs.

                The request came as US and Japan are crafting out a broad trade agreement, reportedly by September. Also, it came as China halted its own purchase of US farm goods as trade tensions escalated recently.

                Kyodo also said that Trump has specifically asked Japan to by products such as soybeans and wheat. Yet, he preferred such purchases to be outside of the framework of the current trade talks. Japan government is said to be considering its own responses. And one proposal was to by such farm products as food support for Africa.

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                German ZEW dropped to -44.1, significant deterioration in outlook

                  German ZEW Economic Sentiment dropped to -44.1 in August, down from -24.5 and missed expectation of -28.0. That’s the lowest level sine December 2011, and well below long term average of 21.6. Current Situation Index dropped to -13.5, down from -1.1 and missed expectation of -5.9. Eurozone ZEW Economic Sentiment dropped to -43.6, down from -20.3, missed expectation of -21.7. Eurozone Current Situation dropped -3.9 pts to -14.5.

                  “The ZEW Indicator of Economic Sentiment points to a significant deterioration in the outlook for the German economy. The most recent escalation in the trade dispute between the US and China, the risk of competitive devaluations, and the increased likelihood of a no-deal Brexit place additional pressure on the already weak economic growth. This will most likely put a further strain on the development of German exports and industrial production,” comments ZEW President Professor Achim Wambach.

                  Full release here.

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                  UK unemployment rate rose to 3.9%, but wage growth accelerated

                    UK unemployment rate rose to 3.9% in the three months to June, up from 3.8%, above expectation of 3.8%. Unemployment rate came in at 4.1% for men and 3.6% for women, the latter being joint lowest since comparable records began in 1971. For the same period, an estimated 1.33m people were unemployment, 33k fewer than a year ago.

                    On wage growth, estimated annual growth in average weekly earnings for employees increased to 3.7% yoy for total pay (including bonuses), matched expectation and up from May’s 3.5% yoy. Excluding bonuses, weekly earnings rose 3.9% yoy, up from 3.6% yoy and beat expectation of 3.8% yoy.

                    Full release here.

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                    UK retailers urge Chancellor Javid to fix broken business rates system

                      Over 50 retailers in UK sent a joint letter to Chancellor of the Exchequer Sajid Javid, urged him to fix the “broken” business rates system. The letter was coordinated by the British Retail Consortium.

                      The letter urged four fixes, including a freeze in the business rates multiplier; fixing transitional relief, which currently forces many retailers to pay more than they should; introducing an ‘Improvement Relief’ for ratepayers; ensuring that the Valuation Office Agency is fully resourced to do its job.

                      Helen Dickinson, Chief Executive of the BRC said:”These four fixes would be an important step to reform the broken business rates system which holds back investment, threatens jobs and harms our high streets. The new Government has an opportunity to unlock the full potential of retail in the UK, and the Prime Minister’s economic package provides a means to do so.

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                      Japan: South Korea fails to show how we fall short of export control measures

                        Japan criticized South Korea’s removal of the country from export whitelist today, as trade tension continued to intensify. South Korea announced to move Japan into a newly created export category, for the latter’s frequent violation of basic rules.

                        Japanese Industry Minister Hiroshige Seko said South Korea has failed to show how Japan had fallen short of international export control measures. He added, “from the start, it is totally unclear under what basis South Korea can say that Japan’s export control measures don’t meet the export control regime.”

                        On the other hand, South Korean President Moon Jae-in said today that “the Japanese government made a decision to exclude South Korea from white-listed countries, following export restrictions… It is disappointing and regrettable in light of the two countries’ shared efforts for friendship and cooperation.”

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                        Australia NAB business conditions dropped to 2, further RBA easing and fiscal support expected

                          Australian NAB Business Confidence rose from 2 to 4 in July. On the other hand, Business Conditions dropped from 4 to 2. In particular, Employment Conditions dropped sharply from 5 to 0.

                          Alan Oster, NAB Group Chief Economist said “the decline in business conditions since early 2018 has been broad-based and has continued to track at below average levels in recent months.” And, “this is concerning, because while conditions remain positive, it points to a significant loss in momentum in the business sector”.

                          Business confidence “ticked-up” but is “also below average”. While there were some positive signs with a post-election lift in confidence, this bounce now looks to have been short lived with confidence also tracking at below average levels in the two months since the election”

                          And, “with a significant loss of momentum in activity, and inflation indicators remaining weak, the survey points to the need to the need for further stimulus in the economy. Indeed, we expect a further easing in interest rates from the RBA and think that some greater fiscal support will be needed from the government to kickstart growth”.

                          Full release here.

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                          RBA Kent: Monetary policy effect on Australian Dollar broadly working as usual

                            RBA’s Assistant Governor Christopher Kent said the transmission of monetary policy in Australia to financial conditions is “working in the usual way”. Change in RBA’s policy stance has underpinned the decline in risk-free rates along the yield curve. It has also contributed to a decline in the cost of funding in corporate bond markets, supported equity prices, and lowered the cost of funding for banks. Much of the reduction in banks’ funding costs has been passed through to business and household borrowers. Also, decline in interest rates has contributed to the depreciation of the Australian dollar.

                            On the exchange rate, Kent noted Australian dollar had depreciated over that period when commodity prices had been rising. And, that implies the effect of monetary policy on exchange rate has been “broadly working as usual”. He also pointed to noticeable decline in Australian interest rates relative to those of major advanced economies. And, “this lower return on Australian assets would no doubt have contributed to a decline in the value of the Australian dollar.”

                            Kent’s full speech here.

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                            Singapore slashes 2019 growth forecasts to 0.0-1.0%, uncertainties and risks increased

                              Singapore Ministry of Trade and Industry downgraded 2019 growth forecast to 0.0-1.0%, and expect growth to come in at around mid-point of the forecast range. That’s notably lower from prior estimate of 1.5-2.5%, after Q2 GDP contracted by -3.3%. The Ministry noted in the statement that “GDP growth in many of Singapore’s key final demand markets in the second half of 2019 is expected to slow from, or remain similar to, that recorded in the first half.”.

                              Also, “uncertainties and downside risks in the global economy have increased since three months ago”. The risks firstly include US new tariffs on USD 300B in Chinese imports. Secondly, a “a steeper-than-expected slowdown” of China, as precipitated by US tariffs, could lead to a “sharp fall” in Chinese import demands and “negatively affect the region’s growth”. Thirdly, risk of no-deal Brexit “has increased with the recent change in UK’s political leadership.” Fourthly, there are risks from uncertainties in Hong Kong, the trade dispute between Japan and South Korea, as well as geopolitical tensions in North Korea and the Strait of Hormuz.

                              Full release here.

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                              US 30-year yield nearing historical low after huge plunge

                                Risk aversion dominated the US session overnight and carried forward in Asian session. DOW closed down -1.48%. S&P 500 dropped -1.22%. NASDAQ lost -1.20%. Technically, all three indices were rejected by 55 day EMAs, suggesting more near term downside pressure.

                                More importantly, treasury yields dived again on massive safe haven flows. 30-year yield took a big plunge by -0.118 to close at 2.130. TYX is now just inch above historical low of 2.102 made back in 2016. A break there is inevitable.

                                10-year yield also dropped -0.095 to 1.639. TNX is now below 78.6% retracement of 1.336 to 3.248 at 1.745. We’d still pay attention to bottoming above 1.336. But a firm break of 2.102 in TYX could likely drag TNX through this 1.336 low at least.

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                                Gold rally halted at 1510, still on track to 1568/86

                                  Gold’s up tend extended to as high as 1510.48 last week before forming a temporary top there and turned into consolidation. Downside of retreat should be contained by 1452.94 resistance turned support to bring rally resumption.

                                  Break of 1510.48 will resume the up trend and target 161.8% projection of 1160.17 to 1346.71 from 1266.26 at 1568.08.

                                  In the bigger picture, we’d be cautious on topping ahead of 61.8% retracement of 1920.70 to 1046.37 at 1586.70, at least on first attempt.

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                                  German Ifo: Experts expect significantly weaker growth in world trade

                                    German Ifo World Economic Climate Indicator dropped from -2.4 to -10.1 in Q1. Current Situation Indicator dropped from 1.4 to -5.4. Expectations Indicator dropped from -6.1 to -14.7.

                                    Ifo President Clemens Fuest warned that “experts expect significantly weaker growth in world trade”. And, “trade expectations are at their lowest level since the outbreak of the trade conflict last year.” “Respondents also expect weaker private consumption, lower investment activity, and declining short- and long-term interest rates.

                                    Full release here.

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                                    German pledges principle of balanced budget

                                      German Finance Minister Olaf Scholz emphasized today that the government ” can fulfill the tasks that we’re tackling without new debt”. The comments came after Reuters reported last week that the finance ministry was considering issuance of new debt. Scholz noted policies could be implemented by abolishing an income tax surcharge for most employees, etc.

                                      Chancellor Angela Merkel’s spokesman Steffen Seibert also said “the chancellor has never left any doubt … that she stands by the principle of a balanced budget.” And, “we have a policy that is not being called into question that we had balanced budgets in recent years and we continue to strive for those.”

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                                      South Korea to put Japan into new export category, starting September

                                        South Korea announced to move Japan to a newly created export category, away from the so fast-tack trade “white list”, starting September. It’s an expected tit-for-tat move in response to Japan’s measures on South Korea. In short, companies exporting strategic materials and products to Japan are required to submit five documents — up from three — with the process taking up to 15 days, as opposed to the current five.

                                        At this point, Japan is the only country in the category. Industry Minister Sung Yun-mo said, “since it’s hard to work closely with a country that frequently violates the basic rules… we need an export control system that addresses this,” Sung also said, “we are pushing for this regulation revision according to our own examinations… we are doing this legitimately in line with both domestic and international laws.”

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                                        Italy Borghi pledges tax cut and VAT freeze for League’s campaign

                                          Italy’s chairman of the House Budget Committee Claudio Borghi told La Stampa newspaper, as the party’s plan for 2020 elections, there will be cut in personal income tax and freeze in VAT. And, budget deficit will stand at 3% of GDP.

                                          He said that the 15% tax cut must be “achieved gradually”. Though, he added “we must start immediately and guarantee it to many”. He’s aiming at net tax savings of EUR 10-15B.

                                          League leader Matteo Salvinin pulled the plug on coalition government with 5-Star Movement last week. Borghi said the possible government of the League is “already ready”.

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