Wed, Dec 11, 2019 @ 05:09 GMT

Trump still believes China wants a trade deal

    US President Donald Trump indicated he still believed China wants a trade deal with the US. But the passage of the Hong Kong Human Rights and Democracy Act “doesn’t make it better”. “The Chinese are always negotiating. I’m very happy where we are,” he added, The Chinese want to make a deal. We’ll see what happens.”

    Separately, Commerce Secretary Wilbur Ross indicated that the next batch of tariffs on China is going to taken effect “if nothing happens between now and then”. US is set to impose 15% of around USD 156B of Chinese imports on December 15. Meanwhile, whether there will be tariff rollbacks also all depends on China’s “behavior between now and then”.

    Also, Trump’s administration announced a series of tariffs actions yesterday. Firstly, steel and aluminum tariffs on Brazil and Argentine were restored. The US Trade Representative said it would review raising tariffs on EU products and added new ones because of the “lack of progress” in resolving the aircraft subsidies disputes. USTR also said it planned to raise tariffs on USD 2.4B in French products, including Champagne and handbags by 100%, as measures to France’s new digital services tax.

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    Trump blames weak manufacturing on Fed, urges rate cuts

      DOW closed down -0.96%, or -268.37, overnight as weighed down by new tariff threats and poor ISM manufacturing index. US President Donald Trump blamed that “manufacturers are being held back by the strong Dollar, which is being propped up by the ridiculous policies of the Federal Reserve”.

      He went on further to urge Fed to “lower rates” and “loosen”, as “there is almost no inflation”. And that would make the US “competitive with other nations, and manufacturing will SOAR!

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      RBA kept cash rate unchanged at 0.75% as expected, prepared to ease if needed

        RBA kept cash rate unchanged at 0.75% as widely expected. It noted in the statement that given “the long and variable lags in the transmission of monetary policy”, the central bank was on hold to monitor developments, “including in the labour market”.

        Though, it reiterated that due to both global and domestic factors, ” it was reasonable to expect that an extended period of low interest rates will be required”. RBA is also “prepared to ease monetary policy further” if needed.

        Full statement below.

        Statement by Philip Lowe, Governor: Monetary Policy Decision

        At its meeting today, the Board decided to leave the cash rate unchanged at 0.75 per cent.

        The outlook for the global economy remains reasonable. While the risks are still tilted to the downside, some of these risks have lessened recently. The US–China trade and technology disputes continue to affect international trade flows and investment as businesses scale back spending plans because of the uncertainty. At the same time, in most advanced economies unemployment rates are low and wages growth has picked up, although inflation remains low. In China, the authorities have taken steps to support the economy while continuing to address risks in the financial system.

        Interest rates are very low around the world and a number of central banks have eased monetary policy over recent months in response to the downside risks and subdued inflation. Expectations of further monetary easing have generally been scaled back. Financial market sentiment has continued to improve and long-term government bond yields are around record lows in many countries, including Australia. Borrowing rates for both businesses and households are at historically low levels. The Australian dollar is at the lower end of its range over recent times.

        After a soft patch in the second half of last year, the Australian economy appears to have reached a gentle turning point. The central scenario is for growth to pick up gradually to around 3 per cent in 2021. The low level of interest rates, recent tax cuts, ongoing spending on infrastructure, the upswing in housing prices and a brighter outlook for the resources sector should all support growth. The main domestic uncertainty continues to be the outlook for consumption, with the sustained period of only modest increases in household disposable income continuing to weigh on consumer spending. Other sources of uncertainty include the effects of the drought and the evolution of the housing construction cycle.

        The unemployment rate has been steady at around 5¼ per cent over recent months. It is expected to remain around this level for some time, before gradually declining to a little below 5 per cent in 2021. Wages growth is subdued and is expected to remain at around its current rate for some time yet. A further gradual lift in wages growth would be a welcome development and is needed for inflation to be sustainably within the 2–3 per cent target range. Taken together, recent outcomes suggest that the Australian economy can sustain lower rates of unemployment and underemployment.

        Inflation is expected to pick up, but to do so only gradually. In both headline and underlying terms, inflation is expected to be close to 2 per cent in 2020 and 2021.

        There are further signs of a turnaround in established housing markets. This is especially so in Sydney and Melbourne, but prices in some other markets have also increased recently. In contrast, new dwelling activity is still declining and growth in housing credit remains low. Demand for credit by investors is subdued and credit conditions, especially for small and medium-sized businesses, remain tight. Mortgage rates are at record lows and there is strong competition for borrowers of high credit quality.

        The easing of monetary policy this year is supporting employment and income growth in Australia and a return of inflation to the medium-term target range. The lower cash rate has put downward pressure on the exchange rate, which is supporting activity across a range of industries. It has also boosted asset prices, which in time should lead to increased spending, including on residential construction. Lower mortgage rates are also boosting aggregate household disposable income, which, in time, will boost household spending.

        Given these effects of lower interest rates and the long and variable lags in the transmission of monetary policy, the Board decided to hold the cash rate steady at this meeting while it continues to monitor developments, including in the labour market. The Board also agreed that due to both global and domestic factors, it was reasonable to expect that an extended period of low interest rates will be required in Australia to reach full employment and achieve the inflation target. The Board is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.

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        Dollar and DOW drop on poor ISM manufacturing and Trump’s steel tariffs

          Dollar drops sharply in US morning as partly weighed down by US President Donald Trump’s decision to restore steel tariffs on Brazil and Argentina. Further selloff is seen, together with stocks too, after poor ISM manufacturing index. For now, the greenback is only slightly better than the sleeping Sterling and oil price pressured Canadian.

          DOW is currently down over -200 pts. Considering that daily MACD is staying below signal line, today’s steep decline should confirm short term topping at 28174.97. Deeper pull back in now in favor for the near term, to 55 day EMA (now at 27319.3). But we’d expect stronger support from there to bring rebound and then up trend resumption.

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          US ISM manufacturing dropped to 48.1, fourth straight month of contraction

            US ISM Manufacturing Index dropped to 48.1 in November, down from 48.3, missed expectation of 49.4. It’s the fourth month of sub-50 contraction reading. ISM’s Timothy R. Fiore warned “global trade remains the most significant cross-industry issue”.

            Looking at some details, all components stayed are in contraction except supplier deliveries. New orders dropped -1.9 to 47.2. Employment dropped -1.1 to 46.6. New export orders dropped into contraction, by -2.5 to 47.9. On the the hand, production rose 2.9 to 49.1 while prices rose 1.2 to 46.7.

            Full release here.

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            ECB Lagarde: Eurozone growth remains weak due to global factors

              In the prepared statement for ECON committee of the European Parliament, ECB President Christine Lagarde said Eurozone growth “remains weak” and has been “mainly due to global factors”. “Sluggish and uncertain” global outlook lowers demand for euro area goods and services and also affects business sentiment and investment. Manufacturing industry has been “suffering the most” and policymakers are also seeing “signs of spillover” to services. Nevertheless, consumption has held up “fairly well” with improving labor market conditions.

              She added that the “relative resilience of services so far is the key reason why employment has not been affected by the global manufacturing slowdown.” The measures announced back in September were to ensuring that financing conditions remain favourable. The new two-tier regime of excess reserve remuneration will ensure that banks remain willing and able to pass on very accommodative financing conditions to the economy.

              Lagarde’s full statement here.

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              Trump restores steel tariffs on Brazil and Argentina, urges Fed to loosen

                Risk appetite appears to be weighed down mildly by US President Donald Trump’s decision to restore steel and aluminum tariffs on Brazil and Argentina. In a series of tweets, he complained that “Brazil and Argentina have been presiding over a massive devaluation of their currencies, which is not good for our farmers.” Therefore, “effective immediately, I will restore the Tariffs on all Steel & Aluminum that is shipped into the U.S. from those countries.”

                He also defended that US markets are “up as much as 21%” since tariffs were announced in 2018. And US is “taking in massive amounts of money (and giving some to our farmers, who have been targeted by China)!

                Bedsides, he urged Fed to “act so that countries, of which there are many, no longer take advantage of our strong dollar by further devaluing their currencies.. And Fed should “Lower Rates & Loosen”.

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                China announced retaliations against US on HKHRDA

                  China’s Foreign Ministry announced today retaliations against US passage of the Hong Kong Human Rights Democracy Act. US military ships and aircrafts are banned from visiting Hong Kong. Also, sanctions are imposed against several US NGO, including the National Endowment for Democracy, the National Democratic Institute for International Affairs, the International Republican Institute, Human Rights Watch, and Freedom House.

                  Spokeswoman Hua Chunying said “we urge the U.S. to correct the mistakes and stop interfering in our internal affairs. China will take further steps if necessary to uphold Hong Kong’s stability and prosperity and China’s sovereignty”. She added that the NGOs “shoulder some responsibility for the chaos in Hong Kong and they should be sanctioned and pay the price.”

                  Separately, Axios reported on Sunday that trade negotiations between US and China “stalled” before of the “Hong Kong legislation”, referring to the HKHRDA.

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                  UK PMI manufacturing finalized at 48.9, signs of a two-speed economy persisted

                    UK PMI Manufacturing was finalized at 48.9 in November, revised up from 48.3, down from October’s 49.6. Markit noted that output, new orders and employment all declined. Stocks depleted and purchasing reduced following Brexit delay.

                    Rob Dobson, Director at IHS Markit, which compiles the survey:

                    “November saw UK manufacturers squeezed between a rock and hard place, as the uncertainty created by a further delay to Brexit was accompanied by growing paralysis ahead of the forthcoming general election. Downturns in output and new orders continued amid a renewed contraction in exports. The pace of job losses also hit a seven-year high as firms sought to reduce overheads in the face of falling sales. Destocking at manufacturers and their clients following the latest Brexit delay was a major contributor to the weakness experienced by the sector. Inflationary pressures meanwhile showed signs of moderating further, with input costs falling slightly for the first time since March 2016.

                    “Signs of a two-speed economy persisted, with intensifying business uncertainty leading to a further steep drop in demand for machinery and equipment as firms cut back on investment, but rising demand for consumer goods suggests that households continue to provide some support to the economy.

                    “Manufacturers across all sectors will be hoping that the New Year brings clarity on the political, trade and economic fronts, providing a more certain foundation to plan and rebuild as the next decade begins.”

                    Full release here.

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                    Eurozone PMI Manufacturing finalized at 46.9, still a major drag on the economy

                      Eurozone PMI Manufacturing is finalized at 46.9 in November, up from October’s 45.9. Markit noted milder falls in new orders and output recorded during the month. But job losses sustained despite improve in confidence. Looking at the member states, Germany PMI Manufacturing improved to 5-month high of 44.1, but stayed well below 50 no-change mark. The Netherlands dropped to 49.6, a 77-month low. Only Greece and France were above 50.

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

                      “A further steep drop in manufacturing output in November means the goods-producing sector is likely to have acted as a major drag on the eurozone economy again in the closing quarter of 2019. The survey data for the fourth quarter so far are indicating a quarterly rate of contraction in excess of 1% for manufacturing.

                      “Although still signalling a steep rate of decline, the manufacturing PMI nonetheless brings some encouraging signals which will fuel speculation that the worst is over for euro area producers, barring any new set-backs (notably in relation to Brexit and trade wars). In particular, November saw the rate of loss of export sales easing further from July’s recent record, helping pull other indicators such as output, employment, order books and purchasing off their recent lows.

                      “Perhaps most promising is a marked upturn in business sentiment, particularly in Germany, with optimism about production in the year ahead hitting a five-month high in November. Producers’ renewed optimism in part reflects reduced concerns over trade wars. We nevertheless still need to see a further notable easing in the rate of loss of orders before getting too excited about the prospect of an imminent return to growth for manufacturing.”

                      Full release here.

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                      New Zealand Treasury: GDP growth likely falls below budget forecasts

                        In its Monthly Economic Indicators report, New Zealand Treasury Department noted that November data were “fair mixed” with some pointing to “further slowing in GDP growth”. Others indicated growth may be “leveling out”. On balance, “weaker-than-forecast investment and services exports are likely to see overall New Zealand GDP growth fall below Budget forecasts”

                        It’s also noted that news flow surrounding trade tensions “continues to seesaw”. But “prospects of a US-China trade agreement have generally supported sentiment over the last month”.

                        Full report here.

                        Also from New Zealand, terms of trade index rose 1.9% in Q3, above expectation of 1.1%.

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                        China Caixin Manufacturing PMI rose to 51.8, but business confidence remained subdued

                          China Caixin Manufacturing PMI rose slightly to 51.8 in November, up from 51.7 and beat expectation of 51.4. Markit noted there were solid increases in output and new business. Employment was broadly stable while inflationary pressures remained weak.

                          Commenting on the China General Manufacturing PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:

                          “China’s manufacturing sector continued to recover in November, with both domestic and overseas demand rising and the employment subindex returning to expansionary territory for the second time this year.

                          “However, business confidence remained subdued, as concerns about policies and market conditions persisted, and their willingness to replenish stocks remained limited. This is a major constraint on economic recovery, which requires continuous policy support. Currently, manufacturing investment may be lingering near a recent bottom. A low inventory level has lasted for a long time. If trade negotiations between China and the U.S. can progress in the next phase and business confidence can be repaired effectively, manufacturing production and investment is likely to see a solid improvement.”

                          Full release here.

                          Released over the weekend, the official PMI Manufacturing rose to 50.2 in November, up from 49.3 and beat expectation of 49.5. PMI Non-Manufacturing rose to 54.4, up from 52.8 and beat expectation of 53.1.


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                          Japan PMI manufacturing finalized 48.9, seventh month of contraction

                            Japan PMI Manufacturing was finalized at 48.9 in November, up from 48.4 in October. That’s the seven straight month of sub-50 reading, signalling a continuation of the downturn in the manufacturing sector. Jibun Bank noted that solid decline in new orders led to further output cutbacks. Economic weakness across Asia hit exports. Selling charges also decreased for the sixth month running.

                            Commenting on the latest survey results, Joe Hayes, Economist at IHS Markit, said:

                            “Japan’s manufacturing sector remains firmly stuck in contraction, with the same issues which have plagued the industrial world once again hitting firms where it hurts. In particular, export orders dropped at the fastest rate since mid-year amid reports of demand weakness at key trade destinations, namely China.

                            “At the sub-sectors, it was intermediate and investment goods which were the primary sources of economic decline, whereas consumer goods makers observed improvements in business conditions.

                            “Signs of how deeply-rooted this manufacturing downturn in Japan has become were seen in other survey data. Price discounting has been a trend in each of the past six months, highlighting that firms are now actively trying to tackle the sluggish demand conditions. Inventories of inputs also fell at a sharp rate, suggesting that firms are not expecting output requirements to rise anytime soon.”

                            Full release here.

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                            Australia AiG manufacturing index dropped to 48.1, lowest since 2016

                              Economic data released from Australia are generally disappointing. AiG Performance Index dropped to 48.1 in November, down from 51.6. That’s also the lowest level since August 2016, and indicates contraction in the sector. AiG said: “. The faster rate of contraction of the new orders index in November suggests a weak Christmas period ahead for Australian manufacturers. However, some manufacturing sectors are reporting better conditions than others, with manufacturers in the large food and beverage sector continuing to report buoyant conditions.”

                              Also released, company gross operating profits dropped -0.8% qoq in Q3 versus expectation of 1.0% qoq rise. Building permits dropped -8.1% mom in October, versus expectation of -1.0% mom. TD securities inflation rose 0.0% mom in November.

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                              Canada GDP grew 0.1% in Sep, 0.3% in Q3

                                Canada GDP grew 0.1% mom in September, matched expectations. Increase in services (+0.2%) slightly outpacing the increase in goods (+0.1%). Growth was recorded in 13 of 20 industrial sectors.

                                For Q3, GDP growth slowed to 0.3%, down from Q2’s 0.9%. Expressed at annualized rate GDP grew 1.3%. Business investment rose 2.6% in the third quarter, the fastest pace since the fourth quarter of 2017. Growth in household spending accelerated to 0.4%, after rising 0.1% in the second quarter. These increases were moderated by a 0.4% decline in exports, while imports were flat.

                                Also from Canada, IPPI rose 0.1% mom in October, above expectation of 0.0% mom. RMPI dropped -1.9% mom, matched expectations.

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                                Eurozone CPI rose to 1.0%, core up to 1.3%

                                  Eurozone CPI accelerated to 1.0% yoy in November, up from 0.7% yoy, beat expectation of 0.8% yoy. CPI core also accelerated to 1.3% yoy, up from 1.1% yoy, beat expectation of 1.2% yoy.

                                  Germany unemployment dropped -16k in November, versus expectation of 5k rise. Unemployment rate was unchanged at 5%, matched expectations. Retail sales, however, dropped -1.9% mom, much worse than expectation of -0.2% mom.

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                                  Swiss KOF dropped to 93, economic outlook remains subdued

                                    Swiss KOF Economic Barometer dropped to 93.0 in November, down from 94.8, and missed expectation of 95.0. It’s also the lowest level since 2015. KOF said: “The downward movement, which has been observed since the beginning of the year, continues. The barometer is still well below its long-​term average. The outlook for the Swiss economy remains subdued.”

                                    Also, “Several bundles of indicators are equally responsible for the decline. However, negative signals from hotel and catering activities and from the banking and insurance sector stand out slightly. Indicators regarding foreign demand and other services are also declining. On the other hand, indicators for the manufacturing sector remain almost unchanged.”

                                    Full release here.

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                                    UK Gfk consumer confidence unchanged at -14, upcoming election an opportunity to move UK out of doldrums

                                      UK GfK Consumer Confidence was unchanged at -14 in November, matched expectations. General Economic Situation index over the next 12 months improved by 3 pts from -37 to -34, two points lower than -32 a year ago. Joe Staton, Client Strategy Director at GfK, says: “In the face of Brexit and election uncertainty, consumers are clearly in a ‘wait-and-see’ mode…

                                      “The general election is potentially an opportunity to move us out of the doldrums – but for this to happen there must be a clear result. A hung parliament could be very damaging for consumer confidence and would surely deepen the obvious malaise that we see month after month.”

                                      Full release here.

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                                      Japan industrial production posted largest contraction in nearly two years

                                        Japan industrial production dropped sharply by -4.2% mom in October, missing expectation of -2.1% mom. That’s also the worst decline in nearly two years since January 2018. Output was seen as negatively impacted by temporary shutdowns of factories due to typhoon. Also slowing productions of big-ticket items following sales tax hike also weighed.

                                        METI also noted that according to the Survey of Production Forecast in Manufacturing, production is expected to decrease in November and increase in December. Finance Minister Taro Aso said the government would consider more funding or cashless support to secure the economy’s recovery trend.

                                        Also from Japan, unemployment rate was unchanged at 2.4% in October, matched expectations. Tokyo CPI core edged up to 0.6% yoy in November, matched expectations.

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                                        BoJ Kuroda pushes deregulation and structural reforms

                                          BoJ Governor Haruhiko Kuroda told the parliament today that “a mix of fiscal and monetary policy isn’t enough” to boost the economy. It’s also important to “proceed with deregulation and structural reforms to heighten Japan’s medium- and long-term growth potential.”

                                          Kuroda repeated his view that the ultra-look monetary policy could increase the effect of fiscal stimulus. However, he also emphasized “our monetary easing efforts are aimed at achieving our price target, not at helping fund government spending. There needs to be a clear line drawn on this point,”

                                          Executive Director Eiji Maeda told the parliament that “current ultra-loose monetary environment is stimulating the economy by spurring capital expenditure and housing investment.” That will “push up” household income and asset prices. But policymakers are also “mindful” on the “excessive declines” in super-long yields. He warned that could ‘hurt public sentiment and economic activity by lowering the interest life insurers and pension funds earn from their investment”.

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