Sun, Jul 21, 2019 @ 23:29 GMT

PBoC injects record cash as liquidity is falling rapidly

    The People’s Bank of China injected record amount of cash into the market to “maintain “reasonably ample” liquidity in the banking system. The central bank said the act was to provide support for the current peak period for tax payments. And it came at a time when “the banking system’s overall liquidity is falling rapidly”.

    PBoC injected CNY 350B through 7-day reverse bond repurchases and CNY 220B through 28-day reverse bond repurchases. At the same time, CNY 10B reverse repose are set to mature today. The net CNY 560B, or USD 83B, is the largest daily injection on record.

    The act is seen as a sign of consensus in the Chinese government for decisive stimulus to the economy, in light of the ugly trade data as released earlier this week.

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    Italy’s Salvini pleased with the EU immigration deal

      Italy’s Interior Minister Matteo Salvini, a known anti immigrant leader of the League, said he’s pleased with EU’s agreement on immigration.

      He said today that “I’m satisfied and proud of our government’s results in Brussels.” And, “finally Europe has been forced to discuss an Italian proposal… (and) finally Italy is no longer isolated and has returned to being a protagonist.”

      European markets are also generally happy with the news. At the time of writing, DAX and CAC are trading up around 1.4%. FTSE is up 0.8%.

      Euro continues to trade as the strongest one today, followed by Sterling.

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      ECB Smets: Gradual policy normalization support reflationary process

        ECB Governing Council member Jan Smets reiterated the central bank’s forward guidance and the implication that policy normalization will be slow and gradual.

        He said in a conference that “we reiterated the forward guidance on the reinvestment and on policy rates, implying that we do foresee a very gradual process of policy normalization.”

        And, “that will allow financing conditions to remain very favorable and to support both the economy and the associated reflationary process we are aiming for.”

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        Euro broadly lower after data miss, Sterling mixed ahead of BoE, EUR/GBP an interesting one to watch

          Euro suffers broad based selling in the current 4H bar as seen in heatmap. It’s triggered by a string of data misses, that started from France PMIs, Germany PMIs and Eurozone PMIs. While German Ifo business climate beat expectation, it did dropped from 115.4 to 114.7 in March. Just as Markit economist said, growth in Eurozone should have peaked around the turn of the year already.

          Meanwhile, Sterling is mixed ahead of BoE rate decision as traders turn a bit cautious. But it’s still generally firm as markets are anticipating a hawkish turn that might signal a May hike.

          EUR/GBP will be an interesting one to watch in the come 2 hours. 6H action bias chart indicate clear downside momentum with the fall from 0.8967. However, D action bias chart showed that it’s just starting turn red in the last few bars. Also, as mentioned in our technical outlook reports, 0.8686 is a key support level, bottom of the multi-month range. It’s still unsure whether this level would be taken out. BoE will be the key.

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          UK Hunt: We can absolutely get Brexit deal through parliament

            UK Foreign Minister Jeremy Hunt is confidence that Prime Minister Theresa May’s Brexit deal could get through the parliament if EU would clarify that the Irish backstop solution is temporary. He told BBC radio that “If it is temporary, then parliament can live with that,” and, “we can get this through, absolutely can.”

            UK MPs are due to return in the week of January 7 and the debate on Brexit agreement will resume. For now, the rescheduled vote on the agreement will planned to be held in the week of January 14.

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            UK Gov’t: Lack of preparation by businesses on no-deal Brexit, particular SMEs

              In a report titled “Implications for Business and Trade of a No Deal Exit on 29 March 2019”, the UK government noted that businesses and individuals are under-prepared for no-deal Brexit because they see it as unlikely. But it’s warned that the disruption risk could heighten if it does eventually take place.

              The reported noted that “despite communications from the government, there is little evidence that businesses are preparing in earnest for a no-deal scenario, and evidence indicates that readiness of small and medium-sized enterprises in particular is low”.

              The government “judges that the reason for this lack of action is often because a no-deal scenario is not seen as a sufficiently credible outcome to take action or outlay expenditure”. And “the lack of preparation by businesses and individuals is likely to add to the disruption experienced in a no-deal scenario”.

              Full report here.

              Brexit debates will continue today and some amendments will be voted for. But the overall plan should now be set after Prime Minister Theresa May’s statement yesterday. There will be another meaningful vote on the Brexit deal on March 12. May could get a last minute provisional agreement from EU on March 11, if any, with needed change on Irish backstop. If the deal is voted down, there will be a vote on March 13 for the Parliament to give explicit consent to no-deal Brexit. Then on March 14, if no-deal Brexit is ruled out, there will be another vote on Article 50 extension.

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              Gold recovered ahead of 1275/6 support zone, maintains bullishness

                Gold drew support from rising channel line and recovered after hitting 1280.85. So far, it’s held above 1276.76 cluster support (38.1% retracement of 1160.17 to 1346.17 at 1275.45). Thus, there is no indication of trend reversal yet. Rise from 1160.17 could extend further. Break of 1346.71 will target key fibonacci level of 38.2% retracement of 192.070 to 1046.37 at 1380.36. For now, we don’t see enough momentum to break through this 1380.36 key fibonacci level yet.

                On the downside, decisive break of 1275.45/1276.76 should confirm completion of whole rise from 1160.17. In that case, gold should have started another falling leg inside the long term range pattern. Deeper fall should then be seen back towards 1160.17 support.

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                Defence spending and burden-sharing high on the agenda at NATO summit

                  “Defence spending and burden-sharing will be high on the agenda” as NATO said in a statement released ahead of the summit of the 29 Allies in Brussels today and tomorrow (July 11, 12). NATO Secretary General Jens Stoltenberg noted that “we expect 8 Allies to spend at least 2 percent of GDP on defence this year, compared to just 3 Allies in 2014.” In additional, he estimated that European Allies and Canada will add an “extra 266 billion US dollar” to defence between now and 2024.

                  But a showdown is expected in the summit as US President Donald Trump continued to blasts his own allies ahead of the meeting.

                  He tweeted yesterday:

                  That was followed by European Council President Donald Tusk’s unusually blunt response:

                  Trump then followed up by:

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                  Sterling recovers as PM May set to announce new Brexit deal at 1500GMT

                    Sterling recovers notably on short covering as UK Prime Minister Theresa May is scheduled to announce her new Brexit deal at 1500GMT.

                    Her spokesman said that “Cabinet discussed the new deal which the government will put before parliament in order to seek to secure the UK’s exit from the European Union.

                    The discussions included alternative arrangements, workers’ rights, environmental protections and further assurances on protecting the integrity of the UK in the unlikely event that the backstop is required.

                    The prime minister said that “the withdrawal agreement bill is the vehicle that gets the UK out of the European Union and it is vital to find a way to get it over the line.”

                    And the prime minister will be setting out further details on the way forward in a speech this afternoon.”

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                    BoJ downgraded economic assessment of Tohoku, Hokuriku and Kyushu-Okinawa

                      In its Regional Economic Report, BoJ J still painted a much weaker economy. On the whole, assessment on three of the nine regions – Tohoku, Hokuriku and Kyushu-Okinawa – were downgraded. BoJ also pointed to “effects of the slowdown in overseas economies on exports and production” for the changes. Only Hokkaido was upgraded thanks to dissipation of downward pressure from 2018 earthquake.

                      Though, BoJ noted that “domestic demand had continued to show firm developments, with a virtuous cycle from income to spending operating in both the corporate and household sectors.” Business investment was not affected by the oversea slowdown and “has continued on an increasing trend, with corporate profits staying at a favorable level on the whole.”. Private consumption has been “increasing moderately”.

                      Full report here.

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                      Into US session: European comeback but upside limited

                        Entering into US session, Dollar is notably the weakest one for today, followed by Australian Dollar and then Canadian Dollar. On the other hand, Swiss Franc is trading as the strongest one, followed by Euro, and then Sterling. European majors are trying to have a come back. Still, note that most major pairs are bounded inside Friday’s range. Today’s rebound in European majors are seen as corrective for now.

                        In European markets, at the time of writing:

                        • FTSE is down -0.41%
                        • DAX is down -0.50%
                        • CAC is down -0.64%
                        • German 10 year bund yield is down -0.0013 at 0.257
                        • Italian 10 year yield is up 0.007 at 2.951

                        Earlier in Asia:

                        • Nikkei closed up 0.62% at 21506.88
                        • Singapore Strait Times closed up 1.21% at 3114.25
                        • Hong Kong HSI closed down -0.03% at 26087.87
                        • China Shanghai SSE rose 0.16% to 2597.97
                        • Japan 10 year JGB yield closed up 0.0006 at 0.035
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                        UK published documents on no-deal Brexit preparations

                          UK government published a collection of documents on “How to prepare if the UK leaves the EU with no deal“. Topics covered include applying for EU-funded programs, civil nuclear and nuclear research, farming, Importing and exporting, labelling products and making them safe, money and tax, regulating medicines and medical equipment, state aid, studying in the UK or EU, workplace rights.

                          Brexit minister Dominic Raab said he wanted to make sure Britain “goes from strength to strength, even in the unlikely event that we do not reach a negotiated deal with the European Union.” Nonetheless, Raab remained “confidence that a good deal is within out sights”.

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                          Trump said China’s slowest growth in 27 yrs was because of US tariffs

                            Trump claimed that China’s growth slowing to worst in 27 years was a result of his tariffs, that prompted companies to leave China. And, this is why China wants to make a trade deal with him. He hailed his tariffs are bringing in billions of dollar, and they pay by “devaluing & pumping”.

                            In his tweet, Trump said: “China’s 2nd Quarter growth is the slowest it has been in more than 27 years. The United States Tariffs are having a major effect on companies wanting to leave China for non-tariffed countries. Thousands of companies are leaving. This is why China wants to make a deal with the U.S., and wishes it had not broken the original deal in the first place. In the meantime, we are receiving Billions of Dollars in Tariffs from China, with possibly much more to come. These Tariffs are paid for by China devaluing & pumping, not by the U.S. taxpayer!”

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                            Treasury yields dip on safe haven flow, TNX and TYX extends recent fall

                              Treasury yields also suffered with the selloff in stocks. 10 year yield lost -0.009 to close at 2.732. 30 year yield lost -0.002 to 2.970. The moves were relatively insignificant. But they are solidifying recent near term reversal.

                              10 year yield (TNX) formed a short term top at 2.943, ahead of 3.000 handle. The correction from there is still in progress. Now it could be finally getting rid of 55 day EMA. Further decline should be seen to 38.2% retracement of 2.033 to 2.943 at 2.595. For now, we’re not seeing a reversal of the medium term trend from 2016 low at 1.336. Hence, we’d expect support from 2.595 to bring rebound, at least on first attempt.

                              30 year yield’s reversal from 3.221, after failing to sustain above 3.201 resistance, suggests that it’s extending sideway range trading. For now, further decline would likely be seen to 61.8% retracement of 2.651 to 3.221 at 2.868 and below. But we’d expect strong support as TYX approaches 2.651 to bring rebound.

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                              New Zealand ANZ business confidence dropped, RBNZ cut sooner rather than later

                                New Zealand ANZ Business Confidence dropped to -38 in March, down from -30.9. Activity Outlook also dropped to 6.3, down from 10.5. ANZ noted that GDP growth has moderated but is still respectable. However, leading indicators are suggesting that the economy is “running out of steam quite rapidly”.

                                In particular, export intentions dropped to levels lower than during the Asian Financial Crisis of 1998-9 and the Global Financial Crisis of 2008-9. Sharply lower export intentions despite a well-behaved exchange rate suggest global factors are a part of slowdown in momentum.

                                Overall, ANZ expects next move in RBNZ to be a cut, “with a growing risk that it is sooner rather than later.”

                                Full release here.

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                                EU to agree on unified, strong position against US unilateralism

                                  According to a draft text seen by Reuters, EU finance ministers are going to agree on Friday a unified, strong position against US unilateralism.

                                  The text noted that the EU “promotes international cooperation to modernize the WTO,” and “rejects WTO-inconsistent unilateral measures by others.”

                                  It added, “in this respect, we regret the recent U.S. decisions to impose import tariffs, which leave the EU no choice but to react in an adequate, proportionate and reasonable manner in full respect of WTO rules.”

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                                  Fed Bullard: Growth surprise allowed Fed to normalize as planned

                                    St. Louis Fed President James Bullard said in at a forum in Singapore that growth in US is on track to beat forecast for three consecutive years from 2017 to 2019. And he discussed a few consequences of the growth surprise. Firstly, it allowed Fed to normalize monetary policy along its projected path. Secondly, it helped profitability of U.S. firms, helping to drive U.S. equity markets higher. Thirdly, Dollar has naturally strengthened in 2018 (due in part to the larger growth surprise domestically).

                                    Bullard added that “faster productivity growth” is needed to maintain the current real GDP growth rate. “A switch to the high state for labor productivity growth would raise the U.S. potential growth rate to a stunning 3.4 percent.” However, he noted “this switch is a possibility, but it has not materialized so far.”

                                    Bullard’s presentation here.

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                                    BoE hawk McCafferty: Don’t dally when tightening modestly

                                      BoE known hawk Ian McCafferty urged his fellow policymakers not to “dally” when it comes to tightening policy modestly.

                                      He is seeing no labor market slack in the economy. In addition, there are modest upside risks to wage growth forecasts presented in the February Quarterly Inflation Report. He added that “It’s not wages suddenly bursting away, but it gives you a modest upside risk.” Also, McCafferty is concerned on whether import price inflation would fade as the central bank forecasted.

                                      On the other hand, he acknowledged that Brexit uncertainty will be a permanent feature of the economic landscape of the UK. While it may hamper long term investments, the impact on short term projects or exports would be small.

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                                      Fed Williams: Fed is nearing end of monetary policy normalization

                                        New York Fed President John Williams said in speech that recent FOMC statement well summarized the current US economy, with the word “strong” appeared five times. And Fed “has attained its dual mandate objectives of maximum employment and price stability about as well as it ever has.” He added that “most indicators point to a very strong labor market” while “inflation is right on target:”

                                        He expected fiscal stimulus and favorable financial conditions to provide “tailwinds” to the economy for more strong growth. He expected real GDP to grow by 3.0% in 2018 and 2.5% in 2019. Unemployment rate is expected to edge down to slightly below 3.% next year. Price inflation is expected to move up a bit above 2%. But he added that “I don’t see any signs of greater inflationary pressures on the horizon.”

                                        Regarding removal of “accommodative” language in latest FOMC statement, Williams said “these more concise statements do not signify a shift in our monetary policy approach.” And, they just “represent the natural evolution of the language describing the factors influencing our policy decisions “. And the changes in communications are signs that Fed is “nearing the end of the process of normalizing monetary policy”.

                                        His full speech here.

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                                        UK Brexit Minister Raab still targeting to reach agreement with EU by October, Sterling hold on to gains

                                          Sterling seems to be responding well enough to the post meeting press conference of UK Brexit Secretary Dominic Raab and EU chief Brexit negotiator Michel Barnier. The pound is holding on to gains against both Dollar and Yen.

                                          Raab said they had “positive” discussions and UK reaffirmed the commitment regarding Irish border. Raab said there are still “some significant issues to overcome”. Both agreed the need to “step up the intensity” during the final phase of the negotiations. Raab also emphasized that “if we have that ambition, that pragmatism and that energy on both sides, I’m confident we can reach that agreement by October.”  Regarding no-deal Brexit, Raab said “some of these hair-raising scare stories are far from true””

                                          Barnier said the negotiation has now entered the final stage. And both the EU and UK agreed to continually negotiation from now on. He added that the EU and UK can find common grounds, and both are now more advanced in defining the common ground, for foreign policy, security and economic relationship.

                                          Both sides will meet again in Brussels next week.

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