Fri, Sep 30, 2022 @ 06:41 GMT

G20: Abe and Xi agreed to promote free and fair trade

    Japanese Prime Minister Shinzo Abe and Chinese President Xi Jinping held bilateral meeting today, ahead of G20 leaders summit that starts tomorrow. Both sides agreed to work together to promote “free and fair trade”. A wide range of topics were also discussed.

    Xi said the G20 summit will be held “against the backdrop of an increasingly complicated world economic situation.” He added I strongly hope the summit will form shared views and send out a clear message to protect multilateralism and free trade.” Abe also said he welcomes the”new developments” in relationship with China that is based on the principles of “promoting free and fair trade.”

    Deputy Chief Cabinet Secretary Yasutoshi Nishimura noted that Abe urged Xi to maintain the free and open society, one-country, two systems with Hong Kong. This is a response to highly controversial extradition bill that prompted a March of 2 millions Hongkongers against the bill. Also, a world wide newspaper ad campaign is launched by Hong Kong activities, urging G20 leaders to stand by them to defend Hong Kong’s freedoms and autonomy.

    According to Nishimura, Abe also asked Xi to “exercise self-restraint over its activities” around the Japan-held Senkaku islets in the East China Sea and emphasized the importance of demilitarization of disputed islands in South China Sea.

    China CFETS lowers Dollar weighting in RMB index, increase Euro weighting

      Starting on January 1, US Dollar’s weighting in the China Foreign Exchange Trade System (CFETS) RMB Index would be lowered. CFETS is overseen by the PBoC and the RMB index measures the value of Yuan against a basket of 24 major currencies, with weights based on international trade.

      After the adjustment, Dollar’s weighting will be lowed from 22.4% to 21.59%. Euro’s weighting will be increased from 16.34% to 17.40%. CFETS said the adjustment was to make the index more representative, taking into account trade data from 2018.

      DOW flirting with 20k again on stimulus optimism

        US stocks surge sharply in early trading on optimism that politicians in US are close to getting a deal on another coronavirus stimulus package.

        House speaker Nancy Pelosi told CNBC, “I think there is real optimism that we could get something done in the next few hours.” “Overarchingly, I think we are getting to a good place, if they stay there.”

        Senate Majority Leader Mitch McConnell said “at last I believe we’re on the five-yard line. It has taken a lot of noise and a lot of rhetoric to get us here. Despite all of that we are very close.”

        DOW is currently up from than 1400 pts or 7.6%, and it’s now flirting with 20000 handle again. But major focus for the near term is 20531.26 resistance. Break will confirm short term bottoming, on bullish convergence condition in hourly MACD. In that case, further rise could be seen back to 38.2% retracement of 29568.57 to 18213.65 at 22551.22.

        Swiss KOF rose to 97.4, still point to rather weak growth in coming months

          Swiss KOF Economic Barometer rose to 97.4 in March, up from 93.0 and beat expectation of 93.9. The improve is predominantly due to “positive impulses” from manufacturing, as driven by the electrical industry, followed by the metal industry, mechanical engineering and the textile industry.

          KOF Noted in the release that “recent downward tendency has at least for the time being ended.” However, the current reading is still “markedly below its average”. Hence, Swiss economy can expect to experience rather weak growth in the coming months.

          Full release here.

          Fed Kaplan expects improvement in economic mobility from June onwards

            Dallas Fed President Robert Kaplan said in a CNBC interview, “getting money for school reopenings, vaccine distribution and childcare are critical for economic recovery.” He’s “expecting to see an improvement in the economic mobility from June onwards.” He also sees 10-year yields to rise “if the economy grow as forecasted”.

            Regarding recent market frenzy, Kaplan said, “some of the current situation you are seeing — one of the factors — is there is a lot of liquidity, and some of that relates to Fed purchases of $80 billion of Treasuries and $40 billion of mortgage-backed securities every month:

            “I still think we need to be doing what we are doing right now, in the teeth of the pandemic, but again, I think if we go beyond it, it will be healthier to start limiting this liquidity and normalizing policy down the road,” he added.

            Trump wants an unfair deal with China, but farmers just want level playing field

              Trump revealed that he has been pushing for an unfair trade deal with China, before the negotiations collapsed. In an interview with Fox News Channel aired on Sunday, Trump said he told Xi the agreement “can’t be like a 50/50 deal”. And, ” you are so far ahead from presidents that allowed you to get away. This can’t be a 50/50 deal.”

              He further claimed: “We had a very strong deal. We had a good deal, and at the end, they changed it. And I said, that’s OK, we’re going to tariff their products”. And, “it hurts China so badly.”

              Trump also talked about his subsidy plan to farmers. He noted conversations with farmers as they said “Sir, we don’t want a subsidy. We just want a level playing field. And we also know that we’re being killed by these countries — by many of the countries, not just China.”

              Australia Westpac consumer sentiment dropped to 104.6, still more optimists

                Australia Westpac-Melbourne Institute consumer sentiment dropped -1.5% to 104.6 in October, down from September’s 106.2. There continued to be a clear majority of optimists nationally, even at state level – NSW (103.4); Victoria (105.4); Queensland (105.3) and Western Australia (105.4).

                Westpac expects RBA to “almost certainly maintain its policy settings” at November 2 meeting. Instead, the next change is likely to be another round of tapering in February. Looking forward, Westpac expects a rate hike in Q2 of 2023, while RBA has repeated said the conditions of hike won’t be met until 2024.

                Full release here.

                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.”

                  UK PMI composite dropped to 48.4, economic woes deepened

                    UK PMI manufacturing improved from 47.3 to 48.5 in September. But PMI services dropped from 50.9 to 49.2, a 20-month low. PMI Composite dropped from 49.6 to 48.4, a 20-month low.

                    Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said:

                    “UK economic woes deepened in September as falling business activity indicates that the economy is likely in recession. Companies report that the rising cost of living, linked to the energy crisis, and growing concerns about the outlook are subduing demand and hitting output levels to an extent not seen since 2009, barring the pandemic lockdowns and initial 2016 Brexit referendum shock.

                    “Forward-looking indicators meanwhile deteriorated further in September. Both the new orders and future expectations gauges have descended to levels which have rarely been weaker in the past, and are consistent with a deepening downturn as we head into the fourth quarter.

                    “Inflationary pressures continue to run higher than at any time in over two decades of survey history prior to the pandemic. Renewed supply constraints, soaring energy prices and rising import costs associated with the weakened pound are adding to cost pressures, meaning the overall rate of inflation signalled will remain of great concern to policymakers at the Bank of England. However, the detrimental impact of tightening policy into a recession is becoming increasingly apparent, with the downturn likely to intensify as we head into winter.”

                    Full release here.

                    WTI crude oil resumes rally, targeting 83.8 next

                      WTI crude oil follows broad based risk-on sentiment and closed higher overnight. Rise from 62.90 resumed by breaking through 80.63 temporary top and hits as high as 81.79 so far. Current rally is expected to target 161.8% projection of 62.90 to 73.66 from 66.46 at 83.86, which is close to 85.92 high.

                      Rise from 62.90 is seen as the second leg of the consolidation pattern from 85.92 only. Hence, we’re not expecting a firm break of 85.92 yet. Instead, another fall should be seen before the consolidation completes. Break of 77.97 support will indicate rejection by 85.92 and target 73.66 resistance turned support first.

                      Lagarde: ECB tasked to ensure Euro is safe and stable

                        ECB President Christine Lagarde said in a speech that the existence of Euro is to secure that trust in money so that people can focus on what really matters to them. And that’s the reason why ECB’s mandate and objectives reflect the well-known “functions of money”. Policy makers are tasked to “ensure that euro is safe and stable”.

                        The Euro also serves as the “most tangible symbol of European integration”, and “bears witness to the degree of integration we have achieved.” Support in the Euro is there with “76% of our citizens are now in favour of the single currency”. Though, she also warned that  “trust takes years to build, seconds to break and forever to repair”.

                        Full speech here.

                        Trump to announce very big middle class tax cut over the next 90 days

                          US President Donald Trump told Fox Business that the administration is planning a “very big” middle-class tax cut. He said, “we are going to be doing a middle-class tax cut, a very big one. We’ll be doing that. We’ll be announcing that over the next 90 days.”

                          On trade deals, “the China deal is amazing, we’ll be starting phase two very soon. The tariffs were left on Chinese goods because its good to negotiate for phase two.”

                          At the same time, “the European Union is tougher to deal with than anybody. They’ve taken advantage of our country for many years,” said Trump. “Ultimately it will be very easy because if we can’t make a deal, we’ll have to put 25 percent tariffs on their cars.”

                          Today’s top mover: AUD/JPY completed double bottom, medium term trend in bullish reversal

                            AUD/JPY is so far the biggest gainer today, up 32 pips or 0.39% at the time of writing.

                            The cross experience quite significant technical development this week. The break of 82.50 resistance completed a double bottom reversal pattern (78.67, 78.65). Bullish convergence condition is seen in daily MACD. And it drew support from 61.8% retracement of 72.39 to 90.29 at 79.22. Adding all together, the down trend from 90.29 should have completed at 78.56. The structure suggests fall from 90.29 to 78.56 is a corrective move.

                            Now, near term outlook will remain bullish as long as 81.94 support holds. Sustained break of 38.2% retracement of 90.29 to 78.56 at 83.04 will have 55 week EMA firmly taken out too. In that case, further rally should be seen to 61.8% retracement at 85.80 and above. From a longer term perspective, such development would also argue that rise from 72.39 is resuming and raise the chance of breakthrough through 90.29 in medium term.

                            Fed George and Bostic talked down tapering QE this year

                              Kansas Fed President Esther George said yesterday that the central bank was still “far away” from meeting its objectives. It’s “too soon to try to speculate about” scaling back the asset purchase program. “Until we see the path to getting past this virus, it will be difficult to make any prognosis about when that time might come.” she added.

                              Separately, Atlanta Fed President Raphael Bostic said, based on his modal economic forecasts, “that’s not my expectation” for Fed to start tapering the asset purchases at the end of this year. “But I will be open to any possibility,” he added. “And that can go in either direction. I think that’s the most important message to come out of this.”

                              UK Gfk consumer confidence unchanged at -27

                                UK Gfk Consumer Confidence was unchanged at -27 in August, worse than expectation of -25. General economic situation over the last 12 months dropped -1 pts to -62. General economic situation over the next 12 months also dropped -1 pts to -42.

                                Joe Staton, GfK’s Client Strategy Director, says: “Employment is now the big issue because the pandemic has ended years of job security. Yes, discounted dinners have proved a winner with hungry consumers across the country this month, but it’s difficult to see significantly increased appetite for other types of spending for now.”

                                Full release here.

                                Australia AiG manufacturing rose to 55.3, 5 of 6 sectors reported positive conditions

                                  Australia AiG Performance of Manufacturing rose to 55.3, up from 52.1, indicating a stronger improvement in conditions over the summer holiday period. Five of the six manufacturing sectors reported positive trading conditions (results over 50 in trend terms), with the strongest results reported from manufacturers in machinery & equipment and chemicals, pharmaceuticals, cleaning, rubber, petroleum & related products.

                                  Full release here.

                                  ECB Centeno: Must be patient and tolerant with deviations with inflation

                                    ECB Governing Council member Mario Centeno said, “when we are reviewing the strategy, broadening the leeway of the allowable inflation trajectories, it is very important that the forward guidance is adapted to this new framework, otherwise it would lose credibility.” But he emphasized that “there is no overshooting logic or average inflation rate” in the new strategy.

                                    Centeno explained that the new 2% symmetric inflation target means “positive or negative deviations are equally undesirable”. It gives “greater room for maneuver than before.” “The strategy admits a temporary and moderate inflation values above 2% … We must be patient and tolerant with deviations that we would not tolerate previously,” he said.

                                    He also said the main cause of recent rise in inflation are “eminently temporary”. And, “it is expected that these factors, which will temporarily raise inflation in 2021, will not last and so our forecast for 2023 is 1.4%, significantly below 2%.”

                                    Into European Session: Aussie strongest, lifted by stock rebound and improving business confidence

                                      Entering into European session, Australian Dollar is so far the best former for today. It’s partly helped by another day of rebound in Chinese stock markets. Japanese Nikkei also came back from holiday with a rebound. Additionally, better than expected NAB business condition and confidence also give Aussie a pop. But upside momentum is rather weak as the current recovery should be corrective in nature.

                                      For now, Canadian Dollar follows as the second strongest one. WTI crude oil drew support from 51.37 support and is recovering, back at 52.8. Euro is the third strongest, paring some of yesterday’s losses. On the other hand, Yen, New Zealand Dollar and Dollar are the weakest ones so far.

                                      The economic calendar is rather light ahead today. Main focus will be on UK Prime Minister Theresa May’s Brexit statement in the Commons. The US Congress has reached a tentative deal to avert another partial government shutdown. So, focus will turn back to any news regarding US-China trade negotiation.

                                      In Asia:

                                      • Nikkei closed up 2.61%.
                                      • Hong Kong HSI is up 0.09%.
                                      • China Shanghai SSE is up 0.53%.
                                      • Singapore Strait Times is down -0.01%.
                                      • Japan 10-year JGB yield is up 0.0113 at -0.017, staying negative.

                                      Overnight:

                                      • DOW closed down -0.21%.
                                      • S&P 500 rose 0.07%.
                                      • NASDAQ rose 0.13%.
                                      • 10-year yield rose 0.029 to 2.661.
                                      • 30-year yield rose 0.023 to 2.999, just failed to reclaim 3% handle.

                                      ECB Rehn: Central scenario is not recession despite soft patch in economy

                                        ECB Governing Council member Olli Rehn told Reuters today that the “central scenario is not a recession,” despite the “soft patch in the economy.” Though, he reiterated the unified message that an ample degree of stimulus is still appropriate for now. Policymakers are going to wait for the new economic forecasts, to be released next week, before debating on adjusting monetary policies.

                                        Regarding the policy framework, Rehn said the definite of price stability should be loosened. Currently ECB sees inflation target as being close to 2%, below 2%. But Rehn said “My view is that 2% is not a ceiling and inflation can deviate in both directions.”

                                        Italian Deputy Prime Minister Matteo Salvini called for a new role for ECB to “guarantee” government debt in order to keep bond yields low. Rehn bluntly responded saying it goes against the principal of modern central banking that we are forbidden to do monetary financing.”

                                        ADP jobs growth at 102k, missed expectation, job market continues to throttle back

                                          ADP report shows private sector employment grew 102k in June, below expectation of 140k. Though, it’s already a strong rebound from May’s 41k (revised from 27k).

                                          “Job growth started to show signs of a slowdown,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “While large businesses continue to do well, small businesses are struggling as they compete with the ongoing tight labor market. The goods producing sector continues to show weakness. Among services, leisure and hospitality’s weakness could be a reflection of consumer confidence.”

                                          Mark Zandi, chief economist of Moody’s Analytics, said, “The job market continues to throttle back. Job growth has slowed sharply in recent months, as businesses have turned more cautious in their hiring. Small businesses are the most nervous, especially in the construction sector and at bricks-and-mortar retailers.”

                                          Full release here.