Australia PMI composite dropped to 51.2, still early to call an end to RBA tightening

    Australia’s PMI Manufacturing index stayed put at 48.0 in May, marking the joint-lowest reading since May 2020. On the other hand, PMI Services fell from 53.7 to 51.8, causing Composite PMI to decrease from 53.0 to 51.2.

    Warren Hogan, Chief Economic Advisor at Judo Bank, said, “The May Flash result shows a small retracement from the strong April outcome reinforcing the view that overall economic activity in Australia is holding up well as we enter the winter months.”

    Despite the manufacturing sector’s continuous slowdown, Hogan emphasized that this does not signal a recession. In contrast to manufacturing, the services sector has shown recent strength, and was “far from the risk of recession:.

    However, he warned of the implications of better economic conditions in terms of inflation. “The RBA is trying to engineer a soft landing to rid the economy of inflation. But if they don’t lean hard enough on monetary policy, we could see a more stubborn inflation emerge which will ultimately require a bigger lift in interest rates,” Hogan cautioned.

    Highlighting the strong correlation between the pick-up in the services PMI, housing market, rising population growth, and job advertising, he concluded, “Last week’s labour market data on employment and wages have bought the RBA some time, but the Flash PMIs highlight that it is still too early to call an end to the monetary policy tightening cycle.”

    Full Australia PMI release here.

    Mnuchin: Liquidity from the coronavirus program will get through the next couple of months

      A major component of the USD 2.2T coronavirus relief package approved by Congress last week is the USD 350B small business financing. Treasury Secretary Steven Mnuchin said today that the loans will be available starting on Friday, and the sign up would be “very, very easy”.

      He expected that the program would cover around 50% of the private workforce. And, “if we run out of money, and this is a huge success, we will absolutely go back to Congress and ask for more money.”

      Meanwhile, he said, “I expect that with all of this liquidity we’re putting into the economy to get through the next couple of months, when we reopen, we’ll be ready and the economy will surge back.”

      BoJ Wakatabe: Economic recovery is expected to become clear with vaccination progress

        BoJ Deputy Governor Masazumi Wakatabe said in a speech, the Japan economy has remained in a “severe state”. But the bank judged that “pick-up trend in the economy as a whole has been maintained, supported by positive developments in the corporate sector on the back of a firm recovery in overseas economies”.

        “Positive developments are likely to spread from the corporate sector to the household sector as the impact of COVID-19 wanes gradually, mainly due to progress with vaccinations,” he added. “The economic recovery is expected to become clear.”

        The key to realizing the positive outlook is “whether a virtuous cycle operates firmly”. That is, “whether an increase in domestic and overseas demand expands household income and corporate profits, and in turn leads to a further rise in spending”.

        Full release here.

        ECB Kazaks: Rates will need to be raised past July

          ECB Governing Council member Martins Kazaks expressed concerns about the persistent high inflation, indicating that an economic slowdown may not be enough to counter it. He also pushed back against market expectations of an ECB rate cut in the first half of next year.

          Kazaks stated, “The softness of the economy is unlikely to deal with inflation, which is still very high, with strong risks of persistence.”

          Further suggesting the need for rate hikes beyond July, Kazaks said, “In my view, we will still need to raise rates and I don’t think that in July we’ll be comfortable enough to say: ‘we’re done’. I think rates will need to be raised past July but when and by how much will be data-dependent.”

          Highlighting the divergence between his stance and market sentiments, he remarked, “The major problem with market pricing is the expectation of rates coming down so quickly. In my view, it’s wrong and the reason is that the market must be pricing in a different macro scenario with inflation coming down much more quickly.”

          His views on potential rate cuts were very clear. Kazaks sees the need for rate cuts only when “it becomes quite certain that inflation is about to start significantly and persistently undershooting our target of 2%. And not at the end of the forecast period but towards the middle of the forecast period.”

          China Dec trade balance: Massive -35.8% yoy fall in US imports; exports and imports contracted most since 2016

            China posted a set of very disappointing trade data today. Exports and imports posted biggest contraction since 2016. More importantly, imports from the US dropped a massive -35.8% yoy in the month. But for the year, trade surplus with the US hit a record high.

            In USD terms in December,

            • Trade surplus widened to USD 57.1B, above expectation of USD 51.6B.
            • However, exports dropped -4.4% yoy to USD 221.3B.
            • Imports dropped -7.6% yoy to USD 164.2B.
            • Both imports and exports suffered the steepest decline since 2016.

            Staying in December,

            • With the US, export dropped -3.5% yoy to USD 40.3B, imports dropped a massive -35.8% yoy to USD 10.4B.
            • With EU, exports dropped -0.3% yoy to USD 37.6B, imports dropped -2.7% yoy to USD 22.5B.
            • With Australia, exports dropped -5.2% yoy to USD 4.0B, imports dropped -3.4% yoy to USD 7.3B.

            For the year as a whole,

            • With the US, exports rose 11.3% yoy to USD 478.3B, imports rose just 0.7% yoy to USD 155.1B.
            • Trade surplus with the US jumped 17.2% yoy to USD 323.2B, highest on record.
            • With EU, exports 9.8% yoy to USD 408.6B, imports rose 11.7% yoy to USD 273.4B.
            • Trade surplus with EU rose 6.2% yoy to USD 135.1B.
            • With Australia, exports rose 14.2% yoy to USD 47.3B, imports rose 11.2% to 105.45B.
            • Trade deficit with Australia rose 8.9% yoy to USD 58.1B.

            Link to China customs department data, in simplified Chinese.

            Markets rocked as Trump said WSJ report on China trade deal was fake news

              Markets are rocked by US President Donald Trump’s tweet again. He complained that WSJ’s story regarding US-China trade deal was “completely wrong, especially their statement on Tariffs.” He added, “Fake News. They should find a better leaker!”

              Trump said yesterday that he’s getting “VERY close to a BIG DEAL with China.” WSJ  indicated US would cut the currently imposed tariffs by 50% as part of the deal. New tariffs would be put on hold. China generally believed to offer to step up US farm products purchases in 2020, possibly doubling from the value in 2017 to USD 50B.

              Markets are expecting some form of formal announcement to be made today by US administration. It remains to be seen if that would happen.


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              OECD: France GDP to grow 6.8% in 2021, 4.2% in 2022

                OECD projects a strong 6.8% growth in France GDP in 2021, followed by 4.2% in 2022. Private consumption is forecast to grow 4.8% in 2021, and a further 6.8% in 2022. Unemployment is expected to drop to 7.8% this year and then 7.6% next. CPI is expected to be at 1.9% this year, then slow to 1.7% next.

                “France’s response to the COVID-19 crisis has been swift and effective, enabling it to emerge from the health crisis with jobs and household incomes well protected and its economic capacity largely preserved,” OECD Secretary-General Mathias Cormann said. “A rigorous implementation of the government’s Recovery and Investment Plans will help to turn the rebound into lasting sustained growth, building a greener, more digital and more resilient economy.”

                Full release here.

                US PCE inflation rose to 5.4% yoy, PCE core rose to 4.7% yoy

                  US personal income rose 0.6% mom or USD 131.1B in January, below expectation of 1.0% mom. But personal spending rose 1.8% mom or USD 312.5B, above expectation of 1.0% mom.

                  For the month, PCE price index rose 0.6% mom, above expectation of 0.5% mom. Core PCE (excluding food and energy) rose 0.6% mom, above expectation of 0.4% mom. Prices for goods and services rose 0.6% mom. Food prices rose 0.4% mom. Energy prices rose 2.0% mom.

                  For the year, PCE price index accelerated from 5.3% yoy to 5.4% yoy, above expectation of 4.9% yoy. Core PCE accelerated from 4.6% yoy to 4.7% yoy, above expectation of 4.1% yoy. Goods prices rose 4.7% yoy. Services rose 5.7% yoy. Food rose 11.1% yoy and energy rose 9.6% yoy.

                  Full release here.

                  Germany Gfk consumer sentiment rose to -24.2, not showing a clear up trend

                    Germany Gfk consumer sentiment for June rose slightly from -25.8 to -24.2, above expectation of -24.5. In May, economic expectations dropped from 14.3 to 12.3. Income expectations rose from -10.7 to -8.2. Propensity to buy dropped from -13.1 to -16.1.

                    “Consumer sentiment is not showing a clear upward trend at present. As a result, the rise in consumer climate index has slowed again somewhat,” explains Rolf Bürkl, GfK consumer expert.

                    “A lower propensity to save has prevented the recovery in consumer sentiment from stagnating this month. However, it is still below the low level of spring 2020 during the first Covid-19 lockdown.”

                    Full Germany Gfk consumer sentiment release here.

                    Into US session: Sterling weakest despite solid job data, Euro follows

                      Entering into US session, Sterling is the weakest one for today despite solid employment data. UK unemployment rate stayed at 45-year low while wage growth accelerated. But that’s overshadowed by renewing no-deal Brexit fear. Both runners Boris Johnson and Jeremy Hunt rejected Irish backstop in any part of Brexit deal. Such position will make Brexit negotiations very tough ahead. Euro is the second weakest as German ZEW Economic Sentiment deteriorated further in July.

                      On the other hand, New Zealand Dollar is the strongest one as CPI accelerated in Q2 as expected. Dollar follows as the second strongest. However, the greenback will face tests from retail sales and industrial production data.

                      In Europe, currently:

                      • FTSE is up 0.43%.
                      • DAX is up 0.19%.
                      • CAC is up 0.51%.
                      • German 10-year yield is down -0.013 at -0.265.

                      Earlier in Asia:

                      • Nikkei dropped -0.69%.
                      • Hong Kong HSI rose 0.23%.
                      • China Shanghai SSE dropped -0.16%.
                      • Singapore Strait Times rose 0.36%.
                      • Japan 10-year JGB yield dropped -0.0071 to -0.121.

                      BoE stands pat, Ramsden and Saunders voted for taper

                        BoE voted unanimously to keep Bank Rate unchanged at 0.10%. However, it voted 7-2 to keep the government bond purchase target at GBP 895B. Dave Ramsden and Michael Saunders voted to lower purchase target to GBP 860B.

                        In the statement, it said that since August meeting, “the pace of recovery of global activity has showed signs of slowing”, “global inflationary pressures have remained strong”, and “there are some signs that cost pressures may prove more persistent”.

                        BoE reiterated that “some modest tightening of monetary policy over the forecast period was likely to be necessary”. Developments since August “appear to have strengthened that case”.

                        “The Committee will be monitoring closely the incoming evidence regarding developments in the labour market, and particularly unemployment, wider measures of slack and underlying pay pressures; the extent to which businesses pass on wage and other cost increases, as well as medium-term inflation expectations.”

                        Full statement here.

                        Fed chair Powell press conference live stream


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                          Japan’s export to US up 11.7% yoy in Jun, to EU up 15%, to China down -11%

                            Japan’s exports rose by 1.5% yoy to JPY 8744B in June. The significant rise in exports to US by 11.7% yoy and to EU by 15.0% yoy was offset by the -11.0% yoy decline in exports to China (marking the most significant drop since January).

                            Rise in US-bound exports was primarily driven by shipments of cars and mining machinery. Meanwhile, dip in exports to China was attributed the decreased shipments of steel, chips, and nonferrous metal, which led to an overall double-digit decline.

                            Japan’s imports contracted by -12.9% yoy to JPY 8701B. The decrease in value of imports is primarily linked to drop in crude, coal, and liquefied natural gas.

                            As a result, Japan recorded a trade surplus of JPY 43B, the first such instance in nearly two years since July 2021.

                            In seasonally adjusted term, exports rose 3.3% mom to JPY 8269B. Imports rose 0.5% mom to JPY 8822B. Trade balance reported JPY -553B deficit, versus expectation of JPY -550B.

                            Full Japan trade balance release here.

                            Gold spiked lower after Fed, but quickly recovered

                              Gold spiked lower to 1752.32 after Fed decided to double tapering pace while the new projections indicated three rate hikes next year. Yet, Gold quickly recovered and there was no follow through buying in Dollar.

                              For now, further fall will remain in favor in Gold as long as 1792.94 resistance holds. Break of 1752.32 will resume the decline from 1877.05 to 1721.46 first. Break there will target key long term support zone at 1676.55/1682.60.

                              However, strong break of 1792.94 will now bring sustained trading above 55 day EMA. Considering bullish convergence condition in 4 hour MACD too, that would signal complete of fall from 1877.05 and bring stronger rise back towards this resistance.

                              WTI oil extending rally, eyeing 77.2 projection level

                                Oil prices follow broad based risk-on sentiments and jumped higher this week. Investors seem to be getting Omicron worries behind, as the health impacts of infection look much milder than feared.

                                With the strong break of 55 day EMA, WTI’s pull back from 85.92 has likely completed at 62.90 already. Immediate focus is now on 100% projection of 62.90 to 73.66 from 66.46 at 77.22. Firm break there could bring upside acceleration to 161.8% projection at 83.86.

                                For now, we’re viewing the pattern from 85.92 has a sideway corrective pattern, with range set between 61.90 and 85.92. Hence, we’d not expecting a break of 85.92 any time soon. Instead, there should at least be one more falling leg to complete the pattern. Let’s see.

                                Eurozone CPI finalized at 2.9% yoy in Oct, core at 4.2% yoy

                                  Eurozone CPI was finalized at 2.9% yoy in October, down from September’s 4.3% yoy. CPI core (excluding energy, food, alcohol & tobacco) was finalized at 4.2% yoy, down from previous reading of 4.5% yoy. The highest contribution came from services (+1.97%), followed by food, alcohol & tobacco (+1.48%), non-energy industrial goods (+0.90%) and energy (-1.45%).

                                  EU CPI was finalized at 3.6% yoy, down from prior month’s 4.9% yoy. The lowest annual rates were registered in Belgium (-1.7%), the Netherlands (-1.0%) and Denmark (-0.4%). The highest annual rates were recorded in Hungary (9.6%), Czechia (9.5%) and Romania (8.3%). Compared with September, annual inflation fell in twenty-two Member States and rose in five.

                                  Full Eurozone CPI final release here.

                                  UK GDP grew 0.2% mom in July, services up but production and construction down

                                    UK GDP grew 0.2% mom in July, below expectation of 0.3% mom. Services grew 0.4% mom. Production dropped -0.3% mom. Construction also contracted -0.8% mom. For the three months to July, GDP was flat compared with the previous three months.

                                    Also released, industrial production came in at -0.3% mom, 1.1% yoy, versus expectation of 0.4% mom, 2.0% yoy. Manufacturing production was at 0.1% mom, 1.1% yoy, versus expectation of 0.6% yoy. Goods trade deficit narrowed from GBP -22.8B to GBP -19.4B, versus expectation of GBP -23.2B.

                                    US initial jobless claims dropped to 385k, continuing claims ticked up to 3.77m

                                      US initial jobless claims dropped -20k to 385k in the week ending May 29, better than expectation of 410k. Four-week moving average of initial claims dropped -30.5k to 428k. Both figures were lowest since March 14, 2020.

                                      Continuing claims rose 169k to 3771k in the week ending May 22. Four-week moving average of continuing claims rose 23k to 3688k.

                                      Full release here.

                                      EU Schinas: There are no offers when Juncker visits US

                                        European Commission spokesman Margaritis Schinas said in a news conference today that President Jean-Claude Juncker will not bring a trade offer to the US when he visits Washington on July 25. Schinas said “I do not wish to enter into a discussion about mandates, offers because there are no offers. This is a discussion, it is a dialogue and it is an opportunity to talk and to stay engaged in dialogue.”

                                        This is an echo of the comments by EU Trade Commissioner Cecilia Malmstrom last week. She said that the visit was to “try to establish a good relations, try to see how we can de-escalate the situation, avoiding it going further and see if there is a forum where we can discuss these issues.” She added that “we don’t go there to negotiate anything.”

                                        Germany ZEW dropped to 22.3 in Oct, outlook dimmed noticeably

                                          Germany ZEW Economic Sentiment dropped from 26.5 to 22.3 in October, below expectation of 20.4. That’s the fifth decline in a row. Germany Current Situation Index tumbled sharply from 1.9 to 21.6, well below expectation of 29.5, and the first decline since February.

                                          Eurozone ZEW Economic Sentiment dropped from 31.3 to 21.0, below expectation of 26.5. Eurozone Current Situation dropped -6.6 pts to 15.9. Eurozone inflation expectations indicator dropped -3.0 pts to 17.1. But 49.1% of experts still expect inflation to rise further in the next six months.

                                          ZEW President Professor Achim Wambach said: “The economic outlook for the German economy has dimmed noticeably. The further decline of the ZEW Indicator of Economic Sentiment is mainly due to the persisting supply bottlenecks for raw materials and intermediate products. The financial market experts expect profits to go down, especially in export-oriented sectors such as vehicle manufacturing and chemicals/pharmaceuticals.”

                                          Full release here.