Canada GDP was essentially unchanged in May, better than expectation of -0.2% mom contraction. Services-producing industries rose grew 0.4% mom while goods-producing industries contracted -1.0%. 14 of 20 industrial sectors increased.
Advance information indicates that GDP grew 0.1% mom in June, as output was up in the construction, manufacturing, and accommodation and food services sectors. Also, GDP grew 1.1% qoq in Q2.
ECB left the “very accommodative monetary policy stance” unchanged as widely expected. Main refinancing rate was held at 0.00%, marginal lending rate a and deposit rate at 0.25% and -0.50% respectively. Rates will “remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.”
Envelope of the “pandemic emergency purchase programme (PEPP)” is kept at EUR 1850B, running through at least March 2022. Asset purchase programme (APP) will continue at monthly net purchase of EUR 20B. ECB will will also continue to provide “ample liquidity” through refinancing operations, in particular the third series of targeted longer-term refinancing operations (TLTRO III).
German industrial production rose 0.3% mom in August, much better than expectation of -0.2% mom decline. Over the year, industrial production dropped -4.0% yoy. Production in industry excluding energy and construction was up by 0.7% mom. Within industry, the production of intermediate goods increased by 1.0% mom and the production of capital goods by 1.1% mom. The production of consumer goods showed a decrease by -1.0% mom. Outside industry, energy production was down by -1.7% mom and the production in construction decreased by -1.5% mom.
According preliminary estimates, Australia export of goods rose AUD 13m (0% mom) to AUD 35.95B in April, hitting a record high. Import of goods dropped AUD -1.9B, (-7% mom) to AUD 25.81B. Trade surplus widened to AUD 10.14B, up from March’s AUD 8.23B, the third highest on record.
ABS said, “following strong exports in March 2021, metalliferous ores increased another 1 per cent in April 2021 to record a historic high of $16.5 billion, driving record high exports”. The increase in coal exports was driven by thermal coal, up $203 million, with an increase of $116 million to India. Australian coal exports to India have been steadily rising since mid-2020, following a substantial reduction in Chinese demand for Australian coal.
US exports of goods rose USD 2.2B to USD 157.3B in December. Imports of goods rose USD 5.1B to 258.3B. Goods trade deficit widened to USD -101.0B, versus expectation of USD -96.1B.
Whole sale inventories rose 2.1% mom to USD 789.4B. Retail inventories rose 4.4% mom to USD 643.8B.
GBP/CHF is so far the biggest mover for today. The race is actually quite tight with GBP/USD, GBP/JPY and NZD/CHF.
Anyways, GBP/CHF’s rebound from 1.2755 accelerates further higher today and focus is now on 1.3115 resistance. Decisive break there will confirm resumption of whole rise from 1.2457. This will remain the favored case as long as 1.2964 minor support holds. Though, break of 1.2964 could prompt near term reversal.
Prior break of 1.3049 support turned resistance suggests that whole decline from 1.3854 has completed at 1.2457. Such decline displayed a three wave corrective structure. The reversal also came after drawing support from 61.8% retracement of 1.1701 (2016 low) to 1.3854 (2018 high) at 1.2523. So overall, the fall from 1.3854 to 1.2457 should be a counter trend move. And, the current rise from 1.2457 is likely along the larger main trend. Hence, on decisive break of 1.3115, GBP/CHF should target 100% projection of 1.2457 to 1.3115 from 1.2755 at 1.3413 in near term.
US stocks staged a strong reversal overnight again. DOW initially dropped to as low as 23881.47 but closed up 0.14% t0 24423.26. The daily range was as large as 619 pts. S&P 500 dropped to 2583.23 but closed up 0.18% at 2637.72. NASDAQ was indeed the star performer, dipping to 6878.98 but closed up 0.74% at 7020.52. Tech stocks are seen as saving markets with Apple gained 0.66%, Qualcomm gained 2.23%, Facebook gained 3.22%.
Treasury yield curve continued to flatten with 5-year yield up 0.13 to 2.709. 10-year yield closed up 0.006 at 2.856. 30-year yield dropped -0.014 to 3.129. Yield curve remains inverted between 3-year (2.738) and 5-year (2.709).
In the currency markets, Sterling remains the weakest one for the week as UK Prime Minister Theresa May conceded and called off Tuesday’s Brexit parliamentary vote. Canadian Dollar is the second weakest. New Zealand Dollar, Australian Dollar and Swiss Franc are the strongest ones.
For today, Dollar turns softer, but Canadian stays weak. Aussie is staying firm for now, while Yen is trying to rally.
Germany PMI Manufacturing dropped to 41.4 in September, down from 43.5 and missed expectation of 44.6. That’s the lowest level in 123 months. PMI Services dropped to 52.5, down from 54.8, missed expectation of 54.3, a 9-month low. PMI Composite dropped to 49.1, down from 51.7, a 83-month low.
Commenting on the flash PMI data, Phil Smith, Principal Economist at IHS Markit said:
“Another month, another set of gloomy PMI figures for Germany, this time showing the headline Composite Output Index at its lowest since October 2012 and firmly in contraction territory.
“The economy is limping towards the final quarter of the year and, on its current trajectory, might not see any growth before the end of 2019.
“The manufacturing numbers are simply awful. All the uncertainty around trade wars, the outlook for the car industry and Brexit are paralyzing order books, with September seeing the worst performance from the sector since the depths of the financial crisis in 2009.
“With job creation across Germany stalling, the domestic-oriented service sector has lost one of its main pillars of growth. A first fall in services new business for over four-and-a-half years provides evidence that demand across Germany is already starting to deteriorate.”
Australian NAB Business Condition dropped again in May to 1, down from 3. Private sector continues to lose momentum. Goods distribution industries remain particularly weak, and manufacturing is not far behind. Business Confidence jumped from 0 to 7, in a post-election spike, as well as on RBA rate cut expectations. However, forward looking indicators suggest more weakness lies ahead.
Alan Oster, NAB Group Chief Economist noted “business confidence saw a sharp increase in the month following the Federal election and a confirmation from the RBA that rates would be cut in June. We think this will be a short-term spike given other forward-looking indicators saw further deterioration in the month. Forward orders declined further and in addition to being well below average are negative. Capacity utilisation has also pulled back in 2019 to date and is now a touch below average”.
“While confidence, at least at face value was a positive outcome, business conditions deteriorated further. Trading conditions and profits are particularly weak. The employment index which we are watching closely, partially reversed some of its decline last month, but is only around average”.
EUR/AUD breached 1.6262 resistance late yesterday as rise from 1.5683 is resuming. Next near term target is 61.8% projection of 1.5683 to 1.6262 from 1.6052 at 1.6410.
Japan GDP grew 1.3% qoq in Q4, slightly below expectation of 1.4% qoq. In annualized term, GDP grew 5.4%, below expectation of 5.8%.
Private consumption grew 2.7% qoq, accounting for much of the growth. Capital expenditure rose 0.4% qoq. External demand rose 0.2% qoq.
For 2021 as a whole, GDP grew 1.7%, marking the first expansion in three years. The seasonally-adjusted real GDP size at JPY 541T remains slightly below pre-pandemic level of late 2019.
France PMI Manufacturing was finalized at 55.7 in April, up from March’s 54.7. S&P Global said manufacturing output growth was constrained by war in Ukraine. There were reports of automotive sector weakness, while supply issues persisted. Output price inflation accelerated to series high.
Joe Hayes, Senior Economist at S&P Global, said:
“France’s manufacturing sector continues to churn out growth in the face of an intensely challenging backdrop for goods producers. That said, some of the anecdotal evidence from panellists we received this month suggests production growth may be short-lived.
“Advanced purchases from clients in anticipation of price hikes underpinned order book growth at some firms. This is worrying evidence that suggests inflation expectations have become de-anchored, but it also suggests that weaker demand conditions are in the horizon if clients are bringing forward their purchases and are hesitant to place orders at higher prices.
“The supply situation also remains uncertain as bottlenecks in China due to COVID restrictions and the war in Ukraine have added to pressures. Firms continue to struggle to replenish their stock of finished goods, which have fallen in for the past six months.
“If firms can secure inputs, this may help support output in the face of weak demand if firms choose to rebuild their stocks, but rampant inflation and a concerning outlook for demand is diminishing support for growth.”
Dollar jumps after Fed chair Jerome Powell said it would take “material change” in the outlook to justify another rate cut. After today’s cut to 1.50-1.75%, he noted that risks to outlook have shifted more positively. Though, he added that Fed will need to see considerably higher inflation before considering raising interest rate.
USD/JPY surges along with the comments in the press conference. It’s now pressing 109.31 key resistance level. Decisive break there will raise the chance of medium term reversal and turn focus back to 112.40 key resistance.
Japan’s nominal wage growth surged by 2.0% yoy in January, surpassing expectations of 1.3%, and marking the most substantial growth since last June. This also represents a notable acceleration from the revised 0.8% increase observed in December.
The surge in wages largely stems from a significant 16.2% yoy advance in special payments, which include winter bonuses. Regular or base salaries maintained steady growth rate of 1.4% yoy, consistent with the previous month’s performance. Meanwhile, overtime pay, a key indicator of labor demand and economic activity, showed slight improvement of 0.4% yoy, recovering from revised decline of -1.2% yoy in the prior period.
Real wages declined by 0.6% yoy, marking a continued decrease in purchasing power for Japanese workers. However, the pace of decline was the joint-slowest since December 2022, indicating stabilization in the erosion of real earnings.
European Commission Vice President Jyrki Katainen criticized that the “selfish” approach of Trump’s to trade is not sustainable. And he emphasized to maintain rule-base trade with WTO reforms.
Katainen said “Japan, China and the EU are willing to reform the WTO, the U.S. has not been that interested, but they are willing to cooperate: He added: “Even though the U.S. authorities may think that selfishness is better than cooperation, it is not a sustainable way of thinking. We need better, rules-based trade in the future where the international community sets the rules”.
On trade negotiation with the US, he said “there are discussions going on on several levels and … we can end up having some sort of an agreement with the U.S. on trade, but let’s not go deeper than this”. He emphasized “it is too early to say that our trade discussions are doomed to fail.”
According to latest released IMF Currency Composition of Official Foreign Exchange Reserves data, total global foreign exchange reserves rose 6.3% yoy, or by USD 878B, to USD 11.59T in Q1.
Reserves held in USD rose to USD 6.499T, 62.48% of total allocated reserves. That compared to 62.72% back in Q4 2017, and hit a fresh four year low.
Reserves held in EUR rose to USD 2.121T, 20.39% of total, up from Q4’s 20.15%, hitting the highest since 2014.
Reserves held in RMB rose to USD 0.145T, 1.39%, of total, up for a third straight quarter.
US ISM Services PMI dropped from 51.9 to 50.3 in May, below expectation of 52.6. Looking at some details, business activity/production dropped from 52.0 to 51.5. New orders dropped from 56.1 to 52.9. Employment dropped from 50.8 to 49.2. Prices dropped from 59.6 to 56.2.
ISM said, the May Services PMI indicates the overall economy is growing for the fifth consecutive month after one month of contraction in December.
The past relationship between the Services PMI and the overall economy indicates that the Services PMI for May (50.3 percent) corresponds to a 0.2-percent increase in real gross domestic product (GDP) on an annualized basis.
Eurozone CPI slowed from 8.5% yoy to 6.9% yoy in March, below expectation of 7.2% yoy. CPI core (all item ex energy, food, alcohol & tobacco) roes from 5.6% yoy to 5.7% yoy, matched expectations.
Looking at the main components , food, alcohol & tobacco is expected to have the highest annual rate in March (15.4%, compared with 15.0% in February), followed by non-energy industrial goods (6.6%, compared with 6.8% in February), services (5.0%, compared with 4.8% in February) and energy (-0.9%, compared with 13.7% in February).
Philadelphia Fed President Patrick Harker said, “in the upcoming months, in light of the cumulative tightening we have achieved, I expect we will slow the pace of our rate hikes as we approach a sufficiently restrictive stance.” Next year, “I expect we will hold at a restrictive rate for a while to let monetary policy do its work,” he added.
“As long as we are moving consistently and meaningfully to collapse inflation down, I think again we can continue to raise as we need to but also pause when it makes sense along that path,” Harker explained. “I just don’t think we need to go way up…and way down, that doesn’t make sense to me, policy wise.”
Harker also noted there are signs of deceleration in the economy. “Credit card purchase data indicate that consumer spending, which comprises around 70 per cent of economic activity in the United States, is slowing, with services and retail leading the decline,” he said. “Investment in housing has weakened, and even the boom in manufacturing, which has buoyed the economy, is starting to wane.”
US stocks plunged sharply overnight, following Fed’s decision to maintain the interest rate at 5.25-5.50%. While Fed finally dropped tightening bias, indicating the peak of the tightening cycle, it firmly dismissed the possibility of an imminent rate cut in March.
Chair Jerome Powell’s statement during the post-meeting press conference was clear: “I don’t think it’s likely that the committee will reach a level of confidence by the time of the March meeting to identify March is the time to do that”.This comment has effectively quashed hopes for an early rate cut.
Policy loosening is still underway, echoing December’s dot plot. Powell said, “We believe that our policy rate is likely at its peak for this tightening cycle and that if the economy evolves broadly as expected, it will likely be appropriate to begin dialing back policy restraint, at some point this year.”
In response to these developments, DOW closed down -317.01 pts or -0.81% at 38150.30. Near term focus is now on 37795.71 support. Decisive break there will confirm initial rejection by 100% projection of 28660.94 to 34712.28 from 32327.20, possibly on bearish divergence condition in D MACD too. That would kick start a correction phase back to 55 D EMA (now at 36856.81).
Similarly, for S&P 500, break of 4802.40 support will confirm short term bottoming, after rejection by 100% projection of 3808.86 to 4607.07 from 4103.78, on bearish divergence condition in D MACD. Deeper correction should then be seen to 55 D EMA (now at 4697.73).
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UK PMI manufacutring ticked up, GBPUSD eyes 1.4095 minor resistance
UK PMI manufacturing rose 0.1 to 55.1 in March, above expectation of 54.7. Markit noted that it signals “steady growth rate at the end of opening quarter”.
Rob Dobson, Director at IHS Markit, which compiles the survey:
Duncan Brock, Group Director at the Chartered Institute of Procurement & Supply:
GBP trades notably higher today against USD and JPY. With 1.3982 minor support intact, choppy fall from 1.4243 is seen as a corrective pull back. Break of 1.4095 will suggests that such pull back is completed and bring stronger rebound back to 1.4243.