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RBA Lowe said economy reached a gentle turning point, but growth forecasts revised down

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    ActionForex.com
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    In the “Opening Statement to the House of Representatives Standing Committee on Economics“, RBA Governor Philip Lowe said “there are signs the economy may have reached a gentle turning point”. The economic outlook is supported by lower interest rates, tax cuts, weaker exchange rate, stabilization of housing markets, improvement in resources sector and infrastructure spending. Thus, “consistent with this, we are expecting the quarterly GDP growth outcomes to strengthen gradually after a run of disappointing numbers,” Lowe said.

    Though, for now, Lowe reiterated that “It is reasonable to expect an extended period of low rates will be needed to achieve the Board’s employment and inflation objectives,.” And, at the Q&A session, Lowe also noted that “it’s possible we end up at the zero lower bound” on interest rates. He added “it’s unlikely but it is possible” and RBA is “prepared to do unconventional things if circumstances warranted.”.

    In the new economic forecasts, 2019 year end growth was revised down from 2.75% to 2.50%. 2020 year-end growth was unchanged at 2020%. 2021 year-end growth was expected to pick up to 3.00%. Unemployment rate forecasts for 2019 and 2002 year-end were revised up from 5.00% to 5.25%. Unemployment was expected to drop to 5.00% in 2021 year end. Headline CPI forecasts were also revised down from 2.00% to 1.75% at both 2019 and 2020 year-end, before picking up to 2.00% at 2021 year-end.

    China MOFCOM to start retaliatory tariffs on $16B US imports on Aug 23

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      ActionForex.com
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      China Ministry of Commerce announced to start to impose 25% retaliatory tariffs on USD 16B in US goods starting August 23, “in parallel with the US. The MOFCOM condemned that the US “once again overrides international law: as a very unreasonable practice. And Chin’s countermeasures were to safeguard its own “legitimate rights and interest and global multilateral trading system”.

      Full short statement in simplified Chinese.

      This is in response to US Trade Representative’s announcement yesterday, to start to collect 25% tariffs on USD 16B of Chinese imports starting August 23. The announced lists contains 279 of the original 284 tariff lines that were proposed back on June 15.

      As a recap, this is the second tranche of tariffs as part of the Section 301 intellectual property investigations. The first tranche of 25% tariffs on USD 34B of Chinese goods already took effect on July 6. The upcoming 25% tariffs on USD 200B in Chinese goods are work in progress.

      Full statement by USTR.

      Tokyo CPI core dips to 1.8% in Oct on lower energy prices

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        ActionForex.com
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        Japan’s Tokyo CPI core (excluding food) dropped from 2.0% yoy to 1.8% yoy in October, slightly above market expectations of 1.7%. This marks the first time in five months that inflation has dipped below BoJ’s 2% target. Headline CPI also slowed from 2.1% yoy to 1.8% yoy.

        The deceleration was largely driven by a slowdown in energy prices, with government subsidies for energy costs contributing to a 0.51 percentage point reduction in the overall index.

        Despite this, underlying inflationary momentum ticked up, as core-core CPI (excluding food and energy) rose from 1.6% yoy to 1.8% yoy. Services prices also saw an uptick, increasing by 0.8% yoy compared to 0.6% yoy in the prior month.

         

        German ZEW sentiment rose to 55.0, vaccines boost confidence

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          ActionForex.com
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          Germany ZEW Economic Sentiment rose 16.0 pts to 55.0 in December, above expectation of 45.2. Current Situation dropped -2.2 pts to -66.5. Eurozone ZEW Economic Sentiment rose 21.6 pts to 54.4. Eurozone current situation rose 0.7 pts to 75.7.

          “The announcement of imminent vaccine approvals makes financial market experts more confident about the future. The ZEW Indicator of Economic Sentiment increased significantly in December despite the still high numbers of new coronavirus infections. This is most likely due to the announced forthcoming COVID-19 vaccine approvals,” comments ZEW President Achim Wambach on the current expectations.

          Full release here.

           

          WTI oil gaps down, targeting 50.64 key support

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            ActionForex.com
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            WTI crude oil gaps down as the week starts and hits as low as 52.10 so far. Further fall is expected as long as 55.89 resistance holds. However, overall outlook is unchanged. Current decline from 65.38 is seen as the third leg of the consolidation pattern from 66.49. We’d expect strong support from 50.64, which is close to 61.8% retracement of 42.05 to 66.49 at 51.38, to bring rebound. Break of 55.89 will indicate short term bottoming. However, sustained break of 50.64 will invalidate our view and open up the case for a test on 42.05 low.

            Fed Harker: Reopening too soon might be a health catastrophe and reverse economic recovery

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              ActionForex.com
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              Philadelphia Fed President Patrick Harker warned of the risk of reopening the economy too soon. In a more pessimistic scenario, there is a second wave of the coronavirus after reopening. “Not only would this be a health catastrophe, but it would reverse the recovery as well”, he said.

              Harker also said that Q2 data will be “brutally painful. “What happens after that to a large extent depends on how the virus moves through our society, and our reaction to it in terms of balancing stay-at-home policies versus an intelligent — and I want to stress, intelligent — reopening.”

              German PMI manufacturing improved slightly from 10-year low, increasing strains on domestic economy

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                ActionForex.com
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                Germany PMI Manufacturing rose to 41.9 in October, up from 41.7, and missed expectation of 42.0. That was just a marginal improvement from September’s 10-year low. PMI Services dropped to 51.2, down from 51.4, missed expectation of 51.7. That’s also the worst reading in 37 months. PMI Composite rose to 48.6, little change from seven-year low of 48.5 in September.

                Commenting on the flash PMI data, Phil Smith, Principal Economist at IHS Markit said:

                “Hopes of a return to growth in Germany in the final quarter have been somewhat dashed by the October flash PMI numbers, which show business activity in the eurozone’s largest economy contracting further and underlying demand continuing to soften.

                “Manufacturing remains the main weak link, though here there are some signs of encouragement with rates of decline in production and new orders easing and business confidence improving to a four-month high.

                “Perhaps most concerning are the signs of increasing strain on the domestic economy, with growth of service sector activity slowing to the weakest since September 2016 and employment now in decline for the first time in six years.”

                Full release here.

                Australia employment dropped -46.3k, unemployment rate jumped to 5.2%

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                  ActionForex.com
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                  Australia employment decreased -46.3k in October, much worse than expectation of 50k rise. At 12.84m, employment level was back below pre-pandemic peak. Full time jobs dropped -40.4k while part-time jobs dropped -5.9k.

                  Unemployment rate jumped sharply from 4.6% to 5.2%, well above expectation of 4.7%. But participation rate also rose slightly from 64.5% to 64.7%. Monthly hours worked dropped -1m hours.

                  Bjorn Jarvis, head of labour statistics at the ABS: “The increases in unemployment show that people were preparing to get back to work, and increasingly available and actively looking for work – particularly in New South Wales, Victoria and the Australian Capital Territory. This follows what we have seen towards the end of other major lockdowns, including the one in Victoria late last year.”

                  “It may seem counterintuitive for unemployment to rise as conditions are about to improve. However, this shows how unusual lockdowns are, compared with other economic shocks, in how they limit being able to work and look for work.”

                  Full release here.

                  NASDAQ rejected by 14175 resistance, Yen rebounds as stocks pull back

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                    ActionForex.com
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                    Yen rebounds strong in US morning as pull back in stocks intensify. In particular, NASDAQ appears to be rejected solidly by 14175.11 resistance. It’s down around -1.3% at the time of writing. The development suggests that consolidation pattern from 14175.11 is extending with another falling leg. NASDAQ could be heading back to 55 day EMA (now at 13429) and below. We’d see if such development could help push for a deeper pull back in Yen crosses.

                    UK PMI composite rises to 52.5, may delay BoE rate cut

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                      ActionForex.com
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                      UK PMI Manufacturing rose from 46.2 to 47.3 in January, a 9-month high. PMI Services rose from 53.4 to 53.8, an 8-month high. PMI Composite rose from 52.1 to 52.5, a 7-month high.

                      Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that UK business activity growth has “accelerated for a third straight month”. He described this as a “promising start” to the year.

                      According to the survey data, UK economy is expected to grow at a quarterly rate of 0.2% after a flat fourth quarter, thereby “skirting recession and showing signs of renewed momentum”.

                      However, Williamson highlighted a crucial implication of this unexpected growth strength in January, which could lead BoE to reconsider the timing of any anticipated interest rate cuts.

                      This reassessment is particularly pertinent in light of supply disruptions in the Red Sea, which have reignited inflationary pressures in the manufacturing sector. Williamson indicated that inflation is expected to remain stubbornly in the 3-4% range in the near term.

                      Full UK PMI release here.

                      BoJ Nakamura: Inflation not accompanied by wage increases yet

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                        ActionForex.com
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                        BoJ board member Toyoaki Nakamura said, “recent price rises aren’t accompanied by wage increases yet”. He added that Japan is far from the situation where wage inflation spiral becomes a concern. The central bank needs to continue with ultra-loose monetary policy for the time being.

                        “Tightening monetary policy at a time when demand continues to remain lower than supply would put huge pressure on corporate and household activity,” he warned.

                        He expects inflation to slow next year as energy and food price rises fade.

                        US House within range with ratifying USMCA as Mexico steps up pressure

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                          ActionForex.com
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                          US House appeared to have moved closer to ratifying the US-Mexico-Canada trade agreement. House speaker Nancy Pelosi said yesterday, “we are within range of a substantially improved agreement for America’s workers”. And, “now, we need to see our progress in writing from the Trade Representative for final review.”

                          She criticized that the original version of USMCA crafted last year “still left American workers exposed to losing their jobs to Mexico, included unacceptable provisions to lock in high prescription drug prices, and fell short of key environmental standards.” She contended it also lacked “concrete, effective enforcement mechanisms.” Months were spent in the negotiations between Democrats and the administration on fine tuning the details. President Donald Trump and Republicans are pushing for a vote to ratify the deal by the end of the year.

                          Mexican President Andres Manuel Lopez Obrador also stepped up the pressure on US and planed to send another letter to Pelosi this week urging Congress to approve the USMCA. Jesus Seade, Deputy Foreign Minister for North America, however, sounded pessimistic as he noted, “far from reaching a deal, in the last two weeks, statements from certain labor sectors have re-emerged, floating ideas that would be totally unacceptable to Mexico.”

                          US PMI composite tumbled to 50.8, 18-month low

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                            ActionForex.com
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                            US PMI Manufacturing dropped from 57.7 to 55.0 in January, a 15-month low. PMI Services dropped from 57.6 to 50.9, an 18-month low. PMI Composite dropped from 57.0 to 50.8, also an 18-month low.

                            Chris Williamson, Chief Business Economist at IHS Markit, said: “Soaring virus cases have brought the US economy to a near standstill at the start of the year, with businesses disrupted by worsening supply chain delays and staff shortages, with new restrictions to control the spread of Omicron adding to firms’ headwinds.

                            “However, output has been affected by Omicron much more than demand, with robust growth of new business inflows hinting that growth will pick up again once restrictions are relaxed. Furthermore, although supply chain delays continued to prove a persistent drag on the pace of economic growth, linked to port congestion and shipping shortages, the overall rate of supply chain deterioration has eased compared to that seen throughout much of the second half of last year. This has in turn helped lift manufacturing optimism about the year ahead to the highest for over a year, and has also helped bring the rate of raw material price inflation down sharply. Thus, despite the survey signalling a disappointing start to the year, there are some encouraging signals for the near-term outlook ”

                            Full release here.

                            ECB’s Holzmann cautions against premature rate cuts amid uncertainty

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                              ActionForex.com
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                              During the World Economic Forum in Davos, ECB Governing Council member Robert Holzmann expressed skepticism about the possibility of rate cuts in the near term. He told CNBC, “I cannot imagine that we’ll talk about cuts yet, because we should not talk about it.”

                              His asserted, “Everything we have seen in recent weeks points in the opposite direction, so I may even foresee no cut at all this year.”

                              “Unless we see a clear decline towards 2%, we won’t be able to make any announcement at all when we’re going to cut,” he explained.

                              Holzmann also highlighted the potential for structural changes in the economy, which could have longer-term implications for pricing. He mentioned, “Prices on a day-to-day basis may increase, but it may also risk to change the way we do business.” This comment points to the possibility of enduring economic shifts that could affect pricing dynamics and, consequently, ECB’s monetary policy decisions.

                               

                              US ISM non-manufacturing dropped to 53.7, lowest since Aug 2016

                                By
                                ActionForex.com
                                -

                                US ISM Non-Manufacturing Composite dropped to 53.7 in July, down from 55.1 and missed expectation of 55.5. That’s also the lowest reading since August 2016. Looking at some details:

                                • Headline index dropped -1.4 to 53.7.
                                • Business Activity index dropped -5.1 to 53.1.
                                • New orders dropped -1.7 to 54.1.
                                • Employment rose 1.2 to 56.2.
                                • Prices dropped -2.4 to 56.5.

                                The 13 non-manufacturing industries reporting growth in July — listed in order — are: Accommodation & Food Services; Utilities; Professional, Scientific & Technical Services; Real Estate, Rental & Leasing; Transportation & Warehousing; Construction; Information; Other Services; Finance & Insurance; Public Administration; Management of Companies & Support Services; Mining; and Health Care & Social Assistance. The five industries reporting a decrease are: Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Retail Trade; Wholesale Trade; and Educational Services.

                                Full release here.

                                Italy to spend EUR 5B on coronavirus support

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                                  ActionForex.com
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                                  Deputy Economy Minister Laura Castelli indicated that the government will likely raise coronavirus support spending to EUR 5B. She added that it’s “necessary to raise the bar as much as possible, also considering the fact that Italy has registered a lower than expected deficit”.

                                  Economy Minister has promised fiscal stimulus of EUR 3.6B, including tax break and other measures. But that seems insufficient since Italy is now the third country that’s most affected by coronavirus pandemic, with 3089 cases and 107 deaths. Measures could include supporting parents to stay home to take care of their children, increase in healthcare funding and temporary redundancy benefits.

                                  It’s believed that the government is also considering to ask for a temporary suspension of EU’s European Stability and Growth Pact, which limits the country’s spending. Rome announced to close all schools and universities yesterday to control the spread of the Wuhan coronavirus.

                                  US initial jobless claims jumped to 253k, highest since Sep 2017

                                    By
                                    ActionForex.com
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                                    US initial jobless claims jumped 53k to 253k in the week ending January 26, well above expectation of 210k. That’s also the highest level since September 30, 2017. Four-week moving average of initial claims rose 5k to 220.25k.

                                    Continuing claims rose 69k to 1.782M in the week ending January 19. It’s also the highest level since April 28, 2018. Four-week moving average of continuing claims rose 8k to 1.738M, highest since August 4, 2018.

                                    Full release here.

                                    Also from US, employment cost index rose 0.7% in Q4, below expectation of 0.8%.

                                    NZ Robertson not concerned with NZD outlook, NZD/USD extending recovery

                                      By
                                      ActionForex.com
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                                      New Zealand Deputy Prime Minister Grant Robertson said today that it’s going to be a “challenging year” with “global slowdown”. New Zealand would see “less demand and some slowdown”. But, “that doesn’t mean, to me, a recession. There is balance to struck here.”

                                      “Monetary and fiscal policies need to be coordinated, to work together,” he said. “As interest rates rise they’ll restrict demand.” He also said that he’s “not concerned on the long-term outlook for the New Zealand dollar.”

                                      NZD/USD is extending the recovery from 0.5563, but after all, that’s seen as a corrective move in a down trend. Upside should be limited by 38.2% retracement of 0.6467 to 0.5563 at 0.5908. Larger down trend is still expected to resume at a later stage to 2020 low at 0.5467.

                                      China and EU agreed to oppose unilateralism and trade protectionism

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                                        ActionForex.com
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                                        Chinese Vice Premier met with European Commission Vice President Jyrki Katainen in Beijing today. After the meeting, Liu said in a media briefing that “both sides believe that we must resolutely oppose unilateralism and trade protectionism and prevent such behavior from causing volatility and recession in the global economy.” Additionally, both sides will prepare lists of proposals for bilateral investment agreement at another China-EU summit next month.

                                        Katainen, on the other hand, emphasized there some areas must be addressed to take the economic, trade and investment relationship further. For example, he said “it is essential that we work together to tackle overcapacity in sectors such as steel and aluminum.” And he urged China to avoid overcapacity in other sectors too, including those targeted by the “Made in China 2025” initiative.

                                        ECB Makhlouf: The era of negative rates is reaching its conclusion

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                                          ActionForex.com
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                                          ECB Governing Council member Gabriel Makhlouf said today, ECB has reached the point “act”. And, “the balance of advantage has tilted decisively towards the need for further action, albeit not necessarily at a similar pace to that of other central banks”.

                                          “Our objective is for inflation to be at 2% over the medium term – levels are significantly above that now, and it is time for the Council to move to end net asset purchases under the asset purchase programme next month or in July,” he said.

                                          Makhlouf added, it’s “realistic to expect that the first move in the ECB’s interest rates will happen soon after net asset purchases end and that rates are likely to be in positive territory by early next year.” But he didn’t specify when the rate hike would occurs.

                                          “The era of negative rates is reaching its conclusion,” he said.

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