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ECB to adjust PEPP and publishes new forecasts, some previews

    By
    ActionForex
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    ECB meeting will be a focus today and attention will mainly be on the PEPP purchase plan in Q4. The pace of purchases was significantly higher in Q2 and Q3. But with improvement in economic activities, as well as financing conditions, it’s time for the central bank to re-calibrate the program. Chief Economist Philip Lane sounded cautious as he indicated there could be a “local adjustment” of the program but not a “pure taper situation”. The plan for the emergency purchase program beyond the end date of March 2022 is probably still a bit “far away” for the council members.

    New economic projections will be published and there were already some indications on upgrade in growth forecasts for this year. But that could also be offset by a slight downgrade for next year. So the overall impact could be muted. The key is indeed on how ECB views the inflation path. CPI was at a 10-year high of % in August and the projections would show how it will peak and then slow, to reflect how transitory inflation would be.

    Here are some previews:

    Fed Beige Book: Economic growth downshifted slightly

      By
      ActionForex
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      In the Beige Book economic report, Fed said that “economic growth downshifted slightly to a moderate pace in early July through August”. The deceleration in activity was “largely attributable to a pullback in dining out, travel, and tourism in most Districts, reflecting safety concerns due to the rise of the Delta variant, and, in a few cases, international travel restrictions.” Other sectors were “constrained by supply disruptions and labor shortages, as opposed to softening demand”

      All Districts continued to report “rising employment overall”. All Districts noted “extensive labor shortages that were constraining employment”. A number of Districts reported an “acceleration in wages”, with several noted “particularly brisk wage gains among lower-wage workers”. Inflation was “steady at a elevated pace”. Several Districts indicated that businesses anticipate “significant hikes in their selling prices in the months ahead”.

      Full Beige Book here.

      Fed Williams: It could be appropriate to start tapering this year

        By
        ActionForex
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        New York Fed President John Williams said, “assuming the economy continues to improve as I anticipate, it could be appropriate to start reducing the pace of asset purchases this year.” He added, “I will be carefully assessing the incoming data on the labor market and what it means for the economic outlook, as well as assessing risks such as the effects of the delta variant.”

        “I think it’s clear that we have made substantial further progress on achieving our inflation goal,” Williams said. “There has also been very good progress toward maximum employment, but I will want to see more improvement before I am ready to declare the test of substantial further progress being met.”

        BoC left rates, QE and forward guidance unchanged

          By
          ActionForex
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          BoC left monetary policy unchanged as widely expected. Overnight rate is held at effective lower bound of 0.25%, with Bank Rate at 0.50% and deposit rate at 0.25%. QE program is maintained at a target pace of CAD 2B per week. Also BoC will hold interest rate at current level at least until second half of 2022.

          The central bank “continues to expect the economy to strengthen in the second half of 2021, although the fourth wave of COVID-19 infections and ongoing supply bottlenecks could weigh on the recovery.” The factors pushing inflation are “expected to be transitory”, but “their persistence and magnitude are uncertain and will be monitored closely”.

          Full statement here.

          BoJ Kuroda: We will continue with our current monetary easing

            By
            ActionForex
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            In an interview by Nikkei, BoJ Governor Haruhiko Kuroda said, “we will continue with our current monetary easing to support corporate funding, and stand ready to take additional easing measures without hesitation as needed.” He added that there is no plan to end the asset purchases or begin selling its holdings.

            Most candidates in the race to replace Yoshihide Suga as LDP leader and Prime Minister are pushing for another big pandemic relief package. Kuroda said, “even if fiscal policy becomes more aggressive, interest rates will remain low and help enhance the effect of fiscal policy.”

            “Even if fiscal policy becomes more aggressive, interest rates will remain low and help enhance the effect of fiscal policy,” he added.

            Gold back below 1800 after rejected by structural resistance

              By
              ActionForex
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              Gold’s break of 1804.70 minor support suggests initial rejection by 1832.47 structural resistance. Deeper pull back could be seen and focus is now on 38.2% retracement of 1682.60 to 1833.79 at 1776.06. As long as this fibonacci support holds, there is prospect of another rise. Firm break of 1832.47 will be a strong sign that correction from 2074.74 has completed. Stronger rally would then be seen to 1916.30 resistance for confirmation.

              However, sustained break of 1776.06 will dampen the bullish case revive near term bearishness. Deeper fall would be seen back to 61.8% retracement at 1740.35, and possibly further to retest 1676.65/1682.60 support zone.

              ECB Holzmann: We may be able to normalize monetary policy sooner than most expect

                By
                ActionForex
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                ECB Governing Council member Robert Holzmann, Bank of Austria head, said in an Eurofi Magazine article, “there is the possibility that we may be able to normalize monetary policy sooner than most financial market experts expect.” He pointed to upward price pressures which could turn into inflation expectations.

                Holzmann added, “this does not mean that we will withdraw accommodation prematurely, but rather that accommodation will be needed for a shorter period than what markets expect.”

                BoC likely a non-event, EUR/CAD to continue sideway consolidation

                  By
                  ActionForex
                  -

                  BoC is generally expected to keep monetary policy unchanged today. In particular, the weekly asset purchases pace will be held at CAD 2B. Interest rate will be maintained at 0.25%. It’s clearly in a wait-and-see mode due to conflicting developments of disappointing economic activities and rising inflation, as well ass higher vaccination but worsening Delta infections. Additionally, a major risk event of federal election is less than two weeks away.

                  The central bank should wait for new economic projections next month before making a move. Also, there is no press conference after the meeting today. Overall, it could be a non-event.

                  Some previews on BoC:

                  EUR/CAD is a pair to watch for the rest of the week with BoC and ECB meeting featured. Price actions from 1.4580 low are seen as a corrective pattern and hence, medium term outlook is staying bearish for now. While a downside breakout is slightly favored, we’d not seeing any indication of it yet. Hence, range trading will likely continue for a while. Medium term, any rally attempt could face strong resistance from 38.2% retracement of 1.5991 (2020 high) to 1.4580 (2021 low) at 1.5119.

                  Japan Q2 GDP growth upgrade to 0.5% qoq, 1.9% annualized

                    By
                    ActionForex
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                    Japan GDP growth was finalized at 0.5% qoq, 1.9% annualized in Q2. It’s upgraded from initial estimate of 0.3% qoq, 1.3% annualized. Capital expenditure grew 2.3% qoq, upgraded from preliminary reading of 1.7% qoq. Private consumption grew 0.3% qoq, upgraded from 0.8% qoq.

                    Also released, bank lending rose 0.6% yoy in August, below expectation of 1.0% yoy. Eco watcher sentiment dropped from 48.4 to 34.7 in August. Current account surplus narrowed to JPY 1.41T in July.

                    Fed Bullard: Taper will get going this year

                      By
                      ActionForex
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                      In an FT interview, St Louis Fed President James Bullard maintained the view that “the big picture is that the taper will get going this year and will end sometime by the first half of next year.”

                      The weak August NFP report didn’t alter his view on job market recovery. “There is plenty of demand for workers and there are more job openings than there are unemployed workers”, he said. “If we can get the workers matched up and bring the pandemic under better control, it certainly looks like we’ll have a very strong labour market going into next year.”

                      He also said there is “also a case” that inflation wont moderate into 2022, and may go higher, due to ” additional supply constraints coming from international sources now because of the Delta variant.”

                      Germany ZEW dropped sharply to 26.5, global chip shortage caused significant reduction in profit expectations

                        By
                        ActionForex
                        -

                        Germany ZEW Economic Sentiment dropped sharply from 40.4 to 26.5 in September, well below expectation of 30.2. It’s also the fourth consecutive decline. Germany Current Situation index improved form 29.3 to 31.9, below expectation of 33.1. Eurozone ZEW Economic Sentiment also tumbled from 42.7 to 31.3, below expectation of 35.3. Eurozone Current Situation index rose 7.9 pts to 22.5.

                        “Expectations fell markedly once more in September 2021. Although financial market experts expect further improvements of the economic situation over the next six months, the expected magnitude and the dynamics of the improvements have decreased considerably. Global chip shortage in the automobile sector and shortage of building material in the construction sector have caused a significant reduction in profit expectations for these sectors. This may have had a negative effect on economic expectations,” comments ZEW President Professor Achim Wambach.

                        Full release here.

                        Eurozone GDP grew 2.2% qoq in Q2, -2.5% below pre-pandemic level

                          By
                          ActionForex
                          -

                          Eurozone GDP grew 2.2% qoq in Q2, revised up from prior estimate of 2.0% qoq. Comparing with same quarter of previous year, GDP grew 14.3% yoy. GDP was -2.5% below the pre-pandemic level of Q4, 2019. Household final consumption expenditure rose 3.7% qoq. Government final consumption expenditure rose 1.2% qoq. Gross fixed capital formation rose 1.1% qoq. Exports rose 2.2% qoq. Imports rose 2.3% qoq.

                          EU GDP grew 2.1% qoq, 13.8% yoy. Ireland (+6.3%) recorded the sharpest increase of GDP compared to the previous quarter, followed by Portugal (+4.9%), Latvia (+4.4%) and Estonia (+4.3%). Declines were observed in Malta (-0.5%) and Croatia (-0.2%).

                          Full release here.

                          BoE Saunders concerned with continuing with asset purchases

                            By
                            ActionForex
                            -

                            BoE hawk Michael Saunders said he believed that the economy was now close to the pre-pandemic level. He’s worried that continuing with the asset purchase program would cause rise in medium-term expectation.

                            “I also worry that continuing with asset purchases, when CPI inflation is 4% and the output gap is closed – that is the likely situation later this year – might well cause medium-term inflation expectations to drift higher,” he said.

                            “Such an outcome could well require a more substantial tightening of monetary policy later, and might limit the committee’s scope to respond promptly the next time the economy needs more stimulus,” he added.

                            RBA tapers but extends QE, Delta to delay but not derail recovery

                              By
                              ActionForex
                              -

                              RBA kept with its tapering plan and announced to lower purchase of government securities at AUD 7B a week. But the program is extended until at least mid-February 2022, from mid November. At the same time, cash target rate is held at 0.10%. Target for April 2024 Australian government bond yield was also kept at 0.10%.

                              The central bank said the economy has been “interrupted by the Delta outbreak and the associated restrictions on activity”. GDP is expected to “decline materially” in Q3 with unemployment rate moving high over coming months. But the setback to economic expansion is “expected to be only temporary”. The Delta outbreak is expected to “delay, but not derail” the recovery. Economy will be growing again in Q4 and back to pre-Delta path in H2 of next year.

                              The decision to “extend” the asset purchases “reflects the delay in the economic recovery and the increased uncertainty associated with the Delta outbreak”. RBA pledged o continue to review on the program. Also, it maintained that the condition for rate hike “will not be met before 2024”.

                              Full statement here.

                              China exports rose 25.6% yoy in Aug, imports up 33.1% yoy, trader surplus at USD 58.3B

                                By
                                ActionForex
                                -

                                In August, in USD term, China’s total trade rose 28.8% yoy to USD 530.3B. Exports rose 25.6% yoy to USD 294.3B. Imports rose 33.1% yoy to USD 236.0B. Trade surplus came in at USD 58.3B, above expectation of USD 52.3B.

                                Year-to-August, total trade rose 34.2% yoy to USD 3827.8B. Exports rose 33.7% yoy to USD 2095.1B. Imports rose 34.8% yoy to USD 1732.7B. Trade surplus came in at USD 362.5B.

                                Australia AiG services dropped to 56.6, outlook weak for another month or two

                                  By
                                  ActionForex
                                  -

                                  Australia AiG Performance of Services Index dropped sharply from 51.7 to 45.6 in August. That’s the lowest level since September 2020. Looking at some details, sales dropped -13.2 to 40.0. Employment rose 2.4 to 53.4. New orders dropped -9.3 to 47.4. Supplier deliveries dropped -1.3 to 44.0. Finished stocks dropped -9.3 to 37.7. Input prices dropped -2.6 to 71.5. Selling prices dropped -11.4 to 55.3.

                                  Ai Group Chief Executive, Innes Willox, said: “Increased COVID-19 cases and the lockdowns aimed at constraining the spread of the virus saw the performance of the services sector slump in August… With lockdowns in Victoria, the ACT and NSW set to continue this month and with new orders down on previous levels, the immediate outlook is for another weak month or two. In the meantime, a lot hinges on the healthy supply of vaccines, success in overcoming hesitancy about vaccination and clear and convincing leadership from across the National Cabinet.”

                                  Full release here.

                                  Nikkei closed up 1.83%, heading to 30714 high

                                    By
                                    ActionForex
                                    -

                                    Nikkei closed up strongly by adding 531.78 pts or 1.83% today, and the near term development is looking rather bullish. The corrective pattern from 30714.52 has likely completed at 26954.81. Further rise is now expected as long as this week’s gap is not covered. Next target is 30714.52 high.

                                    Medium term development is also bullish with strong support seen from 55 week EMA. A market friendly result of next week’s leadership election of the ruling Liberal Democratic Party of Japan would probably pop Nikkei through 30714.53 high. In that case, the long term up trend would extend to 38.2% projection of 16358.19 to 30714.52 from 26954.81 at 32438.92 next.

                                    Eurozone Sentix investor confidence dropped to 19.6, glowing global recovery

                                      By
                                      ActionForex
                                      -

                                      Eurozone Sentix Investor Confidence dropped to 19.6 in September, down from 22.2, slightly below expectation of 19.7. That’s the fourth decline in a row and the lowest reading since April, 2021. Current situation index was unchanged at 30.8. Expectations index dropped from1 4.0 to 9.0, lowest since May 2020.

                                      Sentix said: “The momentum of the global economy is slowing. The expectation scores of most regions in the sentix business cycle indices are falling for the fourth or fifth time in a row. The expectation values are still positive, but the zenith of the economic recovery since the lockdowns last autumn has been passed. This is also evident in the assessments of the economic situation, which have only improved slightly in a few regions. In the important region of Asia ex Japan, on the other hand, we measure a noticeable decline”.

                                      Full release here.

                                      UK PMI construction dropped to 55.2 in Aug, begins to feel the impact of supply chain disruption

                                        By
                                        ActionForex
                                        -

                                        UK PMI Construction dropped to 55.2 in August, down from July’s 58.7, below expectation of 56.9. Markit said new order growth eased to a five-month low. All three monitored segments recorded softer rise in activity. But rise in input prices was second-fastest amid severe supply chain disruption.

                                        Usamah Bhatti, Economist at IHS Markit: “Evidence that the UK construction sector began to feel the impact of ongoing supply chain disruption was widespread midway through the third quarter of 2021. Growth rates for overall activity as well as the three monitored subsectors eased further from the recent highs earlier in the summer. Similarly, new business inflows have continued to increase at a marked pace, yet even here the rate of growth has eased to a five-month low.

                                        Full release here.

                                        Nikkei accelerates up, extending Suga rally

                                          By
                                          ActionForex
                                          -

                                          Japan Nikkei 225 extended rises sharply today, up more than 1.7% or 500 pts at the time of writing, overpowering other Asian markets. It’s indeed on track to 30k handle again in the next few day, if the momentum could sustain.

                                          The upside acceleration started last week, after Prime Minister Yoshihide Suga surprisingly declared he would not run for leadership of the ruling Liberal Democratic Party in September 29.

                                          Suga explained that he’d like to focus on coronavirus measures, as “doing both takes enormous energy”. But it’s believed that his light pandemic restrictions and the spread of the infections prompted much grieve among both consumers and business owners. Stepping down as party leader, and prime minister now would lower LDP’s chance of losing badly in the upcoming general election later in the year. The development gave extra support to the Japanese stock markets.

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