Thu, Jan 20, 2022 @ 07:09 GMT

Fed George maintained it’s a point to begin to ease up accommodation

    Kansas City Fed President Esther George told Bloomberg that the spike in Covid is a “risk to the outlook”, but her contacts in the region said the economy “continues to grow at a strong rate”, consumers are “still spending” and labor markets is “continuing to heal”. The outlook “remains a positive one”. The virus is not expected to derail the economy”.

    George also maintained that the progress the economy has made suggests “we’ve come to a point where we can begin to ease up on the amount of accommodation”. It’s “time to begin to make those adjustments” on asset purchases.

    As policymakers are coming into the September meeting, she said, we will continue to talk about how the economy has unfolded and the timing for adjustments to those asset purchases”.

    NIESR expects UK economy to contract -3.8% in Q1

      NIESR said it expected the UK economy to contract by -3.8% in Q1 this year, “as stringent Covid-19 restrictions are expected remain elevated until early spring, along with the effects of post-Brexit adjustment”.

      “The level of GDP in the fourth quarter remained about 8 per cent below pre-pandemic levels even before a third lockdown became necessary in January 2021. With Covid-19 restrictions expected to remain elevated until early spring, we anticipate a sharp decline in activity during the first quarter of the year. Nevertheless, growth will pick up from the second quarter onwards as restrictions ease on the back of a successful vaccination programme.” Dr Kemar Whyte, Senior Economist – Macroeconomic Modelling and Forecasting.

      Full release here.

      Eurozone PPI at 0.3% mom, -2.4% yoy in Sep

        Eurozone PPI came in at 0.3% mom, -2.4% yoy in September, matched expectations. For the month, Industrial producer prices increased by 0.8% mom in the energy sector and by 0.1% mom for intermediate goods, while prices remained stable for capital goods, durable consumer goods and non-durable consumer goods. Prices in total industry excluding energy remained stable.

        EU PPI was at 0.3% mom, -2.2% yoy. The highest increases in industrial producer prices were recorded in Ireland (+4.3% mom), Hungary (+1.2% mom) and the Netherlands (+0.9% mom), while the largest decreases were observed in Cyprus (-1.3% mom), Estonia and Finland (both -0.8% mom), Greece and Lithuania (both -0.3% mom).

        Full release here.

        Eurozone PMI manufacturing finalized at 51.8, August to see further output gains

          Eurozone PMI Manufacturing is finalized at 51.8 in July, up from April’s 47.4. It’s also the first growth reading in a year-and-a-half with demand continued to recovery with further easing of coronavirus restrictions. Growth was widespread too, with all market groups registering above 50 readings.

          Looking at some member states, Spain hit 27-month at 53.5. Austria hit 19-month high 52.8. France hit 22-month high at 52.4. Italy hit 25-month high at 51.9. Germany also hit 19-month high at 51.0. But Greece and the Netherlands stayed in contraction at 48.6 and 47.9 respectively.

          Chris Williamson, Chief Business Economist at IHS Markit said: “Eurozone factories reported a very positive start to the third quarter, with production growing at the fastest rate for over two years, fuelled by an encouraging surge in demand. Growth of new orders in fact outpaced production, hinting strongly that August should see further output gains…

          “Increased unemployment, job insecurity, second waves of virus infections and ongoing social distancing measures will inevitably restrain the recovery. The next few months numbers will therefore be all important in assessing whether the recent uplift in demand can be sustained, helping firms recover lost production and alleviating some of the need for further cost cutting going forward.”

          Full release here.

          Six central banks to discuss digital currencies in April

            Japan’s Nikkei newspaper reported that six global central banks will meet in April, together with Bank of International Settlements on the topic of digital currencies. Central banks of the UK, Eurozone, Japan, Canada, Sweden and Switzerland said last month that they’re going to share information regarding digital currencies issuance.

            For the April meeting, discussions will include ways to streamline cross-border settlement, as well as security issues. An interim report is expected in June, with a final report to be published around Autumn.

            BoJ board member Takako Masai said together that “In Japan, we don’t have any plans now to issue central bank digital currencies… But we need to make an effort so we’re ready to respond, in case public demand for central bank digital currencies rise dramatically.”

            ECB Constancio: Technical factors can greatly amplify initial market movements

              ECB Vice President Vitor Constancio commented on financial stability at the conference. He noted that “the sharp movements that took place in the U.S. equity market in February 2018 demonstrated how sentiment can change very quickly — and market participants should be well aware of this risk.” And, “in an environment characterized by search for yield and depressed volatility, technical factors can greatly amplify initial market movements.”

              European stocks follow Asia Higher, China Shanghai Composite ended up 2.16%

                Yen continues to trade as the weakest one for today, followed by Swiss Franc. Meanwhile Dollar pares back some again as markets await US consumer inflation release later today, which could see headline CPI accelerated to 2.9% yoy.

                Global equities stage a strong rebound today as the impact of trade war escalation faded. Investors are getting tired of the noises from the US and China. Some attributed the chance of resuming negotiation between US and China. But we’re don’t buy into this as Trump is clear with what he’s doing. Negotiation has started and ended abruptly, showing no intention to continue. And, just as Trump is blasting NATO allies on spending again today after the latters promised to increase it. It’s clear to the objective eyes whether one is pushing for reforms or finding excuses to quit, and blame the others for his decision.

                Anyway, at the time of writing, DAX is up 0.35%, CAC is up 0.39% while FTSE is up 0.68%. Earlier today, Nikkei closed up 1.17%, Hong Kong HSI rose 0.60%, Singapore Strait Times rose 0.12%.

                More importantly, China Shanghai SSE rose 2.16% to close at 2837.66, back above 2800 handle. The development indicates certain calmness in the markets despite this week’s trade war escalation. And it affirmed the view of strong support between 2016 low at 2638.3 and 2700 psychological level. The rebound from 2691.02 is in progress and break of 2848.37 will extend it to 55 day EMA now at 2984.49. For now, we’re seeing no chance of breakthrough 3000 psychological level. But such near term development is enough to stabilize the Asian markets, which suffered most last week.

                CBI: Both UK and EU are under-prepared for no-deal Brexit

                  The Confederation of British Industry warned in a report, published on Sunday, that neither UK nor EU are ready for no deal Brexit, as contingency planning study finds. The report criticized that while US has made many proposals “many of its plans delay negative impacts but do not remove them”. EU has “taken fewer steps to reduce the damage of no deal”. And, “very few joint actions to mitigate no deal have taken place, creating a high number of areas where continued UK-EU negotiations are inevitable”. Business efforts have been “hampered by unclear advice, tough timelines, cost and complexity”.

                  Josh Hardie, Deputy-Director General, said: “. Both sides are underprepared, so it’s in all our interests. It cannot be beyond the wit of the continent’s greatest negotiators to find a way through and agree a deal… It’s not just about queues at ports; the invisible impact of severing services trade overnight would harm firms across the country… Preparing for no deal is devilishly difficult. But it is right to prepare.”

                  Full report here.

                  Into US session: Euro strongest as Italian budget deal made, Dollar soft ahead of FOMC

                    Entering US session, Euro is trading as the strongest one today. European Commission finally agreed with Italy on its 2019 budget, thus the so called “Excessive Deficit Procedure”. Italian 10 year yield tumble to as low as 2.778. German-Italian spread also narrowed to 253. Swiss Franc is, as a result of relief rally in European stocks too, trading as the weakest one for today. Dollar is the second weakest as markets await FOMC rate decision.

                    In short, Fed is widely expected to raise federal funds rate by 25bps to 2.25-2.50% today. The question is on the rate path in 2019 after all the political pressures Fed policymakers faced. The new economic projections will provide the key guidance to market expectations. More on the projections here.

                    Also, here are some suggested readings on FOMC:

                    In European markets, at the time of writing:

                    • FTSE is up 1.00%
                    • DAX is up 0.73%
                    • CAC is up 0.72%
                    • German 10 year yield is down -0.004 at 0.243
                    • Italian 10 year yield is down -0.169 at 2.778

                    Earlier in Asia:

                    • Nikkei dropped -0.60%
                    • Hong Kong HSI rose 0.20%
                    • China Shanghai SSE dropped -1.05%
                    • Singapore Strait Times rose 0.43%
                    • Japan 10 year JGB yield rose 0.0048 to 0.033

                    Australian employment grew 0.5k, unemployment rate unchanged at 5.2%

                      Australia employment grew just 0.5k in June, below expectation of 9.1k. Full-time jobs increased 21.1k while part-time jobs decreased -20.6k. Unemployment rate was unchanged at 5.2% with participation rate steady at 66.0%.

                      ABS Chief Economist Bruce Hockman said, “Australia’s participation rate was at 66 per cent in June 2019, which means nearly two of every three people are currently participating in the labour market. The participation rate for 15 to 64 year olds was even higher and closer to four out of every five people.”

                      Full release here.

                      AUD/USD recovers strongly today despite the job data miss. With 0.6983 minor support intact, further rise is mildly in favor. Break of 0.7047 resistance will resume the rebound from 0.6831 to 61.8% retracement of 0.7295 to 0.6831 at 0.7118.

                      Australia NAB business conditions extended slide to 14, confidence recovered

                        Australia NAB business conditions dropped -2pts to 14 in July. Business confidence rose 1pt to 7.

                        Alan Oster, NAB Group Chief Economist noted in the release that the business conditions index “has now fallen considerably since April”. But business conditions remain “above average”, suggesting “favourable conditions have continued to persist through the middle of 2018”. The weakness in profitability and trading conditions was partially offset by improvement in employment.

                        Overall, the survey results were broadly in line with NAB’s outlook. Business sector looks “relatively healthy”. Growth in employment will reduce spare capacity gradually. And that should bring in a “rise in wage and a more general lift in inflation”. However, trends in forward indicators will be watched, which may be signaling slowdown.

                        Full release here.

                        BCC: Only 37% UK firms can fully restart with workplace safety guidance

                          According to the coronavirus business impact tracker of the British Chambers of Commerce, only 37% of firms said they can “fully restart” operations while implementing the government’s coronavirus workplace safety guidance. 45% said they can “partially restart”.

                          BCC Director General Adam Marshall said: “Companies at all levels of readiness to restart, of all sizes, and in every part of the UK will need sustained government support as they navigate the ‘new normal’ with reduced demand and restrictions still in place. Many support schemes will need to be adapted and updated, but must not be withdrawn prematurely.”

                          Full release here.

                          GBP/CHF building momentum for rally extension

                            We talked about GBP/CHF last week (here) and its rally did extend as we expected. It’s so far reached as high as 1.3640, just inch below 61.8% projection of 1.2219 to 1.3419 from 1.2861 at 1.3647.

                            While GBP/CHF is not a big mover this week, momentum is still solid. Action Bias table is upside blue all the way with some neutral bars.

                            D action bias row show it’s in solid rally, which is in line with the action bias chart too. The last three neutral 6H action bias bar should it was in consolidation. But H action bias bar argues that it’s possibly building up momentum for a break out.

                            Outlook in the cross stay bullish and break of 1.3647 will pave the way to 100% projection at 1.4133.

                            US GDP grew 2.0% annualized in Q3, missed expectations

                              US GDP grew 2.0% annualized in Q3, below expectation of 2.6%. The increase in real GDP in the third quarter reflected increases in private inventory investment, personal consumption expenditures (PCE), state and local government spending, and nonresidential fixed investment that were partly offset by decreases in residential fixed investment, federal government spending, and exports. Imports, which are a subtraction in the calculation of GDP, increased.

                              Full release here.

                              CAD/JPY losing upside momentum as BoC is in focus

                                BoC is widely expected to keep monetary policy unchanged today. Overnight rate will be held at 0.25%. Asset purchase was already tapered from CAD 4B per week to CAD 3B, and thus no change is expected for now. While employment and GDP grow data were disappointing, there were upbeat developments from stronger oil prices and vaccination. All in all, BoC would likely maintain the upbeat tone.

                                Some previews on BoC:

                                CAD/JPY has been clearly losing upside momentum as seen in daily MACD. It’s also in proximity to 91.62 long term resistance. Hence, upside potential could be limited even though another rise cannot be ruled out yet. On the other hand, break of 89.55 support will be a strong sign of medium term topping. In this case, deeper fall would likely be seen through 55 day EMA to 85.40/88.06 support zone, as a correction to rise from 77.91. It’s a bit early to tell, but that could also be a correction to the whole up trend from 73.80 low, as a five-wave sequence is then completed.

                                Risk sentiments reversed after Fed expands debt purchase

                                  Risk sentiments staged a strong rebound overnight after Fed announced to expand the so called Second Market Corporate Credit Facility. Fed will starting buying a “broad and diversified portfolio of corporate bonds to support market liquidity and the availability of credit for large employers.” The SMCCF will crease a portfolio made up of all bonds in the secondary market that satisfy the facility’s minimum rating, maximum maturity, and other criteria. The indexing approach will complement SMCCF’s current ETF purchases. .

                                  DOW once declined over 760 pts but ended up 157.62 pts or 0.62% at 25763.16. S&P 500 also reversed earlier loss to day low of 2965.66, and closed up 0.83% at 3066.59. SPX somewhat drew support from 55 day EMA and recovered but is kept well below last week’s gap. We’d expect corrective pattern from 3233.13 to extend for the near term. Another decline will remain in favor to 38.2% retracement of 2191.86 to 3233.13 at 2835.36. Reactions from there would determine the next move.

                                  Swiss KOF rose to 102.2, down trend halted

                                    Swiss KOF Economic Barometer rose notably to 102.2 in September, up 3.3 pts from 98.9. It also beat expectation of 100.1. KOF noted the this may imply that the downward trend, which has been visible since the beginning of 2018, might have come to a halt.

                                    The strongest positive contributions came from manufacturing sector. And among manufacturing, “positive development can be attributed mainly to the metal processing industry, followed by the machine building and the food processing as well as the textile industries and finally the chemical industry.” Meanwhile, overall improvement in manufacturing is driven by “a more optimistic assessment of employment, followed by the assessments of production and the overall business situation”.

                                    Full release here.

                                    ISM non-manufacturing dropped to 55.5, employment and price declined

                                      US ISM non-manufacturing composite dropped to 55.5, down from 56.1 and missed expectation of 57.0.

                                      Look at the details:

                                      • Business Activity Index increased rose from 57.4. to 59.5.
                                      • New Orders Index dropped from 59.0 to 58.1.
                                      • Employment Index dropped from 55.9 to 53.7.
                                      • Prices Index dropped from 58.7 to 55.7.
                                      • 15 non-manufacturing industries reported growth.

                                      ISM noted: “The non-manufacturing sector has experienced an uptick in business activity, but in general, there has been a leveling off. Respondents are still mostly optimistic about overall business conditions, but concerns remain about employment resources.”

                                      Full release here.

                                      Trump: Fed will probably do very little comparing to EU and China

                                        Just ahead of FOMC rate decision on Wednesday, Trump continue to pile political pressure on Fed policymakers. In a couple of tweets, he firstly complained that “the E.U. and China will further lower interest rates and pump money into their systems, making it much easier for their manufacturers to sell product. But “in the meantime, and with very low inflation, our Fed does nothing – and probably will do very little by comparison. Too bad!”

                                        Additionally, he said Fed raised interest rate “way too early and way too much” and “their quantitative tightening was another big mistake”. And, “the Fed has made all of the wrong moves. A small rate cut is not enough”.

                                         

                                        Mid-US update: DOW in crash mode, Dollar gets no support from treasury yields

                                          Risk aversion is the main theme in the first half of US session as stocks are in crash mode. DOW is trading down -1.4% or -370 pts. S&P 500 is down -1.30% and NASDAQ is down -1.86%. European indices are even worse, with DAX closed down -2.21%, CAC down -2.11% and FTSE down -1.27%.

                                          Strength in global treasury yields is being blamed as the reason for the stock market selloff. German 10 year bund yield closed up 0.0041 at 0.556, quite “confidently” above 0.5 handle. US yields are also rising so far, with 5 year yield up 0.009 at 3.066, 10 year yield up 0.012 at 3.220, 30-year yield up 0.017 at 3.387. But we have to emphasize that these three US yields are held below last week’s highs.

                                          In the currency markets, commodity currencies are the weakest ones naturally. But it should be noted that Dollar doesn’t get any lift from US yields and is trading as the third weakest for now, next to Canadian, Australian and New Zealand Dollar. Yen and Swiss are not the strongest neither. It’s Sterling that’s the biggest winner and Euro the second. It will take some more time for us to analysis what’s really happening. But for sure, it’s not as simple as rising yield and falling stocks. We’re not satisfied with this simplistic explanation.

                                          Anyway, USD/JPY finally made up its mind to break through 38.2% retracement of 110.37 to 114.54 at 112.94. Next target is 61.8% retracement at 111.96.

                                          EUR/USD will most likely take out 1.1549 resistance to indicate short term bottoming at 1.1431. It’s unsure, for now, whether it will extend the corrective rise from 1.1300 through 1.1814. But at least, more upside is in favor in near term.

                                          The bigger question for us is, whether DOW has topped out in medium term at 26951.81, earlier that we expected. It’s a beautiful short wave five impulse from 23997.21 after wave four triangle from 26616.71 to 23997.21. Unfortunately, for now DOW is still holding above 55 day EMA. Thus, we cannot make a call yet. Let’s see how it goes for the rest of the week.