Thu, Jan 20, 2022 @ 07:17 GMT

Germany PMI hit 20-month low, slowdown continued

    Germany PMI manufacturing dropped to 56.8 in May, down from 58.1, missed expectation of 57.9. That’s the lowest in 15 months.

    PMI services dropped to 52.1, down from 53.0, missed expectation of 53.1. That’s a 20-month low.

    PMI composite dropped to 53.1, down from 54.6, hitting 20-month low.

    Comment from Phil Smith, Principal Economist at IHS Markit:

    “The flash PMI data indicate that the recent slowdown in Germany’s private sector continued into May. Business activity showed the weakest rise for over a year-and-a-half, and it was a case of slower growth across both the manufacturing and services segments of the economy.

    “There was some anecdotal evidence suggesting that the timing of public holidays during the month had led to workers taking days off to bridge the holidays and weekends. However, weaker order book growth and a further waning of business confidence point to the economy carrying a lot less underlying momentum than at the end of 2017.

    “Latest data meanwhile indicated an ill-timed resurgence in cost pressures faced by businesses, linked largely to rising oil prices. The recent cooling of demand has meant increased pressure on margins, with selling price inflation moving in the opposite direction to that of input costs.”

    France PMIs showed renewed slowdown

      France PMI manufacturing rose to 55.1 in May, up from 53.8 and beat expectation of 53.7, hitting 3 month high.

      But PMI services dropped to 54.3, down from 57.4 and missed expectation of 57.2, hitting 16- month low.

      PMI composite dropped to 54.5, down from 56.9, hitting a 16 month low.

      Markit noted that the data in May signalled a “renewed slowdown in French private sector output growth”.

      Comments from Alex Gill, Economist at IHS Markit:

      “Having showed signs of resilience in April, May saw a renewed slowdown in French private sector growth. Moreover, the headline composite output index signalled the weakest rate of expansion for almost a year-and-a-half, indicating that the French private sector’s economic revival is losing further steam in the second quarter.

      “On a brighter note, the data highlighted a better month for the manufacturing sector, with rates of expansion accelerating on a number of key metrics, including output, new orders and employment.”

      Japan PMI: Weakest expansion in manufacturing growth in nine months

        The Nikkei flash Japan manufacturing PMI dropped to 52.5 in May, down from 53.8 and missed expected of 54.6. In the release it’s noted that new order growth softened to 9-month low. However, input prices surged at the fastest pace since January 2014.

        Also, Joe Hayes, Economist at IHS Markit, noted:

        “Despite the promising upturn in April data, May’s flash release erred on the side of disappointment as the headline figure signalled the weakest expansion in manufacturing growth in nine months.

        “Employment growth eased, in line with a weaker accumulation of work backlogs due to softer demand pressures. That said, new export sales expanded faster amid the recent dollar strength vs. JPY.

        “However, there was further evidence that supply-side constraints may be impacting output potential, as material shortages contributed to the greatest lengthening of delivery times in seven years. Consequently, input prices soared at the fastest pace in 52 months.”

        Full release here.

        RBNZ has significant room for easing, no need for unconventional policies

          RBNZ released a 22-page bulletin article titled “Unconventional monetary policy since the Global Financial Crisis” today.

          In a summary, RBNZ hailed that the “unconventional” monetary policies adopted by some major central banks were “successful in easing financial conditions”. And, there were “emerging research suggests they boosted inflation and activity.”

          But in case of RBNZ, the OCR is currently at 1.75%, and it’s “not projecting a significant decrease in the OCR”. Therefore, RBNZ has “significant further room to ease monetary policy in a conventional way, and conventional monetary policy remains effective in influencing inflation and activity.”

          Separately, RBNZ Assistant Governor John McDermott said in an interview that while there is “no imminent prospect” of using unconventional policy, the probability of needing them at this point in the cycle is higher than it ever was in history”. Therefore, “it would be silly of us not to be ready just in case.”

          UK Hammond rejected CBI’s call for customs union after Brexit

            UK Chancellor of Exchequer Philip Hammond rejected the call from business leaders on customs union after Brexit. Hammond said that government shared the CBI’s desire to “minimise frictions and burdens, to avoid new barriers in Ireland and to grow British exports”.

            However, he emphasized that “we do not agree that staying in the customs union is necessary to deliver them.” And he tried to persuade the business leaders that ministers were “confident we can develop a solution that will allow us to move forward while meeting your concerns”.

            This was in response to CBI President Paul Drechsler’s speech in the in the group’s annual dinner. There Paul Drechsler urged US Prime minister Theresa May to “break the Brexit logjam and fast”. And he added that UK should remain in the customs union with the EU “unless and until an alternative is ready and workable”.

            Yen surges, stocks down as capricious assertive Trump unsatisfied with China trade talk

              Yen surges broadly in Asian session while Canadian, Australian and New Zealand Dollars are the weakest one. This is the typical development with risk aversion. DOW closed down -0.72% or 178.88 pts to 24834.41 overnight. S&P 500 lost -0.31% to 2724.44. NASDAQ dropped -0.21% to 7378.46. In Asian Nikkei is trading down -1.13% at the time of writing. HK HSI is down -1.0%.

              Market seemed to respond negatively to Trump’s comment that he’s “not satisfied” with the trade talks with China. And called the negotiations just a “start”. That’s rather inconsistent with Treasury Secretary Steven Mnuchin’s comment that the meeting made “very meaningful progress”. Also, it remains unclear when the planned Kim-Trump summit will happen on June 12 in Singapore. Trump just said that “whether or not it happens, you’ll be knowing pretty soon” .

              But as European Council President Donald Tusk described before, the American administration has capricious assertiveness. So unpredictably is somewhat predictable.

              Technically, GBP/JPY is a pair to note as 148.16 minor support is broken, which suggests completion of corrective rebound from 147.04 at 149.99. UK CPI will be a focus today and another miss would push the cross through 147.04 towards 144.97 low.

              CADJPY at an appropriate level to exit long

                Following up on a comment here, CADJPY’s rally extended as expected and reached as high as 87.09, just inch below mentioned target of 61.8% projection of 80.52 to 85.75 from 83.88 at 87.11. We’d talked about putting the exit at slightly below 87.11 at 87.00 and it’s filled.

                From Action Bias point of view, H Action has been neutral for some time, suggests a lack of impulsive momentum. The 6H Action Bias chart also doesn’t show persistent blue bars. Therefore, we’d maintain our view that while further rise cannot be ruled out, current level is an appropriate level to exit long.

                EUR/CHF short opportunity, fall from 1.2004 ready to resume

                  As noted in a prior comment here, the rejection by 1.2 key resistance made EUR/CHF short candidate for reversal when D Action Bias started to turn downside red. Subsequent development turned out to be in line with this near term bearish view.

                  6H Action Bias turned neutral after the decline halted at 1.1705 and turned into consolidation. But during the three bars, D Action Bias stayed downside red, thus maintaining near term bearishness. In the meaning, W Action Bias turned neutral too, indicating loss of medium term up side momentum. So the stage is set for deeper fall.

                  Now, H Action Bias and 6H Action Bias both turned downside red, suggesting that the decline is ready to resume.

                  Sell on break of 1.1705 could be a way to ride on the decline, with stop at 1.1780. 61.8% retracement of 1.1445 to 1.2004 at 1.1659 is an easy target. But for position trading, the target will be between 1.1445 and 38.2% retracement of 1.0629 to 1.2004 at 1.1479. But of course, we’ll monitor 6H Action Bias and get out if it turns neutral, indicating another consolidation or reversal.

                  BoE Carney: Much of Q1’s lost output will not be made up

                    BoE Governor Mark Carney speaks to the Treasury Committee in the parliament for inflation report hearing today.

                    Regarding the dismal Q1 growth, Carney said ” it’s more likely to have been temporary and idiosyncratic factors that slowed the economy.” But the MP didn’t expect much of that “lost output” to be made up. Therefore, BoE forecast 0.4% growth in Q2 only.

                    Carney noted that there were arguments for and against publishing a rate path. But he pointed out that “e risk of it being interpreted as a promise, as a commitment are real, there are risks of procrastination once you put a path out there… there’s risk of pre-commitment as well”. And thus, the majority of the committee were not in favor of it.

                    BoE Vlieghe see one or two 25bps hik per year over the three year forecast period

                      BoE MPC member Gertjan Vlieghe had his reappointment hearing in the parliament today. Vlieghe prepared a written response to some questions from lawmakers, which could be found here.

                      He noted that his own forecast for growth and inflation is “consistent with a gradually rising path of interest rates”. His central projection sees the requirement of one or two 25bps hike per year over the three year forecast period. And with that, policy rate will be closer to neutral.

                      Regarding global trade, Vlieghe said a significant broadening of tariffs on goods, or countries could lead to a slowdown in global trade that can hut the UK economy by “several tenths of a percent of GDP or more”. Meanwhile, a global trade war would “simultaneously reduce GDP and increase inflation via higher tariffs”. And, monetary easing would “only be appropriate” in that case if inflation effect is expected to be “short-lived”. But overall, the implication is “not straightforward:”.

                      ECB Liikanen: Time needed for underlying inflation to accelerate

                        ECB Governing Council member, Finnish Central Bank Governor Erkki Liikanen, tells the Finnish parliament today that it takes time for underlying inflation in the Eurozone to accelerate. And that would support rise in headline inflation.

                        Also, he pointed out that there was an exceptional amount of uncertainty on how ECB’s unconventional monetary policy worked out. However, loose policy is still necessary to boost inflation back to 2% target.

                        China to put words into action by lowering passenger car levy

                          Bloomberg reported that China is going to lower levy on import passenger cars from the current 25% to 15%. That’s seen as Chinese President Xi Jinping putting his word into actions. Xi has already reiterated the initiative at the Boao Forum back in April.

                          As in 2017, the total sales of automobiles in China added up to 28.9m. Only 1.22m, or 4.2%, are imported. The lowering of tariff is seen as a strong boost to European vehicle makers and less so the US ones.

                          For domestic car makers, the levy cut to 15% is the better case scenario in the rumored range of 10-15%.

                          EU Malmstrom reiterated US should end steel tariff threats

                            EU trade Commissioner Cecilia Malmstrom reiterated today that the US should end the steel tariff threats to the EU. And EU’s position is clear that there would be discussion of closer trade ties only if EU is granted permanent exemptions from the steel tariffs. However, Malmstrom also noted that “they don’t think it is enough”, referring to the lack of response from the US.

                            Separately, German economy minister Peter Altmaier urged more work on trade deal with the US as time is running out for a deal over the steel tariffs.

                            The current temporary exemption for EU will expire on June 1.

                            Italian President Mattarella called meeting of political leaders after getting Prime Minster nomination

                              Italian President Sergio Mattarella called the leaders of the lower and upper houses of the parliament for a meeting today. That came after meeting with anti-establishment 5-Star Movement and far-right League, who have agreed on a deal to form a coalition government.

                              5-Star leader Luigi Di Maio said after meeting with Mattarella that Giuseppe Conte, a law professor but a political novice, “will be the prime minister of a political government”. Maio hailed that Conte is “a person that can carry out the government contract” and he’s “proud” of this choice. Leader of the League Matto Salvini also confirmed the name.

                              For now, it’s uncertain whether Mattarella will appoint Conte as the Prime Minister, or he’d prefer a more high-profile figure.

                              Philadelphia Fed Harker: Appropriate to continue rate hikes judiciously

                                Philadelphia Fed President Patrick Harker said yesterday that he sees two more rate hike this year. He noted it’s “prudent to continue to move away from the zero lower bound”. And Inflation “does seem to be moving toward 2%”. He added that there is “not much slack in the labor markets”. Hence, it’s appropriate to continue rate hikes “judiciously”.

                                And if there is an “acceleration of inflation”, then he “supportive of a third”. Though, he is not yet seeing a “rapid acceleration” in inflation yet.

                                Finance Ministry: Strong upturn in German economy to continue

                                  The German Finance Ministry said in the latest monthly report that the economy is in a “strong economic upturn” even if growth in Q1 was “a bit less dynamic” than in Q4 due to “special factors”.

                                  Macroeconomic conditions “remain favorable” and indicators suggest the upturn will continue.

                                  BoJ Kuroda to patiently pursue powerful monetary easing

                                    BoJ Governor Haruhiko Kuroda reiterated to the parliament today that the central bank ” won’t end the ultra-easy policy before inflation reaches 2 percent”. And BoJ will “patiently pursue powerful monetary easing”. Though, Kuroda also noted policymakers will take into account the “side effects” such as the “impact of financial institutions, particularly regional banks”.

                                    Regarding the economy, Kuroda said it’s expanding moderately, with consumption helped by loose monetary policy. While there is sustaining momentum in growth, prices lack so. And there is still some distance to inflation target. BoJ will remain mindful of uncertainties on economic and price outlook.

                                    Deputy Governor Masazumi Wakatabe said that BoJ can achieve the inflation target “with the current policy”. Though, “if conditions change and our current policy becomes inappropriate, we may need to change policy.”

                                    DOW breaks 25000, next is 25800

                                      DOW opens strongly higher today, riding on news regarding US-China trade negotiations. At the time of writing, it’s up over 1.3% and is back above 25000 handle. Rise from 23531.31 and that from 23344.52 is resuming. Solid support from 55 H EMA shows the underlying near term bullishness. However, there is no clear indication of larger up trend resumption yet. Thus, we’re treating the current rise as a leg inside the range pattern from 26616.71. The real hurdle to overcome is between 25800.35 resistance and 78.6% retracement of 26616.71 to 23360.29 at 25919.83. We’ll look for topping signal around there.

                                      US Pompeo outlined steep demand for Iran, or the strongest sanctions in history

                                        US Secretary of State Mike Pompeo outlined a list of demand for Iran to comply to, and threatened the country with “the strongest sanctions in history” if Iran doesn’t change course.

                                        12 requirements were listed out. Some include:

                                        • Iran must “stop enrichment” of uranium
                                        • Iran must also allow nuclear “unqualified access to all sites throughout the country.”
                                        • Iran must declare all previous efforts to build a nuclear weapon
                                        • Iran must cease from a range of activities throughout the Middle East that have long drawn the ire of the U.S. and its allies.
                                        • Iran must end support for Shiite Houthi rebels in Yemen,
                                        • Iran must “withdraw all forces” from Syria, halt support for its ally Hezbollah and stop threatening Israel.
                                        • Iran must also “release all U.S. citizens” missing in Iran or being held on “spurious charges”.

                                        Pompeo also added that “I know our allies in Europe may try to keep the old nuclear deal going with Tehran. That is their decision to make.” But, ‘they know where we stand.”

                                        Now, it’s time for EU to respond.

                                        Minneapolis Fed Kashkari: Fed should hike only to neutral policy stance

                                          Minneapolis Fed President Neel Kashkari said in a article that “inflation and wage growth have been surprisingly low” despite tight job market. Now, wages is only growing at 2.7% annually, comparing to 3.5% before the financial crisis.

                                          He pointed out that the headline unemployment rate in the US “captures” only those who are actively looking for jobs. Therefore, the 3.9% unemployment rate may not “capture the true slack” in the market. And “hidden slack” could explain the modest wage growth.

                                          And Kashkari concluded that Fed should hike “only to a neutral policy stance, and not move too quickly”. And that’s until there are more evidence of wage growth and the US is “really” at maximum employment.

                                          Full article here.