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RBA Debelle: Strong employment not generating pick-up in wages growth

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    ActionForex.com
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    RBA Deputy Governor Guy Debelle said in a speech the increase in labor supply in Australia has meant that “the strong employment outcomes in recent years has not generated the pick-up in wages growth that might otherwise have occurred”. He expected “wages growth to remain largely unchanged at its current level over the next couple of years.”

    He noted that “dynamics of participation and unemployment flows will have an important bearing on wages growth as well as household income growth”. Also, “the more wages growth is entrenched in the 2’s [2-3 per cent range], the more likely it is that a sustained period of labour market tightness will be necessary to move away from that.”

    RBA has so far failed to push unemployment down to the 4.5% level, which should generate sustainable wages growth and inflation. Markets are expecting more policy easing from the central bank next year, including possibility of QE.

    Debelle’s full speech here.

    US and China held top level trade calls on core issues

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      ActionForex.com
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      A phone call was held between US and China top trade negotiators this morning. Accord to statement of China’s Ministry of Commerce: “Both sides discussed resolving core issues of common concern, reached consensus on how to resolve related problems and agreed to stay in contact over remaining issues for a phase one agreement”.

      Chinese Vice Premier Liu He, US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin participated in the call. Also, joined were Chinese Commerce Minister Zhong Shan, People’s Bank of China Governor Yi Gang and Ning Jizhe, vice chairman of China’s top economic planning body, the National Development and Reform Commission.

      Yet, after another phone calls, there is no concrete news regarding the phase one trade deal. It’s reported that farm purchases and tariff rollbacks are currently the two sticky issues. It looks like officials from both sides are still targeting to complete the phase one by the end of the year. But negotiations could eventually drag on to next year.

      Fed Powell: Monetary policy well positioned to support jobs and inflation

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        ActionForex.com
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        Fed Chair Jerome Powell said in a speech yesterday that “monetary policy is now well positioned to support a strong labor market and return inflation decisively to our symmetric 2 percent objective.” He added that “if the outlook changes materially, policy will change as well.” The comments reaffirmed the case that Fed has done with mid-cycle adjustment. The default position is to hold interest rates unchanged at current level.

        On the economy, he said the as the economy continued its record 11th year of expansion, the benefits are now reaching many communities, and there is plenty of room to build on the impressive gains achieved so far. Also, “outlook for further progress is good: Forecasters are generally predicting continued growth, a strong job market, and inflation near 2 percent.”

        Powell’s full speech here.

        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.”

          German Ifo rose slightly to 95, manufacturing still in recession but trade improved

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            ActionForex.com
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            Germany Ifo Business Climate rose to 95.0 in November, up from 94.6, matched expectations. Current Assessment Index rose to 97.9, up from 97.8, missed expectation of 98.0. Expectations Index rose to 92.1, up from 91.5, missed expectation of 92.5. Ifo said the Germany economy is “showing resilience” and it expects 0.2% GDP growth in Q4.

            However, manufacturing (down from -5.3 to -5.9) is “still stuck in recession” while companies still find their current order backlog very disappointing and they are planning further production cutbacks. Trade (up from -3.3 to 9), on the other hand, has “increased strongly”, with signs that “business will be very good this Christmas”.

            Full release here.

            IMF cut Japan growth forecast, urges monetary and fiscal policy coordination

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              ActionForex.com
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              IMF lowered Japan’s GDP growth forecasts in 2019 to 0.8%, down from 0.9%. It expects growth to slow further to 0.5% in 2020. IMF Managing Director Kristalina Georgieva urged that “strengthening the effectiveness of coordination between monetary and fiscal policy remains a high priority” for the country.

              She added, “fiscal policy should be supportive to protect near-term growth and promote inflation momentum”. Also, “beyond the short-run, a clear commitment to long-term fiscal sustainability is essential.” On monetary policy, IMF called on BoJ to maintain support for the economy. It suggested BoJ to shift 0% yield target on 10-year JGB to a shorter maturity, and cut back its buying of long tern government bonds. Such action could steepen the yield curve and help financial institutions’ profitability.

              China said very close to phase 1 trade deal with US, committed to phase 2 and beyond

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                ActionForex.com
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                The Global Times, China’s hawkish tabloid run by the ruling Communist Party’s official People’s Daily, said in a tweet that US and China are “very close” to the phase one trade deal. China “remains committed to continuing talks for a phase two or even a phase three deal”with US “on equal footing”.

                Foreign ministry spokesman Geng Shuang also reiterated that China hopes to work with US on a basis of equality and mutual respect on the ongoing bilateral trade negotiations.

                The comments came after Reuters reported that some Chinese and US officials believed the ambitious “phase two” trade deal is looking less likely as the two countries struggle to strike a preliminary agreement.

                Hong Kong stocks lead Asia higher after pro-democracy voters score landslide victory

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                  ActionForex.com
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                  Hong Kong stocks lead Asian markets generally higher in reaction to the results of Sunday’s district council elections. While the district councils have few real powers, the elections are seen as a referendum on the current unrest, and a confidence vote on the government.

                  The ballot saw record turnout of 71% with 2.94 million people casting their votes. Pro-democracy candidates won 388 of 446 seats, i.e., near 87%. That’s a huge jump from 125 seats they won back in 2015. On the other hand, the pro-Beijing camp won only 58 seats, down from 299 in 2015.

                  The elections results should put extra pressure on the Chinese and Hong Kong government to answer the five demands of the protesters. The government will have “no excuse” not to appoint a commission of inquiry on all that happened regarding the extradition bill, including police brutality. Such development would offer some hope for ending the near six month unrest in the city.

                  The Hong Kong HSI gaps up in Monday’s trading and is currently up 1.76%. Despite the rebound, there is no change in the overall technical outlook. Corrective rise from 24889.93 should have completed at 27894.68. Hence, another decline is still in favor. Break of 26203.97 support will affirm this bearish case and target a test on 24889.93 low next.

                  US still hoping to get phase 1 trade deal with China done by end of year

                    By
                    ActionForex.com
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                    There are increasing speculations that the completion of the phase one US-China trade deal would slide into next year. China is said to be refraining concrete commitment on farm purchases, while pushing for more extensive tariffs rollbacks. At the same time, tensions between the two countries increased due to unrest in Hong Kong.

                    US national security adviser Robert O’Brien said over the weekend “We were hoping to have [a phase one] deal done by the end of the year. I still think that’s possible”. Though, he also emphasized, “at the same time, we’re not going to turn a blind eye to what’s happening in Hong Kong or what’s happening in the South China Sea, or other areas of the world where we’re concerned about China’s activity.”

                    Meanwhile, Reuters reported that the “ambitious” phase two deal looks increasing less likely for now. An unnamed Chinese office was quoted saying that “It’s Trump who wants to sign these deals, not us. We can wait.” China might want to drag on with phase two negotiations to see if Trump could win a second term in next year’s election.

                    Sterling recovers as Johnson pledges to get Brexit done

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                      ActionForex.com
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                      Sterling recovers mildly after UK Prime Minister Boris Johnson’s fresh Brexit promise. Launching his election manifesto in the central English town of Telford, he said “Get Brexit done and we shall see a pent up tidal wave of investment into this country. Get Brexit done and we can focus our hearts and our minds on the priorities of the British people.”

                      UK is heading to snap election on December 12, Johnson is targeting to bring the Brexit deal back to the parliament before Christmas. He also pledged, “we will not extend the implementation period beyond December 2020”.

                      Canada retail sales dropped for the first time in three months

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                        ActionForex.com
                        -

                        Canada retail sales dropped for the first time in three months, by -0.1% mom to CAD 51.6B in September. Though, that was better than expectation of -0.3% mom fall. Excluding autos, retail sales rose 0.2% mom, above expectation of -0.1% mom.

                        Retail sales were down in Alberta (-1.6%) and New Brunswick (-3.7%). In Quebec, retail sales increased 0.7%. In the census metropolitan area (CMA) of Montréal, sales were up 0.6%. Retail sales in Ontario (+0.3%) continued their upward trend, increasing for the seventh time in eight months. In the CMA of Toronto, retail sales were up 1.5%.

                        Full release here.

                        ECB Lagarde urges common response to meet Eurozone challenges

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                          ActionForex.com
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                          In the first speech as ECB President, Christine Lagarde urged Eurozone states to meet the common challenges with a “common response” of a “new European policy mix”. Monetary policy is the first element and ECB will “continue to support the economy and respond to future risks in line with our price stability mandate” and “continuously monitor the side effects”.

                          Another key element is fiscal policy which is “not just about the aggregate stance of public spending, but also its composition.”. Investment is a “particularly important part” of the responses. She added that public investment in the Eurozone remains “some way below its pre-crisis levels” and the share of “productive expenditure” also dropped. Both national policies and European programs like Invest EU has a “role to play.”

                          Also, “empowering our internal market also means completing our Economic and Monetary Union.” Completing EMU is about finding the right trade-off: enough protection against moral hazard to discourage under-saving, but enough mutual insurance to prevent over-saving.

                          Lagarde’s full speech here.

                          UK PMI composite dropped to 48.5, 40-month low, points to -0.2% quarterly GDP contraction

                            By
                            ActionForex.com
                            -

                            UK PMI Manufacturing dropped to 48.3 in November, down from 49.7, missed expectation of 48.8. PMI Services dropped to 48.6, down from 50.0, and missed expectation of 50.1. That’s also the lowest reading in 40 month. PMI Composite dropped to 48.5, down form 50.0, hitting a 40-month low.

                            Commenting on the latest survey results, Chris Williamson, Chief Business Economist at IHS Markit, said:

                            “With an upcoming general election adding to Brexit-related uncertainty about the outlook, it’s no surprise to see UK businesses reporting falling output and orders in November. The decline signalled by the flash PMI follows stagnation in October and adds to what has been the survey’s worst spell since the recession of 2008-9.

                            “The weak survey data puts the economy on course for a 0.2% drop in GDP in the fourth quarter, and also pushes the PMI further into territory that would normally be associated with the Bank of England adding more stimulus to the economy.

                            “While Brexit issues such as stock-building and car factory closures have led to volatile GDP data so far this year, making monetary policymaking especially difficult and encouraging the Bank of England to sit on its hands until the fog clears, the PMI surveys are not only warning that the underlying trend in the economy is deteriorating markedly, but also that the labour market is cooling. A worsening jobs market has the potential to feed through to weaker consumer spending and slower wage growth, thereby undermining two of the key supports to the economy in recent months. The big question will be just how long can the Bank of England hold its nerve in keeping policy unchanged.”

                            Full release here.

                            Eurozone PMI composite down 0.3 to 50.3, indicative of 0.1% quarterly GDP growth

                              By
                              ActionForex.com
                              -

                              Eurozone PMI Manufacturing rose to 46.6 in November, up from 45.9, beat expectation of 46.4. PMI Services dropped to 51.5, down from 52.2, missed expectation of 52.5. PMI Composite dropped to 50.3, down from 50.6.

                              Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

                              “The eurozone economy remained becalmed for a third successive month in November, with the lacklustre PMI indicative of GDP growing at a quarterly rate of just 0.1%, down from 0.2% in the third quarter.

                              “Manufacturing remains in its deepest downturn for six years amid ongoing trade woes, and November saw further signs of the weakness spilling over to services, notably via slower employment growth. “Resilient jobs growth had provided a key support to the more domestically-focused service sector earlier in the year, but with employment now rising at its slowest pace since early-2015, it’s not surprising to see the service sector now also struggling.

                              “Tentative signs of life in the core eurozone countries of France and Germany are welcome news, as is an easing in the manufacturing downturn, but a fresh concern is that the rest of the region has slipped into decline for the first time since 2013.

                              “Business remains concerned by trade wars, Brexit and a general slowdown in demand, with heightened uncertainty about the economic and political outlook driving further risk aversion.”

                              Full release here.

                              Germany PMI services dropped to 38-month low, manufacturing remains firmly in contraction

                                By
                                ActionForex.com
                                -

                                Germany PMI Manufacturing rose to 48.3 in November, up from 42.1, beat expectation of 43.0. However, PMI Services dropped to 51.3, down from 51.6, missed expectation of 52.0. That’s also a 38-month low. PMI Composite rose to 49.2, up from 48.9, hit a 3-month high.

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

                                “Beneath the subdued headline numbers the data show another slight convergence between the more domestically-focused service sector and export-led manufacturing.

                                “While still showing a degree of resilience, the service sector is growing only modestly and at its slowest rate for over three years. By contrast, manufacturing remains firmly in contraction, but many of the indicators here are at least moving in the right direction and it would seem the worst of the downturn is over barring any shocks.

                                “A lack of employment growth remains a worry, but the survey data do at least point to support to consumer spending from low inflation and rising wages.”

                                Full release here.

                                France PMI composite up 0.1 to 52.7, positive economic picture maintained

                                  By
                                  ActionForex.com
                                  -

                                  France PMI Manufacturing rose to 51.6 in November, up from 50.7 and beat expectation of 50.8. PMI Services was unchanged at 52.9, missed expectation of 53.0. PMI Composite rose to 52.7, up from 52.6.

                                  Commenting on the Flash PMI data, Eliot Kerr, Economist at IHS Markit said:

                                  “Another solid expansion in private sector activity maintains the positive economic picture seen in France over the past few months. Moreover, another increase in new orders and a faster rise in backlogs of work points to strong underlying demand and further growth ahead.

                                  A notable finding from the latest PMI survey was the broad improvement across the manufacturing sector. On the whole, there was a narrower disparity in performance compared to the service sector, with a particularly positive result seen in new orders. The latest data provide good news for a sector that has recorded relatively subdued growth for well over a year.”

                                  Full release here.

                                  Japan CPI core edged up to 0.4%, well below BoJ’s target

                                    By
                                    ActionForex.com
                                    -

                                    Japan CPI core (all item ex-fresh food) rose to 0.4% yoy in October, up from 0.3%, matched expectations. All item CPI was unchanged at 0.2% yoy, missed expectation of 0.3% yoy. CPI core-core (all item ex-fresh food, energy), rose to 0.7%, up from 0.5%, beat expectation of 0.6% yoy.

                                    The inflation subdued inflation reading suggests that the sales tax hike in the month had little impact on prices, and is unlikely o derail consumer spending. Yet the core inflation reading remains well below BoJ’s 2% target. The central will need to maintain ultra-loose monetary policy for a prolonged period. But even so, there is little evidence to show that inflation could sustainably hit the target with current stimulus.

                                    Japan PMI composite rose to 48.6, strong possibility of Q4 GDP contraction

                                      By
                                      ActionForex.com
                                      -

                                      Japan PMI Manufacturing rose to 48.6 in November, up from 48.4, but missed expectation of 48.7. PMI Services rose to 50.4, up from 49.7. PMI Composite also improved to 48.6, up from 48.4.

                                      Joe Hayes, Economists at IHS Markit, noted: October PMI data was difficult to interpret as a result of the temporary negative shocks by the sales tax and typhoon. However, we can deduce from the November PMI data that there is a strong possibility of Japan’s economy contracting in the fourth quarter. We have seen little rebound following these temporary factors, especially in the service sector where the impact of the tax rise and poor weather was most prominent:.

                                      Full release here.

                                      Australia PMI composite dropped to 49.5, renewed fall in private sector output

                                        By
                                        ActionForex.com
                                        -

                                        Australia CBA PMI Manufacturing dropped to 49.9 in November, down from 50.0. PMI Services dropped to 49.5, down from 50.1. PMI Composite dropped to 49.5, down form 50.0. The data signalled a renewed fall in private sector output. Declines were seen across both manufacturing and service sectors.

                                        Commenting on the Commonwealth Bank Flash PMI data, CBA Chief Economist, Michael Blythe said:

                                        “Activity in the key manufacturing and services sectors continues to bounce around the 50 line that separates expansion from contraction. This is a particularly disappointing result when benchmarked against interest rate cuts, tax cuts, rising house prices and a still solid labour market”.

                                        “Readings on new orders and employment offer a glimmer of positive news. But the challenges faced by Australian businesses are evident in the accelerating growth in input prices and the slowing trend in output prices. Competitive pressures and weak demand are taking a toll”.

                                        Full release here.

                                        Philadelphia Fed manufacturing index rose to 10.4

                                          By
                                          ActionForex.com
                                          -

                                          Philadelphia Fed Manufacturing Business Outlook Survey diffusion index rose to 10.4 in November, up from 5.6, beat expectation of 7.0. The percentage of firms reporting increases (30 percent) this month exceeded the percentage reporting decreases (20 percent). While the general activity index showed improvement, indicators for new orders, shipments, and employment decreased from last month’s readings.

                                          Full release here.

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