Thu, Dec 09, 2021 @ 06:35 GMT

UK PM Johnson receives oxygen support in ICU, Raab deputize

    UK Cabinet Office Minister Michael Gove told LBC radio today that Prime Minister Boris Johnson is “not on a ventilator no” in ICU. Nevertheless, “the prime minister has received some oxygen support and he is kept under, of course, close supervision” for coronavirus treatment.

    Meanwhile, Foreign Secretary Dominic Raab to deputise for Johnson. Raab said, “The government’s business will continue. The focus of the government will continue to be on making sure that the prime minister’s direction, all the plans for making sure that we can defeat coronavirus and can pull the country through this challenge, will be taken forward.”

    Fed Clarida: Rising wages not putting excessive upward pressure on inflation

      Fed Vice Chair Richard Clarida said in a speech that the US economy is “operating at or close to maximum employment and price stability.” But, “although the labor market is robust, there is no evidence that rising wages are putting excessive upward pressure on price inflation”. Wages growth is “broadly in line with productivity growth and underlying inflation”.

      He added that Fed’s monetary policy framework review seek to answer three questions:

      • Can the Federal Reserve best meet its statutory objectives with its existing monetary policy strategy, or should it consider strategies that aim to reverse past misses of the inflation objective?
      • Are existing monetary policy tools adequate to achieve and maintain maximum employment and price stability, or should the toolkit be expanded? And, if so, how?
      • How can the FOMC’s communication of its policy framework and implementation be improved?

      Clarida’s full speech here.

      Fed Clarida: Fed to decide on interest rate on meeting by meeting basis

        Fed Vice Chair Richard Clarida reiterated Fed should take a “patient” stance in 2019 and decide on interest rates on a “meeting by meeting” basis.

        He added that “a lot has really happened since the first week of December.” And, “we will look in particular at global developments and some of the global data that has been softening.”

        Though, he didn’t see the the global slowdown as “severe” for now. And he doesn’t see a recession “on the horizon”.

        GBP/JPY resumes rally after drawing support from 4 hour 55 EMA

          GBP/JPY rises after BoE Governor Andrew Bailey said there are a lot of issues with negative interest rates. Solid support was seen in 4 hour 55 EMA, indicating near term bullishness. Further rise is now expected as long as 140.31 support holds. Choppy rise from 133.03 has resumed for a test on 142.71 high. At this point, upside momentum doesn’t warrant a firm break there yet. Thus, we’ll be cautious on topping signals as it approaches 142.71.

          Updates on Fed funds futures pricings ahead of FOMC

            Fed is widely expected to keep federal funds rate unchanged at 1.50-1.75% this week. But the tightening path will continue with another hike in June, to 1.75-2.00%. Fed fund futures are pricing in 100% chance of that. Markets will look into FOMC statement to confirm such expectations, but they actually don’t really need it.

            The expectation for another hike in September also grew notably this week. Fed fund futures are pricing in 77.5% chance of a hike ito 2.00-2.25%. That’s up from prior month’s 57%.

            One more in December? The markets are unsure. Expectations did grew but Fed fund futures are still pricing in less than 50% chance of one more hike to 2.25-2.50% in December.

            UK GDP rose 8.7% mom in June, down -20.4% qoq in Q2, -17.2% below Feb’s level

              UK GDP grew 8.7% mom in June, better than expectation of 8.0% mom, and a strong improvement from May’s 2.4% mom. For the quarter, Q2 GDP, however, still contracted -20.4% qoq, slightly below expectation of -20.2% qoq. That’s also notable deterioration from Q1’s -2.2% qoq. Overall, GDP remains -17.2% below levels seen back in February, before the full impact of the coronavirus.

              In June, services grew 7.7% mom. Production rose 9.3% mom. Manufacturing rose 11.0% mom. Construction rose 23.5% mom. Agriculture rose 2.7% mom. But all sectors were down in the rolling three-month to April-to June, with services down -19.9% 3mo3m, production down -16.9% 3mo3m, manufacturing down -20.2% 3mo3m, construction down -35.0% 3mo3m, and agriculture down -4.8% 3mo3m.

              Also from UK, goods trade deficit widened to GBP -5.1B in June, larger than expectation of GBP -4.5B.

               

              Dollar index shrugs FOMC, DOW jumped on remdesivir news

                Fed kept monetary policy unchanged overnight as widely expected and reiterated the pledge to maintain rate target at 0-0.25% ” until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” Chairman Jerome Powell said there will be a “large increase” in economic activity when people are coming out to spend again while unemployment goes down. However, “it is unlikely it will bring us quickly back to pre-crisis levels,” he added. “Trying to be really precise about when that might happen and what the numbers might look like – it is very tough to do that.”

                Some suggested readings on Fed:

                Dollar softened a little bit further after FOMC’s announcement and press conference. But there was no avalanche selling. Dollar index is back pressing 55 day EMA and outlook is unchanged. Price actions from 102.99 are seen as a corrective pattern. Fall from 100.93 is likely the third leg. Break of 55 day EMA will pave the way to 98.27 support and possibly below. But downside should be contained by 61.8% retracement of 94.65 to 102.99 at 97.83 to bring rebound.

                DOW rose 532.31 pts, or 2.21% to close at 24633.86. But that’s mainly due to news that Gilead Sciences found promising results of its experiments on coronavirus treatment drug remdesivir. Technically, DOW’s rebound from 18213.65 could extend higher. But we’d expect strong resistance from 61.8% retracement of 29568.57 to 18213.65 at 25230.99 to limit upside, at least on first attempt. Break of 22941.88 support will mark short term topping and bring near term reversal.

                Today’s top mover: Failed double bottom in AUD/JPY? 81.24 a key level to watch

                  At the time of writing, AUD/JPY is the top mover for today. But it’s actually a very tight race. Rightfully, in a day when risk aversion dominates, AUD/JPY’s weakness is natural.

                  To put it into perspective, DOW hit as low as 24421.05 in initial trading. After a weak recovery, it’s down -1.92% at 24539. It looks like DOW could have a take on 24000 handle before the week ends.

                  AUD/JPY’s failure to sustain above 38.2% retracement of 90.29 to 78.65 at 83.02 raises serious doubt over the bullish scenario as discussed in a prior post here. If AUD/JPY has completed a double bottom reversal pattern (78.67, 78.56), the move after taking out 82.50 should be powerful. That’s not what we’ve seen. And, focus is now back on 81.24 minor support. Break should confirm the rejection by 83.02 fibonacci level. Also, that would mark rejection by 55 week EMA. And, medium term bearishness would be retained and retest of 78.56 low should be seen next.

                  However, if AUD/JPY can defend 81.24 minor support. Firm break of 83.02 should confirm medium term reversal. Further rise should at least be seen to 61.8% retracement of 90.29 to 78.65 at 85.79. We’ll see how it goes within a day or two, or even within hours.

                  Japan Suga: Returning to TPP is in the best interest of Japan and US

                    Japan Chief Cabinet Secretary Yoshihide Suga insisted over the weekend that returning to the Trans-Pacific Partnership trade agreement is in the best interests of both Japan and the US. The comments came in before meeting of Economy Minister Toshimitsu Motegi and US Trade Representative Robert Lighthizer for bilateral trade later this month. And that’s a clear indication that Japan is not interested in bilateral trade deal that the US is keen on pursuing. Suga added that “Japan is not going to do anything with any country that harms the national interest.” And, “with FTA negotiations too, we’ll handle them in that way.”

                    Finance Minister Taro Aso also said that “inward-looking policies would benefit no country.” And added that “excessive current account imbalances should be resolved through multilateral, not bilateral, framework. ” Also, “the matter should be dealt with through macroeconomic policy and a structural reform by rebalancing savings and investments, instead of imposing tariffs.”

                    Eurozone unemployment rate unchanged at 7.5%, lowest since 2008

                      Eurozone unemployment rate was unchanged at 7.5% in November, matched expectations. That’s the lowest rate since July 2008. The number of persons unemployment dropped by -10k for the month, to 12.315m.

                      EU28 unemployment was unchanged a 6.3%, a record low since January 2000. Among the Member States, the lowest unemployment rates in November 2019 were recorded in Czechia (2.2%), Germany (3.1%) and Poland (3.2%). The highest unemployment rates were observed in Greece (16.8% in September 2019) and Spain (14.1%).

                      Also released in European session, Germany industrial production rose 1.1% mom in November, beat expectation of 0.7% mom. Trade surplus narrowed to EUR 18.3B, below expectation of EUR 20.9B. Swiss retail sales rose 0.0% yoy in November, below expectation of 0.5% yoy.

                      Eurozone CPI unchanged at 1.0% yoy, unemployment rate unchanged at 7.5%

                        Eurozone CPI was unchanged at 1.0% yoy in August, matched expectations. Core CPI was also unchanged at 0.9% yoy, missed expectation of 1.0% yoy. Looking at the components, food, alcohol & tobacco is expected to have the highest annual rate in August (2.1%, compared with 1.9% in July), followed by services (1.3%, compared with 1.2% in July), non-energy industrial goods (0.4%, stable compared with July) and energy (-0.6%, compared with 0.5% in July).

                        Eurozone unemployment rate was unchanged at 7.5% in July, matched expectations. It’s also the lowest rate recorded since July 2008. EU 28 unemployment was unchanged at 6.3%, also the lowest since 2000. Among the Member States, the lowest unemployment rates in July 2019 were recorded in Czechia (2.1%) and Germany (3.0%). The highest unemployment rates were observed in Greece (17.2% in May 2019) and Spain (13.9%).

                        EU pledged to guard against all protecionist actions

                          Regarding trade tension with the US, EU leaders reiterated that the US steel and aluminium tariffs “cannot be justified on the grounds of national security”. And European Council ” fully supports the rebalancing measures, potential safeguard measures to protect our own markets, and the legal proceedings at the WTO, as decided on the initiative of the Commission”. EU also pledged to “respond to all actions of a clear protectionist nature”.

                          European Council also “underlines the importance of preserving and deepening the rules-based multilateral system.” And it invites the European Commission to “propose a comprehensive approach to improving, together with like-minded partners, the functioning of the WTO in crucial areas such as (i) more flexible negotiations, (ii) new rules that address current challenges, including in the field of industrial subsidies, intellectual property and forced technology transfers, (iii) reduction of trade costs, (iv) a new approach to development, (v) more effective and transparent dispute settlement, including the Appellate Body, with a view to ensuring a level playing field, and (vi) strengthening the WTO as an institution, including in its transparency and surveillance function.”

                          Full EU summit conclusion here.

                          DOW dives as Trump fires another shot of economic attack on Turkey

                            US stocks open broadly lower on Turkish crisis. Selling accelerates after Trump double down the tariffs on Turkish steel and aluminum. So, does it justify Erdogan’s claim that they’re under “economic attack”?

                            At this time of writing, DOW is down -0.9% or -2340 points. Focus in on 25120.07 support. As long as it holds, recent bullish run from 23997.21 is still on course for 25800.35 resistance. But a firm break there should indicate near term reversal.

                            Mexican EM Guajardo on NAFTA: We will not accept any type of restrictions in aluminum or steel

                              As Mexican Economy Minister Ildefonso Guajardo is meeting Canadian and US counterparts to continue NAFTA renegotiation, he emphasized that a deal “depends on the commitment and flexibilities around the table”. And he expressed firmly that “Mexico has been very clear: we will not accept any type of restrictions in aluminum or steel”.

                              Earlier today, Moises Kalach expressed his optimism that “in the coming 10 days we can really have a new agreement in principle.” Kalach is head of the international negotiating arm of the CCE business lobby, which represents the Mexican private sector at the NAFTA talks.

                              US initial jobless claims rose to 351k, above expectations

                                US initial jobless claims rose 16k to 351k in the week ending September 18, above expectation of 317k. Four-week moving average of initial claims dropped -750 to 335.75k.

                                Continuing claims rose 131k to 2845k. Four-week moving average of continuing claims dropped -16k to 2804k, lowest since March 21, 2020.

                                Full release here.

                                BoE Ramsden: Most financial stability risks from no-deal Brexit mitigated

                                  BoE Deputy Governor Dave Ramsden said in case of a smooth Brexit with transition, the MPC expected UK growth to pick up, leading to excess demand and building domestic inflationary pressure. In such case, further monetary tightening is appropriate. Ramsden’s GDP growth expectation was “a little more pessimistic”. However, he also saw “downside risks to productivity, while he’s also “less optimistic on investment recovery”. Thus, his overall view on monetary policy was broadly in line with the MPC.

                                  Ramsden noted that the “biggest risk to the UK economy and UK financial stability, remains that of a Brexit outcome of no deal and no transition.” But he emphasized that “most risks to financial stability that could arise have been mitigated”, even though “a no deal, no transition Brexit could still be expected to bring significant market volatility, as well as economic instability.”

                                  Ramsden’s full speech here.

                                  Australia manufacturing in worst contraction in five years, coronavirus disruption deepens slowdown

                                    Australian AiG Performance of Manufacturing index dropped to 44.3 in February, down from 45.4. That’s the fourth straight months of contraction in the manufacturing sector, last occurred back in 2014. It’s also the lowest monthly reading in nearly five years. All sectors were in contraction except for food & beverages.

                                    Australian Industry Group chief executive Innes Willox warned, “The disruptive effects of the coronavirus, including on supply chains, are deepening and adding to the slowdown that has been in train since the closing months of 2019… The coronavirus is negatively impacting the exports of fast-moving consumable items to China and a number of businesses reported supply chain difficulties arising from factory shutdowns in China.”

                                    TD securities inflation gauge dropped -0.1% mom in February. Company gross operating profits dropped -3.5% qoq in Q4 versus expectation of -1.2% qoq.

                                    RBA: Wage growth have troughed, AUD ticks mildly higher

                                      Aussie trades mildly higher after RBA kept the cash rate unchanged at 1.50% as widely expected. The statement is almost likely a carbon copy of the prior one. Nonetheless, RBA sounded more optimistic on wage growth as it said that “the rate of wage growth appears to have troughed”. Regarding the economy, Australian economy is expected to grow fast in 2018 than in 2018. Regarding inflation RBA maintained that “the central forecast is for CPI inflation to be a bit above 2 per cent in 2018.” The statement concluded by maintaining “holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.”

                                      Statement here

                                      Released earlier in Australia retail sales rose 0.1% mom in January, below expectation of 0.4% mom. Current account deficit widened to AUD -14.0b in Q4.

                                      AUD/USD mildly higher but first hurdle of near term reversal is trend line resistance at 0.78.

                                      Canada employment grew 94k in July, unemployment rate dropped to 7.5%

                                        Canada employment grew 0.5% mom or 94k in July, below expectation of 148.5k.gains were concentrated in full-time work (83; +0.5%). Unemployment rate dropped -0.3% to 7.5%, below expectation of 7.7%.

                                        Full release here.

                                        Eurozone PMI composite at 55.3, 14-month low; Growth peaked around the turn of the year

                                          Eurozone PMI manfucturing dropped to 56.6 in March , down from 58.6, below expectation of 58.1. That’s lowest in 8 months.

                                          Eurozone PMI services dropped to 55.0, down from 56.2, below expectation of 56.0. That’st lowest in 5 months.

                                          Eurozone PMI composite dropped to 55.3 down from 57.1, loweset in 14 month.

                                          Here is ther release Eurozone expansion slows to weakest since start of 2017

                                          Quote from Makit Chief Business Economist Chris Williamson:

                                          “While the first quarter average PMI reading remains relatively robust, indicative of GDP rising by 0.7-0.8%, the loss of momentum since the buoyant start to the year has been quite dramatic.

                                          “At least some of the slowing may be ascribed to bad weather in some northern regions and, perhaps more importantly, ‘growing pains’ resulting from the strength of the recent growth spurt. Supply chain delays and raw material shortages were often reported to have stymied production in manufacturing (delays in German supply chains are currently more widespread than at any time in the survey’s 22-year history), and both manufacturing and services sectors also saw activity being curtailed by growing incidences of skill shortages. Backlogs of work continue to rise as a result of these growth constraints.

                                          “However, other factors are clearly at play. The fact that export order book growth has more than halved since the end of last year suggests the stronger euro is taking an increasing toll on export performance. Survey responses also highlighted how political uncertainty also appears to have intensified, dampening demand.

                                          “The data therefore suggest that eurozone growth peaked around the turn of the year and the region is settling into a slower, but still robust pace of expansion. Price pressures have meanwhile also eased slightly, in part linked to cheaper imports arising from the euro’s recent strength, but remain elevated.”