Thu, Dec 09, 2021 @ 07:00 GMT

Australia AiG manufacturing dropped to 51.2, recovery all-but-stalled

    Australia AiG Performance of Manufacturing Index dropped from 51.6 to 51.2 in September. Looking at some details, production rose 2.9 to 53.1. Employment dropped from -4.3 to 47.1. New orders dropped -5.1 to 52.0. Exports rose 6.8 to 51.9.

    Ai Group Chief Executive Innes Willox said: “The recovery in the manufacturing sector over the past year all-but-stalled in September as the impacts of lockdowns and border closures constrained activity in the two largest states…. Manufacturers are hoping that the prospect of restrictions being wound back will see a strong lift in performance over coming months.”

    Full release here.

    US initial jobless claims rose to 362k, above expectation

      US initial jobless claims rose 11k to 362k in the week ending September 25, above expectation of 321k. Four-week moving average of initial claims rose 4k to 340k.

      Continuing claims dropped -18k to 2802 in the week ending September 18. Four-week moving average of continuing claims dropped -750 to 2797k, lowest since March 21, 2020.

      Full release here.

      Fed Clarida: It’s important that pressures to inflation be transitory

        Fed Vice Chair Richard Clarida said he expected inflation to “return to – or perhaps run somewhat above – our 2% longer-run goal in 2022 and 2023”. That would actually fit under the new policy framework. Though, he admitted that he was “surprised by higher-than-expected inflation data released today”. Still, “it’s important that pressures to inflation be transitory”.

        Clarida also said that “the near-term outlook for the labor market appears to be more uncertain than the outlook for economic activity.” He added, “What this necessary rebalancing of labor supply and demand means for wage and price dynamics will depend importantly on the pace of recovery in labor force participation as well as the extent to which there are post-pandemic mismatches between labor demand and supply in specific sectors of the economy and how long any such imbalances persist.”

        Into US session: Euro down as Turkish Lira loses another 3%, Sterling and Dollar firmer

          Entering into US session, Euro suffers some heavy selling and is trading as the second weakest one for today, just next to Australian Dollar. ON the other hand Sterling leads the way higher, followed by Dollar. The renewed selloff in Turkish Lira is seen by us as the main driver of the forex markets today. Dollar and Sterling has suffered some selling against Euro and today’s moves are just reversing these selloffs. Canadian Dollar is also trading a touch softer as focus is now on day 2 of Canada-US trade negotiations.

          In other markets, European indices are mixed with FTSE down -0.32% at the time of writing, DA is up 0.17% and CAC is up 0.26%. German 10 year bund extends this week’s rally and is currently up 0.015 at 0.396. 0.4 handle is back in sight. Earlier today, Asian markets were mixed with Nikkei and HSI up 0.15% and 0.23% respectively. But China SSA and Singapore Strait Times were down -0.31% and -0.11% respectively.

          USD/TRY is rising another 3% today and hits as high as 6.4732. Break of 6.346 minor resistance confirms resumption of rebound from 5.6919. Further rise would be seen to 61.8% retracement to of 7.2068 to 5.6919 at 6.6281. Firm break there will put 7.000 handle back into focus. And such development could weigh on Euro again.

          EU said no Eurozone country at serious risk of breaching fiscal rules

            In the regular annual assessment of national budgets by European Commission, none of the 19 Eurozone state was found at “serious” risk of breaching EU fiscal rules. Though,

            Commission Vice President Valdis Dombrovskis warned that “among the budgetary plans found at risk of non-compliance, the ones that concern us most are those with debt levels that are high and not reduced fast enough.” He explicitly pointed to Italy, France, Belgium and Spain.

            And, he urged “all members states that are at risk of non-compliance with the (rules) to take the necessary measures within the national budgetary process to ensure that the 2020 budget will be compliant”. Though, for now, no immediate action is requested.

            US PPI up 0.6% mom, 6.2% yoy in Apr, core PPI up 0.7% mom, 4.1% yoy

              US PPI rose 0.6% mom, 6.2% yoy in April, above expectation of 0.3% mom, 6.0% yoy. The annual increase was the highest since November 2010. PPI core rose 0.7% mom, 4.1% yoy, above expectation of 0.2% mom, 3.1% yoy. The annual rate was highest since August 2014.

              Full release here.

              Into US session: Stocks in risk aversion, forex in range

                Entering into US session, the forex markets are relatively calm today with major pairs and crosses are back inside Thursday’s ranges. Though, risk aversion is clearly seen in other markets. Worries over US-China trade tension escalation resurfaced after Trump said he will not meeting Chinese President Xi this month. This came despite Trump’s schedule to meet North Korean leader Kim Jong-Un on February 27-28 in Vietnam, just next to China. Re-escalation in trade tension would drag on the already weakened global recovery.

                For today so far, Australian Dollar is the weakest one after dovish RBA economic projections. But there is no follow through selling yet. Dollar also weakens mildly as it’s paring this week’s gain. Sterling is the strongest one, followed by Swiss France. Both are consolidating this week’s moves. Canadian Dollar is also steady but some volatility is envisaged after job data release.

                For the week, Dollar is overwhelmingly the strongest one, followed by Yen and then Swiss Franc. Commodity currencies are the weakest, led by Aussie.

                In other markets:

                • DOW futures are down more than -100 pts right now.
                • FTSE is down -0.25%.
                • DAX is down -0.51%.
                • CAC is down -0.25%.
                • German 10-year yield is down -0.0149 at 0.102. Decline in German yield is quite serious this week.

                Earlier in Asia:

                • Nikkei closed down -2.01%.
                • Hong Kong HSI dropped -0.16%.
                • Singapore Strait Times rose 0.04%.
                • Japan 10-year JGB yield dropped -0.0185 to 0.027.

                UK CPI accelerated to 1.8%, core CPI up to 1.6%

                  UK CPI accelerated to 1.8% yoy in January, up from 1.3% yoy, beat expectation of 1.4% yoy. CPI Core also accelerated to 1.6% yoy, up from 1.4% yoy, beat expectation of 1.4% yoy. RPI accelerated to 2.7% yoy, up from 2.2% yoy, beat expectation of 2.4% yoy.

                  PPI input came in at 0.9% mom, 2.1% yoy versus expectation of -0.4% mom, 3.5% yoy. PPI output was at 0.3% mom, 1.1% yoy, versus expectation of -0.1% mom, 1.2% yoy. PPI output core was at 0.1% mom, 0.7% yoy versus expectation of 0.1% mom, 0.6% yoy.

                  Today’s top movers: GBP/JPY and GBP/CAD

                    GBP/JPY and GBP/CAD are the two biggest movers today, thanks to broad based strength in the pound. Nonetheless, considering that they’re up 72 pips and 68 pips only, it’s indeed a very slow day.

                    For GBP/JPY, rise from 147.26 is in progress for 1349.70 resistance. Our views as discussed in the daily report is unchanged.

                     

                    GBP/CAD’s rebound from 1.6643 accelerates higher today and reaches 1.7183 so far. Further rise is likely for 1.7285 resistance. However, for now, we’re viewing price actions from 1.6594 as forming a corrective pattern. That is, rise from 1.6643 is merely a leg inside the pattern. Hence, we’d expect strong resistance from 38.2% retracement of 1.8415 to 1.6594 at 1.7290 to limit upside. Break of 1.6980 minor support should bring retest of 1.6594 low.

                    Firm break of 1.7290 fibonacci level could bring stronger rebound to 61.8% retracement at 1.7719. But, we’ll still treat it as part of the correction from 1.6594 unless we see more evidence of trend reversal, in terms of price structure. The down trend from 1.8415 is still expected to resume, just at a later stage.

                    BoJ Kuroda: No need to further lower the entire yield curve for now

                      BoJ Governor Haruhiko Kuroda said today that “at this moment, we didn’t see the need to further lower the entire yield curve”. The economy has been in a “extremely severe situation” with “considerable negative growth” in Q2. Nevertheless, “once the impact of COVID-19 on the economy has subsided, the economy starts to recover and comes back to a normal growth path, then of course our extraordinary measures may be gradually curtailed.”

                      But he also noted that “there are significant uncertainties over the outlook for the economy.” The coronavirus pandemic “continues on a global basis, and concern about a second wave of the virus has increased recently.”

                      He added that 2% inflation target is “unlikely to be met in the short run”. Also, “the BOJ’s expanded balance sheet would not be normalized until 2% inflation is achieved.”

                      China VP Liu to visit Washington in January for top level trade talks

                        US-China trade negotiation is set to set up to top level talks later in January. US Treasury Secretary Steven Mnuchin said Chinese Vice Premier Liu He will most likely visit Washington later in the month.

                        He told reports that “The current intent is that the Vice Premier Liu He will most likely come and visit us later in the month and I would expect the government shutdown would have no impact,” And, “we will continue with those meetings just as we sent a delegation to China.”

                        Trump also said yesterday that “we’re negotiating and having tremendous success with China.” Also, “I think that China is actually much easier to deal with than the opposition party”. Trump related to the deadlock he is having with the Democrat on the border wall.

                        Powell led a chorus of hawkish Fedspeaks

                          Fed Chair Jerome Powell repeated his upbeat comments today. He said the US is experiencing “a remarkably positive set of economic circumstances, and we’re working hard to try to sustain the expansion and keep unemployment low and keep inflation right on target”. And, “there’s really no reason to think that this cycle can’t continue for quite some time.” On interest rates, he said they are “still accommodative” and “we’re gradually moving to a place where they’ll be neutral.” He added that “we may go past neutral. But we’re a long way from neutral at this point, probably.”

                          Other comments from Fed officials were generally hawkish. Chicago Fed President Charles Evans said “getting policy up to a slightly restrictive setting — 3, 3.25 percent — would be consistent with the strong economy and good inflation that we are looking at.”

                          Philadelphia Fed President Patrick Harker said he preferred Fed’s rate hike schedule to avoid inverting the yield curve and “it’s just a question of timing”. He added there is no need to “rush the normalization process”. For now his forecasts are “”three this year, two next year, two year after.”

                          Cleveland Fed President Loretta Mester said she supported a gradual pace of hiking. But she also noted that “if we end up having inflation move high up” or if it goes too much above target, “then we need to move policy faster.”

                          Richmond Fed President Tom Barkin said “growth is solid, unemployment is low, and inflation is at target”. He didn’t touch directly on monetary policy but struck a tone of caution on flattening yield curve which “could suggest markets are losing confidence in the outlook.”

                          BoE Bailey: It’s important not to over-react to temporarily strong growth and inflation

                            BoE Governor Andrew Bailey urged in a speech that, “it is important not to over-react to temporarily strong growth and inflation, to ensure that the recovery is not undermined by a premature tightening in monetary conditions.”

                            Though, he admitted, “it is also important that we watch the outlook for inflation very carefully, which of course we do at all times, particularly for signs of more persistent pressure and for a move of medium term inflation expectations to a higher level.”

                            “And if we see those signs, we are prepared to respond with the tools of monetary policy,” he pledged.

                            Full speech here.

                            China Caixin PMI services dropped to 56.3, recovery to continue for several months

                              China Caixin PMI Services dropped to 56.3 in December, down from 57.8, missed expectation of 58.1. Markit said that business activity and new orders both increased at softest rates for three months. Though, optimism towards the year ahead edged up to highest since April 2011. The sharp rise in costs drove steepest increase in output charges for nearly 13 years.

                              PMI Composite dropped to 55.8, from a more than 10-year high of 57.5. Wang Zhe, Senior Economist at Caixin Insight Group said: “Looking ahead, we expect the post-epidemic economic recovery to continue for several months, and macroeconomic indicators will be stronger over the next six months due to the low bases in the first half of 2020. Entrepreneurs were confident about further improvement to the economy in the upcoming year.

                              “Meanwhile, we need to pay attention to the mounting pressure on costs brought by the increase in raw material prices and its adverse impact on employment, which is particularly important to figuring out how to exit the stimulus policies implemented during the epidemic.”

                              Full release here.

                              UK Q3 GDP growth revised up to 16.0% qoq, still -8.6% below pre-pandemic level

                                UK Q3 GDP was estimated to have increased by a record 16.0% qoq in Q3, revised up from first estimate of 15.5%. Over the year, GDP dropped -8.6% yoy. The level of GDP was still -8.6% below that at the end of 2019.

                                Full release here.

                                UK Hammond: A different budget strategy needed in case of no-deal Brexit

                                  UK Chancellor of the Exchequer Philip Hammond will deliver his budget speech today. He told Sky News that in case of a no-deal Brexit, “we would need to look at a different strategy and frankly we’d need to have a new budget that set out a different strategy for the future.” And the government would have to ” see how markets and businesses and consumers responded to that.” And then, “we would take appropriate fiscal measures to protect the economy, to prepare us for the future and to strike out in a new direction”.

                                  Separately, he pledge to BBC that he will maintain fiscal buffers, a reserve of borrowing power against my fiscal rules, so if the economy, as a result of a no-deal Brexit or indeed because of something else that we haven’t anticipated, needs support over the coming months and years I have the capacity to provide that support.” And he emphasized “the important point is that I have got fiscal reserves that would enable me to intervene.”

                                  EU to pursh for WTO reforms at upcoming summit

                                    According to a draft statement prepared for the June 28-29 EU summit, European leaders are ready for retaliation against US steel and aluminum tariffs. There is also an initiative to push for reforms in the WTO to preserve and deepen rules-based multilateral global trade system.

                                    The draft reiterated EU’s stance that US steel and aluminum tariffs “cannot be justified on the grounds of national security.” And, the European Council “fully supports the re-balancing measures, potential safeguard measures to protect our own markets, and the legal proceedings at the WTO.” Initial retaliation include 25% duty on EUR 2.8B US imports including motor cycles, jeans and whiskies.

                                    Regarding WTO, the draft said “in a context of growing trade tensions, the European Council underlines the importance of preserving and deepening the rules-based multilateral system.” And, “it invites the commission to propose a comprehensive approach to improving, together with like-minded partners, the functioning of the WTO in crucial areas such as more flexible negotiations, new rules that address current gaps, including in the field of subsidies, reduction of trade costs, a new approach to development and effective and transparent enforcement, with a view to ensuring a level playing field.”

                                    China trade balance Q1: EU imports surged 17.5% to $63.5b, US imports rose only 8.9% to $41.7b

                                      China reported a rate trade deficit of USD -5b in March versus expectation of USD 27.8b surplus. That’s also the first monthly trade deficit since last February. Imports rose 5.9% yoy while exports dropped -2.7% yoy. Trade surplus with US dropped to USD 15.3b. In CNY terms trade balance came in at CNY -30b deficit versus expectation of CNY 160b surplus. Imports dropped -9.8% yoy while exports also dropped -9.8% yoy.

                                      For the quarter from January to March, 2018, China’s trade surplus came in at USD 49.1b, dropped -23.2% yoy from Q1 of 2017. Exports rose 14.1% yoy. But import grew even stronger by 18.9% yoy. In CNY terms, Q1 trade surplus rose came in at CNY 326.2b with exports increased by 7.4% yoy and imports jumped even stronger by 11.7% yoy.

                                      Also for Q1, export to US rose 14.8% yoy to USD 99.9b while imports from US rose 8.9% yoy to USD 41.7b. Exports to EU rose 13.2% yoy to USD 90.2b while imports from EU rose 17.5% yoy to USD 63.5b.

                                      The EU is doing pretty well in selling the China.

                                      Japan PMI composite unchanged at 44.9, prospect of a solid recovery remains highly uncertain

                                        Japan PMI Manufacturing rose to 46.6 in August, up from 45.2, above expectation of 45.0. PMI Services edged down to 45.0, down from 45.4. PMI Composite was unchanged at 44.9.

                                        Bernard Aw, Principal Economist at IHS Markit, said: “The prospect of a solid recovery remains highly uncertain as Japanese firms were pessimistic about the business outlook on balance during August. Rising unemployment may also hit domestic household income and spending in the months ahead.”

                                        Full release here.

                                        WTI oil breaks 64, but strong resistance still expected from 66.49

                                          WTI crude oil reaches as high as 64.48 so far as recent rally resumes. At this point, we’d still be expecting strong resistance inside 63.04/66.49 to limit upside to bring reversal. We’re not expecting break out from established range between 50.64/66.49 yet. However, firm break of 66.49 will bring upside acceleration to 100% projection of 42.05 to 66.49 from 50.86 at 75.29.