Australia retail sales rose 1.6% mom in Oct, strong rebound in Victoria

    According to preliminary estimate, Australia retail sales rose 1.6% mom or AUD 460.5m in October, a strong rebound from September’s -1.1% decline. Annually, sales rose 7.3% yoy.

    Ben James, Director of Quarterly Economy Wide Surveys, said “The reopening of retail stores in Victoria at the end of October led to a boost to all industries, with the exception of food retailing. Victoria rose 5.2 per cent from September 2020 but remains 5.7 per cent below the levels of October 2019.”

    Full release here.

    Australia Birmingham: China is a significant coal market, but not our largest

      In response to news that China has blocked Australian coal imports, Trade Minister Simon Birmingham said he has not ruled out taking China to the WTO. Though, he emphasized, “we do have to make sure that we have the facts behind us when it comes to undertaking WTO challenges.”

      “In terms of coal exports, it is important to recognise that although China is a significant market, it is not our largest market,” he added. “We do have significant markets in Japan … with India, strong growth recently in relation to Vietnam.” “We continue to work in a range of other markets where our government has secured trade agreements to develop trade ties to make sure that all of those exporters can have as many choices available to them as possible.”

      Trade tensions between the two countries escalated in the past few months as China has recently increased tariffs on Australian wine and barley and blocked imports on lamb, beef, lobsters and other goods.
      Just two weeks a ago, the Inter-Parliamentary Alliance on China, an international cross-party group of legislators working to reform the approach of democratic countries to China, called on a global campaign to drink Australian wines in December in support for the country.

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      US durable good orders rose 0.8% in June, ex-transport orders rose 0.3%

        US durable goods orders rose 0.8% to USD 257.6B in June, below expectation of 2.1%. That’s the thirteen growth in last fourteen months. Ex-transport orders rose 0.3%, below expectation of 0.8%. Ex-defense orders rose 1.0%. Transportation equipment rose 2.1% to USD 77.5B.

        Full release here.

        BoJ Ueda: We will not tolerate 10-year JGB yield above 1%

          At the post-meeting press conference, BoJ Governor Kazuo Ueda explained the details of the changes on monetary policy announced today. That includes explaining the decision to buy 10-year JGB yields at 1% in fixed-rate operations, an increase from the previous rate of 0.5%.

          “We will not tolerate an increase in the 10-year bond yield above 1% and will step in if it does,” Ueda emphasized. While yield moves between 0.5% and 1%, BoJ will monitor the yield level, pace of change, and speed, and conduct various market operations to counter any excessive upward pressure on long-term interest rates.

          He added, “We don’t expect the yield to move up to 1%, but have set this cap as a pre-emptive measure.”

          Turning to inflation, Ueda confessed to underestimating the upward pressure on prices, leading to a significant upward revision of the inflation forecast for the current fiscal year. He noted that many board members perceive risks as skewed to the upside amid high uncertainty over the outlook.

          Speaking on the Yield Curve Control (YCC), Ueda warned,”It would be pretty tough to deal with upside (inflation) risks once they materialise”. Given the current stability in the bond market and high uncertainty over the outlook, he termed this as a fitting moment to adjust the policy framework.

          But Ueda also reiterated the bank’s unchanged view on the significant distance to achieving their price target as a trend and the appropriateness of maintaining an easy monetary policy. “As for what we will do ahead, if inflation overshoots, we will respond appropriately,” he assured.

          NASDAQ’s up trend not in threat despite -5% pull back

            NASDAQ tumbled sharply by -598.34 pts or -4.96% overnight. While such decline was sharp and deep, there is no immediate threat the the up trend yet. NASDAQ is holding well inside the channel that started back in May. We’d continue to expect further rise as long as 11121.19 resistance turned support holds. Next target would be 161.8% projection of 6190.17 to 9838.37 from 6631.42 at 12534.20. Nevertheless, firm break of 11121.19 would indicate that a correction has likely started to correct the whole rise from 6631.42.

            Fed Bowman expects one more 75 bps hike, followed by subsequent 50bps hikes

              Fed Governor Michelle Bowman said in a speech she expects to “support additional rate increases until we see significant progress toward bringing inflation down”.

              Based on current inflation readings, she expects that “an additional rate increase of 75 basis points will be appropriate at our next meeting as well as increases of at least 50 basis points in the next few subsequent meetings”

              Full speech here.

              South Korea reports lowest new coronavirus cases since peak

                A piece of good news regarding the coronavirus pandemic is that South Korea on Monday reported its lowest number of new cases since the peak on February 29. The KCDC said there were only 64 new confirmed cases, taking the tally to 8961. Death toll rose by 1 to 110. The number of deaths stay at a relatively low level comparing to countries like Italy and Iran. It’s also the 12th straight days of new cases at around 100 or less, much better than the peak of 909. Also, 257 patients were released from hospital.

                Separately, Vice Finance Minister Kim Yong-beom said a new task force with be set up within the ministry. Special meetings will be held everyday to assess the situation and decide if more policy actions are needed to stabilize the financial markets. The government pledged to make all efforts to prevent extreme market volatility to turn into credit crunch.

                BoE Pill: Self-sustaining, second-round-effect momentum could keep inflation high

                  BoE Chief Economist, Huw Pill, voiced his concern about the enduring momentum of inflation in the UK during an online event yesterday. Pill warned of the risk of a self-sustaining inflation cycle, where despite the dissipation of key short-term inflation drivers like rising energy and food costs, businesses and workers would continue to seek substantial price and wage increases.

                  He said, “The risk is … that self-sustaining, second-round-effect momentum within the UK economy keeps inflation running at above-target levels.”

                  This trend could still align with a significant drop in headline inflation, Pill noted, but he expressed concern that headline inflation could stagnate at around 4% or 5% over the next two to three years.

                  “That’s still compatible with quite a big fall in headline inflation, but maybe headline inflation – other things equal – getting stuck at that 4%, 5% level over the next two or three years,” he clarified.

                  Meanwhile, Pill also highlighted the potential of AI to increase productivity and, subsequently, living standards. He emphasized, “Using AI to make ourselves more productive is one example of how we can do that to boost living standards. This is a win-win if we all get better off because we’re all more productive.”

                  BoJ Kuroda: Consumer inflation will approach target through various channels

                    BoJ Governor Haruhiko Kuroda told parliament today, “it’s true there’s a chance consumer inflation will approach 2% through various channels.”

                    “But what’s desirable is for the economy to recover steadily and push up corporate profits, thereby leading to higher wages and inflation,” he added. “We’ll patiently maintain ultra-easy policy to achieve this at the earliest date possible.”

                    Kuroda also said Japan is not in a state of “stagflation”.

                    New Zealand goods exports rose 13% yoy in Nov, imports rose 37% yoy

                      New Zealand goods exports rose 13% yoy to NZD 5.9B in November. Goods imports rose 37% yoy to NZD 6.7B. Monthly trade balance was a deficit of NZD -864m, versus expectation of NZD -1867m.

                      China led rises in monthly exports across all top destinations, up 13% yoy. Exports to Australia were up 21% yoy, to USA up 5.5% yoy, to EU up 8.6% yoy, to Japan up 38% yoy.

                      Imports from all tot partners were also up, with China up 45% yoy, EU up 38% yoy, Australia up 28%, USA up 43%, Japan up 7.9% yoy.

                      Full release here.

                      US to start tariffs on EU aircraft and farm products on Oct 1

                        WTO arbitration decided yesterday that US can move forward to impose some USD 7.5B in tariffs on EU goods annually, to counteract years of European loans and subsidies to Airbus. US Trade Representative hailed that as the “largest award” in WTO history, and nearly twice the largest previous award.

                        US will now impose tariffs on a range of imports from EU member states, with the bulk of the tariffs being applied to imports from France, Germany, Spain, and UK. 10% tariffs would be applied on large civil aircraft, 25% on agricultural and other products. USTR also said that “The US has the authority to increase the tariffs at any time, or change the products affected.”

                        Robert Lighthizer also noted in a statement that “the United States will begin applying WTO-approved tariffs on certain EU goods beginning October 18. We expect to enter into negotiations with the European Union aimed at resolving this issue in a way that will benefit American workers.”

                        New Zealand trade deficit narrowed to NZD -1.24B

                          New Zealand trade deficit narrowed to NZD -1.24B in September, down from NZD -1.63B, slightly better than expectation of NZD -1.38B. Exports rose 5.1% mom to NZD 4.47B. Imports dropped -2.1% mom to NZD 5.71B. For September quarter, exports dropped -0.9% qoq to NZD 14.8B. Imports rose 3.4% qoq to NZD 16.4B. Quarterly trade balance was a deficit of NZD 1.6B.

                          Full release here.

                          Separately, RBNZ Assistant Governor Christian Hawkesby said he’s “very” happy with the way in which interest rate cuts are feeding through into the economy. Additionally, he added that rising house prices could boost consumption and ultimately inflation..

                          UK May pledges to respond to Brexit vote results quickly

                            UK Prime Minister Theresa May’s spokesman reiterated the stance that “the prime minister said the government is the servant of the people and she believes passionately that we must deliver on the result of the 2016 referendum”

                            And, “she added that after the vote has taken place, she would respond quickly to the result.”

                            Fed Kaplan: We’re not out of the woods yet

                              Dallas Fed President Robert Kaplan said in a WSJ interview, “there’s reason to be optimistic about the future.” But he emphasized that “we’re not out of the woods yet”. And, “reducing stimulus when the pandemic abates and more economic progress is made will help keep the recovery going

                              “When we’re in the middle of a crisis, we should be aggressively using our tools, so I agree with what we’re doing now in terms of asset purchases and stance of policy generally,” Kaplan said

                              RBA Lowe: Outlook improvement widened range of plausible cash rate scenarios

                                In a post meeting speech, RBA Governor Philip Lowe said “the situation today is quite different from that in March last year,” when the 3-year yield target was introduced. “We are no longer looking over a cliff but instead transitioning from recovery to expansion,” he added. “This improvement has widened the range of plausible scenarios for the cash rate.” The central scenario is still that condition for rate hike “will not be met until 2024″. But he added, ” there are alternative plausible scenarios as well”.

                                On extending asset purchases to AUD 4B a week until just November, Lowe said it “strikes the right balance”. ” It allows the possibility of a timely recalibration of the Bank’s bond purchases in either direction…” and, “we are not locked into any particular path and bond purchases could be scaled up again if economic conditions warrant.”

                                Full speech here.

                                ERG Rees-Mogg’s letter to request no-confidence vote on PM May

                                  Chair of the European Research Group (ERG), Jacob Rees-Mogg, released his letter to Sir Graham Brady, chair of the 1922 Committee, requesting a no confidence vote in Prime Minister Theresa May.

                                  Full text of the letter:

                                  A few weeks ago, in a conversation with the chief whip I expressed my concern that the prime minister, Mrs. Theresa May, was losing the confidence of Conservative members of parliament and that it would be in the interest of the party and the country if she were to stand aside. I have wanted to avoid the disagreeable nature of a formal vote of no confidence with all the ill will that this risks engendering.

                                  Regrettably, the draft withdrawal agreement presented to parliament today has turned out to be worse than anticipated and fails to meet the promises given to the nation by the prime minister, either on her own account or on behalf of us all in the Conservative party manifesto.

                                  That the Conservative and Unionist party is proposing a protocol which would create a different regulatory environment for an integral part of our country stands in contradistinction to our long-held principles. It is in opposition to the prime minister’s clear statements that this was something that no prime minister would ever do and raises questions in relation to Scotland that are open to exploitation by the Scottish National Party.

                                  The 2017 election manifesto said that the United Kingdom would leave the customs union. It did not qualify this statement by saying that we could stay in it via a backstop while annex 2, Article 3 explicitly says that we would have no authority to set our own tariffs. It is also harder to leave this backstop than it is to leave the EU, there is no provision equivalent to article 50 of the Lisbon treaty.

                                  The prime minister also promised an implementation period which was the reason for paying ÂŁ39bn. As was made clear by a House of Lords report in March 2017 there is no legal obligation to pay anything. This has now become an extended period of negotiation which is a different matter.

                                  The situation as regards the European court of justice appears to have wandered from the clear statement that we are taking back control of our laws. Article 174 makes this clear as does article 89 in conjunction with article 4.

                                  It is of considerable importance that politicians stick to their commitments or do not make such commitments in the first place. Regrettably, this is not the situation, therefore, in accordance with the relevant rules and procedures of the Conservative party and the 1922 committee this is a formal letter of no confidence in the leader of the party, the Rt. Hon. Theresa May.

                                  I am copying this letter to the prime minister and the chief whip and although I understand that it is possible for the correspondence to remain confidential I shall be making it public.

                                  Fed Powell: Historical experience doesn’t shed much light on unemployment-inflation relationship

                                    Fed Chair Jerome Powell’s speech at the ECB Forum on Central Banking in Portugal was titled “Monetary Policy at a Time of Uncertainty and Tight Labor Markets“. There he said that growth trend is “not as strong as we would like it to be”. But labor market is “particular robust”. Meanwhile, policymakers have “yet to see “if inflation could remain near to 2% target on “sustained basis”.

                                    Powell also compared the current labor market to the period from  February 1966 through January 1970, when unemployment rate was below 4%. He pointed out that inflation jumped from 2% in 1965 to 5% in 1970. And the unsustainably low unemployment at the time had contributed to escalating inflation.

                                    However, after half a century, Powell said the US economy has “changed in many ways”. And the so called “natural rate of unemployment” is “substantially lower now. The Congressional Budget Office’s estimated natural rate was at 5.75% in late 1960 but at 4.75% currently. Rising education levels was a factor that sent the natural rate down. Also, policymakers have a “greater appreciation” of the role of inflation expectation and and have clearer commitment to maintaining low and stable inflation.

                                    So, Powell said that “historical comparison does not shed as much light as we might have hoped.”

                                    More in the speech here.

                                    UK CBI realized sales rose to 4, re-opening a vital step towards recovery

                                      UK CBI realized sales rose to 4 in July, up from -37. That is, sales were “broadly flat” in the year to July after three months of sharp declines. Nevertheless, sales expected to dip slightly in August, with reading at -5.

                                      Rain Newton-Smith, CBI Chief Economist, said: “The re-opening of non-essential retail was a vital step towards recovery but isn’t a cure-all. The Government has provided critical support for firms and jobs throughout the crisis. But ongoing financial pressures are a major challenge for some retailers, and additional direct support to shore up cash flow, such as extension of business rates relief, should be considered.”

                                      Full release here.

                                      Bundesbank Wedimann, growth to fall well short of 1.5% potential this year

                                        Bundesbank President Jens Weidmann said today that German economy growth will “fall well short of the potential rate of 1.5 percent in 2019”. That’s because “there is much to suggest that the dip in growth here in Germany has persisted into the current year”.

                                        However, he emphasized that the prerequisites for growth remain intact, including low financing cost, expansion in employment market and rising wages. Thus, there is no reason for pessimism yet.

                                        Separately, it’s reported that German cabinet gave green-light for a second eight-year term for Weidmann, as the current term expires at the end of APril.

                                        BoJ stands pat, Kataoka dissents again, little market reaction

                                          No surprise, BoJ left monetary policy unchanged today. Short term policy rate is kept at -0.1%. BoJ will continue to purchase assets at a pace of JPY 80T per annum to keep 10 year JGB yields at around 0%.

                                          Goushi Kataoka dissented again, continued his push to lower yields on JGBs with maturities longer than 10 years.

                                          Quotes from the statement:

                                          • “Japan’s economy is expanding moderately, with a virtuous cycle from income to spending operating”.
                                          • “Japan’s economy is likely to continue its moderate expansion”.
                                          • “Year-on-year rate of change in the CPI is likely to continue on an uptrend and increase toward 2percent”.
                                          • Risks include: US policies, Brexit and geopolitical risks
                                          • BoJ will “continuing expanding the monetary base:” until core CPI exceeds 2% and stays above in a “stable manner.

                                          Full release here.

                                          Little reaction in USD/JPY as it’s on course to extend the rebound from 105.24, following broad based dollar strength.