Thu, Dec 09, 2021 @ 07:49 GMT

Impact of new US tariffs controllable, China not keen to resume trade talks

    The National Development and Reform Commission of China said it’s the overall impact of the latest 25% tariff on around US 300B in Chinese goods is “controllable”. The government has implemented and will continue to carry forward measures to keep growth in a “reasonable range”. And the measures will target to stabilize areas such as consumption, investment and employment. Also, NDRC noted the government will also keep bettering its business environment and leveling the playing field, to ensure the sustainability of investments.

    Separately, Bloomberg reported that China is not very keen in resuming trade negotiations with US, quoting a mysterious blog Taoran Notes (陶然笔记). The blog is believed to be backed by the government and is one of the few voices on China’s negotiations strategy in a censored internet world in the country. The blog piece noted: “We can’t see the U.S. has any substantial sincerity in pushing forward the talks. Rather, it is expanding extreme pressure… If the U.S. ignores the will of the Chinese people, then it probably won’t get an effective response from the Chinese side,” it added.

    WTI upside breakout as OPEC+ eases production cut by 500k bpd

      OPEC and Russia agreed to ease their oil output cut by 500k barrels per day starting January. That is, OPEC_ will cut production by only -7.2m bpd, or -7% of global demand, comparing to current cuts of -7.7m bpd. Additionally, the group will meet every month to review the output policies beyond January, with monthly increases in production not exceeding 500k bpd.

      WTI crude oil broke out of near term range on the news and hit as high as 46.43 so far. Near term outlook will now remain bullish as long as 43.78 support holds. 50 psychological level is the next hurdle. Reaction from there would decide whether the rise from March’s spike low would develop into a sustainable long term up trend.

      Bitcoin in ugly weekend selloff, downside risks remain

        Cryptocurrencies suffered an ugly selloff over the weekend, as Bitcoin dived to as low as 41908, and then recovered and settled in range around 48k/49k. The move was exaggerated by low liquidity and cascading selling and liquidations. But it’s also part of the overall risk-off moves late last week.

        Technically, downside risks will remain in Bitcoin as long as 53299 support turned resistance holds. But we’re not expecting a break of 40k handle for now, which is close to 39559. However, firm break of 39559 could trigger even steeper selling to 30k handle, which is close to 29261.

        US building permits rose to 1.55m, housing starts rose to 1.42m

          US building permits rose 5.2% mom to 1.55m annualized rate in September, above expectation of 1.52m. Housing starts rose 1.9% mom to 1.42m, below expectation of 1.45m.

          Full release here.

          US PPI at 0.1% mom , 0.8% yoy, core CPI at 0.2% mom, 0.8% yoy

            US PPI came in at 0.1% mom, 0.8% yoy, versus expectation of 0.2% mom, 0.8% yoy. PPI core came in at 0.1% mom, 1.4% yoy, versus expectation of 0.2% mom, 1.5% yoy.

            Canada capacity utilization rose to 76.5% in Q3, below expectation of 77.8%.

            BoE Bailey: We will have to act on interest rates if evidence becomes clear

              BoE Governor Andrew Bailey there was “a risk of more bottlenecks in the economy, especially in demand for labour which could fuel expectations of higher inflation.”

              And, “once you start to get an increase in inflation of this sort we want to stop it becoming generalized in the economy.”

              “That’s why we would, and will, have to act on interest rates if we see that evidence becoming clear,” he said.

              BoE revised down growth and inflation forecast, may only hike once through Q1 2022

                In BoE Quarterly Inflation Report, the overall economic projections are rather dovish with downgrade in growth and inflation forecasts. Unemployment rate projections were revised higher. Meanwhile, the projected Bank rate was also revised lower across the forecast horizon. It’s now suggested that BoE may only hike once, within the forecast horizon, possibly in 2020.

                Four-quarter GDP growth:

                • 1.5% in 2019 Q1, down from November forecast of 1.8%
                • 1.3% in 2020 Q1, down from 1.7%
                • 1.7% in 2021 Q1, unchanged
                • 2.0% in 2022 Q1, new

                CPI:

                • 1.8% in 2019 Q1, down from 2.2%.
                • 2.3% in 2020 Q1, down from 2.4%.
                • 2.1% in 2021 Q1, unchanged.
                • 2.1% in 2022 Q1.

                Unemployment rate:

                • 3.9% in 2019 Q1, unchanged.
                • 4.1% in 2020 Q1, up from 3.9%
                • 4.1% in 2021 Q1, up from 3.9%
                • 3.8% in 2022 Q1.

                Bank rate:

                • 0.7% in 2019 Q1, down from 0.8%.
                • 0.9% in 2020 Q1, down from 1.1%
                • 1.0% in 2021 Q1, down from 1.3%.
                • 1.1% in 2022 Q2, new

                 

                Full Inflation Report here.

                UK retail sales dropped -1.4% mom in May, missed expectations

                  UK retail sales dropped -1.4% mom in volume term in May, below expectation of 1.5% mom rise. Sales on volume was still 9.1% higher than in February 2020 before the pandemic. Excluding automotive fuel, sales was down -2.1% mom, below expectation of 4.2% mom rise. Sales excluding automotive fuel was 10.6% above pre-pandemic level.

                  Full release here.

                  Trump offered concession ahead of US-China trade talks, Hong Kong HSI gains 1.35%

                    China’s Vice Premier Liu He, President Xi Jinping’s top economic adviser is traveling to Washington to start the second round of trade talks tomorrow, with US Treasury Secretary Steven Mnuchin. Liu and his team will stay from May 15 to 19 according to a Foreign Ministry spokesperson.

                    Ahead of the meeting, Trump said he was working with Xi to help get Chinese telecoms company ZTE back in to business.

                    https://twitter.com/realDonaldTrump/status/995680316458262533

                    And he added that

                    https://twitter.com/realDonaldTrump/status/995746011321597953

                    White House spokeswoman Lindsay Walters confirmed that US officials were in contact with Beijing about ZTE. And, Commerce Secretary Wilbur Ross is expected to “exercise his independent judgment, consistent with applicable laws and regulations, to resolve the regulatory action involving ZTE based on its facts.”

                    This is seen a concession by Trump ahead of the trade talks. And the news lifted Hong Kong stocks sharply higher. Hong Kong HSI gained 419.02 pts, or 1.35%, to close at 31541.08.

                    ECB Liikanen assures no abrupt sudden changes when QE ends

                      ECB Governing Council member Erkki Liikanen spoke on monetary policy today:

                      • “We have been careful in our communication,” and “we said we’re extending net asset purchases until September and beyond if needed.”
                      • “And our monetary policy is and will be data dependent. So we must follow fresh incoming data every time,”
                      • “A gradual tightening of monetary policy will rest on a more solid basis when indications of inflation rates to potentially temporarily exceed two percent become more prominent in inflation expectations,”
                      • “The euro area inflation rate is sustainable when the ECB’s price stability objective can be met even without an exceptionally accommodative monetary policy,”
                      • ” If the economy will be stronger and more convergence will take place, the role of the net asset purchase program will be smaller. And at the same time the other three elements will gain more importance especially forward guidance.”
                      • But, “there will be no abrupt sudden changes even if one day the net purchases will be finished.”
                      • “Downside risk is mainly political. We must follow that attentively,”

                      USD/JPY weakening ahead of FOMC

                        Fed should leave all the monetary policy measures unchanged today: Fed funds rate should stay unchanged at 0-0.25% and asset purchases at USD120B per month. The focus of the meeting will be on the adjustment of the forward guidance about the asset purchase program. It will be a qualitative, outcome-based guidance as “most” members favored.

                        Additionally, the statement will be accompanied by the updated economic projections and median dot plots about the policy rate outlook. For the former, thanks to the vaccine news, the Fed might upgrade GDP growth and inflation forecasts for 2021. We expect the majority of members would project no rate hike until end-2023. Yet, it is possible that more members would anticipate an increase before that, when compared with the last projections.

                        Some previews here:

                        Dollar is generally holding inside last week’s range for now, except against Yen. USD/JPY’s break of 103.51 temporary now put focus to 103.17 support. Decisive break there resume the down trend from 111.71 towards 101.18 low. If that happens, we might also see a break of 1.2177 temporary top in EUR/USD, and 90 psychological level in Dollar index.

                        RBNZ Orr: Rates will remain low for a number of years

                          RBNZ Governor Adrian Orr said in a speech that some people view global low interest rates as “signs of concern”. But he added “they can also be an opportunity” as “we are confident that rates will remain low for a number of years, providing a great environment to invest.”

                          Orr said “the good news for New Zealand, unlike many other OECD economies, is that our government’s books are in good shape, with room to expand investment, and there is already a strong fiscal impulse underway from public spending and investment.” Also, “we have the trifecta of sound government finances, clear infrastructure demands, and low hurdle rates for investing. The same can be said for corporate balance sheets in New Zealand. With relatively low levels of debt, and ongoing demand for goods and services, our businesses are well positioned.”

                          Orr’s full speech here.

                          BoE revised down growth forecasts notably, despite lower conditioned rate path

                            In the latest BoE quarterly inflation report, GDP growth was revised quite notably low for 2019 and 2020. Four-quarter GDP growth to Q3 2019 was revised down from 1.2% to 1.0%. That for Q3 2020 was revised down from 1.7% to 1.4. Though, that for Q3 2021 was revised up from 2.1% to 2.4%. CPI inflation for Q3 2019 was revised down from 1.8% to 1.7%. That for Q3 2020 was revised up from 1.7% to 1.9%. And that for Q3 2021 was revised up from 2.1% to 2.2%.

                            Bank rate projection was unchanged for Q3 2019, at 0.7%. For Q3 2020 and 2021, Bank Rate forecasts were both revised to 0.5%, down from 0.8% and 0.9% respectively. The path for Bank Rate was implied by forward market interest rates.

                            Full Inflation Report here.

                            China MOFCOM: Candid, effective, constructive and deep exchange on major trade and economic issues with US

                              Regarding the two-day face-to-face US-China trade talks in Shanghai, Chinese Ministry of Commerce said “both sides, according to the consensus reached by the two leaders in Osaka, had a candid, highly effective, constructive and deep exchange on major trade and economic issues of mutual interest”.

                              The Ministry also noted in the statement that “the two sides also discussed that China will increase its procurement of US agricultural products according to domestic needs and the US will create favorable conditions for procurement.”

                              On the Chinese side, Minister of Commerce Zhong Shan and Governor of the People’s Bank of China Yi Gang, participated with involvements from Central Finance Office, Finance Ministry, Foreign Affairs Ministry, Industry and Information Technology Ministry, Central Agricultural Office, Ministry of Agriculture, etc.

                              Next high-level trade meeting will be held in the US in September.

                              China Caixin PMI manufacturing rose to 50, pandemic impacts demand, supply and circulation

                                China Caixin PMI Manufacturing rose from 49.2 to 50.0 in September, above expectation of 49.6. Caixin said new orders returned to growth. Output fell at softer pace. Inflation pressures picked up amid material shortages.

                                Wang Zhe, Senior Economist at Caixin Insight Group said: “On the one hand, the epidemic continued to impact demand, supply, and circulation in the manufacturing sector. The state of the epidemic overseas and the shortage of shipping capacity also dragged down total demand. Epidemic control measures have clearly impacted the logistics industry.”

                                Also released, the official NBS PMI Manufacturing dropped from 50.1 to 49.6 in September, versus expectation of 50.2. PMI Non-Manufacturing rose from 47.5 to 53.2, above expectation of 50.8.

                                Into US session: Euro loses some ground, ECB press conference awaited

                                  Entering into US session, Euro trades mildly softer after ECB left interest rates unchanged as widely expected. Main refinancing rate is held at 0.00%, marginal lending facility rate at 0.25%, deposit facility rate at -0.40%. Yen remains the strongest one as supported by strength in JGB yields. 10 year JGB yield hit as high as 0.099 before closing at 0.09. Australian Dollar and New Zealand reversed earlier gain and turn broadly lower. On the other hand, Dollar is regaining some ground for today.

                                  But for the week, Canadian Dollar remains the strongest one, followed by Yen. Euro and Dollar are taking turn to be the weakest. ECB President Mario Draghi holds the key to unlock a direction in EUR/USD. But he’s likely hold it to his chest in today’s press conference.

                                  In other markets, stocks are mixed. Germany responds very well to the EU Juncker’s assessment and Trump’s concessions. At the timing of writing, DAX is up 1.38%, CAC is up 0.35%. FTSE, on the other hand, is flat. Risk aversion was dominant in Asia though. China Shanghai SSE closed down -0.74%, Hong Kong HSI down -0.48%. Nikkei also lost -0.12%.

                                  The offshore Chinese yuan continues to stabilize against dollar today. USD/CNH once dipped to as low as 6.733 earlier today but recovered to above 6.78. For now, there is no clear sign of a trend reversal yet. That is Yuan is still technically in a near term down trend. But at least, it’s past the climax of selloff. And we’d likely see more consolidation below 6.85.

                                  US PCE inflation remains muted, income surged while spending dived

                                    US personal income rose 1.0% in December, beat expectation of 0.3%. That’s the biggest rise since 2012. Personal spending dropped -0.5%, missed expectation of 0.1%. The decline in spending was the steepest since 2009. Inflation data are muted. Headline PCE slowed to 1.7% yoy, down from 1.8% yoy. PCE core was unchanged at 1.9% yoy.

                                    From Canada, GDP dropped -0.1% mom in December, below expectation of 0.0% mom.

                                    Eurozone PMI composite finalized at 53.1, notable slowdown in Italy

                                      Eurozone PMI services was finalized at 53.7 in October, down from prior month’s 54.7. PMI composite was finalized at 53.1, down from September’s 54.1. Among the countries, Italy PMI composite dropped to 49.3, a 59-month low. German PMI composite also dropped to 5-month low at 53.4.

                                      Chris Williamson, Chief Business Economist at IHS Markit said:

                                      “Eurozone companies reported a disappointing start to the fourth quarter. Business activity is growing at its slowest rate for over two years and expectations have slumped to the bleakest since the end of 2014.

                                      “An export-led slowdown, linked to growing trade tensions and tariffs, has been exacerbated by rising political uncertainty, growing risk aversion and tightening financial conditions. The slowdown has consequently become more broad-based to increasingly envelop the services economy.

                                      “While the PMI numbers hint at an upward revision to the 0.2% flash estimate of third quarter GDP growth, it’s clear that the economy has slowed and that the weakness has intensified into the fourth quarter.

                                      “Italy has recorded an especially noticeable slowdown, slipping into decline during October, whilst Germany has also seen a worrying easing of growth, with both countries affected by rising political uncertainty. France and Spain, in contrast, have seen more resilient business conditions, though both are registering much slower growth than earlier in the year.”

                                      Full release here.

                                      Today’s top mover: GBP/NZD in near term consolidation, medium term bearish

                                        GBP/NZD is the biggest mover today as Sterling suffered renewed selling. On the other hand, Kiwi and Aussie remain firm despite rally in Dollar.

                                        Nevertheless, GBP/NZD is staying above 1.8659 support despite today’s fall. It’s technically staying in consolidation and more sideway trading could be seen. But even in case of another recovery, upside should be limited by 1.9282 resistance to bring fall resumption.

                                        In our view, the medium term corrective rise from 1.6684 (2016 low) should have completed at 2.0469. Fall from 2.0469 is still in progress. Break of 1.8659 would target 61.8% retracement of 1.6684 to 2.0469 at 1.8130.

                                        Swiss KOF dropped to 113.5, 4th wave of pandemic fueling doubts on economy

                                          Swiss KOF Economic Barometer dropped for the third month in a row to 113.5 in August, below expectation of 126.3. However, it’;s still well above it’s average value of 100. KOF said, “the fourth wave of the pandemic, which is now becoming increasingly clear, is apparently fueling doubts about largely unhindered economic activity in the near future.”

                                          Full release here.