ECB minutes: Policy rates not yet reached reversal rate

    In the December 11-12 monetary policy accounts, ECB said incoming data since October pointed to “continued weakness” in Eurozone growth dynamics, but there were “some initial signs of stabilisation”. Inflation development remained “subdued overall” while there were “some indications of a slight increase in measures of underlying inflation in line with previous expectations.”

    Policy makers were confidence that current monetary policy would “provide the necessary monetary stimulus” to support stabilization of growth. “Perceptions of receding uncertainties” regarding US-China trade dispute also supported positive market sentiments and equity prices.

    There was “broad agreement” on the need to carefully monitor incoming data and evolution of risks. Some members highlighted the need to be “attentive to the possible side effects” of current policy measures. But “confidence was expressed that policy rates had not yet reached the so-called reversal rate”.

    Full accounts here.

    EU Barnier: UK cannot impose a short negotiation calendar, but not move

      EU chief Brexit negotiator Michel Barnier complained that “the United Kingdom cannot impose this very short calendar for negotiations and at the same time not move, not progress on certain subjects that are important for the European Union.”

      At the same time, “we cannot accept selective progress on a limited set of issues only. We need to find solutions on the most difficult topics,” he added. “The UK cannot refuse to extend the transition period and at the same time slow down discussions on important areas.” To be more specific, he said the UK “failed to engage substantially” on issues such as a future trade deal and that “we made no progress on fisheries”.

      There will be two more rounds of talks in the week of May 11 and June 1, before a high-level meeting in June to review the negotiation progress. Barnier warned, “we must use these rounds to make real, tangible progress across all areas.”

      Germany unemployment rate unchanged at 5%, EUR/CAD in medium term bullish reversal

        Germany unemployment rate was unchanged at 5.0% in February, matched expectations. Unemployment dropped -10k, versus expectation of 3k rise. Import price index dropped -0.4%% mom in January, versus expectation of 0.2% mom. Euro remains one of the strongest one for the week pays little attention to the data.

        In particular EUR/CAD’s strong break of 1.4719 resistance suggests medium term reversal. That is, whole corrective decline from 1.6151 (2018 high) has completed with three waves down to 1.4263, after missing 100% projection of 1.6151 to 1.4759 from 1.5645 at 1.4253. Further rise should now be seen back to 1.4994 resistance. Sustained break there will further around this bullish case.

        Eurozone PMIs: Two-speed economy with common cost pressures

          Eurozone PMI Manufacturing dropped from 56.5 to 55.3 in April, above expectation of 54.5. That’s the lowest level in 15 months. PMI Services rose from 55.6 to 57.7, above expectation of 55.0. That’s the highest level in 8 months. PMI Composite rose from 54.9 to 55.8, a 7-month high.

          Chris Williamson, Chief Business Economist at S&P Global said:

          “April saw a two-speed eurozone economy. Manufacturing came close to stalling due to ongoing supply constraints, rising prices and signs of spending being hit by risk aversion due to the war. However, April also saw manufacturers suffer due to a shift in demand from goods to services amid looser pandemic restrictions, most notably via a record surge in spending on activities such as travel and recreation.

          “Common across both sectors, however, was a further surge in cost pressures, driven by soaring energy and raw material costs, as well as rising wages. Average prices charged for goods and services rose at an unprecedented rate in April as these higher costs were passed on to customers, sending a worrying signal that inflationary pressures continue to build.”

          Full release here.

          New coronavirus variant sends HK HSI sharply lower

            Asian stocks tumble deeply today while US futures are trading sharply lower. The development reflects worries over a new coronavirus variant detected in South Africa. The country’s Health Minister Joe Phaahla warned that there has been “more of an exponential rise” in infections over the last four of five days.

            UK is banning flights from South Africa and five other southern African countries. Health Secretary Sajid Javid said there were concerns the new variant “may be more transmissible” than the dominant delta strain, and “the vaccines that we currently have may be less effective” against it.

            Hong Kong HSI tumbles sharply today in reaction to the new variant news. HSI is trading well inside medium-term falling channel from 31183.35 high. Rejection by 55 day EMA also keeps outlook bearish. We’re looking at deeper fall to 23681.43 first and then 61.8% projection of 29394.68 to 23681.43 from 26234.93 at 22704.14 next.

            Mnuchin: English version of US-China trade deal to be released at the day of signing

              US Treasury Secretary Steven Mnuchin told Fox News Channel that the US-China trade deal phase one is a “very, very extensive agreement”. And, “it is USD 200B of additional products across the board over the next two years, and, specifically in agriculture, USD 40B to USD 50B.”

              He also emphasized that the deal “wasn’t changed in translation”. The translation process was a “technical issue”. At the day of signing, the administration “will be releasing the English version”. It’s reported that the final Chinese text was not completed yet.

              China Vice Premier Liu He will lead a delegation to the US today and is set to sign the trade deal in Washington on Wednesday.

              Germany Ifo business climate ticked down to 92.3

                Germany Ifo business climate dropped slightly from 93.0 to 92.3 in June, below expectation of 92.9. Current assessment index dropped from 99.6 to 99.3, above expectation of 99.0. Expectations index dropped 86.9 to 85.8, below expectation of 87.4.

                By sector, manufacturing dropped from 2.7 to 0.3. Service rose from 8.2 to 10.8. Trade dropped from -10.7 to -14.8. Construction rose from -13.4 to -9.7.

                Ifo said: “Companies were somewhat less satisfied with their current business situation. Their expectations turned markedly more pessimistic. The threat of gas shortages is of great concern to the German economy.”

                Full release here.

                German retail sales dropped -0.6% mom in May, 10-year bund yield hits new record low

                  German retail sales dropped -0.6% mom in May, well below expectation of 0.5% mom. Compared with 2018, for the first fives months of the year, retail sales rose 2.8% in real terms. The weak data dampened hope that domestic demand could offset the drag from global trade on the export-led economy. Euro is steady after the release. But German 10-year bund yield is extending recent record run, hitting as low as -0.362 so far today.

                  Full release here.

                  Fed chair Powell’s testimony, live stream

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                    Introductory statement.

                    Australia recorded second largest trade surplus in Jan, but retail sales missed

                      Australia trade surplus widened to AUD 4.55B in January, up from AUD 3.77B and beat expectation of AUD 2.90B. That’s also the second largest surplus on record. Exports rose 5% to AUD 1.90B while imports rose 3% to AUD 1.12B.

                      However, retail sales was disappointing. Sales grew merely 0.1% mom in January, rebounding from -0.4% decline in prior month, but missed expectation of 0.3% mom.

                      Also from Australia, AiG Performance of Construction index rose 0.7 to 43.8 in February, indicating a slower rate of contraction.

                      Japan CPI core slowed to 0.2% yoy in Jan, CPI core core dropped to -1.1% yoy

                        Japan all item CPI slowed from 0.8% yoy to 0.5% yoy in January, below expectation of 0.6% yoy. CPI core (all item less fresh food) dropped from 0.5% yoy to 0.2% yoy, below expectation of 0.3% yoy. CPI core-core (all item less fresh food and energy), dropped from -0.7% yoy to -1.1% yoy, below expectation of -0.7% yoy.

                        Finance Minister Shunichi Suzuki said recent prices rises were “driven mostly by increases in energy costs”, though forex moves also has had some impact. He added, “if inflation rises before improvement in job market, wage hikes kick in, that could affect consumption.”

                        New Zealand imports and exports surged in March, but trade with China shrank

                          New Zealand’s imports rose 7.7% yoy to NZD 5.1B in March while exports rose 3.8% yoy to NZD 5.8B. Trade surplus came in at NZD 672m, smaller than expectation of NZD 700m.

                          Trade with its largest partner, China, continued to drop. Imports from China dropped -10% yoy to NZD 714m. Exports to China dropped -5.8% yoy to NZD 1.4B. Meanwhile, exports to Australia also dropped -8.9% yoy to NZD 738m. But exports to US rose 9.4% to NZD 623m. Exports to EU rose 8.2% yoy to NZD 595m. Exports to Japan also rose 22% yoy to NZD 352m.

                           

                          Full release here.

                          Fed to hike 50bps today, but what next? Some previews

                            Fed is widely expected to raise federal funds rate by 50bps to 0.75-1.00% today. With markets pricing in 99.1% chance of that, there is no reason for Fed to rock the boat. Also, Fed is expected to announce the plan for runoff of its USD 9T balance sheeting, at a pace of roughly USD 95B per month (USD 60B in treasuries and USD 35B in MBS). That would be twice the speed of its quantitative tightening back in 2017.

                            Still, the main question is what next. Fed fund futures are currently pricing in 99.1% chance of another front-loading move in June to 1.50-1.75%. That is, a 75bps hike is near fully priced in for the next meeting. Markets would be eager to get some hints from Chair Jerome Powell on such expectations. But then, Powell is unlikely to give anything concrete.

                            Here are some previews on FOMC:

                            In term of market reactions, the first two to note is whether EUR/USD would break through 1.0470 support to resume larger down trend. Second, attention is on whether 10-year yield would power through 3% handle.

                            Also, if Dollar is going to power up, Gold might re-accelerate downwards to 100% projection of 2070.06 to 1889.79 from 1998.23 at 1817.86, or even through it. Development in Gold would be used to confirm the underlying strength in Dollar.

                            Eurozone CPI rose to 10% yoy in Sep, energy up 40.8% yoy, food up 11.8% yoy

                              Eurozone CPI accelerated further from 9.1% yoy to 10.0% yoy in September, above expectation of 9.1% yoy. CPI core (ex-energy, food, alcohol & tobacco) also rose from 4.3% yoy to 4.8% yoy, above expectation of 4.7% yoy.

                              Looking at the main components , energy is expected to have the highest annual rate in September (40.8%, compared with 38.6% in August), followed by food, alcohol & tobacco (11.8%, compared with 10.6% in August), non-energy industrial goods (5.6%, compared with 5.1% in August) and services (4.3%, compared with 3.8% in August).

                              Full release here.

                              Germany factor orders dropped -6.9% mom in Oct, as foreign orders tumbled

                                Germany factory orders dropped sharply by -6.9% mom in October, much worse than expectation of -0.2% mom decline. Not including major orders, a 1.8% decrease in new orders in manufacturing was recorded.

                                Looking at some details, domestic orders rose 3.4% mom. Foreign orders dropped -13.1%. New orders from Eurozone dropped -3.2% mom. The fall in new orders from other countries amounted to 18.1% in the current month (last month +15.7%), influenced by the absence of major orders in the sector of manufacture of machinery and equipment.

                                Compared with October 2020, new orders were also down -1.0% mom yoy. That;s the first decreased since September 2020. New orders in the period January to October 2021 as a whole increased by 20.8% on the same period a year earlier. Comparing with pre-pandemic February 2020, new orders were 1.7% higher.

                                Full release here.

                                Eurozone PMI composite finalized at 50.2, barely grow for two months

                                  Eurozone economy showed little momentum in February, with PMI Services finalizing at 50.6, down from 51.3 in January, while PMI Composite was unchanged at 50.2.

                                  The picture was mixed across the region with Spain, Ireland, and Italy showing signs of expansion, while Germany’s services sector slowed and France’s continued its sharp contraction, posting its lowest reading in 13 months at 45.1.

                                  Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, noted that services growth is barely offsetting the prolonged slump in manufacturing. He pointed to rising input costs, particularly wage pressures, as a growing concern for ECB.

                                  Political uncertainty in key economies is also weighing on sentiment. France’s services sector is deteriorating at a much faster pace, likely influenced by unresolved political instability. In contrast, Germany’s services sector, though slowing, remains in expansion, with hopes that post-election stability could support economic recovery.

                                  However, with external risks from trade tensions and weak consumer spending, a decisive rebound in Eurozone remains uncertain.

                                  Full Eurozone PMI services final release here.

                                  UK unemployment rate dropped to 4.0%, lowest since 1975, Sterling jumps

                                    Sterling rises mildly after better than expected job data. Unemployment rate dropped to 4.0% in November, down from 4.1% and beat expectation of 4.1%. That’s also the lowest level since February 1975. Wage growth also shows sign of pick up. Average earnings including bonus accelerated to 3.4% 3moy, above expectation of 3.3% 3moy. Average earnings excluding bonus rose 3.3% 3moy, unchanged. Claimant count rose 20.8k in December, slightly above expectation of 20.0k.

                                    Full release here.

                                    BoJ’s Ueda: Vigilant on upside inflation risks, signals readiness for stronger action

                                      BoJ Governor Kazuo Ueda emphasized today that the central bank remains “vigilant” to upside surprises in “underlying inflation.

                                      While recent “very high” inflation has been driven largely by temporary factors like import costs and food prices, there’s still a possibility that underlying inflation could accelerate more quickly than expected.

                                      Ueda warned that if such “broad-based inflation” materializes, BoJ would need to respond by raising interest rates and even take “stronger steps”.

                                      However, for now, he reaffirmed the view that underlying inflation remains “just a bit” short of the 2% target, though it is on track to gradually converge to that level.

                                      Meanwhile, data released today showed Japan’s services producer price index rose 3.0% yoy in February, a deceleration from January’s 3.2% and below expectations of 3.1%.

                                       

                                       

                                       

                                      Asian stocks drop broadly after Canada arrests Huawei CEO, Yen Strong

                                        Asian markets are staying in selloff mode on global slow down concerns. Additionally, Hong Kong stocks lead decline on news of arrest of Chinese tech giant Huawei’s CFO Meng Wanzhou. The arrest is reported to be in relation to Huawei violating US sanctions by shipping US originated products to Iran and some other countries. Canada also confirmed that Meng is facing extradition to the US. The arrest also prompted concerns over Chinese retaliation on US executives.

                                        For now, Nikkei is down -1.84% or -404.35 pts. China Shanghai SSE is down -1.28%. Singapore Strait Times is down -1.25%. Hong Kong HSI is down -2.6% or -703 pts. The HSI’s gap down and steep decline today argues that recent recovery from 24540.63 has completed earlier than expected at 27260.43. With strong break of 55 day EMA, deeper fall would be in favor in near term back to retest 24540.63 low. More importantly, the corrective structure of the rebound retains medium term bearishness for new low at a later stage.

                                        In the current currency markets, Australian leads the way down again on risk aversion and smaller than expected trade surplus data. Canadian Dollar also stays pressured after yesterday’s dovish BoC statement. Yen is the strongest one, followed by Swiss Franc and then Dollar.

                                        New Zealand Manufacturing PMI dropped to 50.2, lowest since 2012, downside risks accumulating

                                          New Zealand BusinessNZ Manufacturing PMI dropped to 50.2 in May, down from 52.7. Also, it’s the lowest reading since December 2012. BusinessNZ’s executive director for manufacturing Catherine Beard said that the drop in activity to its lowest point in over six years was obviously a concern, especially when the sub-index values are examined.

                                          She added: “Production (46.4) was at its lowest value since April 2012, while the other key sub-index of new orders (50.4) only just managed to stay in positive territory.  Given the latter feeds through into the former, it does not instil a strong belief that the sector will show solid improvement over the next few months”.

                                          BNZ Senior Economist, Doug Steel said that “the PMI sends a warning signal for near term growth via its mix of falling production, near flat new orders, and rising inventory. Next week’s Q1 GDP should be reasonable, but beyond this downside risks are accumulating”.

                                          Full release here.