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Swiss KOF dropped to 93.6, downward tendency flattening out

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    Swiss KOF Economic Barometer dropped to 93.6 in June, down from 93.8 and missed expectation of 94.9. KOF said “the downward tendency that has been present since the beginning of the year is now flattening out.” But economic outlook “remains dampened” in the middle of 2019.

    The almost unchanged reading is primarily due to balancing tendencies in foreign demand, the goods producing sector (manufacturing and construction) and private consumption. While indicators show a positive tendency with regard to foreign demand, the joint indicators of the goods producing sector and private consumption point in the opposite direction with almost equal magnitude. In addition, there is a slight slowdown in the banking and insurance sector.

    Full release here.

    UK PM May: No-deal Brexit is not the end of the world

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      UK Prime Minister Theresa May cited endorsed remarks by Roberto Azevêdo, the director general of the World Trade Organization regarding no-deal Brexit. May said, a no-deal situation “will not be a walk in the park, but it wouldn’t be the end of the world”. May added that “what the government is doing is putting in place the preparation such that if we are in that situation, we can make a success of it, just as we can make a success of a good deal.”

      Chancellor of Exchequer Philip Hammond warned last week that a no-deal Brexit would costs UK GBP 80B in extra borrowing and inhibit long term growth. But May tried to talk that down and said the figures dated back to January and “they were a work in progress at that particular time.” Regarding the time frame of Brexit negotiation, May said “we are all working to the October deadline” because “from our point of view there is some legislation we have to get through parliament”.

      Separately, German Foreign Minister Heiko Maas said “Regrettably, a hard Brexit is not off the table.” French Prime Minister Edouard Philippe also “tasked ministers to prepare contingency measures that would be necessary … to mitigate the difficulties linked with this unprecedented challenge”.

      Japan’s PMI manufacturing unchanged at 48.5, worst slump in eight months

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        ActionForex.com
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        October saw Japan’s PMI Manufacturing remain unchanged at 48.5, missing expectations of 48.9 and marking the fifth consecutive month showing deteriorating operating conditions. Additionally, PMI Services and PMI Composite displayed downturns, with the former dropping from 53.8 to 51.1 and the latter declining from 52.1 to a sub-50 figure of 49.9.

        Jingyi Pan, Economics Associate Director at S&P Global Market Intelligence, noted that this is the first instance of a decline in business activity for the private sector since December 2022. The drop, albeit marginal, was primarily due to a more pronounced decrease in manufacturing output – the fastest rate seen in eight months. On the other hand, services activity did continue its expansion, albeit at its slowest pace for the year.

        The overall sentiment among firms was not particularly encouraging either. They expressed the least optimism since the beginning of the year concerning future output, suggesting a tempered outlook for the immediate future. However, a silver lining in the employment sector, which saw a resurgence, particularly in the service sector.

        On the pricing front, both manufacturing and service sectors experienced diminished cost pressures. This deceleration resulted in output prices within the private sector rising at their most muted pace since February 2022.

        Full Japan PMI release here.

        US initial jobless claims dropped to 203k, trade deficit narrowed to $47.2B

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          ActionForex.com
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          US initial jobless claims dropped -10k to 203k in the week ending November 30, below expectation of 215k. Four-week moving average dropped -2k to 217.75k.

          Continuing claims rose 51k to 1.693m in the week ending November 23. Four-week moving average of continuing claims was unchanged at 1.681m.

          US trade deficit dropped -7.6% mom to USD -47.2B in October, smaller than expectation of USD -48.7B. Imports dropped -1.7% mom to USD 254.3B. Exports dropped -0.2% to USD -207.1B.

           

          Democrats to offer a deal to end government shutdown without border wall

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            The partial US government shutdown is now in its second week. Democrats, who will take control over House with 36-seat majority, plan to vote on a two-part package on Thursday, intending to break the deadlock. One part of the package include a bundle of six measures worth USD 265B for funding non homeland security agencies through September 30. The second part include funding for the Department of Homeland Security through February 8, and provide $1.3 billion for border fencing and $300 million for other border security items including technology and cameras. But there won’t be funding for the border wall that Trump demanded and shut down the government for.

            Democrat leaders Nancy Pelosi and Chuck Schumer said in a joint statement that “While President Trump drags the nation into Week Two of the Trump Shutdown and sits in the White House and tweets, without offering any plan that can pass both chambers of Congress, Democrats are taking action to lead our country out of this mess.”

            The fate of the Democrats’ package is rather uncertain in the Republican controlled Senate. spokesman for Senate Republican leader Mitch McConnell already said “It’s simple: The Senate is not going to send something to the president that he won’t sign.”

            But Trump himself hinted that he might want to make a deal.

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            RBNZ’s Orr stands firm on restrictive policy to combat persistent inflation

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              RBNZ Governor Adrian Orr, in a parliamentary committee appearance today, articulated a firm stance on maintaining restrictive monetary policy to tackle the country’s higher-than-desired inflation rate.

              Currently sitting at 4.7%, New Zealand’s inflation remains “too high” and overshoots RBNZ’s target band of 1% to 3%

              “That’s why we’ve retained a restrictive monetary policy stance with the official cash rate at 5.5%, and we’ll be back at the end of this month again with our updated views on the wisdom of that stance.”

              Deputy Governor Christian Hawkesby provided additional insights, noting the resilience of New Zealand’s financial system and the capacity of consumers to absorb higher interest rates.

              “The vast majority of households have continued to manage the debt and service their mortgages, although some are struggling and falling behind,” Hawkesby added.

              More responses on EU-US trade negotiations

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                Finance Minister Bruno Le Maire urged that “each side, the Europeans and the Americans, must find something in these discussions”, and, “any trade deal must be based on reciprocity”. He also emphasized that agriculture must be excluded from the trade negotiations. To him, Europe could not ease its food safety and environmental norms. Also, he seems to prefer more focus in the negotiation and said “we don’t want to enter into a negotiation a wide-ranging deal.”

                German Foreign Minister Heiko Maas welcomed the results even though “this is not yet the result we are aiming for”. He acknowledged that “it has made a positive result in the whole discussion…on free trade or protectionism more likely than before.” Economy Minister Peter Altmaier also expressed his optimism that ” we can get a good result in the coming weeks and months.”

                Department for International Trade said in statement that “we welcome the agreement by the U.S. and the EU to work together to reduce barriers to trade and to further increase trade and investment.” And, “we look forward to progress towards the removal of steel and aluminum tariffs and de-escalation of the tit-for-tat action that could harm businesses and jobs on both sides of the Atlantic.”

                RBA Debelle: Too uncertain to assess coronavirus impacts beyond Q1

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                  RBA Governor Guy Debelle said in a speech that because of the coronavirus, the global economy will be “materially weaker” in Q1 and in the period ahead. For Australia, RBA has estimated the impact of education and tourism sectors. These services exports, which account for 5% of GDP, would drop at least -10% in Q1. That translates into -0.5% subtraction of GDP just from these two sources. But that, he added, “it is just too uncertain to assess the impact of the virus beyond the March quarter.”

                  Debelle also said, the coronavirus is “a shock to both demand and supply”. Monetary policy “does not have an effect” on the supply side. But It can work to “ensure demand is stronger than it otherwise would be”. The government’s intention to support jobs, incomes, small business and investment will “provide welcome support” to the economy. “The combined effect of fiscal and monetary policy will help us navigate a difficult period for the Australian economy.”

                  Debelle’s full speech here.

                  Fed George not inclined to dismiss inflation signals

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                    ActionForex.com
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                    Kansas City Fed President Esther George said she’s “not inclined to dismiss today’s pricing signals or to be overly reliant on historical relationships and dynamics in judging the outlook for inflation.” But she didn’t explicitly indicated whether she’s ready to adjust monetary policy for now.

                    “The structure of the economy changes over time, and it will be important to adapt to new circumstances rather than adhere to a rigid formulation of policy reactions,” she said. “With a tremendous amount of fiscal stimulus flowing through the economy, the landscape could unfold quite differently than the one that shaped the thinking”.

                    BoE Bailey: CPI on course to halve by end of year

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                      ActionForex.com
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                      BoE Governor Andrew Bailey said in the post meeting press conference, “we have to stay the course to make sure inflation falls all the way back to the 2% target.”

                      Nevertheless he expected the rise in bank rates since December to “weigh more on the economy in the coming quarters”.

                      Inflation is “expected to fall sharply over the coming months, starting in April.” He added, “consumer price inflation is on course to halve by the end of this year.”

                      As for the economy, he said, “today we are forecasting modest but positive growth and a much smaller increase in unemployment.”

                      BoE Bailey: Minutes don’t imply the possibility of negative interest rate

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                        ActionForex.com
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                        In the MPC meeting minutes released last week, BoE indicated that it’s looking at how it would implement negative interest rates effectively when necessary. But Governor Andrew Bailey said in an online talk today, “it doesn’t imply anything about the possibility of us using negative instruments.”

                        “We have looked hard at the question of what scope is to cut interest rates further and particularly negative interest rates,” he added. He also noted the the experience of negative rates elsewhere was “mixed” only. The effective depends on the structure of the banking system and the timing of the move.

                        Also, Bailey acknowledged the resurgence of coronavirus infections in UK was “very unfortunate” and “does reinforce the downside risks”.

                        BoJ Uchida: Monetary easing to continue to nurture firms’ changing pricing strategies

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                          ActionForex.com
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                          BoJ Deputy Governor Shinichi Uchida highlighted in a speech today an emerging trend in firms’ pricing strategies, noting that “firms are developing more forward-looking strategies for setting prices.” According to Uchida, these changes “might be the chance to finally change Japan’s economy.” Hence, he emphasized BoJ will “patiently continue with monetary easing to carefully nurture these signs.”

                          Uchida was explicit in outlining the Bank’s monetary policy stances. Firstly, he ruled out near-term adjustments to short-term interest rate, currently at -0.10%, stating “there is still a long way to go before such decisions are made.”

                          Secondly, BoJ will “maintain the current framework” until sustainable and stable achievement of 2% inflation target “come in sight”.

                          Thirdly, Uchida affirmed the ongoing yield curve control under the present policy framework, aiming to balance its benefits and drawbacks, especially in relation to financial intermediation and the market.

                          Despite the high economic and price outlook uncertainty, Uchida stated the recent yield curve control modification, allowing the 10-year JGB yield to rise to up to 1%, is aimed at sustaining the ultra-loose policy. “Needless to say, we do not have an exit from monetary easing in mind,” he emphasized.

                          DOW hits new record, 33000 as next major target

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                            ActionForex.com
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                            DOW opens sharply higher today and extends gains to new record high at 30525.56 (so far). 38.2% projection of 18213.65 to 29199.35 from 26143.77 at 30340.30 is a strong sign of solid underlying buying. If DOW could close above this level today, we’re likely see some more upside acceleration in the near term. Next major target is 61.8% projection at 32932.93.

                            Japan industrial production rose 1.0% mom in Jul, auto jumped 12%

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                              ActionForex.com
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                              Japan industrial production grew 1.0% mom in July, way better than expectation of -0.5% mom decline. The Ministry of Economy, Trade and Industry maintained its output assessment, “fluctuates indecisively” reflecting the ups and downs in production in recent months.

                              Six of the 15 industries reported output increases while eight declined. The auto industry saw the biggest increase by sector, by 12.0% mom.

                              Based on a poll of manufacturers, the ministry expects industrial output to grow 5.5 percent in August and rise 0.8 percent in September.

                              Also released, retail trade rose 2.4% yoy in July, above expectation of 1.9% yoy.

                              ECB Lagarde: Effective communications to remain of paramount importance

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                                In a speech today, ECB President Christine Lagarde emphasized two key reasons for the need of effective communications by central banks: “high inflation and high levels of attention on inflation.”

                                According to Lagarde, “While inflation is now falling, effective communication is likely to remain of paramount importance even after the current inflation spike is over,” she said.

                                Lagarde also highlighted the critical role that central banks play in anchoring inflation expectations. As various economic factors, such as relative price changes, come into play, it becomes even more important for central banks to maintain public confidence in their ability to ensure price stability.

                                The focus on inflation presents both an opportunity and a risk for central banks, Lagarde pointed out. On the one hand, the heightened public awareness around inflation could lead to unstable inflation expectations, posing a significant challenge for policy-makers. On the other hand, this increased attention gives central banks a valuable opportunity to communicate their commitment to price stability and to anchor public expectations.

                                Full speech of ECB Lagarde here.

                                BoE Broadbent warns sequence of Brexit events in the coming months could change economic outlook materially

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                                  ActionForex.com
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                                  BoE Deputy Governor Ben Broadbent reiterated in a CNBC interview that the central bank’s forecasts were “conditioned on an assumption that there will be a deal” on Brexit. In particular, there would be a “transition period agreed”. And to him, a Brexit deal is still “the most likely outcome”. However, he also emphasized that “the sequence of events over the next two to three months could change the outlook materially,”

                                  On recent volatility in Pound exchange rate he noted “obviously, over time, every day there are headlines, positive, negative, which will send the currency in particular in one direction or the other.”

                                  On the economy, He said that “even though GDP (gross domestic product) growth has been weaker than certainly pre-crisis rates, it’s been strong enough to allow the unemployment rate to fall further to reach 40-year lows and that in turn has been strong enough to push our wage growth which is momentarily higher since any time since the crisis,”

                                  He added that “we’ve certainly seen stronger figures, not just in the official data but in many of the pay surveys, than we’ve seen for many years.” And, the MPC “always believed that the same old rules applied — that as the labor market tightened you would begin to see faster wage growth, and that’s indeed what we’ve seen.”

                                  While Broadbent was still optimistic on Brexit deal, the developments from the weekend were negative. Prime Minister Theresa May has called off an special cabinet meeting on Brexit today, due to objections to her plan from within the party. Fresh selling is seen in the Pound on news that the extra EU summit is now ruled out as there won’t be enough progress to make it meaningful.

                                  UK retail sales volume down -0.3% mom in Sep, sales value down up 0.1% mom

                                    By
                                    ActionForex.com
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                                    UK retail sales volume fell -0.3% mom in September, much worse than expectation of 0.3 mom rise. Ex-automotive fuel sales volume fell -0.1% mom.

                                    Looking broader, sales volumes (include and excluding fuel) fell by -1.1% in the three months to October 2023 when compared with the previous three months.

                                    In value term, retail sales rose 0.1% mom while ex-fuel sales was flat 0.0% mom.

                                    Full UK retail sales release here.

                                    New Zealand BNZ services falls to 48.8, back in contraction

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                                      ActionForex.com
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                                      New Zealand BusinessNZ Performance of Services Index fell from 51.1 to 48.8 in December, back into contraction territory. This downturn also brings the index below long-term average of 53.4. The increase in negative sentiment is evident, with the proportion of negative comments rising from 54.0% to 58.7%. The primary concerns expressed by businesses revolve around seasonal factors, increasing costs of living, and an overall economic slowdown.

                                      Breaking down the PSI, several key components showed declines. Activity and sales dropped from 48.7 to 47.1, employment fell from 50.6 to 47.5, and new orders/business dipped from 52.2 to 51.2. Additionally, stocks and inventories decreased from 55.0 to 51.5, while supplier deliveries also saw a reduction from 52.8 to 50.5.

                                      Stephen Toplis, BNZ’s Head of Research noted that the softening in PSI, combined with the previously reported weakness in Performance of Manufacturing Index, paints a concerning picture for New Zealand’s near-term economic growth and employment. While tourism has been a critical driver for the services sector and is expected to continue supporting the economy, Toplis emphasized that it cannot solely bear the burden of economic revitalization.

                                      Full NZ BNZ PSI release here.

                                      RBA minutes: Case for a smaller 25bps hike stronger

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                                        ActionForex.com
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                                        Minutes of RBA October 4 meeting revealed that members “carefully considered two options” of 50bps and 25bps rate hike. The arguments for a 25bps hike “rested on the risks to global and domestic growth, and the potential for inflation to subside quickly”.

                                        Wages growth had “not reached levels that would be inconsistent with the inflation target”. External inflation pressures “might ease quickly given that the global outlook had deteriorated”. There was also an argument to slow for a time to “assess the effects of the significant increases in interest rates to date”.

                                        RBA said the arguments for both options were “finely balanced”, with the case of 25bps hike stronger. “A smaller increase than that agreed at preceding meetings was warranted given that the cash rate had been increased substantially in a short period of time and the full effect of that increase lay ahead.”

                                        At the meeting, RBA raised the cash rate target by 25bps to 2.60%.

                                        Full minutes here.

                                        China hit back on treatment of Huawei and three core issues in trade negotiations with US

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                                          ActionForex.com
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                                          The Chinese government is apparently furious at US move to sanction its telecom giant Huawei. Tensions of the two sides is set to escalate further while there is no set timing for resuming the collapsed trade talks. While Trump might want to meet Xi to clear out the outstanding issues to seal a trade deal at the upcoming G20 summit, the two sides are actually moving farther apart.

                                          Trump’s administration hit Huawei on two heavy measures yesterday. Firstly, the U.S. Commerce Department is adding Huawei and 70 affiliates to its “entity List” that bans them from buying US technologies without government approval. Secondly, Trump signed an executive order banning US companies from using telecom equipment made by companies deemed to pose a national security risk. As Commerce Secretary Wilbur Ross put, the decision was to “prevent American technology from being used by foreign-owned entities in ways that potentially undermine U.S. national security or foreign policy interests.”

                                          Chinese commerce ministry spokesman Gao Feng said today “China has emphasized many times that the concept of national security should not be abused, and that it should not be used as a tool for trade protectionism… China will take all the necessary measures to resolutely safeguard the legitimate rights of Chinese firms.”

                                          On trade Gao warned “the tariff hike by the United States will only bring greater difficulties to the consultations… “We urge the United States to cancel the wrong practices as early as possible, avoiding greater losses to Chinese and American companies and consumers, and causing a ‘recession-like’ impact on the world economy.”

                                          Gao also also clarified the three concerns on China. Firstly, all tariffs must be removed in order to reach a deal. Secondly, additional purchase of US goods is an issue to be resolved. Thirdly, the text of the agreement must be balanced, respecting each other’s sovereignty. Gao emphasized, “to reach any agreement, China’s three core concerns must be properly resolved,”

                                          Separately, Foreign ministry spokesman Lu Kang, said “negotiations and consultations, to have meaning, must be sincere… First, there must be mutual respect, equality and mutual benefit. Second, one’s word must be kept, and not be capricious.”

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