Eurozone unemployment rate dropped to 7.4% in August, down from 7.5% and beat expectation of 7.5%. That’s also the lowest level since May 2008, and an extension of the sustained down trend from 11.5% since August 2014. EU28 unemployment rate also dropped to 6.2%, down from 6.3%.
Among the Member States, the lowest unemployment rates in August 2019 were recorded in Czechia (2.0%) and Germany (3.1%). The highest unemployment rates were observed in Greece (17.0% in June 2019) and Spain (13.8%).
UK GDP contraction was finalized -0.2% qoq in Q2, matched expectations, revised. Over the year, GDP grew 1.3% yoy, down from 2.1% yoy in Q1. In the quarter, services rose 0.12%, the only positive contribution to growth, but that was the weakest quarterly figure in three years. production contracted -0.24%. Construction dropped -0.07%. Agriculture was flat.
Swiss KOF Economic Barometer dropped to 93.2 in September, down from 95.5, missed expectation of 94.5. KOF said “downward tendency that has been evident since the beginning of the year is now continuing”. Swiss economic outlook “remains gloomy towards the end of 2019.”
It added that the decline is primarily due to declining developments in the manufacturing industry. The indicator bundle for the service industry and the accommodation and food service industry slightly reinforce this decline. By contrast, private consumption, foreign demand and the construction industry remain stable relative to the previous month.
German retail sales rose 0.5% mom in August, below expectation of 0.6% mom. Over the year, retail sales rose 3.2% yoy. Unemployment dropped -10k in September versus expectation of 5k. Unemployment rate was unchanged at 5.0% in September, matched expectations.
New Zealand ANZ Business Confidence dropped to -53.5 in September, down from -52.3. That’s also the worst reading since April 2008. Agriculture scored weakest confidence at -75.6 while manufacturing was best at -46.2. Activity outlook also dropped to -1.8, down from -0.5. Activity outlook was worst in construction at -7.1, best at services at -0.6.
ANZ noted that RBNZ will be “disappointed that its unexpectedly large 50bp cut in the Official Cash Rate last month does not appear to have had much impact on business’ sentiment or investment and employment intentions.” And, “prolonged lack of confidence is starting to feed its way through the economy and is threatening the tight labour market.” Also, “this gradual but prolonged economic slowdown is at risk of ceasing to be about the data and starting to become about the people.
Today’s decline in NZD/JPY the release suggests the corrective recovery from 67.20 has completed at 68.26, after failing to sustain above 4 hour 55 EMA. Focus is immediately back on 67.20 and break will target a test on 66.31 low. Overall, NZD/JPY is clearly staying in near term down trend, held well by falling 55 day EMA. Next target is 61.8% projection of 73.24 to 66.31 from 69.68 at 65.39, and then 100% projection at 62.75.
China Caixin Manufacturing PMI improved to 51.4 in September, up from 50.4 and beat expectation of 50.2. That’s also the highest reading since February 2018, signalling a recovery in the sector. Markit noted there were stronger increases in output and total new orders. However, new export business continued to decline. Staffing levels remained broadly unchanged.
Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said: “The recovery in China’s manufacturing industry in September benefited mainly from the potential growth of domestic demand. The trade conflicts between China and the U.S. had a notable impact on exports, production costs and confidence of enterprises. Compared with growth in new orders, the employment situation recovered only a bit, indicating that structural issues may exist in the labor market. Central policymakers have recently been emphasizing the strong growth in the domestic market. Faster construction of infrastructure projects, better implementation of upgrading the industrial sector, and tax and fee cuts are likely to offset the influence of the subdued overseas demand and soften the downward pressure on China’s economic growth.”
Also released, the NBS PMI Manufacturing rose to 49.8 in September, up from 49.5 and beat expectation of 49.7. While there was and improvement, the sector remained in contraction for the fifth straight months. Total new orders improved and swung back to growth, indicating improving domestic demand. But new export orders dropped for the 16th month. Meanwhile factories continued to cut jobs with employment sub-index largely unchanged at 47.0.
Summary of opinions at September 18-19 BoJ meeting, BoJ warned that the “contrast between the manufacturing and nonmanufacturing sectors has become more evident” at home and abroad. Downside risks to the global economy “have been increasing further” mainly in Europe due to Brexit.
Also, ” it is becoming necessary to pay closer attention to the possibility that the inflation momentum will be lost”. BoJ needs to “reexamine economic and price developments” at the next monetary policy meeting (MPM).
It is also important for BoJ to “communicate with an emphasis that it has not reached an impasse on monetary policy measures”. Additionally, with regard to a negative interest policy, “its impact on the overall economy should be considered first, rather than on banks’ business conditions.”
Full summary of opinions here.
Also released, industrial production dropped -1.2% mom in August, below expectation of -0.5% mom. Retail sales rose 2.0% yoy in August, above expectation of 0.9% yoy. Weak production data reconfirm that impact from global slowdown on exports. Strength of retail sales might partly be due to pre sales tax hike effect and could wane ahead.
US Treasury spokesperson Monica Crowley partially denied the report that US is considering to de-list some Chinese companies from US exchanges. She said in a statement that “the administration is not contemplating blocking Chinese companies from listing shares on U.S. stock exchanges at this time.”
The statement was in response to a Bloomberg report that White House economic adviser Larry Kudlow was leading deliberations regarding a potential “financial decoupling” of US and China. Options discussed included forced delisting of Chinese companies, imposition of investment in China by US government pension funds, and limits on value of Chinese companies in US managed indexes. However, it’s later said that the deliberations are at very early stage, without even a time line.
Separately, Reuters reported that Nasdaq is already cracking down on IPO s of small Chinese companies, by tightening restrictions and slowing down approvals. The new listing rules raised the average trading volume requirements for a stock. Additionally, Nasdaq could delay listing of a company that does not demonstrate a strong enough nexus to the US capital markets. While not being directly targeted, small Chinese IPOs have experienced longer waiting times and scrutiny.
US durable goods orders rose 0.2% to USD 250.7B in August, way above expectation of -1.2% decline. That’s also the third straight month of increase. Ex-transport orders rose 0.5%, above expectation of 0.3%. Excluding defense, new orders decreased -0.6%.
Personal income rose 0.4% mom in August, matched expectations. But spending rose only 0.1% mom, below expectation of 0.3% mom. Headline PCE was unchanged at 1.4% yoy, above expectation of 1.3% yoy. Core PCE accelerated to 1.8% yoy, matched expectations.
EU chief Brexit negotiator Michel Barnier reiterated that “we need a legally operative solution in the Withdrawal Agreement to address the problems created by Brexit on island of Ireland.”
And, “EU27 firmly united. We must avoid hard border, protect the Good Friday Agreement, all-island economy and integrity of Single Market… We continue to defend EU27 interests and values… We stand united.”
Eurozone Economic Sentiment Indicator dropped -1.4 pts to 101.7 in September. Amongst the largest euro-area economies, the ESI decreased significantly in the Netherlands, Spain (both -3.1) and Germany (-1.2) and, to a lesser extent, Italy (-0.8). The ESI remained broadly unchanged in France (-0.2).
The decreased resulted from a substantial deterioration of confidence in industry, and a slight decline in retail trade, while confidence improved among consumers and remained broadly stable in services and construction. Industry Confidence dropped from -5.8 to -8.8, “markedly more pessimistic views on all three components, i.e. production expectations, the current level of overall order books and the stocks of finished products”. Services Confidence rose from 9.2 to 9.5. Consumer Confidence rose 0.6 to -6.5.
Business Climate Indicator dropped -0.34 to -0.22. All the components of the BCI worsened. The decline was particularly sharp in managers’ assessments of past production, export order books and overall order books. Albeit to a lesser extent, also their production expectations, as well as their views on stocks of finished products worsened markedly..
BoE policymaker Michael Saunders said that “it is quite plausible that the next move in Bank Rate would be down rather than up.” He noted that “even without a no-deal Brexit, a scenario of persistently high uncertainty is probably the most likely outcome. And, “that would probably imply continued weakness in business confidence and investment, with softer job growth that drags on consumer spending, Saunders added, “it might well be appropriate to maintain a highly accommodative monetary policy stance for an extended period and perhaps to loosen policy at some stage, especially if global growth remains disappointing.”
In case of disorderly Brexit, Saunders repeated BoE’s position that policy options won’t be automatic. And he warned that no-deal Brexit would “probably immediately leave some firms unprofitable. Others might face longer-term questions about their viability, or whether they would be better off relocating.”
It’s reported that US-China trade negotiations will resume on October 10-11 in Washington. Chinese Vice Premier Liu He will lead a delegation representing Beijing. US President Donald Trump had previously delayed a planned tariffs escalation, raising tariffs on USD 250B in Chinese imports to 30%, from October 1 to October 15. Whether such increase would be imposed would be the main reflection on the progress at the upcoming meeting.
Yesterday, Chinese Ministry of Commerce spokesman Gao Feng confirmed that China has resumed its purchase of US agricultural products. Also, tariffs on those orders will be exempted. He noted that both sides are maintaining “close communication”. And, “China’s stance has always been consistent and clear, hoping the US side will meet China half way.”
Richmond Fed President Thomas Barkin said in a speech that the economy is giving “conflicting signals. The strength of the labor market might be saying “hold” or even “raise rates”. But low inflation and the bond market might be saying “lower rates.” He also pointed out that there are risks on “both on both sides”. Additional easing could “overstimulate inflation, distort labor markets or fuel an asset price bubble.”. Not easing could undermine Fed’s credibility” and leave policymakers “behind the curve”.
Barkin also talked about several headwinds. There is a “great deal of uncertainty” around trade and politics, which matters for business confidence. He’s “particularly concerned” about the “roller coaster” recently. “Between Brexit, the ongoing negotiations with China, tensions in the Middle East and the political headlines—to name just a few—it’s been tough for businesses to feel like they’re on solid ground.”
Fed Vice Chair Richard Clarida said price inflation appeared “less responsive to resource slack” in recent decades. A “flatter Phillips curve permits the Federal Reserve to support employment more aggressively during downturns”. But it also increases the cost of “reversing unwelcome increase in long-run inflation expectations.
He added that a “flatter Phillips curve makes it all the more important that inflation expectations remain anchored at levels consistent with our 2 percent inflation objective”. For now, based on the evidence reviewed, he judged that US inflation expectations “do reside in a range that I consider consistent with our price stability mandate”.
In an interview with German newspaper Augsburger Allgemeine, European Commission Jean-Claude Juncker said he and chief Brexit negotiator Michel Barnier are “doing everything possible to get an agreement” on Brexit. He warned that “if we don’t succeed in the end, the responsibility would lie exclusively on the British side.”
Juncker also said that disorderly Brexit could greatly complicate negotiations on future relationship. He said: “We will want to and need to seal a free trade agreement. But that won’t happen just like that, as some in Britain imagine. Some of the trade deals we sealed in my term of office took many years to reach.”
US initial jobless claims rose 3k to 213k in the week ending September 21, slightly above expectation of 212k. Four-week moving average of initial claims dropped -0.75k to 212k. Continuing claims dropped -15k to 1.65m in the week ending September 14. Four-week moving average of continuing claims dropped -12.75k to 1.668m.
Also from US, goods trade balance widened slightly to USD -72.8B in August, below expectation of USD -73.3B.
US Q2 GDP growth was finalized at 2.0% annualized rate, unrevised. It’s down from Q1’s 3.1% annualized growth. Downward revisions to personal consumption expenditures (PCE) and nonresidential fixed investment were primarily offset by upward revisions to state and local government spending and exports. Imports, which are a subtraction in the calculation of GDP, were revised down.
The deceleration in real GDP in the second quarter primarily reflected downturns in inventory investment, exports, and nonresidential fixed investment. These downturns were partly offset by accelerations in PCE and federal government spending.
The the Monthly Economic Bulletin, ECB noted that Eurozone growth remained “moderate” in the first two quarters of the year. “Differences across countries becoming more noticeable” in Q2. Labor markets are still improving with recent data and survey-based indicators continue to point to “positive” employment growth, with “some further moderation”.
Private consumption continues to be driven by labor market recovery. Business investment growth should be supported by accommodative financing conditions, offset partly by subdued earnings expectations. Exports growth “weakened further” in Q2. Latest economic indicators and surveys confirmed “ongoing downside risks” to growth outlook.
Meanwhile “measures of underlying inflation remained generally muted” even though “wage growth has remained robust.” Market-based measures of longer-term inflation expectations have remained at very low levels, while survey-based expectations also stand at historical lows.
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US Navarro denounces report on restrictions on Chinese companies
White House trade adviser Peter Navarro denounced the reports that US is considering restrictions on Chinese companies. He told CNBC that “That story, which appeared in Bloomberg: I’ve read it far more carefully than it was written. Over half of it was highly inaccurate or simply flat-out false.” He added that “this story was just so full of inaccuracies and in terms of the truth of the matter, what the Treasury said I think was accurate.”
On Friday, it’s widely reported, including by Bloomberg, that US is considering a number of measures on “financial decoupling with China”. Those include forcing a delisting of Chinese companies from US exchanges, imposing limits on investments in Chinese markets by US government pension funds and putting caps on the value of Chinese companies included in indexes managed by US firms.