US initial jobless claims dropped -60k to 1480k in the week ending June 20, above expectation of 1300k. Four-week moving average of initial claims dropped -160.75k to 1621k.
Continuing claims dropped to 767k to 19522k in the week ending June 13. Four-week moving average of continuing claims dropped -330k to 20421k.
Australia AiG Performance of Construction dropped -2.8 pts to 55.5 in June. Current activity dropped -0.9 to 54.8. Employment dropped -6.1 to 58.3. New orders rose 0.9 to 56.1. Supplier deliveries dropped -8.5 to 50.9. Input prices rose 2.5 to 98.3. Selling prices rose 7.0 to 85.2. Average wages rose 5.4 to 70.4.
Ai Group Head of Policy, Peter Burn, said: “Australia’s construction industry continued its run of strong growth in June but the pace of expansion is slipping as it faces capacity constraints and rising input prices. Activity across house building, engineering construction and commercial construction rose in June while activity in the apartment sector slipped back after a brief recovery. Employment continued to grow although its pace eased with the builders and constructors reporting increasing difficulty filling positions. Input prices and wages are rising at well above their average pace and strong demand is pushing selling prices up too. New orders were at very healthy levels indicating further expansion in the months ahead. However, lag times are extending with capacity already stretched. It will be critical for governments, their agencies, and industry to work together to ensure that sufficient labour is available to deliver on the full range of infrastructure projects in the pipeline.”
German Ifo Business Climate rose from 87.8 to 89.4 in April, above expectation of 88.5. Current Assessment Index rose from 88.1 to 88.9, above expectation of 88.7. Expectations Index also improved from 87.5 to 89.9, above expectation of 88.9.
By sector, manufacturing rose from -9.9 to -8.5. Services rose from 0.4 to 3.2. Trade rose from -22.9 to -22.0. Construction rose from -33.2 to -28.5.
If said, “Companies were more satisfied with their current business. Their expectations also brightened. The economy is stabilizing, especially thanks to service providers.”
Gold and silver rise notably as Dollar weakens after poorer than expected ISM manufacturing PMI. The disappointing data prompts some talks that Fed officials could start to turn more cautious about the pace of tightening.
Gold’s break of 1687.82 resistance indicates short term bottoming at 1614.60. Further rise is now in favor as long as 1659.51 minor support holds, to 55 day EMA (now at 1718.30), which is close to medium term falling channel resistance.
For now, it’s still early to call for bullish trend reversal, despite bullish convergence condition in daily MACD. But sustained break of 55 day EMA should at least bring stronger rise towards 38.2% retracement of 2070.06 to 1614.60 at 1788.58.
Silver is making slightly more progress than gold with strong break of 55 day EMA. Further rally is now expected as long as 19.20 minor support holds. Break of 20.86 resistance will target 38.2% retracement of 30.07 to 17.54 at 22.32. Reaction from there will reveal the chance of bullish trend reversal.
China Caixin PMI Manufacturing dropped to 51.3 in June, down from 52.0, below expectation of 51.8. Markit noted increase in output was softest for 15 months. Total new order growth slowed as export sales stagnated. Employment continued to inc rea sew while cost pressures eased.
Wang Zhe, Senior Economist at Caixin Insight Group said: “Overall, the manufacturing sector continued to stably expand in June, despite the impact of the pandemic…. The manufacturing sector has gradually returned to normal. In the second half of this year, the low base effect from last year will weaken. Inflationary pressure, coupled with the economic slowdown, is still a serious challenge for China.”
Gold continues to gyrate in range of 1187.58/1214.30. More sideway trading could still be seen. But as long as 1187.58 minor support holds, rebound form 1160.36 is in favor to extend higher. Break of 1214.30 will 38.2% retracement of 1365.24 to 1160.36 at 1238.62.
For now, such rebound from 1160.36 is seen as a corrective move. Hence, we’d expect strong resistance from 1238.62 to limit upside. On the downside, break of 1187.58 will suggest that the rebound is completed and bring retest of 1160.36 low.
European Commission kept Eurozone GDP growth forecast unchanged at 1.2% in both 2020 and 2021. Eurozone inflation forecasts is raised by 0.1% in both 2020 and 201, to 1.3% and 1.4% respectively. For the EU as a whole, GDP forecast was also left unchanged at 1.4% in both 2020 and 2021. EU inflation forecast was also raised by 0.1% to 1.5% in 202, but 2021 projection remains unchanged at 1.6%.
Valdis Dombrovskis, Executive Vice-President, said, “Despite a challenging environment, the European economy remains on a steady path, with continued job creation and wage growth. But we should be mindful of potential risks on the horizon: a more volatile geopolitical landscape coupled with trade uncertainties.”
Paolo Gentiloni, European Commissioner for the Economy, said: “The outlook for Europe’s economy is for stable, albeit subdued growth over the coming two years. This will prolong the longest period of expansion since the launch of the euro in 1999, with corresponding good news on the jobs front… But we still face significant policy uncertainty, which casts a shadow over manufacturing. As for the coronavirus, it is too soon to evaluate the extent of its negative economic impact.”
Germany ZEW Economic Sentiment jumped sharply from -23.3 to 16.9 in January, well above expectation of -15.5. That’s also the first positive reading in a year since February 2022. Current Situation improved from -61.4 to -58.6, below expectation of -57.0.
Eurozone ZEW Economic Sentiment surged from-23.6 to 16.7, well above expectation of -14.3. Current Situation rose 2.6 pts to -54.8.
ZEW President Professor Achim Wambach said: “The ZEW Indicator of Economic Sentiment signals a positive outlook again in January. For the first time since February 2022, the month in which the war in Ukraine began, the indicator points to a noticeable improvement in the economic situation over the next six months.
“The more favourable situation on the energy markets and the German government’s energy price caps have contributed to this in particular. In addition, export conditions for the German economy are improving due to China’s lifting of Covid-restrictions.
“Accordingly, the earnings expectations of the export-oriented and energy-intensive sectors have gone up significantly. The prospect that the inflation rate will continue to fall has brightened expectations for the consumer-related sectors.”
Japan PMI manufacturing dropped to 51.8 in November, down from 52.9 and missed expectation of 53.0. That’s also a two-year low.
Commenting on the Japanese Manufacturing PMI survey data, Joe Hayes, Economist at IHS Markit, which compiles the survey, said:
“October’s six-month peak seems to have been just a transitory month-to-month rebound following September’s weather-hit dip. The November PMI dropped to a two-year low as the rate of output growth weakened and new orders for goods declined for the first time since September 2016.
“The underlying trend appears to be skewed to the downside. Indeed, the fall in new orders is a worrying development as easing global growth momentum coupled with a weak domestic backdrop could spell further demand woes for Q4. In fact, survey data suggests that manufacturers have already begun to pare back expectations, as confidence fell for a sixth consecutive month.”
RBNZ rate decision is a major focus in the upcoming Asian session. It’s widely expected to keep OCR unchanged at 1.75%. There is little to practically no chance of a surprise. The question is on how RBNZ view the sharp slow down in CPI to 1.1% in Q1. The reaction of NZD would very much depend on how dovish the new governor Adrian Orr is.
Take a look at NZDUSD Action Bias table, D row shows it’s clearly in a down trend. However, 6H Action bias suggests that downside momentum is unconvincing. Adding to that, there is a few bard of upside blue H row, arguing that it’s in a rebound.
Take a look at the 6H Action Bias chart, it’s apparent, even with eyeballing, that the decline since mid April is losing momentum. The so many neutral bars since late April is consistent with this view. So, is it ready for a rebound?
Take a look at the regular bar chart, we see that NZD/USD reached as low as 0.6947 earlier today. It’s now close to 161.8% projection of 0.7436 to 0.7152 from 0.7394 at 0.6934. Bullish convergence is seen in 4 hour RSI. There is possibility of bullish convergence in 4 hour MACD too. So, this is a good candidate for counter trend, or reversal trading.
We’d like to emphasize that the exact strategy is very personal. It has to suit one’s temperament. Some traders like to catch tops and bottoms. Some traders like to grab quick profits on swing trades. Some like scalping. Some like to hold a position for a few weeks or more. While the strategies vary, the analytic process, to us, is pretty much the same. It’s about deciding what to trade first, then see if it fits our style. To us, it has to be the “style” first, then “what”, before “how” the actual system.
That is, for those who like counter trend trading (style), NZDUSD (what) is a candidate. And how? We’ll buy on next dip, with a tight stop below 0.6934 projection level at 0.6900, target 0.7152 support turned resistance, and get out earlier if momentum of the rebound is weak. Other traders could have their own way based on their temperament.
US Conference Board consumer confidence dropped moderately in March to 127.7, missing expectation of 131.0 But it stayed close to 18 year high at 130 in February.
Reaction to the data is muted though. Dollar rebounded earlier today, but it’s struggling to extend gain in US session so far.
Stocks also struggle to find a direction as DOW is trading nearly flat.
Incoming BoJ Deputy Governor Shinichi Uchida told an upper house confirmation hearing, “BOJ must maintain monetary easing. It shouldn’t modify easy policy just because there are side-effects. Rather, it must come up with ideas” to mitigate the costs and help sustain stimulus.
He also noted it’s premature to discuss an exit from the ultra-loose monetary policy. Any exit would involve adjustments in the interest targets and the balance sheet. “In what order and at what timing the BOJ will make these adjustments will depend on economic and financial developments at the time,” Uchida said.
Dollar shows rather little reactions to non-farm payroll report. It spikes initial on very strong headline number. But the greenback is quickly pare the little gains as the overall set of data is just mixed. In particular, wage growth is rather disappointing.
US non-farm payroll grew 304k in January, well above expectation of 165k. However, prior month’s figure was revised sharply down from 312k to 222k. Unemployment rate rose to 4.0% versus expectation of 3.8%. But labor force participation rate also rose to 63.2%, up from 63.1%. Wage growth is a clear miss with average hourly earnings rose 0.1% mom versus expectation of 0.3% mom.
Mexican Economy Ministry said there are wide-range “equivalent” measures to counter the US steel tariffs. It’s reported that Mexico will target agricultural products that could hit Trump’s base states. And the measures will be in place until the US stops its tariffs.
It said in a statement that “Mexico profoundly regrets and condemns the decision by the United States to impose these tariffs on imports of steel and aluminum from Mexico.”
“Mexico reiterates its openness to constructive dialogue with the United States, its support for the international commerce system and its rejection of unilateral protectionist measures.”
The Ministry also said Mexico buys more steel and aluminum from the US than it sells. And it’s the top buying of US aluminum and second buyer of US steel.
Eurozone CPI slowed from 7.0% yoy to 6.1% yoy in May, below expectation of 6.3% yoy. CPI core (ex-energy, food, alcohol & tobacco) slowed from 5.6% yoy to 5.3% yoy, below expectation of 5.3% yoy.
Looking at the main components, food, alcohol & tobacco is expected to have the highest annual rate in May (12.5%, compared with 13.5% in April), followed by non-energy industrial goods (5.8%, compared with 6.2% in April), services (5.0%, compared with 5.2% in April) and energy (-1.7%, compared with 2.4% in April).
US Commerce Secretary Wilbur Ross said yesterday that the timeline for auto tariffs investigation is postponed. Ross originally said the report will be published some time in August. But he told WSJ that it’s “not clear the report will be out at the end of the month”. He went further by refusing to set a new time line. Ross said the report was delayed because of ongoing negotiations with Mexico, Canada and the European Union.
It’s surprising to link the reports to negotiation given that the investigations are technical, fact-finding. Results of such investigations won’t be altered by the negotiations. The implementations of the actions as suggested by the investigations will be subject to negotiations. It’s typical for authoritarian governments to make a decision first and the make up so-called reports to support it’s own decision. Strange for the US to do so!
Separately, Trump said at a campaign rally in West Virginia that he told European Commission President Jean-Claude Juncker that “it’s all about cars” during their meeting last month. And Trump added “we’re going to put a 25% tax on every car that comes into the United States from the European Union.”
US commercial crude oil inventories dropped -1.6m barrels in the week ending August 14, smaller than expectation of -2.9m barrels. At 512.5m barrels, US oil inventories are about 15% above the five year average for this time of year. Gasoline inventories dropped -3.3m barrels. Distillate fuel inventories rose 0.2m barrels. Propane/propylene was virtually unchanged. Total commercial petroleum inventories dropped -2.6m barrels.
WTI crude oil is still bounded in consolidation from 43.38. The support from 4 hour 55 EMA is near term bullish. But upside momentum is clearly weak for now. Focus is now on 55 week EMA (now at 43.96). Sustained break there could bring some upside acceleration to 55 month EMA (now at 54.24).
Fed is widely expected to raise federal funds rate by 25bps to 1.50-1.75% today. Fed fund futures are pricing in near 95% chance of that. There is no reason for Fed to give market a surprise. The main question in everybody’s mind is whether Fed will hike a total of three times this year, or four. Fed fund futures are pricing more than 80% chance of another hike in June already, and close to 60% chance of another in September. But for now, it’s only pricing less than 40% chance of the fourth in December.
As usual with a March FOMC meeting, new economic projections will be released. Given that the Republican’s tax cuts were done, there could be upward revisions in growth. Unemployment rate forecast might be left unchanged. PCE core at 1.5% in January, is still way off Fed’s median projection of 1.9% in 2018. There is little chance of a change in that figure. Meanwhile, any slight change in the federal funds rate projection would be market moving.
Fed’s December projections:
The event also bears additional significance as it’s Jerome Powell’s first press conference as Fed chair. His Congressional testimony was seen by some as more hawkish and upbeat than expected. Recapping that he said “my personal outlook for the economy has strengthened since December.” And, “we’ve seen some data that will in my case add some confidence to my view that inflation is moving up to target.” Powell might maintain the tone today and indicate his confidence in continuing the tightening cycle.
Australian Dollar weakened broadly despite RBA’s rate hike. This is attributed to the less hawkish statement by RBA indicating a “lower risk of a cycle in which prices and wages chase one another”.
As AUD/CAD nears a breakthrough of 0.9099 temporary low, a deeper decline is expected as long as 0.9214 resistance holds. The next target for the fall from 0.9545 is 61.8% retracement of 0.8596 to 0.9545 at 0.8959. Bullish convergence conditions in 4 hour MACD suggest that stronger support may be seen there to bring a rebound.
Likewise, AUD/NZD is poised to break through 1.0794, with the decline from 1.1085 targeting the 1.0735 support or further to the 61.8% retracement of 1.0469 to 1.1085 at 1.0704. Sustained break there could pave the way to retest 1.0469 low. The near-term outlook will remain bearish as long as the 1.0890 resistance holds.
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Eurozone PMI composite rose to 59.2, 15-year high
Eurozone PMI Manufacturing was unchanged at 63.1 in May, above expectation of 62.1. PMI Services rose to 58.0, up from 55.2, above expectation of 57.6, and a 41-month high. PMI Composite rose to 59.2, up from 57.1, a 180-month high.
Chris Williamson, Chief Business Economist at IHS Markit said:
“The eurozone economy is booming at a pace not seen for 15 years as businesses report surging demand, with the upturn becoming increasingly broad-based, spreading from manufacturing to encompass more service sectors, especially consumer-facing firms.
“Virus containment measures have been eased to the lowest since last September and are set to be reduced further in July to the lowest since the pandemic began. Vaccination programmes are also making impressive progress. This has not only facilitated greater activity in the service sector in particular, but the brightening prospect of life increasingly returning to normal has also pushed confidence to an all-time high, fueled greater spending and encouraged hiring.
“The data set the scene for an impressive expansion of GDP in the second quarter to be followed by even stronger growth in the third quarter.
“However, the strength of the upturn – both within Europe and globally – means firms are struggling to meet demand, suffering shortages of both raw materials and staff. Under these conditions, firms’ pricing power will continue to build, inevitably putting further upward pressure on inflation in the coming months.”
Full release here.