European Commission Vice-President Valdis Dombrovskis warned today that “growth is slowing down and risks are mounting.” He added “trade and geopolitical tensions translate into elevated and lasting uncertainty and the possibility of a disruptive Brexit remains real.”
Chief Brexit negotiator Michel Barnier said that they’re still “waiting” for any new “legal and operational” proposals regarding Irish backstop from the UK.
BoJ Governor Haruhiko Kuroda warned that risks to economic outlook are “skewed to the downside, mainly from overseas economies.” He cited US-China trade war, China’s stimulus measures, Brexit, geopolitical risks and emerging markets are major uncertainties. He added that “global economy is slowing down and it shows no clear sign of turning for the better. Downside risks from overseas economies are heightening. US-China trade friction appears to be prolonged.”
Thus, “we are facing a situation where we need to pay more attention to the risk of the momentum toward 2% price target being undermined”. And, “with such situation in mind, we will re-examine economic and price developments at the next policy-setting meeting.” Though for now, “a moderate uptrend in wages and prices remain intact,” he said. “Prices are expected to accelerate gradually toward 2%.”
German Gfk Consumer Sentiment for October rose to 9.9, up from 9.7 and beat expectation of 9.7. Economic Expectations improved from -12 to -9. However, it was still down -33.6 pts from 24.6 from a year ago.
Gfk noted: “According to consumers, the risk of a recession still cannot be eliminated. The trade conflict with the US as well as the lack of clarity as to whether there will be a no-deal Brexit are above all affecting export-driven companies and their suppliers though are certainly impacting the rest of the economy as well.”
“Should the German economy shrink again following the decline in the second quarter, which is already seen as a possibility by many experts, this would constitute a technical recession.”
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.”
Trump indicated that US and China are “having some very good conversations” on trade. And China want to make deal “very badly” and “it could happen sooner than you think.” He added that’s “because they’re losing their jobs, because their supply chain is going to hell and companies are moving out of China and they’re moving to lots of other places, including the United States.” Additionally, China is “starting to buy our agricultural product again… starting to go with the beef and all of the different things, pork, very big on pork.”
The comments came just a day after Trump’s harsh criticism on China at the United Nations General Assembly. He said “not only has China declined to adopt promised reforms, it has embraced an economic model dependent on massive market barriers, heavy state subsidies, currency manipulation, product dumping, forced technology transfers and the theft of intellectual property and also trade secrets on a grand scale”. And, “as far as America is concerned, those days are over.”
US and Japan formally signed a “first-phase” trade agreement yesterday, covering US agricultural products as well as Japanese machine tools. The threat of auto tariffs should also be averted even though it’s not clearly written. US President Donald Trump expected the deal to open up Japanese markets to USD 7B in goods including beef, pork, wheat and cheese.
Japanese Prime Minister said at a press conference that “between President Trump and I, myself, this has been firmly confirmed that no further, additional tariffs will imposed”, referring to auto tariffs. And, “with the entry into force of our trade agreements, I believe both of our economies will be able to further grow and develop.”
US Trade Representative Robert Lighthizer indicated that issues of autos would be tackled in a later round of negotiations, expected to start next April.
Dallas Fed President Robert Kaplan said Fed officials are watching whether “decelerating global growth”, “weak manufacturing” and “weak business fixed investment” in the US would spreads through the rest of the economy. He added that if it spreads enough so that in six months there were a weak job report or two, “all of a sudden consumer confidence gets a little shaky, then you could have the start of a more severe downturn”.
And that’s why Fed lowered interest rate twice to a “little accommodative” level to support spending and investment and guard against a slowdown. He’s still comfortable that US is “not going to have a recession”, as long as consumers stay strong. At this point, Kaplan is “agnostic” about whether further rate cuts will be needed.
US commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) rose 2.4m barrels in the week ending September 20, versus expectation of -0.3m decline. At 419.5 m barrels, US crude oil inventories are at the five year average for this time of year.
WTI crude oil drops to as low as 55.45 and stays soft after the release. Current development argues that the corrective rebound from 50.43 has completed with three waves up to 63.04. Further decline is now in favor as long as 59.11 holds, towards 50.43/52.63 support zone. Overall, WTI is staying consolidation pattern from 66.49, and range trading is expected to extend further.
US Secretary of State Michael Pompeo announced new Iran-related sanctions on some Chinese entities. He said at conference that “we’re telling China and all nations, know that we will sanction every violation of sanctionable activity.” And, “the United States will intensify our efforts to educate countries and companies on the risk of doing business with IRGC entities and we will punish them if they persist in defiance of our warnings.”
The Treasury Department said that, based on Pompeo’s determination”, it would sanction COSCO Shipping Tanker (Dalian) Co. and COSCO Shipping Tanker (Dalian) Seaman & Ship Management Co., along with a few other companies and a slew of individuals. These companies are believed to have transported oil from Iran and their executive officers.
Chicago Fed President Charles Evans said that monetary policy is now “well-positioned” to wait-and-see how the economy respond to the two recent rate cuts. He also described the rate cuts as mid-cycle adjustments.
He maintained that the economy was “quite solid” even though there is a lot of uncertainty due to trade tensions. US is on a good growth path but not “outrageously” strong and it could continue “until something happens.
He also believed that solid economic fundamentals could go on indefinitely even though the shape of the yield curve was a concern.
According to UK CBI Distributive Trades Survey, retail sales volume in year to September contracted for the fifth consecutive month at -16%. But that was already a notably improvement from -49% in August, and beat expectation of -26%. Also retailers are expecting sales volume to drop at an even slow pace at -5% next month.
Rain Newton-Smith, CBI Chief Economist, said: “Five successive months of falling volumes tells its own story about the tough conditions retailers are having to operate in. Add to this the pressures of Sterling depreciation and the need to plan for potential tariffs and supply issues in the event of a no-deal Brexit and you get a gloomy picture for the sector.
“Retailers are also grappling with ongoing challenges such as digital disruption and the cumulative burden of government policies. Reforming an outdated business rates system and a more flexible apprenticeship levy which delivers better value for money could really help to alleviate the pressure on retailers during these difficult times.”
ECB Executive Board member Benoit Coeure said that the new inter-bank lending benchmark rate is fully pricing in recent rate cut. He said “we were all glad to see that the ESTR responded exactly as expected and the rate cut was fully priced through.” And, “we have a very smooth and stably money market, which is nice to see.”
The new Euro short-term rate (ESTR) will go live on October 1. It settled at -0.553% today, largely inline with ECB’s -0.5% deposit rate.
The Asian Development Bank said in a report that growth in the 45 countries of developing Asia would slow from 5.9% in 2018 to 5.4% in 2019, then recover to 5.5% in 2020. The forecasts reflect “gloomier prospects for international trade” partly due to escalation US-China trade tensions, slowdown in advanced economies and the larger economies of developing Asia.
ADB Chief Economist Yasuyuki Sawada warned: “the PRC–US trade conflict could well persist into 2020 while major global economies may struggle even more than we currently anticipate. In Asia, weakening trade momentum and declining investment are the major concerns”.
The report also noted that an escalation and broadening of the US-China trade conflict may reshape supply chains in the region. There is already evidence of trade redirection from China toward other economies in developing Asia such as Vietnam and Bangladesh. Foreign direct investment is following a similar pattern.
Asian stocks open generally lower today, following weakness in US overnight. Sentiments were somewhat weighed down by US President Donald Trump’s strongly worded rhetoric on China at United Nations General Assembly.
Trump criticized China for now delivering its promises when joining the WTO in 2001. He said “not only has China declined to adopt promised reforms, it has embraced an economic model dependent on massive market barriers, heavy state subsidies, currency manipulation, product dumping, forced technology transfers and the theft of intellectual property and also trade secrets on a grand scale”. And, “as far as America is concerned, those days are over.”
Though, Trump noted that “the American people are absolutely committed to restoring balance in our relationship with China. Hopefully, we can reach an agreement that will be beneficial for both countries.” But he also emphasized “as I have made very clear, I will not accept a bad deal.”
Additionally, Trump reiterated the link between Beijing’s treatment of Hong Kong and the trade deal. He said Washington was “carefully monitoring the situation in Hong Kong”. And, “the world fully expects that the Chinese government will honor its binding treaty made with the British and registered with the United Nations, in which China commits to protect Hong Kong’s freedom, legal system and democratic ways of life”. “How China chooses to handle the situation will say a great deal about its role in the world in the future. We are all counting on President Xi as a great leader,” Trump added.
In the minutes of July policy meeting, BoJ maintained that “economy was likely to continue on an “expanding trend” throughout the projection period through fiscal 2021, despite being affected by the slowdown in overseas economies. Exports were projected to “show some weakness” but would stay on a “moderate increasing trend”. The “continued relatively weak developments in prices” was largely affected by “deeply entrenched mindset and behavior based on the assumption that wages and prices would not increase easily”. Members still believed that CPI was “likely to increase gradually toward 2 percent”.
Four risks were outlined on economic outlook: (1) developments in overseas economies; (2) the effects of the scheduled consumption tax hike; (3) firms’ and households’ medium- to long-term growth expectations; and (4) fiscal sustainability in the medium to long term. Also downside risks from overseas were “significant”: (1) the consequences of protectionist moves — including the U.S.-China trade friction — and their effects, as well as (2) developments in the Chinese economy, including the effects of the aforementioned factor and (3) the possibility that the progress in adjustments in the global cycle for IT-related goods might take longer than expected.
On monetary policy, most members recognized that downside risks warranted attention. And, “it was appropriate to persistently continue with the current powerful monetary easing as the momentum toward achieving 2 percent inflation was being maintained with the output gap remaining positive”.
RBNZ left OCR unchanged at 1.00% as widely expected. The overall statement was balanced with easing bias. However, there is no clear indication of another imminent rate cut. Most importantly, RBNZ noted that “developments since the August Statement had not significantly changed the outlook for monetary policy”. It suggests that the central bank is still on wait-and-see mode, for observing the impact of the -50bps rate cut in August.
Nevertheless, easing bias is maintained as “there remains scope for more fiscal and monetary stimulus, if necessary, to support the economy and maintain our inflation and employment objectives.” But the statement is seen more as urging the government for fiscal stimulus. And the level of monetary stimulus needed might depend on how much the government would do.
NZD/USD extends the recovery from 0.6255 after the release and hit as high as 0.6348 so far. Such recovery is seen as a corrective move and should be limited well below 0.6450 resistance. Break of 0.6255 is expected at a later stage and that would resume larger down trend to 0.6102 (2015 low).
US President Donald Trump criticized China again in his UN address. He said China has “embraced an economic model dependent on massive market barriers, heavy state subsidies, currency manipulation … forced technology transfers and the theft of intellectual property, and also trade secrets on a grand scale”.
He added, “as far as America is concerned, those days are over.”
ECB Vice President Luis de Guindos urged fellow policymakers to look beyond labor market data. He said “The current low unemployment rate and the recent wage increases do not necessarily imply that higher inflation is around the corner”.
And, “monetary policy decisions need to be based on a wide array of economic indicators, not just the unemployment rate and wages”.
Conference Board US Consumer Confidence dropped to 125.1 in September, down from 134.2, missed expectation of 133.8. Present Situation Index dropped from 176.0 to 169.0. Expectations Index dropped from 106.4 to 95.8.
Confidence Board noted: “Consumers were less positive in their assessment of current conditions and their expectations regarding the short-term outlook also weakened. The escalation in trade and tariff tensions in late August appears to have rattled consumers. However, this pattern of uncertainty and volatility has persisted for much of the year and it appears confidence is plateauing. While confidence could continue hovering around current levels for months to come, at some point this continued uncertainty will begin to diminish consumers’ confidence in the expansion.”
ActionForex.com was set up back in 2004 with the aim to provide insightful analysis to forex traders, serving the trading community for over a decade. Empowering the individual traders was, is, and will always be our motto going forward.
Contact us: contact@actionforex.com
© ActionForex.com © 2024 All rights reserved.
ECB Bulletin: Differences across countries becoming more noticeable
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.
Full report here.