Bank of Spain slashes 2019 growth forecasts to 2% on weak investment and consumption

    Bank of Spain lowered 2019 growth forecasts to 2.0%, sharply lower than June’s projection of 2.4%. For 2020, growth projection was downgraded to 1.7%, from 1.9%. For 2021, growth forecast was also downgraded to 1.6%, from 1.7%. Weaker investment and private consumption were the main factor for the downgrades.

    Meanwhile, the central bank also noted risks including European slowdown, Brexit, US-China trade tension as well as domestic political uncertainties. Spain is going to have the fourth parliamentary elections in four years on November 10.

    Oscar Arce, the Bank of Spain’s director general for economics, statistics and research said, “Also worth mentioning as a possible risk element is the continuation of uncertainty on the domestic front about the course of main economic policies in this country in the future.”

    Sterling rebounds as UK Supreme Court rules Johnson’s parliament suspension unlawful

      Sterling rebounds notably after UK’s Supreme Court ruled that Prime Minister Boris Johnson’s move to shut down the parliament was unlawful. And Supreme Court President Brenda Hale said both houses should return as soon as possible. The ruling gave MPs a boost to continue with their work to block no-deal Brexit on October 31.

      Hale said, “The decision to advise Her Majesty to prorogue parliament was unlawful because it had the effect of frustrating or preventing the ability of parliament to carry out its constitutional functions without reasonable justification.” “Parliament has not been prorogued. This is the unanimous judgment of all 11 justices,” she added. “It is for parliament, and in particular the speaker and the Lords speaker, to decide what to do next.”

      Speaker of the House of Commons John Bercow called for Parliament to reconvene. “As the embodiment of our Parliamentary democracy, the House of Commons must convene without delay,” Bercow said in a statement. ” To this end, I will now consult the party leaders as a matter of urgency.”

      German Ifo recovered to 94.6, downturn taking a breather

        Germany Ifo Business Climate rose to 94.6 in September, up from 94.3 and beat expectation of 94.5. Expectation Index dropped to 90.8, down from 91.3, missed expectations of 91.9. Current Assessment Index rose to 98.5, up from 97.3 and beat expectation of 97.0. Ifo noted that “the downturn is taking a breather” but “outlook for the coming months deteriorated again”.

        Looking at the details, Manufacturing Index dropped from -6.0 to -6.4. Service Index rose from 13.0 to 16.6. Trade Index dropped from -2.4 to -3.7. Construction Index rose from 21.5 to 22.2. Ifo warned that manufacturing has “only one direction: downward” and “trade took another slide”.

        Full release here.

        BoJ Kuroda: Need to be increasingly vigilant to global slowdown

          BoJ Governor Haruhiko Kuroda warned in a speech that “as risks regarding overseas economy are heightening, we need to be increasingly vigilant to the chance the overseas slowdown could affect Japan’s economy and inflation.” Also, “the situation has been changing rapidly, with investors’ risk aversion abating somewhat due to expectations for progress in the U.S.-China trade negotiations.”

          Policymakers will scrutinize upcoming economic data at the next policy meeting on October 30-31. Kuroda emphasized that BOJ does not have any preconception at this point” on what policy steps it could take at the meeting. Though, he also acknowledged the need to main the yield curve control policies sustainable. He said “if the current low-interest rate environment is prolonged further, it will become necessary to pay closer attention to the cost of our policy.”

          Japan PMI manufacturing dropped to 48.9, strong external headwinds

            Japan PMI Manufacturing dropped to 48.9, down from 49.3 and missed expectation of 49.5. That’s also the lowest reading since June 2016. PMI Services dropped to 52.8, down from 53.3. PMI Composite dropped to 51.5, down from 51.9.

            Joe Hayes, Economist at IHS Markit, said: “The resilience of Japan’s service sector to the struggles of the country’s manufacturers continued to shine through during September. As a result, it’s looking like Japan will boast what will be a robust rate of growth in the current climate for the third quarter”.

            However, “anecdotal evidence further highlighted the strong external headwinds Japanese manufacturers were faced with, namely US-China trade tensions, the Hong Kong protests, Brexit and the diplomatic dispute between Japan and South Korea”. Q4 would be challenging for both businesses and consumers with the planned sales tax hike.

            Full release here.

            Japan still aiming for a US trade deal by the end of the month

              Japanese Foreign Ministry spokesman Masato Ohtaka reiterated the target to sign a trade agreement with US by the end of this month. He noted that “we still have some time and all my colleagues in the government are making their best efforts to actually meet this target”. Separately, Japanese Chief Cabinet Secretary Yoshihide Suga also said that “With the U.N. General Assembly meeting in mind, we are accelerating the remaining work, including the wording of a trade agreement.”

              Japan officials and business executives have expressed concern of signing a trade deal with assurance from the US on not imposing tariffs on Japanese cars. That’s the key issue that might drag the negotiations through the self-imposed deadline. However, Japanese Foreign Minister Toshimitsu Motegi, said alongside US Trade Representative Robert Lighthizer, that he had no concern on the auto tariff threats. Motegi expected no much of a delay on the trade agreement.

              US Mnuchin to meet Chinese Liu on trade in two weeks

                US Treasury Secretary Steven Mnuchin told Fox Business that some progress were made in last week’s deputy-level meetings with China on trade. He also indicated that he would meet Chinese Vice Premier Liu He in two weeks. He added that Chinese purchases of US farm products were “good news”.

                The cancellation of Chinese official’s visit to US farms were on request of the US, as Mnuchin confirmed. He noted, “we just decided the timing of the trip wasn’t necessarily the perfect timing, so they’ll be rescheduling that to after our trade meetings.” Still, “it’s a sign of good gesture that they are back at the table buying agriculture.”

                US PMIs improved, but point to subdued 1.5% annualized Q3 GDP growth

                  US PMI Manufacturing rose to 51.0 in September, up from 50.3, beat expectation of 50.3. PMI Services also rose to 50.9, up from 50.7, but missed expectation of 51.5. PMI Composite rose to 51.0, up from 50.7.

                  Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit, said:

                  “The survey indicates that businesses continue to struggle against the headwinds of trade worries and elevated uncertainty about the outlook. Although picking up slightly, the overall rate of growth in September remained among the weakest since 2016, commensurate with GDP rising in the third quarter at a subdued annualized rate of approximately 1.5%. Prospects also look gloomy, with inflows of new business down to the lowest since 2009 and firms’ expectations of growth over the coming year stuck at one of the most subdued levels since 2012.

                  “Jobs are now also being cut across the surveyed companies for the first time since January 2010, as firms have become more risk averse and increasingly eager to cut costs. At current levels, the survey employment index is indicative of non-farm payroll growth falling below 100,000.

                  “Price pressures have meanwhile also eased, with both input costs and average selling prices for goods and services dropping again in September, painting a picture of the weakest corporate inflationary pressures for a decade.

                  “Key to the recent deterioration has been a further spill-over of the trade-led slowdown in manufacturing to the service sector. Inflows of new service sector business almost stalled in September to register the smallest rise since the survey began in 2009. A ray of light comes from manufacturing reporting some easing of headwinds, though factory conditions likewise remained among the toughest since 2009 to underscore the broad-based nature of the current lassitude.”

                  Full release here.

                  ECB Draghi: No convincing signs of rebound on growth in near future

                    ECB President Mario Draghi told the European Parliament economic affairs committee that there is no sign of a rebound in the economy yet. He said “recent data and forward-looking indicators – such as new export orders in manufacturing – do not show convincing signs of a rebound in growth in the near future and the balance of risks to the growth outlook remains tilted to the downside.” He also warned “the longer the weakness in manufacturing persists, the greater the risks that other sectors of the economy will be affected by the slowdown.”

                    Separately, Governing Council member Klaas Knot told Dutch parliament’s finance committee that parts of ECB’s recent stimulus were “disproportionate”. And, he was “not in agreement with the new programme in its entirety.” Additionally, he questioned savers’ response if commercial banks were to impose negative interest rates. “We don’t know what would happen because that’s never happened before,” Knot. “If they were to pull their savings, that could cause a bank run.”

                    Eurozone PMI manufacturing dropped to 45.6, downturn spreading to services too

                      Eurozone PMI Manufacturing dropped to 45.6 in September, down from 47.0 and missed expectation of 47.3. That’s the lowest level in 83 months. PMI services dropped to 52.0, down from 53.5, missed expectation of 53.3. That’s also an 8-month low. PMI Composite dropped to 50.4, down from 51.9, a 75-month low.

                      Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

                      “The eurozone economy is close to stalling as a deepening manufacturing downturn shows further signs of spreading to the services sector.

                      “The survey data indicate that GDP looks set to rise by just 0.1% in the third quarter, with momentum weakening as the quarter closed.

                      “The goods-producing sector is going from bad to worse, suffering its steepest downturn since 2012, but a further worrying trend is the broadening-out of the malaise to the service sector, where the rate of growth has now slowed to one of the weakest since 2014.

                      “The details of the survey suggest the risks are tilted towards the economy contracting in coming months. Most vividly, new orders for goods and services are already falling at the fastest rate since mid-2013, suggesting firms will increasingly look to reduce output unless demand revives.

                      “Furthermore, hiring is being scaled back due to the order book slowdown, with jobs growth now down to the lowest since the start of 2015. A worsening labour market adds to the risk that households could trim their spending.

                      “The overall picture of an economy on the cusp of sliding into decline is underscored by a further deterioration in firms’ pricing power, with average prices charged for goods and services barely rising in September.

                      “With survey data like these, pressure will grow on the ECB to add to its recent stimulus package.”

                      Full release here.

                      Germany PMI manufacturing dropped to 41.4, simply awful

                        Germany PMI Manufacturing dropped to 41.4 in September, down from 43.5 and missed expectation of 44.6. That’s the lowest level in 123 months. PMI Services dropped to 52.5, down from 54.8, missed expectation of 54.3, a 9-month low. PMI Composite dropped to 49.1, down from 51.7, a 83-month low.

                        Commenting on the flash PMI data, Phil Smith, Principal Economist at IHS Markit said:

                        “Another month, another set of gloomy PMI figures for Germany, this time showing the headline Composite Output Index at its lowest since October 2012 and firmly in contraction territory.

                        “The economy is limping towards the final quarter of the year and, on its current trajectory, might not see any growth before the end of 2019.

                        “The manufacturing numbers are simply awful. All the uncertainty around trade wars, the outlook for the car industry and Brexit are paralyzing order books, with September seeing the worst performance from the sector since the depths of the financial crisis in 2009.

                        “With job creation across Germany stalling, the domestic-oriented service sector has lost one of its main pillars of growth. A first fall in services new business for over four-and-a-half years provides evidence that demand across Germany is already starting to deteriorate.”

                        Full release here.

                        France PMI: Fears of negative spill over effects from manufacturing to services coming to fruition

                          France PMI Manufacturing dropped to 50.3 in September, down from 51.1 and missed expectation of 51.2. PMI Manufacturing Output dropped to 49.7, down from 50.7. PMI Services dropped to 51.6, down form 53.4 and missed expectation of 51.2. PMI Composite dropped to 51.3, down from 52.9, a 4-month low.

                          Commenting on the Flash PMI data, Eliot Kerr, Economist at IHS Markit said:

                          “The disparity between France’s manufacturing and service sectors persisted in September, as service providers continued to record activity expansion, while there was a renewed contraction in manufacturing output. As has been the trend in recent months, service sector resilience is supporting growth in the wider economy.

                          “However, with services firms registering their slowest rise in activity since May, fears of negative spill over effects from the manufacturing sector are coming to fruition. Any intensification of such effects would likely dampen economic growth going forward.”

                          Full release here.

                          Australia PMI manufacturing dropped to 49.4, but services rebounded notably

                            Australia CBA PMI Manufacturing dropped to 49.4 in September, down from 50.9 and missed expectations. That’s the first contraction reading since survey began in May 2016. On the other hand, PMI services improved from 49.1 to 52.5. PMI Composite rebounded from 49.3 to 51.9. CBA added that “overall, new order growth picked up and stronger confidence was recorded, but the rate of job creation softened to a fractional pace”.

                            Commenting on the Commonwealth Bank Flash PMI data, CBA Senior Economist, Gareth Aird said:

                            “An encouraging result thanks to a pickup in the services sector. There are early signs that the combination of rate cuts, tax rebates and rising dwelling prices is having a positive impact on the services sector.

                            “The divergence in the readings on the manufacturing and services sector is somewhat unusual, though not unprecedented. The dip in the manufacturing reading was a touch disappointing, particularly given the ongoing weakness in the Australian dollar. It may be the case that the raft of so-called geopolitical tensions are having a dampening impact on the local manufacturing sector. Overall, a move in the right direction, but the level of the headline index continues to imply that the economy could do with more stimulus. The case for fiscal easing through personal income tax cuts remains.”

                            Full release here.

                            Asian stocks lower on US-China trade worries, HSI heading back to 25000 handle

                              Asian stocks opened generally lower today and worries over US-China trade tension weighed on sentiments. The deputy-level meeting in Washington “appeared” to be fruitful based on statements from both sides. the US Trade Representative Office said the talks were “productive” and a principal-level meeting would be held next month as planned. China’s Ministry of Commerce also said the meetings were “constructive” with good discussion on “detailed arrangements” for the high-level talks in October.

                              However, the biggest problem was that Chinese officials cut short term trip and cancelled the planned visit to farms in Montana and Nebraska this week. The abrupt announcement raised question over progress of the trade meetings. Additionally, US President Donald Trump told reporter that he’s looking for a “complete deal”, not a “partial deal”. He added that he didn’t need trade agreement with China to happen before the 2020 presidential election. Chance of an interim trade deal of some sort in the near term was lowered by such developments.

                              Hong Kong HSI is currently down -0.77% while China Shanghai SSE is down -1.16%. It looks like HSI’s corrective rebound from 24899.93 has completed at 27366.44 already. And further fall would be seen back through 25000 handle to 24540.63 key support.

                              US exempts tariffs on more than 400 Chinese products lines

                                US Trade Representative Office is temporarily exempting more than 400 lines of Chinese import from tariffs imposed last year. Exclusions included Christmas tree lights, plastic straws, dog leashes and printed circuit boards. According to USTR documents, the exemptions stem from more than 1100 exclusions requests made by companies and other entities in US.

                                For now, the exemptions on their own are seen as a move to address the tariffs impact on US companies, rather than concessions to China. Nevertheless, the timing is interesting as both sides seem to be creating some positive atmosphere for October meeting.

                                Fed Rosengren: Additional monetary stimulus is not needed

                                  Boston Fed President Eric Rosengren dissented to Fed’s rate cut this week and voted for no change. In a statement released today, he explained that “additional monetary stimulus is not needed for an economy where labor markets are already tight, and risks further inflating the prices of risky assets and encouraging households and firms to take on too much leverage.”

                                  He also warned that “While risks clearly exist related to trade and geopolitical concerns, lowering rates to address uncertainty is not costless.”

                                  Canada retail sales rose 0.4%, ex-auto sales dropped -0.1%

                                    Canada retail sales rose 0.4% mom in July, to CAD 51.5B, matched expectations. Higher sales were reported in 6 of 11 subsectors representing 71% of retail trade. Ex-auto sales, on the other hand, dropped -0.1% mom, below expectation of 0.2% mom. Provincially, retail sales were up in six provinces, with the largest increases observed in Ontario and, to a lesser extent, the Prairie provinces.

                                    Full release here.

                                    Ireland Coveney: Not close to Brexit deal even mood music has improved

                                      Irish Foreign Minister Simon Coveney told BBC radio that “the mood music has improved” for Brexit. And, “”We all want a deal, we all know that a no-deal will be a lose, lose, lose for everybody, but particularly for Ireland and Britain.”

                                      However, he added that “But I think we need to be honest with people and say that we’re not close to that deal right now. But there is an intent I think by all sides to try and find a landing zone that everybody can live with here.”

                                      Earlier, Sterling was lifted by European Commission President Jean-Claude Juncker’s comment as believed that a Brexit deal can be reached by October 31. Though, the Pound quickly pared back earlier gains on Coveney.

                                      Fed Bullard: Larger rate cut would be prudent risk management

                                        St. Louis Fed President James Bullard voted for a -50bps rate cut earlier this week, dissenting other’s decisions of -25bps cut. He explained that a large cut “would provide insurance against further declines in expected inflation and a slowing economy subject to elevated downside risks.” And, “it is prudent risk management, in my view, to cut the policy rate aggressively now and then later increase it should the downside risks not materialize.”

                                        He also noted that “many estimates of recession probabilities have risen from low to moderate levels.” In particular, data pointed to a contraction in manufacturing. Meanwhile, “the yield curve is inverted, and our policy rate remains above government bond yields”.

                                        EU Juncker said Brexit deal could be reached by Oct 31

                                          Sterling rises notably after comments from European Commission President Jean-Claude Juncker. He told Sky News that he didn’t have “an erotic relation” to the so-called Irish backstop. As long as alternative arrangements are in place to achieve all main objectives of the backstop, he’s prepared to remove it from the Brexit withdrawal agreement.

                                          He also said that no-deal Brexit would have “catastrophic consequences” and he was doing “everything to get a deal Juncker believed that a Brexit deal can be reached by October 31.