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Sterling rebounds as EU said to offer UK vital Brexit consession

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    Sterling attempts to rebound after The Times newspaper reported that EU is going to make a “vital concession” on Brexit regarding Irish backstop. The resolution is said to be a modified version of version of the consent principle as proposed by UK Prime Minister Boris Johnson. And a source was quoted saying that “A landing zone on consent could be a double majority within Stormont, to leave, not to continue with the arrangements after X years.” The data of 2025 was raised for discussion, as long as both communities agree to it.

    GBP/JPY recovers notably. But with 132.24 minor resistance intact, there is no confirmation of bottoming yet. Further decline is still expected to extend the fall from 135.74.

    US-China political tensions heat up ahead of trade talks

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      Political tensions between US and China are heating up just ahead of the high-level trade negotiations on Thursday and Friday. US Commerce Depart expanded the trade blacklist of Chinese companies with involvements in China’s treatment of Uyghurs in Xinjiang. The decision targets 20 Chinese public security bureaus and eight companies. High profile technology companies include g video surveillance firm Hikvision, facial recognition technology leader SenseTime Group Ltd and Megvii Technology Ltd. Additionally, US has imposed visa restrictions on Chinese government and Communist Party officials allegedly responsible for the abuse of Uyghurs. But no detail on the list of officials was released.

      In response to US actions, Chinese Embassy in Washington said the decisions “seriously violates the basic norms governing international relations, interferes in China’s internal affairs and undermines China’s interests. China deplores and firmly opposes that”. And, “Xinjiang does not have the so-called human rights issue claimed by the US. The accusations by the US side are merely made-up pretexts for its interference”.

      UK Johnson facing resignation warnings from ministers over no-deal Brexit

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        In UK, the Times newspaper reported that a “very large number” of ministers threatened to quit if Prime Minister Boris Johnson is leading the country to a no-deal Brexit. The resignation watch list include Culture Secretary Nicky Morgan, British Minister for Northern Ireland Julian Smith, Justice Secretary Robert Buckland, Health Minister Matt Hancock and Attorney General Geoffrey Cox.

        Separately, Financial Times said there were at least 50 MPS that will revolve against a general election manifesto pledging to pursue a no-deal Brexit.

        Fed Powell: US economic expansion feels very sustainable

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          Fed Chair Jerome Powell said yesterday that the US economic expansion “feels very sustainable” even though “clearly things are slowing a bit”. And, the economy “may just be gathering itself – there’s no reason why the expansion can’t continue”. He added “policy is not on a preset course” and reiterated “we will be data dependent, assessing the outlook and risks to the outlook on a meeting-by-meeting basis. He also noted Fed will soon announce measures to add to the supply of reserves over time. However, the balance sheet for reserve management purposes is “in no sense is this QE”.

          Separately, Chicago Fed President Charles Evans said “I wouldn’t mind another cut. I could see it either way”. “It would help for a little more insurance. Is it necessary and essential? I’m not sure. But I’m certainly open minded to those arguments,” he added. Minneapolis Fed President Neel Kashkari said he was “generally in favor” of lower interest rates, but, “I don’t know how much lower they should go.”

          US PPI and core PPI slowed in September, missed expectations

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            Both US PPI and core PPI slowed in September and missed expectations. PPI dropped came in at -0.3% mom, 1.4% yoy, versus expectation of 0.1% mom, 1.7% yoy. PPI core was at -0.3% mom, 2.0% yoy, versus expectation of 0.2% mom, 2.2% yoy.

            Full release here.

            EU Tusk to Johnson: Don’t play stupid blame game

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              European Council Donald Tusk warned Johnson that “what’s at stake is not winning some stupid blame game”. And, “at stake is the future of Europe and the UK as well as the security and interests of our people”. “You don’t want a deal, you don’t want an extension, you don’t want to revoke, quo vadis?”

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              European Commission spokesperson Mina Andreeva reiterated that “The EU position has not changed, we want a deal, we are working for a deal with the United Kingdom and under no circumstances will we accept that the EU wants to do harm the Good Friday Agreement. The purpose of our work is to protect it.”

              UK updates temporary tariff regime for no-deal Brexit

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                UK Department for International Trade announce an update to the “temporary tariff regime” today, in response to feedback from industry and consumer groups. Under the regime, 88% of total imports to the UK by value would be eligible for tariff free access, in case of no-deal Brexit. The revised plan applies tariffs to additional clothing products and adjusts levies on bioethanol to retain support for UK producers of the fuel.

                Trade Policy Minister Conor Burns said,”the UK is a free trading nation and British business is in a strong position to compete in an open, free-trading environment,” Trade Policy Minister Conor Burns said.

                Full release here.

                German industrial production rose 0.3% mom, above expectations

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                  German industrial production rose 0.3% mom in August, much better than expectation of -0.2% mom decline. Over the year, industrial production dropped -4.0% yoy. Production in industry excluding energy and construction was up by 0.7% mom. Within industry, the production of intermediate goods increased by 1.0% mom and the production of capital goods by 1.1% mom. The production of consumer goods showed a decrease by -1.0% mom. Outside industry, energy production was down by -1.7% mom and the production in construction decreased by -1.5% mom.

                  Full release here.

                  China Caixin PMI composite rose to 51.9, began to show signs of stability

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                    ActionForex.com
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                    China Caixin Services PMI dropped to 51.3 in September, down from 52.1 and missed expectation of 52.9. PMI Composite Output Index rose from 51.6 to 51.9. Slower growth in services activity was offset by stronger expansion of manufacturing output. Total new work rises at fastest pace since February 2018. Job creation in service sector leads to strongest increase in composite employment since January 2013.

                    Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said: “China’s economy showed signs of marginal recovery in September, as the labor market improved and domestic demand increased at a faster pace. However, fluctuations in exchange rates, and rising costs of labor and raw materials increased pressure on companies, which restrained business confidence. Due to previous destocking and capacity-reduction activities, constraints on companies’ production capacity became more severe and backlogs of work increased noticeably, which will help companies restore their investment. After a fast slowdown in previous quarters, China’s economic growth began to show signs of stability.”

                    Full release here.

                    Australia NAB Business confidence dropped to 0, conditions improved slightly

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                      ActionForex.com
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                      Australia NAB Business Confidence dropped to 0 in September, down from 1. On the other hand, Business Conditions improved to 2, up from 1. Looking at some details, Trading Condition rose from 3 to 4. Profitability Condition rose from -3 to -2. Employment Condition rose from 2 to 3.

                      Alan Oster, NAB Group Chief Economist “The results of the September survey suggest more of the same for the business sector. Conditions edged up, and confidence was marginally lower, but both remain below their long run average – well below the levels seen just over a year ago. This suggests that activity in the business sector has slowed and we fear the risk that this spreads to both investment and employment intentions”.

                      And: “We continue to watch the business sector closely – the housing downturn and the weakness in the retail sector are likely to continue to play out further, adding to private sector weakness in the economy. Rate cuts will help but will lag and with a weak consumer and higher global uncertainty, we are unlikely to see a material improvement in the short-term”

                      Full release here.

                      Japan PM Abe expects BoJ Kuroda to make appropriate decisions

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                        Japanese Prime Minister Shinzo Abe told the parliament that he expected BoJ Governor Haruhiko Kuroda to make appropriate monetary policy decisions. And Kuroda would weigh the costs and benefits of each step. According to recent comments from BoJ officials, the country is facing risk that momentum towards price stability is undermined. And there will be re-examination of the economic and price trends at the upcoming meeting.

                        Released from Japan, labor cash earnings dropped -0.2% yoy in August, below expectation of -0.1% yoy. Household spending rose 1.0% yoy, above expectation of 0.9% yoy. Current account surplus widened to JPY 1.72T in August.

                        Trump: Probably unlikely for something to happen at US-China trade talks

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                          US President Donald Trump sounded rather cautious ahead the closely watched top-level trade negotiations with China this week. He reiterated he’s shooting for a “big deal”. However, when pressed to elaborate the chances of progress, he said “Can something happen? I guess, maybe. Who knows. But I think it’s probably unlikely.”

                          Additionally, he urged China to find a humane a peaceful resolution to the unrest in Hong Kong. And, “If anything happened bad, I think that would be a very bad thing for the negotiation. I think politically it would be very tough.”

                          China’s Ministry of Commerce confirmed that Vice Premier Liu He would travel to Washington for trade talks on Thursday and Friday. Along with Liu include Commerce Minister Zhong Shan, central bank Governor Yi Gang, and the National Development and Reform Commission’s deputy head Ning Jizhe.

                          Topics for US-China trade talks confirmed

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                            ActionForex.com
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                            White House spokesperson Stephanie Grisham confirmed that top-level US-China trade talks will start on October 10, this Thursday. She said in a statement, “the two sides will look to build on the deputy-level talks of the past weeks. Topics of discussion will include forced technology transfer, intellectual property rights, services, non-tariff barriers, agriculture, and enforcement”.

                            Separately, Trump is scheduled to sign the pacts with Japan at 1930 GMT today. The pacts are U.S.-Japan Trade Agreement and U.S.-Japan Digital Trade Agreement.

                            UK urges EU to match its compromises on Brexit

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                              UK Prime Minister Boris Johnson said he made a “very generous, fair and reasonable offer” to the EU on Brexit. And “what we’d like to hear from you now is what your thoughts are.” And, he also told EU, “if you have issues with any of the proposals that we’ve come up with, then let’s get into the detail and discuss them.”

                              Johnson’s spokesman also noted, “We are ready to talk to the EU at pace to secure a deal so that we can move on and build a new partnership between the UK and the EU, but if this is to be possible, the EU must match the compromises that the UK has made”. And, “the PM still believes there is an opportunity to get a deal done, but the EU must understand, in order to achieve that, the backstop has to be removed.”

                              BRC Like-for-Like Sales dropped -1.7% yoy, spectra of no-deal Brexit weighing increasingly on consumers

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                                ActionForex.com
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                                BRC Like-for-Like Sales dropped -1.7% yoy in September, much worse than expectation of -0.8% yoy

                                Helen Dickinson OBE, Chief Executive, BRC: “With the spectre of a no-deal weighing increasingly on consumer purchasing decisions, it is no surprise that sales growth has once again fallen into the red. Many consumers held off from non-essential purchases, or shopped around for the bigger discounts, while the new autumn clothing ranges suffered from the warmer September weather.

                                “The longer-term prospect continues to be bleak, with the 12-month average once again plumbing new depths at a mere 0.2 per cent. Online non-food sales growth was the lowest on record, though still compared favourably to the decline in growth at physical stores.

                                “With four months of negative sales growth since March, the ongoing political gridlock surrounding Brexit is harming both consumers and retailers. Clarity is needed over our future trading relationship with our closest neighbours, and it is vitally important that Britain does not leave the EU without a deal.”

                                Full release here.

                                Eurozone Sentix dropped to -16.8, cold shower after central bank easings

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                                  ActionForex.com
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                                  Eurozone Sentix Investor confidence dropped to -16.8, down from -11.1 and missed expectation of -13.0. That’s the lowest level since April 2013. Current Situation dropped from -9.5 to -15.5, 5th decline in a row, lowest since December 2014. Expectation index dropped from -12.8 to -18.0.

                                  Sentix noted “there is no positive reaction to the central banks’ aid measures, and economic assessments are broadly negative in October”. The data have the effect of a “cold shower: there is no sign of a trend reversal, all subcomponents are in a descent.” “Particularly worrying is the dynamics of the deterioration of the situation, which signals a downward thrust of -6 points. Fears of recession are and remain immanent. The central bankers have not succeeded in breaking the downward spiral with the measures taken so far.”

                                  Germany’s Overall Index dropped from -12.8 to -19.4, lowest since July 2009. German Current Situation dropped from -10.5 to -18.0, lowest since November 2009. German Expectations dropped from -15.0 to -20.8.

                                  US Overall Index dropped from 5.5 to -4.1, turned negative and lowest since August 2012. US Current Situation dropped from 25.8 to 13.0, lowest since March 2013. US Expectations dropped from 013.0 to -19.8, lowest since January 2019.

                                  Full release here.

                                  German factory orders dropped -0.6% mom, led by domestic orders

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                                    German factory orders dropped -0.6% mom in August, worse than expectation of -0.4% mom. Over the year, factory orders dropped -2.1% yoy. Domestic orders decreased by -2.6% mom and foreign orders increased by 0.9% mom. New orders from the euro area were up 1.5% mom, new orders from other countries rose 0.4% mom.

                                    Manufacturers of intermediate goods saw new orders increase by 1.1% mom. The manufacturers of capital goods showed decreases of -1.6% mom. For consumer goods, a decrease in new orders of -0.9% mom was recorded.

                                    Full release here.

                                    Australia AiG construction dropped to 42.6, 13th months of contraction

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                                      ActionForex.com
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                                      Australia AiG Performance of Construction Index dropped to 42.6 in September, down from 44.6. The construction industry was on aggregate declined more sharply. Contraction continued for 13th consecutive months with industry activity and new orders falling further into negative territory.

                                      Full release here.

                                      China said to have narrowed scope of discussions ahead of high level trade talks

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                                        ActionForex.com
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                                        Chinese Vice Premier Liu He is expected lead his delegation to Washington for next round of high-level trade talks with US starting this Thursday. But it’s reported that the scope of discussions have narrowed considerably recently. And China is increasingly reluctant to agree to a full trade deal as US President Donald Trump insists on.

                                        Liu indicated that the offer to the US would not include measures that address the core issues, including intellectual property theft, forced technology transfer and subsidies on state-owned enterprises. That could be a result of interpretation of Trump’s impeachment inquiries as a sign of weakening in negotiation position.

                                        Trump said on Friday that “We’ve had good moments with China. We’ve had bad moments with China. Right now, we’re in a very important stage in terms of possibly making a deal. But what we’re doing is we’re negotiating a very tough deal. If the deal is not going to be 100% for us, then we’re not going to make it.”

                                        Fed George: Concern about low inflation seems unnecessary

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                                          ActionForex.com
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                                          Kansas City Fed President Esther George said over the week end that “the U.S. economy is currently in a good place, with low inflation, low unemployment and an outlook for continued moderate growth.” And, “in current circumstances, concern about low inflation seems unnecessary.”

                                          She added, it’s more “realistic to accept that there will be both temporary and persistent fluctuations around” Fed’s 2% inflation target. And, “as long as they don’t exceed a reasonable threshold — perhaps as big as 50 or even 100 basis points — they should be tolerated, depending on broader economic conditions”.

                                          “Should incoming data point to a broadly weaker economy, adjusting policy may be appropriate to achieve the Federal Reserve’s mandates for maximum sustainable employment and stable prices,” George said. But “trying to quickly return inflation to 2 percent by adjusting interest rates could require aggressive actions that would misallocate resources and create financial imbalances.”

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