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US ISM services ticked down to 55.3, on decline in new orders and employment

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    ActionForex.com
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    US ISM Services PMI dropped from 55.9 to 55.3 in June but beat expectation of 54.5. Looking at some details, business activity/production rose 1.6 to 56.1. New orders dropped -2.0 to 55.6. Employment dropped -2.8 to 47.4. Supplier deliveries rose 0.6 to 61.9. Prices dropped -2.0 to 80.1.

    ISM said: “The slight slowdown in services sector growth was due to a decline in new orders and employment…. Logistical challenges, a restricted labor pool, material shortages, inflation, the coronavirus pandemic and the war in Ukraine continue to negatively impact the services sector.”

    Full release here.

    ECB’s Wunsch: We have to make a bet at some point

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      ActionForex.com
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      ECB Governing Council member Pierre Wunsch emphasized the need for proactive stance on interest rates, acting on the fact that “inflation has gone down, is moving in the right direction”.

      Speaking at a news conference for the Belgian national bank’s annual report, Wunsch candidly expressed that ECB is nearing a point where it must “make a bet” on cutting interest rates.

      However, he was quick to temper expectations, noting that any decision to cut rates would be made carefully, with a keen eye on the persisting challenges of “service inflation and wage developments”, which are “still running at levels that are ultimately not compatible with our objective”

      Despite these concerns, Wunsch indicated that ECB would not delay rate cuts until wage growth falls to 3%.

      Yuan and stocks tumble in response to trade war escalation

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        ActionForex.com
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        In response to trade war escalation, Chinese Yuan and stocks tumble sharply at open today. USD/CNH (offshore Yuan) hit new high at 7.1832 before retreating mildly. China Shanghai SSE hit as low as 2849.24 and is currently down -0.95%. Hong Kong HSI suffers steep selloff and hit as low as 25249.51, and it’s currently down -2.79%. Some recoveries are seen on news that the National Reform and Development Commission (NDRC) will “reasonably expand effective investment” by lowering the requirement of the minimum capital ratio for some infrastructure projects.

        USD/CNH’s up trend from 6.2359 is in progress. As long as 6.9909 support holds, further rise should be seen to 100% projection of 6.2359 to 6.9804 from 6.6704 at 7.4149 in medium term next.

        Eurozone business climate improved, economic confidence dropped less than expected

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          ActionForex.com
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          Eurozone (EA19) business climate improved to 1.09 in November, up from 1.01 and beat expectation of 0.96.

          Eurozone economic confidence dropped to 109.5, down from 109.7 but beat expectation of 109.0. Industrial confidence rose to 3.4, up from 3.0 and beat expectation of 2.3. Services confidence was unchanged at 13.3, above expectation of 13.0. Consumer confidence was finalized at -3.9.

          Also release in European session, German unemployment dropped -16k in November. Unemployment rate dropped 0.1% to 5.0% in October. French GDP rose 0.4% qoq in Q3, unrevised. UK mortgage approvals rose 1k to 67k in October. UK M4 money supply rose 0.7% mom in October.

          US Empire state manufacturing dropped to -2.15, worst since 2009

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            ActionForex.com
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            US Empire State Manufacturing Survey general business conditions index dropped a massive -34pts to -21.5 in March, well below expectation of 8.7. it’s also the worst reading since 2009. Looking at some details, new orders dropped -3.14 to -9.3. Shipments dropped -20.6 to -1.7. Delivery times dropped -6.1 to 2.2. Number of employees dropped -8.1 to -1.5. Average employee workweek dropped -9.6 to -10.6.

            Full release here.

            In to US session: Sterling strong after PMI hat-trick

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              ActionForex.com
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              Entering into US session, Sterling is trading as the strongest one for today. UK scored a hat-trick of PMI upside surprise in June and added to the case for August BoE rate hike. Yen followed as the second strongest as global investors remain on the defensive side. US Section 301 tariffs on China and the latter’s retaliation is set to start on July 6. Euro is trading as the weakest one for no apparent reason. Canadian Dollar is the second weakest as WTI crude oil dips back below 74 handle.

              Trading is actually rather subdued this week. Yen is the generally stronger one as seen in weekly Top Mover table. But we’re talking about less than 50pips difference from prior week’s close, except EUR/JPY.

              Action Bias table is also generally neutral for Dollar pairs. With US on holiday, World Cup having two days of rests before quarter final, it’s time to have a break today.

              US ISM services dropped to 55.9, corresponds to 2.5% annualized growth in real GDP

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                ActionForex.com
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                US ISM Services PMI dropped -0.7 to 55.9 in November, slightly below expectation of 56.0. Business activity dropped -3.2 to 58.0. New orders dropped -1.6 to 57.2. Employment rose 1.4 to 51.5.

                ISM said: “The past relationship between the Services PMI™ and the overall economy indicates that the Services PMI™ for November (55.9 percent) corresponds to a 2.5-percent increase in real gross domestic product (GDP) on an annualized basis.”

                Full release here.

                Sterling rebounds as BoE keeps Bank Rate unchanged at 0.75%

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                  ActionForex.com
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                  BoE left Bank Rate unchanged at 0.75% on 7-2 vote. Jonathan Haskel and Michael Saunders voted for a 25bps cut, for the third straight meeting. Asset purchase target is held at GBP 435B on unanimous vote.

                  In the accompanying statement, the central bank noted that “policy may need to reinforce the expected recovery in UK GDP growth should the more positive signals from recent indicators of global and domestic activity not be sustained or should indicators of domestic prices remain relatively weak” Though, “further ahead, if the economy recovers broadly in line with the MPC’s latest projections, some modest tightening of policy may be needed to maintain inflation sustainably at the target.”

                  Statement and monetary policy report.

                  Sterling recovers notably after the decision. In particular, EUR/GBP was knocked from 0.8487 minor resistance and retains near term bearishness in the cross. That is, corrective recovery from 0.8276 has completed at 0.8595 already. Break of 0.8386 will bring retest of 0.8276 low next.

                  Chicago Fed Evans: No outsized risk of inflation breakout

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                    ActionForex.com
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                    Chicago Fed President Charles Evans he didn’t see an “outsized risk of a breakout in inflation”. And as long as that picture continues Fed can “increase rates gradually while monitoring any rising inflationary pressures.”

                    Evans was indeed referring to the risk of 70s style overheating in inflation, as central banks fell behind the curve. And Fed was forced to push up interest rates aggressively in response, which ensued a recession.

                    But this time, he didn’t expect inflation to pick up as quickly or as problematically as it did in the 70s. And therefore, “the federal funds rate does not need to be increased as much above its neutral setting as in the past when trend inflation needed to be taken down several notches.” And, “gradual policy increases in this context make sense—certainly as a way to limit the damage if policy ever actually becomes overly tight too soon.”

                    Sterling recovers as PM May set to announce new Brexit deal at 1500GMT

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                      ActionForex.com
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                      Sterling recovers notably on short covering as UK Prime Minister Theresa May is scheduled to announce her new Brexit deal at 1500GMT.

                      Her spokesman said that “Cabinet discussed the new deal which the government will put before parliament in order to seek to secure the UK’s exit from the European Union.

                      The discussions included alternative arrangements, workers’ rights, environmental protections and further assurances on protecting the integrity of the UK in the unlikely event that the backstop is required.

                      The prime minister said that “the withdrawal agreement bill is the vehicle that gets the UK out of the European Union and it is vital to find a way to get it over the line.”

                      And the prime minister will be setting out further details on the way forward in a speech this afternoon.”

                      ECB Centeno: Inflation will fall again from March onwards

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                        ActionForex.com
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                        ECB Governing Council member Mario Centeno said yesterday, “we are approaching the end of the current process of interest rate hikes, I believe that is true.”

                        Centeno said that “wage updates in Europe could make it difficult for prices to continue to fall” in the next two months, but “after that, inflation will fall again from March onwards.”

                        UK PMI construction dropped to 45.3, retrenchment could soon spillover to other parts of economy

                          By
                          ActionForex.com
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                          UK PMI Construction recovered to 45.3 in July, up from 43.1 (10 year low) but missed expectation of 46.0. And, it’s still the fifth straight month of sub-50 contraction reading. Markit noted that construction activity fell for the third month in a row. There was sharp drop in new work and purchasing activity during July. Business optimism also slid to its lowest since November 2012.

                          Tim Moore, Economics Associate Director at IHS Markit, which compiles the survey:

                          “UK construction output remains on a downward trajectory and another sharp drop in new orders has reduced the likelihood of a turnaround in the coming months.

                          “Total business activity declined at a softer pace than the ten-year record seen in June, but this should not detract attention from the challenges ahead for the construction sector. Customer demand has been squeezed on all sides in recent months, which has pushed down business expectations to the lowest since the second half of 2012.

                          “July data revealed declines in house building, commercial work and civil engineering, with all three areas suffering to some degree from domestic political uncertainty and delayed decision-making.

                          “Construction companies have started to respond to lower workloads by cutting back on input buying, staffing numbers and sub-contractor usage. If the current speed of construction sector retrenchment is sustained, it will soon ripple through the supply chain and spillovers to other parts of the UK economy will quickly become apparent.”

                          Full release here.

                          ECB to hike today, 25bps or 50bps?

                            By
                            ActionForex.com
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                            As ECB gears up for its seventh consecutive interest rate hike in a row today, market participants are divided on the size of the increase. While the majority expect a 25bps hike, which would bring the main refinancing rate to 3.75% and the deposit rate to 3.25%, a 50bps move cannot be totally ruled out.

                            The size of the hike carries significant implications for the market. A 50bps increase would suggest that the tightening cycle could extend beyond June, even if it slows down then. However, a 25bps hike would create more ambiguity for July meeting. Ultimately, the path forward will still heavily depend on the next round of economic projections, only available at June meeting.

                            Suggested readings on ECB:

                            EUR/CHF’s recovery from 0.9774 has been underwhelming, stalling at 0.9878 before reversing course. It seems that price actions from 0.9995 are forming a triangle consolidation pattern. While a break below 0.9774 cannot be ruled out, any downside should be limited. Conversely, breaking 0.9878 resistance would indicate that the rise from 0.9704 is set to resume through 0.9995. Let’s see how it plays out.

                             

                            SNB expected to stand pat through 2020 after lowering inflation forecasts

                              By
                              ActionForex.com
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                              SNB lowered inflation forecast in 2019 by 0.1% to 0.8% today.  For 2020, inflation is projected to be at 1.2%, sharply lower than prior forecast of 1.6%. Some economists take that signals that SNB will wait a long time to change its monetary policy. And the first rate hike could be postponed towards 2020. That is, SNB could wait some more time after ECB starting to raise interest rates beyond summer 2019.

                              SNB Chairman Thomas Jordan told reports that “the franc has appreciated, which has also led to a tightening of monetary conditions.” And, “that is also the main reason why our monetary policy must remain expansive.”

                              Central bank leaders signal continued inflation battle

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                                ActionForex.com
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                                In an engaging dialogue at ECB forum, central bank leaders from across the globe hinted at the ongoing struggle against inflation, with an emphasis on the need for continued restrictive monetary policy.

                                Christine Lagarde, President of ECB, highlighted the necessity of sustained effort in the face of inflation, saying, “We still have more ground to cover.” She underlined the lack of “tangible evidence” that domestic prices, a key indicator of underlying inflation, were stabilizing and starting to fall.

                                Meanwhile, Fed Chair Jerome Powell echoed this sentiment, asserting that, despite the current restrictive stance, monetary policy “may not be restrictive enough and it has not been restrictive for long enough.” Leaving the door open for consecutive rate hikes, he said, “I wouldn’t take moving in consecutive meetings off the table at all.”

                                Andrew Bailey, Governor of BoE, justified last week’s significant 50 basis point rate hike, attributing it to the persistence of inflation and labor market pressures. He stated, “The cumulative data… caused us to conclude that we had to make really quite a strong move.”

                                On the other hand, Kazuo Ueda, Governor of BoJ, projected a temporary slowdown in inflation due to diminishing effects of past import price increases. However, he forecasted an inflation uptick into 2024, albeit admitting less confidence about this second phase. Ueda mentioned that confirmation of this second inflationary surge could be a “good reason to shift policy.”

                                Italy to response to EU on budget today, Di Maio pledged to stay in Euro

                                  By
                                  ActionForex.com
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                                  Italian Deputy Prime Minister Luigi Di Maio said the government is going to send EU a formal response on the “serious concerns” over its draft budget today. The response will provide explanations on raising budget deficit to 2.4% of GDP next year. Di Maio hoped that would provide “over a long discussion process … could lead the Commission to share the goals we have set.”

                                  Di Maio, leader of the 5-star movement, reiterated that there is a concern of Italy leave the Euro or the EU, based on the jump in yield spreads. But he emphasized that “there is no Plan B (to leave Europe) but only Plan A which is to change Europe.” And he pledged that “As long as I’m head of this movement and a minister of this government I’ll always guarantee that Italy remains within the euro and in Europe.”

                                  Nonetheless, European Commission is expected to formal reject Italy’s budget tomorrow, and ask for a resubmission. In a letter to Italy last week, EU described Italy’s draft budget as an “obvious significant deviation” of the recommendations adopted by the European Council” and “size of the deviation (a gap of around 1.5% of GDP) are unprecedented”.

                                  Italy PM Conte: European Commission has no ground to question our forecasts, we’re not a problem to EU

                                    By
                                    ActionForex.com
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                                    Italian Prime Minister Giuseppe Conte issued a formal statement in response to European Commission’s new forecasts published today.

                                    Conte criticized that the 2019 growth forecasts for Italy “underestimate the positive impact of our economic maneuver and our structural reforms.” He emphasized that with the government’s estimate, growth will increase while debt and deficit will decrease. And there is “no grounds for questioning the validity and sustainability of our forecasts.”

                                    He also said “Italy is not at all a problem for the Eurozone and European Union, but rather will contribute to the growth of the whole continent.” And, the structural reforms will “give greater impetus to the growth compared to the EU Commission.”

                                    Conte’s full statement in Italian here.

                                    As a reminder, in EU’s warning letter dated October 10, European commission has already criticized that “the macroeconomic forecast underlying Italy’s budgetary plans has not been endorsed by the Parliamentary Budget Office (PBO), Italy’s independent fiscal monitoring institution. At first sight, this appears not to respect the explicit provision of Regulation 473/2013 (Article 4(4)) calling for the macroeconomic forecast to be produced or endorsed by an independent body.”

                                    PBoC official said China has room to cut RRR further

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                                      ActionForex.com
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                                      In an article, a PBoC official said that adjustment in the reserve requirement ratio was for providing “long-term, stable liquidity” to the real economy. It’s not a sign towards loose monetary policy. The article was first published in December, released again by the China Bond magazine via it’s Wechat account yesterday. that came a day after PBoC announced fresh RRR cut on Wednesday.

                                      Ruan Jianhong, head of the Statistics and Analysis Department at the People’s Bank of China (PBOC), said, “from an international perspective, China’s current required reserve ratio (RRR) is still relatively high and has relatively big room to adjust”. Along with other monetary policy tools, RRR adjustments “can provide long-term, stable liquidity to the real economy.”

                                      “In recent years, PBOC has been reducing RRRs successively. But this doesn’t mean PBOC is shifting toward a looser monetary policy. Rather, the moves are aimed at supplementing liquidity to the overall economy in an efficient, low-cost manner,” She added.

                                      ECB Lagarde: We are not done with tightening yet

                                        By
                                        ActionForex.com
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                                        ECB President Christine Lagarde said in an interview, “Inflation is still far too high in the euro area as a whole… Higher energy and food prices are still the main drivers of price increases. We are increasingly seeing that these higher energy costs are feeding through to more and more sectors in the economy.”

                                        “We expect to raise interest rates further to make sure that inflation returns to our medium-term target of 2% in a timely manner,” she added.

                                        “Since July we have raised interest rates by 200 basis points – the fastest increase in the history of the euro,” she said. “But we are not done yet. We will decide on future policy steps meeting by meeting, each time assessing how the outlook for the economy and inflation has evolved, also considering how the measures we have taken so far are working.”

                                        She admitted that the “likelihood of a recession has increased and uncertainty remains high.” But ultimately, “persistently high inflation rates are more damaging to society because they make everybody poorer.”

                                        Full interview here.

                                        EU von der Leyen: Time extremely short for mass negotiations with UK

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                                          ActionForex.com
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                                          European Commission President Ursula von der Leyen told German Der Spiegel that she’s worried about UK’s schedule to complete negotiations of future relationship by end of 2020. She said, “that worries me a lot, because time is extremely short for the mass of issues that have to be negotiated.”

                                          Separately, she told French daily Les Echo that both sides need to needed to seriously assess if there is enough time to complete trade negotiations. And, “it would be reasonable to evaluate the situation mid-year and then, if necessary, agree on extending the transition period.”

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