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OECD downgrades global GDP forecast, but upgrades Eurozone and China

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    ActionForex.com
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    OECD warned that trade conflict, weak business investment and persistent political uncertainty are weighing on the world economy and raising the risk of long-term stagnation. Global GDP growth for 2020 was revised down by 0.1% to 2.9%, same as this year, lowest annual rate since the financial crisis. That’s also a sharp slowdown from 3.5% back in 2018.

    OECD Chief Economist Laurence Boone said: “It would be a mistake to consider these changes as temporary factors that can be addressed with monetary or fiscal policy: they are structural. Without coordination for trade and global taxation, clear policy directions for the energy transition, uncertainty will continue to loom large and damage growth prospects.”

    OECD Secretary-General Angel Gurría said: “The alarm bells are ringing loud and clear. Unless governments take decisive action to help boost investment, adapt their economies to the challenges of our time and build an open, fair and rules-based trading system, we are heading for a long-term future of low growth and declining living standards.”

    Look at some details:

    Global GDP growth is projected at

    • 2.9% in 2019 (unchanged).
    • 2.9% in 2020 (down from September’s 3.0%).
    • 3.0% in 2021 (new).

    G20 GDP:

    • 3.1% in 2019 (unchanged).
    • 3.2% in 2020 (unchanged).
    • 3.3% in 2021 (new).

    US GDP:

    • 2.3% in 2019 (down from 2.4%).
    • 2.0% in 2020 (unchanged).
    • 2.0% in 2021 (new).

    Eurozone GDP:

    • 1.2% in 2019 (up from 1.1%).
    • 1.1% in 2020 (up from 1.0%).
    • 1.2% in 2021 (new).

    China GDP:

    • 6.2% in 2019 (up from 6.1%).
    • 5.7% in 2020 (unchanged).
    • 5.5% in 2021 (new).

    EUR/USD head and shoulder in the making, ECB to hike how much?

      By
      ActionForex.com
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      ECB faces mounting pressure to deliver a decisive response to the recent bank rout that is raising serious doubts on whether they will raise interest rates by 50bps tomorrow as previously indicated. Market expectations for a 50bps hike have dropped to less than 30%, with a 70% chance of just a 25bps hike.

      In February’s statement, ECB said explicitly that “the Governing Council intends to raise interest rates by another 50 basis points at its next monetary policy meeting in March”. However, the central bank has a recent history of overturning its intentions, leaving investors uncertain of their next move.

      In June 2022 statement, it said “the Governing Council intends to raise the key ECB interest rates by 25 basis points at its July monetary policy meeting”. But then in July, it hiked the three key interest rates by 50bps.

      But of course, that’s just an “intention”. ECB never pre-commits to any policy move.

      EUR/USD is now close to completing a head and shoulder top, with left shoulder at 1.0733, head at 1.1032, and right shoulder at 1.0759. Theoretically speaking, firm break of the neckline should have confirmed the reversal pattern already. On the other hand, strictly speaking, the ideal short entry should be on recovery back to the neckline, which might never happen.

      To take a middle, decisive break of 38.2% retracement of 0.9534 to 1.1032 at 1.0258 will be taken as confirmation of the reversal. 61.8% retracement at 1.0106 will be the immediate near term target.

      Let’s see whether ECB would help complete this technical formation.

      Gold heading back to 1872 supports as European stocks tumble

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        ActionForex.com
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        Yen and Dollar surges broadly as European stocks tumble sharp on the come back of coronavirus. At the moment, FTSE is down -1.77%> DAX is down -3.25%. CAC is down -3.07%. DOW future is also down nearly -500 pts.

        Gold drops back below 1900 handle today, following the rally in Dollar. While it’s essentially still range bound, focus is back on 1872.85 support. Firm break there will suggest that whole corrective pattern from 2075.18 high is extending with another leg through 1848.39 low.

        US building permits permits rose to 1.76m, housing starts dropped to 1.57m

          By
          ActionForex.com
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          US building permits rose 0.3% mom to 1760k in April, slightly below expectation of 1770k. Housing starts dropped -9.5% mom to 1569k, well below expectation of 1710k.

          Full release here.

          Japan industrial production dropped -1.3% mom in Apr, expected to return to growth in May

            By
            ActionForex.com
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            Japan industrial production dropped -1.3% mom in April, much worse than expectation of -0.2% mom. It’s also the first decline in three months. The seasonally adjusted production index for the manufacturing and mining sectors stood at 95.2 against 100 for the base year of 2015.

            Manufacturers surveyed by the Ministry of Economy, Trade and Industry expected output to return to growth in May, gaining 4.8%, followed by a 8.9% rise in June.

            Also from Japan, unemployment rate dropped from 2.6% to 2.5% in April, lowest in two years. Retail sales rose 2.9% yoy, above expectation of 2.6% yoy.

            EU adopted Brexit negotiation guidelines

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              ActionForex.com
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              EU leaders formally approved the guidelines for the negotiation of future relations with the UK after Brexit in the EU summit today. Only a few minutes were taken for the approval. While symbolic, the approval now clears the way to move one to the next phase of Brexit negotiation. And the process will likely gain momentum from now on. Brexit negotiator Michel Barnier will now talk directly to the US about future relationship. The target is to reach a broad political agreement by October.

              The 7-page document can be found here.

              UK Prime Minister Theresa May said that “I believe we are approaching this with a spirit of cooperation, a spirit of opportunity for the future as well, and we will now be sitting down and determining those workable solutions for Northern Ireland, but also for our future security partnership and economic partnership.” And, she added that “the best interest of both the UK and the EU that we get a deal that actually is in the interests of both.”

              Australia unemployment rate jumped to 22-yr high, PM unveils job trainer support, AUD/JPY dips

                By
                ActionForex.com
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                Australia employment rose 210.8k to 12.33m in June, above expectation of 112.5k rise. Full time job dropped -38.1k to 8.49m. Part-time jobs, on the other hand, surged 249k to 3.84m. Unemployment rise rose 0.4% to 7.4%, matched expectations. That’s the highest level since November 1998. Nevertheless, the positive sign is that participation rate jumped back by 1.3% to 64.0%, as people are back in the job markets.

                Prime Minister Scott Morrison unveiled today a new AUD 2B JobTrainer plan aimed at reskilling and upskilling Australians. He said, the program “doesn’t just support those who have left the workforce through no fault of their own, but that also is supporting school leavers as well at the end of this year.”

                AUD/JPY weakens mildly after the release but stays above 4 hour 55 EMA. We’re viewing the sideway price actions from 72.52 as the second leg of the pattern form 76.78 high only. That is, we’d expect at least another decline before the pattern completes. Break of 73.98 support should target 72.52 and below.

                Japan FM Suzuki: Will take action against speculations on Yen if needed

                  By
                  ActionForex.com
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                  Japanese Finance Minister Shunichi Suzuki reiterated that the government is “strongly concerned” about one-sided, rapid yen moves.

                  “We took appropriate action against excessive volatility driven by speculators. The intervention has had a certain effect,” he said, referring to last week’s intervention to support Yen. “There is no change in our stance that we will take (further) action if needed.”

                  “Governor Kuroda expressed Thursday in his remarks his strong concerns about the rapid depreciation of the yen. We have a shared view on this with the BOJ,” Suzuki added.

                  Former top currency diplomat Naoyuki Shinohara, however, said, “it’s unlikely Japan will continue intervening to defend a certain line, such as 145 yen to the dollar… It’s impossible to reverse the market’s broad trend with intervention alone.” Shinohara oversaw Japan’s currency policy during the global financial crisis in 2008.

                  OECD expects just -4.5% global contraction this year, US and China outlook revised up sharply

                    By
                    ActionForex.com
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                    OECD revised up 2020 global GDP forecast, expecting to contract -4.5%, 1.5% higher than June’s single hit scenario. Both economic projections of US and China are revised up sharply higher. US economy is expected to contract -3.8% only, up by 3.5% from June. China is expected to grow 1.8%, up by 4.4% from June. Eurozone (at -7.9%, up by 1.2% from June), Japan (at -5.8%, up by 0.2%), UK at -10.1% (up by 1.4%) are just revised up slightly.

                    OECD said: “After collapsing in the first half of the year, economic output recovered swiftly following the easing of measures to contain the COVID-19 pandemic and the initial re-opening of businesses. Policymakers reacted rapidly and massively to buffer the initial blow to incomes and jobs. But the pace of recovery has lost momentum over the summer. Restoring confidence will be crucial to how successfully economies can recover, and for this we need to learn to safely live with the virus.”

                    Full report here.

                    RBA Lowe: We need to make clear to the community we were not done yet

                      By
                      ActionForex.com
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                      In the second parliamentary grilling today, RBA Governor Philip Lowe said, “based on the currently available information, the board expect that further increases will be needed over the months ahead to ensure that inflation returns to target.”

                      “Given there is a significant demand element to inflation, we need to respond to that with further monetary policy and we need to make that clear to the community that we were not done yet,” Lowe said.

                      “The RBA and many other central banks are managing two risks,” he said. “One is the risk of not doing enough, which would result in high inflation persisting and then later proving very costly to get down. The other is the risk that we move too fast, or too far.”

                      Australia PMI composite dropped to 51.2, still early to call an end to RBA tightening

                        By
                        ActionForex.com
                        -

                        Australia’s PMI Manufacturing index stayed put at 48.0 in May, marking the joint-lowest reading since May 2020. On the other hand, PMI Services fell from 53.7 to 51.8, causing Composite PMI to decrease from 53.0 to 51.2.

                        Warren Hogan, Chief Economic Advisor at Judo Bank, said, “The May Flash result shows a small retracement from the strong April outcome reinforcing the view that overall economic activity in Australia is holding up well as we enter the winter months.”

                        Despite the manufacturing sector’s continuous slowdown, Hogan emphasized that this does not signal a recession. In contrast to manufacturing, the services sector has shown recent strength, and was “far from the risk of recession:.

                        However, he warned of the implications of better economic conditions in terms of inflation. “The RBA is trying to engineer a soft landing to rid the economy of inflation. But if they don’t lean hard enough on monetary policy, we could see a more stubborn inflation emerge which will ultimately require a bigger lift in interest rates,” Hogan cautioned.

                        Highlighting the strong correlation between the pick-up in the services PMI, housing market, rising population growth, and job advertising, he concluded, “Last week’s labour market data on employment and wages have bought the RBA some time, but the Flash PMIs highlight that it is still too early to call an end to the monetary policy tightening cycle.”

                        Full Australia PMI release here.

                        SNB Jordan: Inflation is increasingly spreading to goods and services

                          By
                          ActionForex.com
                          -

                          SNB Chairman Thomas Jordan said over the weekend, “There are signs that inflation is increasingly spreading to goods and services that are not directly affected by the pandemic or the war in Ukraine.”

                          “In fact, it appears that in the current environment, higher prices are being passed on more quickly — and are also being more readily accepted — than was the case until just recently,” he added.

                          Inflation expectations “have also been moving upwards slightly” and wage growth is “gathering momentum,” Jordan said, cautioning that the “longer-term outlook for monetary policy is also subject to high uncertainty.”

                          “In particular, a decline in global economic integration could increase companies’ price-setting power, meaning that they would be able to push through price increases more easily,” he said.

                          IMF Lagarde hints at global outlook downgrade on trade disputes

                            By
                            ActionForex.com
                            -

                            IMF Managing Director Christine Lagarde hinted today that the organization may downgrade growth outlook next week. She said, “In July, we projected 3.9 percent global growth for 2018 and 2019. The outlook has since become less bright, as you will see from our updated forecast next week.”

                            Lagarde added “A key issue is that rhetoric is morphing into a new reality of actual trade barriers. This is hurting not only trade itself, but also investment and manufacturing as uncertainty continues to rise.” Though she also tried to tone down and said “we are not seeing broader financial contagion — so far — but we also know that conditions can change rapidly. If the current trade disputes were to escalate further, they could deliver a shock to a broader range of emerging and developing economies.”

                            On WTO reform, she said “The immediate challenge is to strengthen the rules. This includes looking at the distortionary effects of state subsidies, preventing abuses of dominant positions and improving the enforcement of intellectual property rights.”

                            Eurozone Sentix rose to -8 in Feb, stagnation with mini-growth the consequence

                              By
                              ActionForex.com
                              -

                              Eurozone Sentix Investor Confidence rose from -17.5 to -8.0 in February, above expectation of -11.8. That;s also the highest since March 2022. Current Situation Index rose from -19.3 to -10.0, highest since June 2022. Expectations Index rose from -15.8 to -6.0, highest since February 2022. All three indexes had the fourth increase in a row.

                              Sentix said: “Up to now, investors have been assuming a recession, the course of which was initially expected to be severe but has now eased considerably. With the recent improvement, the scenario of stagnation is gaining in contour. The absence of an energy crisis and the rosy corporate news are contributing to the turnaround from the original recessionary path.”

                              “However, the following must be critically observed: So far, the improvement in all subcomponents is running at a negative level. In addition, it is noticeable that the expectations component is hardly running ahead of the current situation. Normally, at economic turning points, the expectations values turn positive much faster, while the current situation is still deep in the red. In these cases, a new, positive perspective emerges. However, this has not been the case so far! Investors expect the status quo of the economy to be maintained to some extent. Stagnation with mini-growth would be the consequence.”

                              Full release here.

                              Markets shrug Trump’s unsubstantiated tax cut for middle class

                                By
                                ActionForex.com
                                -

                                Trump talked about the plan to give middle class 10% tax cut yesterday. He said “we’re putting in a resolution some time in the next week and a half to two weeks [and] we’re giving a middle-income tax reduction of about 10 percent.” He insisted that the plan will go through Congress rather than executive order. And the vote will be done after mid-term election.

                                But the initiative is widely criticized as unsubstantiated as Republican congressional leaders and White House officials were reported to have heard nothing about the plan. Additionally, Congress is in recess ahead of mid-term election and there is no plan to return to Washington for the matter.

                                White House spokeswoman Lindsay Walters clarified yesterday that “as part of Tax Reform 2.0, the first elements of which were passed the House in September, the President would like to see an additional tax cut of 10% for middle-income families.” That effectively confirmed that the idea of 10% tax cut is something entirely new.

                                The three bills of the so called Tax Reform 2.0 was passed in the House in late September. And it’s already facing a tough batter in the Senate. It is seen as nearly impossible to add additional deficit ballooning 10% tax cut to the plan and get through either House or Senate. The claimed 10% tax cut for the middle class is seen as campaign gimmick rather than anything with substance.

                                The US markets shrugged off the news with DOW closing down -0.50% at 25317.41. Consolidation from 24899.77 is in progress but fall from 26951.81 medium term should resume sooner or later.

                                Japan PMI manufacturing finalized at 52.7, new orders stagnates and input prices rose

                                  By
                                  ActionForex.com
                                  -

                                  Japan PMI Manufacturing was finalized at 52.7 in February, down from January’s 55.4. Markit said there was renewed fall in output amid near-stagnation in new orders. Input prices rose at sharpest pace since August 2008. Stocks of purchases had survey-record increase amid delays and shortages.

                                  Usamah Bhatti, Economist at IHS Markit, said: “February PMI data pointed to a softer expansion in the Japanese manufacturing sector. The rate of growth eased to a five-month low, however, amid a renewed reduction in production levels and a broad stagnation in new orders… input price pressures intensified further, with average cost burdens rising at the sharpest pace in thirteen-and-a-half years… manufacturers commented that the degree of optimism regarding the 12-month outlook for output eased to a six-month low in February… This is broadly in line with the IHS Markit prediction for industrial production to grow 5.9% in 2022.”

                                  Full release here.

                                  New Zealand terms of trade dropped -3%, largest fall since 2015

                                    By
                                    ActionForex.com
                                    -

                                    New Zealand terms of trade index dropped -3.0% qoq in Q4, much worse than expectation of -1.0% qoq. It’s also the largest decline since September 2015 quarter. Also ,falling global prices for milk powder and butter meant overall export prices dropped -1.7%. However, Stats NZ noted that “despite the latest fall, the terms of trade remained near the historic high in the December 2017 quarter.”

                                    Full release here.

                                    Also from New Zealand, building permits rose 16.5% mom in January.

                                    US oil inventories rose 3.3m barrels, WTI staying in sideway consolidation

                                      By
                                      ActionForex.com
                                      -

                                      US commercial crude oil inventories rose 3.3m barrels in the week ending October 29, above expectation of 1.9m. At 434.1m barrels, oil inventories are about 6% below the five year average for this time of year. Gasoline inventories dropped -1.5m barrels. Distillate rose 2.2m barrels. Propane/propylene rose 0.4m barrels. Commercial petroleum inventories rose 0.6m barrels.

                                      WTI crude oil is staying in consolidation from 85.92 for the moment. Such consolidation should be relatively brief as long as 81.04 support holds. Break of 85.92 will resume larger up trend to 61.8% projection of 33.50 to 77.16 from 61.90 at 88.88. However, break of 81.04 will bring deeper correction to 55 day EMA (now at 77.12) before up trend resumption.

                                      Japan exports growth slowed to 9.4% yoy on fall in car shipments

                                        By
                                        ActionForex.com
                                        -

                                        Japan exports rose 9.4% yoy to JPY 7.18B in October. That was the slowest expansion since a decline in February. By region, exports to China rose 9.5% yoy, slowed from 10.3% yoy in the prior month, on -46.8% yoy fall in car shipments. Exports to US grew just 0.4% yoy, also weighed down by -46.4% yoy fall in car exports. Imports rose 26.7% yoy to JPY 7.25B. Trade balance came at as JPY -0.07B deficit

                                        In seasonally adjusted terms exports rose 2.7% mom to JPY 6.93B while imports rose 0.3% mom to JPY 7.38B. Trade deficit came in at JPY -0.44B.

                                        Also from Japan, machine orders rose 0.0% mom in September, versus expectation of 1.8% mom.

                                        Australia AiG services dropped to 27.1 in Apr, trade surplus swelled to 10.6B in Mar

                                          By
                                          ActionForex.com
                                          -

                                          Australia AiG Performance of Services Index dropped -11.6 pts to 27.1 in April. This was both the largest single monthly fall and the lowest result in the history of the series (commencing in 2003).

                                          AiG said: “Activity restrictions in response to the COVID-19 pandemic have decimated large segments of Australia’s services industries. The Australian PSI® indicated contraction in all sectors in April (trend).

                                          Also released, export of goods and services rose 15.0% mom to AUD 42.4B in March. Imports dropped -4.0% mom to 31.8B. Trade surplus widened sharply to 10.6B, well above expectation of AUD 6.4B.

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