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Eurozone PMI composite finalized at 51.9, policymakers need to focus firmly on sustaining recovery

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    ActionForex
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    Eurozone PMI Services was finalized at 50.5 in August, down from July’s 54.7. PMI Composite was finalized at 51.9, down from July’s 54.9. Among the states where data are available, Germany PMI composite dropped to 2-month low of 54.4. Ireland dropped to 54.0. France dropped to 51.6. Italy and Spain stayed in contraction at 49.5 and 48.4 respectively.

    Chris Williamson, Chief Business Economist at IHS Markit said: “Service sector companies across the eurozone saw growth of business activity grind almost to a halt in August, fueling worries that the post-lockdown rebound has started to fade amid ongoing social distancing restrictions linked to COVID-19… Although the relative strength of the PMI data in July and August mean the autumn is likely to still see the economy rebound strongly from the collapse witnessed in the spring, the survey highlights how policymakers will need to remain focused firmly on sustaining the recovery as we head further into the year.”

    Full release hrere.

    China PMI services ticked down to 54.0, but employment grew again

      By
      ActionForex
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      China Caixin PMI Services dropped slightly by -0.1 to 54.0 in August, matched expectations. Markit said new order growth eased further but remained strong. Staff numbers expanded for the first time since January. Output prices rose amid further increase in operating costs. PMI Composite rose to 55.1, up from July’s 54.5.

      Wang Zhe, Senior Economist at Caixin Insight Group said: “Overall, the recovery of the manufacturing and services sectors from the epidemic remained the main theme of the economy. Supply and demand both expanded. The gauges for orders, purchases and inventories all remained strong. Price measures remained stable. Over the past half year, external demand and employment remained subdued generally, but in August, employment for the services sector started to improve and employment for the manufacturing sector approached a turning point.

      ” However, there were still uncertainties from Covid-19 overseas, which could constrain the “dual circulation” of domestic and international markets. Improvement in employment in the post-epidemic era requires longer-term market recovery and longer-term stability of business expectations. During this process, support from relevant macroeconomic policies is essential.”

      Full release here.

      Australia trade surplus shrank to 4.6B in Jul as exports fell

        By
        ActionForex
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        Australia export of goods and services dropped -4% mom to AUD 34.5B in July. Imports rose 7% mom to AUD 29.9B. Trade surplus shrank to AUD 4.6B, down from AUD 8.2B, missed expectation of AUD 5.0B.

        AiG Performance of Construction index dropped -4.8 pts to 37.9 in August. Ai Group Head of Policy, Peter Burn, said: “The sharp fall in activity in Victoria was a major factor in the downturn while border restrictions in other states have hampered builders and constructors who are reliant on interstate supplies and the availability of tradies from across borders.”

        BoJ Kataoka: Stronger easing actions to show our determination and credibility

          By
          ActionForex
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          BoJ board member Goushi Kataoka, a known dove, urged strong easing actions “to show our determination we won’t tolerate deflation, we can improve the credibility of our price target.”

          “The job market is worsening due to the pandemic, which will drag on consumption,” he added. “If the pandemic’s impact is prolonged and hurts companies’ medium- to long-term growth expectations, they may be forced to slash future demand projections and adjust capital spending plans.”

          Bundesbank Weidmann: Monetary and fiscal stimulus must be scaled back after crisis

            By
            ActionForex
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            Bundesbank President Jens Weidmann urged that after the pandemic crisis, “the emergency monetary-policy measures must be scaled back again”. Further, “if the price outlook so requires, then monetary policy as a whole must be normalized” as risks and side effects “can increase over time.”

            Also, “fiscal policy should also not get used to an easy course, nor should it rely on interest rates to remain so low over the long term.” “The state has to be careful not to interfere too much in corporate decisions, for example in the case of new investments,” Weidmann said. “The state is not the better entrepreneur.”

            Fed Mester: Strong employment is not a concern in absence of inflationary pressures

              By
              ActionForex
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              Cleveland Fed Bank President Loretta Mester said in a speech, Fed’s new strategy statement “is now more explicit about how we will go about achieving” the inflation goal. “The new language is a stronger statement than we have made in the past”, she added.

              “We are now clear that after inflation has been running persistently below 2 percent, not only will we tolerate serendipitous shocks that move inflation above 2 percent, but that we will likely set policy with the intention to move inflation moderately above 2 percent for some time.”

              Also, “the new statement language clarifies that in the absence of inflationary pressures or risks to financial stability, strong employment is not a concern and monetary policy will not react to it”.

              Mester’s full speech here.

              Fed Williams: New Framework addresses problems of low neutral rate and persistently low inflation

                By
                ActionForex
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                New York Fed President John Williams said Fed’s new framework statement “directly and effectively addresses the problems caused by a low neutral rate and persistently low inflation.”

                “First, it stipulates that, following periods when inflation has been running persistently below 2 percent, a temporary overshooting of the longer-run inflation target will likely be desirable to keep inflation and inflation expectations centered on 2 percent.

                “Second, it makes clear that we seek inflation that averages 2 percent over time, consistent with our longer-run target.

                “Finally, the statement makes unequivocally clear that we seek maximum employment and will aim to eliminate shortfalls from this broad and inclusive goal. These changes are mutually reinforcing and will meaningfully improve our ability to achieve both of our dual mandate goals in an environment of a very low neutral rate.”

                William’s full speech here.

                BoE Vlieghe: Easing lockdown insufficient to bring back economic activity

                  By
                  ActionForex
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                  BoE MPC member Gertjan Vlieghe said in the annual report to Treasury Select Committee of Parliament, from different pandemic experiences, it’s “not just the economic lockdown that suppresses economic activity”. There’s also a “large behavioural response of households and firms to the prevalence of the virus, which suppresses demand for certain types of economic activity even without any lockdown measures in place.” Thus, “easing lockdown measures is not sufficient to bring back economic activity.”

                  He also warned, “the longer the virus remains prevalent enough to affect patterns of consumption, investment and employment, the higher the likelihood that some sectors will not be able to return to their previous level of activity”. That would “imply that demand in other sectors needs to rise sufficiently to use up the resulting spare capacity in the labour force and in other inputs”. Such “reorientation of the economy towards a difference sectorial composition” is likely to be a slow process.

                  “Based on these considerations, there is a material risk in my view that it could take several years for the economy to return to full capacity and inflation to return sustainably to target, even with monetary policy at its current settings.”

                  Full report here.

                   

                  US oil inventories dropped -9.4m barrels, WTI dips

                    By
                    ActionForex
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                    US commercial crude oil inventories dropped -9.4m barrels in the week ending August 28, much larger than expectation of -2.0m barrels decline. At 498.4m barrels, US oil inventories are about 14% above the five year average for this time of year. Total motor gasoline inventories dropped -4.3m barrels. Distillate dropped -1.7m barrels. Propane/propylene rose 4.4m barrels. Commercial petroleum dropped -7.8m barrels.

                    WTI drops notably in early US session and pays little attention to the decline in inventories. It continues to struggle to extend larger rally despite various attempts. Nevertheless, downside of any retreat was limited. It’s also staying above near term trend line support. Thus, further rise remains mildly in favor.

                    However, considering that WTI is close to 55 week EMA (now at 43.89), break of 41.13 should confirm bottoming and bring overdue correction lower.

                    Germany Scholz can’t say we are over the worst yet

                      By
                      ActionForex
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                      Germany’s Finance Minister Olaf Scholz said that economic situation is “quite serious” in Europe. Hence, it is “important in the second half of the year to tackle the serious recession we are experiencing.”

                      “Current indicators give us hope that we will have a good recovery,” he acknowledged. “But these developments are still quite precarious and I can’t say we are over the worst of it yet.”

                      He added that Germany’s focus over the coming months would be to complete the set up of the EUR 750B recovery package, and EU’s long term budget of EUR 1.074T.

                      US ADP jobs rose 428k only, well below expectations

                        By
                        ActionForex
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                        US ADP report showed 428k growth in private sector jobs in August, well below expectation of 1250k. By company size, small businesses added 52k jobs. Medium businesses added 79k. Large businesses rose 298k. By sector, goods-producing jobs rose 40k. Service-providing jobs gained 389k.

                        “The August job postings demonstrate a slow recovery,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Job gains are minimal, and businesses across all sizes and sectors have yet to come close to their pre-COVID-19 employment levels.”

                        Full release here.

                        Eurozone PPI at 0.6% mom, -3.3% yoy in Jul

                          By
                          ActionForex
                          -

                          Eurozone PPI came in at 0.6% mom, -3.3% yoy in July, above expectation of 0.5% mom, -3.9% yoy. Industrial producer prices increased by 2.1% mom in the energy sector, by 0.4% mom for durable consumer goods and by 0.1% mom for intermediate goods, while prices remained stable for capital goods and decreased by -0.2% mom for non-durable consumer goods. Prices in total industry excluding energy remained stable.

                          EU PPI rose came in at 0.4% mom, -3.0% yoy. Over the month, the highest increases in industrial producer prices were recorded in Belgium (+2.3% mom), Spain (+1.8% mom) and Bulgaria (+1.6% mom), while the largest decreases were observed in Cyprus (-2.2% mom), Estonia (-2.1% mom) and Sweden (-0.8% mom).

                          Full release here.

                          Japan Suga confirms to run for LDP leadership, pledges to continue Abenomics

                            By
                            ActionForex
                            -

                            Japanese Chief Cabinet Secretary Yoshihide Suga formally announced to run for leadership of the ruling Liberal Democratic Party, to become the next Prime Minister as Shinzo Abe steps down. Suga, a favorite of the LDP and financial markets, pledged that he would “maintain and push forward” with the “Abenomics” pursued by Abe. He also pledged to maintain the current relationship with BoJ.

                            A slimmed-down election with members of the parliament would be held on September 14. Suga’s main competition comes from former defence minister, Shigeru Ishiba, and ex-foreign minister Fumio Kishida. In particular Ishiba is so far seen has the most popular candidate among the public, pushing for changes.

                            AUD/NZD extending correction towards 55 day EMA at 1.08

                              By
                              ActionForex
                              -

                              AUD/NZD’s pull back from 1.1043 short term top extends lower today, partly in reaction to disappointment over Australia GDP data. Deeper fall would be seen to 55 day EMA (now at 1.0806) and possibly below. It’s early to tell if the rebound from 0.9994 has completed, and how deeper the decline would be. Bearish divergence condition in daily MACD is a bearish sign. Also, 1.1043 is close to the edge of a long term range. Reaction to 38.2% retracement of 0.9994 to 1.1043 at 1.0642 will be crucial to determine the next move.

                              Australia GDP contracted record -7.0% in Q2, significant fall in household spending

                                By
                                ActionForex
                                -

                                Australia GDP contracted -7.0% qoq in Q2, worst than expectation of -6.0% qoq. That’s the largest quarterly decline on record since 1959. Combined with Q1’s -0.3% qoq decline, technical recession is confirmed for the country. Looking at some details, private demand detracted -7.9% from GDP, driving by -12.1% decline in household final consumption expenditure. Services spending dropped -17.6% too. Net trade contributed 1.0% to GDP. Public demand contributed 0.6%.

                                Full release here.

                                After the release, Treasurer Josh Frydenberg said “Today’s national accounts confirm the devastating impact on the Australian economy from COVID-19… Our record run of 28 consecutive years of economic growth has now officially come to an end. The cause? A once-in-a-century pandemic.”

                                Nevertheless, “Australia’s economic performance sits among the top of those developed nations as a result of our health and our economic plan to fight the virus,” he added. “Our priority has and will continue to be saving lives and ensuring that Australia’s healthcare system has the capacity to test, trace and treat coronavirus cases.”

                                RBNZ Orr actively preparing a package of additional monetary policy tools

                                  By
                                  ActionForex
                                  -

                                  RBNZ Governor Adrian Orr said in a speech that the early policy actions on the pandemic, including significant reduction in the Official Cash Rate, and introduction of the Large Scale Asset Purchases, “have been effective in lowering interest rates across the board, and ensuring there is plentiful liquidity in the financial system.”

                                  He added that RBNZ is “actively preparing a package of additional monetary policy tools to use if needed”. The tools include “negative wholesale interest rates, further quantitative easing, direct lending to banks, and ongoing forward guidance about our intentions.” While some of the tools are “unfamiliar to many New Zealanders,” he noted, “they are used widely internationally”.

                                  Orr’s full speech here.

                                  BoJ Wakatabe: Necessary to be vigilant against risk of decline in inflation

                                    By
                                    ActionForex
                                    -

                                    BoJ Deputy Governor Masazumi Wakatabe warned today that “it’s necessary to be vigilant against the risk of a decline in the inflation rate.” Temporary external shocks like the coronavirus pandemic could lead to persistent stagnation. And, “in order to address both upside and downside risks to prices, the BOJ must continue to strongly commit itself to achieving its price target.”

                                    Additionally, he said the BoJ must “constantly have deep discussions” on improving its policy. “It’s necessary to give further consideration to what kind of monetary policy should be taken in the COVID-19 era, while referring to discussions being held at other central banks.”

                                    US ISM manufacturing rose to 56.0, demand and consumption drive expansion

                                      By
                                      ActionForex
                                      -

                                      US ISM Manufacturing Index rose to 56.0 in August, up from 54.2, beat expectation of 54.0. That’s also the highest level of expansion since November 2018. Five of the big six industry sectors expanded. Looking at some details, new orders rose 6.1 pts to 67.6. Production rose 1.2 pts to 63.3. Prices jumped 6.3 to 59.5. Employment rose 2.1 to 64.6, but stayed contractionary.

                                      Timothy Fiore, Chair of the ISM Manufacturing Business Survey Committee: “Demand and consumption continued to drive expansion growth, with inputs representing near- and moderate-term supply chain difficulties… Impacted by the current economic environment, many panelists’ companies are holding off on capital investments for the rest of 2020.”

                                      Full release here.

                                      German Altmaier: At least for now, we’re dealing with a V-shaped development

                                        By
                                        ActionForex
                                        -

                                        German Economy Minister Peter Altmaier said that “the recession in the first half of the year turned out to be less severe than we had feared.” “Overall, we can say that at least for now, we are dealing with a V-shaped development,” he added.

                                        The government has revised up 2020 GDP forecast, from -6.3% contraction to -5.8% contraction. That’s still the biggest decline since WWII, surpassing 2009’s -5.7%. For 2021, GDP growth forecasts was revised down to 4.4%, from prior estimate of 5.2%. The economy will not recover to its pre-pandemic level until early 2022.

                                        Exports are expected to drop -12.1% in 2020, then rebound by 8.8% in 2021. Private consumption is forecast to drop by -6.9% in 2020, then rebound by 4.7% in 2021.

                                        Eurozone CPI dropped to -0.2% yoy in Aug, unemployment rose to 7.9% in Jul

                                          By
                                          ActionForex
                                          -

                                          Eurozone CPI dropped to -0.2% yoy in August, down from 0.4% yoy, missed expectation of 0.2% yoy. All items exclude energy dropped from 1.4% yoy to 0.7% yoy. Ex-energy, food, alcohol & tobacco dropped from 1.2% yoy to 0.4% yoy.

                                          Eurozone unemployment rate edged up to 7.9% in July, up from 7.7%. EU unemployment rose to 7.2%, up from 7.1%.

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