Gold’s selloff accelerates today after taking out 2000 handle. Currently the decline from 2075.18 is seen as corrective the rise from 1670.66 only. Hence, while the pull back is deep we’d expect strong support from 38.2% retracement of 1670.66 to 2075.18 at 1920.65 to contain downside to bring rebound. Nevertheless, Gold needs to climb back above 2000 handle to indicate stabilization. Sustained break of 1920.65 could pave the way to 61.8% retracement at 1,825.18 before finding a bottom.
US PPI rose 0.6% mom in July, above expectation of 0.3% mom. PPI core rose 0.5% mom, also above expectation of 0.1%. Annually, PPI climbed back to -0.4% yoy, up from -0.8% yoy, above expectation of-0.6% yoy. PPI core picked up to 0.3% yoy, up from 0.1% yoy, matched expectations.
German ZEW Economic Sentiment rose to 71.5 in August, up from 59.3, beat expectation of 55.0. That’s also the highest level since 2004. Current Situation index however, dropped to -81.3, down from -80.9, missed expectation of -69.5. Eurozone ZEW Economic Sentiment rose to 64.0, up from 59.6. But Eurozone Current Situation dropped -1.1 pts to -89.8.
“Hopes for a speedy economic recovery have continued to grow, but the assessment of the situation is improving only slowly,” comments ZEW President Professor Achim Wambach on the current expectations. “According to the assessments of the individual sectors, experts expect to see a general recovery, especially in the domestic sectors. However, the still very poor earnings expectations for the banking sector and insurers regarding the coming six months give cause for concern,” Wambach points out.
UK unemployment was unchanged at 3.9% in the three months to June, better than expectation of 4.2%. As estimated 1.34m people were unemployment, -10k fewer than the previous quarter.
However, total actual weekly hours worked decreased by a record 191.3m, or 18.4%, to 849.3m hours, worst since 1971. The total hours also hit the lowest level since 1994. Additionally, there was strong falls in pay, with total nominal pay fell by -1.2% yoy and regular nominal pay fell by -0.2% yoy.
In July, claimant count jumped 94.4k to 2.7m. Since March, claimant counts has more than doubled, rose 116.8% or 1.4m.
Australia NAB Business Confidence dropped sharply to -14 in July, down from June’s 0. Business Conditions improved to 0, up from -8. Trading conditions turned position to 1 (up from -6), while profitability rose to 2 (up from -8). Employment also improved from -11 to -2 but stayed negative.
The survey was conducted prior to stage 4 lockdown in Melbourne as confidence already deteriorated of fear of the spread of the coronavirus. Alan Oster, NAB Group Chief Economist said, “while the improvement in conditions is very welcome, capacity utilisation and forward orders point to ongoing weakness overall. Therefore, with confidence still fragile there is some risk that conditions lose some of their recent gains in coming months.
UK BRC total sales rose 3.2% yoy in July, second straight month of increase since the start of the coronavirus pandemic. Also, it’s above 3-month average growth of 0.4% and 12 month average decline of -1.9%. Like-for-like sales grew 4.3% yoy.
Helen Dickinson OBE, Chief Executive of BRC: “While the rise in retail sales is a step in the right direction, the industry is still trying to catch up lost ground, with most shops having suffered months of closures. The fragile economic situation continues to bear down on consumer confidence, with some retailers hanging by only a thread in the face of rising costs and lower sales.”
Deputy Governor Dave Ramsden said in a the Times interview that the BoE ” still got significant headroom to do more QE if we saw a much weaker recovery”. The pace of QE could accelerate is there are signs of market “dysfunction.
Ramsden is “confident” that there wouldn’t be more quarterly GDP contractions ahead. But “a key outcome is what happens to the labour market. Some companies are going to go under. Some jobs are going to be lost.”
Chicago Fed President Charles Evans said the current recession is “unique in its swiftness severity and scope”, without modern precedent. He added that not all businesses could survive even after the coronavirus subsides. New policies are required to help the people affected through the downturn.
“Tragically, the most affected are our most vulnerable neighbors – those who don’t enjoy paid sick leave, can’t work from home or don’t have much cushion in their savings accounts. Their future is highly uncertain and will require new policies to help them through this difficult transition,” he said.
Bank of France said in the monthly report that economic activity is running -7% below normal levels in July. That follows -13.8% contraction in the economy in Q2.
It also noted, in July, “industrial activity continued to recover, albeit at a more subdued pace compared to June”. “Services sector activity continued to expand, but at a slower rate than previous month”. “Construction sector activity continued to grow but decelerated.”
For August, business leaders expect industry to “grow moderately”, services to “remain almost stable”, construction to “tick upwards”.
Eurozone Sentix Investor Confidence rose to -13.4 in August, up from -18.3, beat expectation of -15.2. It’s also the fourth increase in a row, and highest since February. Current Situation index rose to -41.3, up from -49.5, highest since March. Expectations, however, dropped slightly to 19.3, down from 19.5.
Sentix said: “If one compares the development of the current situation following the financial crisis in 2009 with the recovery movement of the sentix economic indices this year, it is noticeable that the recovery of the current situation is very similar in terms of both level and timing. At that time, the expectations were also the first to rise. For a long time, the current situation values bobbed in the deep red range. It was not until summer 2009 that the economic indicators began to recover. The path in 2020 is now very similar, giving rise to the fantasy that the low point has definitely been passed and that the initiated recovery can continue.”
August’ preliminary reading of New Zealand ANZ Business Confidence dropped back to -42.4, down form -31.8. It’s still above lockdown low of -55, though. Own Activity Outlook also dropped to -17.0, down from -8.9.
ANZ said the reading “adds to the evidence that the post-lockdown rebound may have run its course.” “There are three prongs to this economic crisis: lockdown, closed borders, and an incredibly synchronised global slowdown that will hit exports.”
Chicago Fed President Charles Evans said in a CBS interview that “we’ve not control over the virus spread,” and “another support package is really incredibly important”. He emphasized the importance of public confidence “so that people feel good about going back to work, they feel safe they can go out to retail establishments and enjoy leisure and hospitality that put people back to work.”
Evans said the actual unemployment rate is “somewhat higher” that the official number at 10%. “If we got the kind of support that we needed as quickly as possible, got control of the virus, perhaps all the people who were sent home to stay safe could be brought back by their- by their previous employers. ”
Gold retreats notably, accompanying Dollar’s broad based rebound. The break of 2028.34 minor support argues that a short term top is formed at 2075.18, on bearish divergence condition in 4 hour MACD. Intraday bias is now mildly on the downside for 4 hour 55 EMA (now at 1990.24). Sustained break there will confirm this view and bring deeper pull back to 38.2% retracement of 1670.66 to 2075.18 at 1920.65. We’ll see if this scenario would play out.
Canada employment grew 418.5k in July, below expectation of 653.3k. Combined with the 953k added in June and 290k in May, employment was brought back to within 1.3m (-7.0%) of pre-pandemic February level.
Unemployment rate dropped to 10.9%, down form 12.3%, much better than expectation of 12.8%. Labor force participation rate rose back to 64.3%, within 1.2% from February level of 65.5%.
US non-farm payroll employment grew 1763k in July, above expectation of 1510k. Notable job gains occurred in leisure and hospitality, government, retail trade, professional and business services, other services, and health care.
Unemployment rate dropped to 10.2%, down from 11.1%, better than expectation of 10.7%. Labor force participation was little changed at 61.4%. Average hourly earning rose 0.2% mom, better than expectation of -0.5% mom decline.
Germany exports dropped -9.4% yoy to EUR 96.1B in June. Imports dropped -10.0% yoy to EUR 80.5B. Trade surplus came in at EUR 15.6B. In calendar and seasonally adjusted terms, trade surplus widened to EUR 14.5B, up from EUR 7.6B, above expectation of EUR 10.3B. Industrial production rose 8.9% mom in June, above expectation of 8.8% mom.
France trade deficit widened slightly to EUR -8.0B in June, up fro EUR -7.1B. Industrial output rose 12.7% mom, above expectation of 10.0% mom. Italy trade surplus widened slightly to EUR 6.23B, up from EUR 5.58B.
EUR/CAD recovers mildly following the releases but there is no follow through buying yet. The pair failed to break through 1.5991 resistance and retreated, as Canadian Dollar rebounded following oil price rally. Though, with 1.5654 support intact, further rise is expected in the cross. Break of 1.5991 is expected eventually.
In USD term, China’s exports rose 7.2% yoy to USD 237.6B in July. Imports dropped -1.4% yoy to USD 175.3B. Trade surplus came in at USD 62.3B, widened from June’s USD 46.4B, beat expectation of USD 42.5B.
Year-to-July, overall:
Year-to-July, with EU:
Year-to July, with US
In the Monetary Policy Statement, RBA revised down GDP projections for 2021, projecting a slower recovery. There were also upward revisions in unemployment rate forecasts and downward in inflation forecasts. The central bank also reiterated that currency intervention and negative rates no appropriate for the moment.
GDP contraction for year ending December 2020 was maintained at -6%. But a slower recovery is projected, at 5% for year ending December 2021, revised down from 6%. Growth is expected to slow further to 4% in the year ending December 2022.
Unemployment rate is projected be at 10% (revised from 9%) by 2020 end, then drop to 8.5% (revised up from 7.5%) in 2021 end, then to 7% in 2022 end. Trimmed mean inflation projections were also revised down to 1.00% (from 1.25%) in 2020 end, then 1.00% (from 1.25%) in 2021 end, and crawl back to 1.50% in 2020 end.
RBA said: “At a time when the value of the Australian dollar is broadly in line with its fundamentals and the market was working well, there was not a case for intervention in the foreign exchange market. Intervention in such circumstances is likely to have limited effectiveness.”
“The Board continues to view negative interest rates as being extraordinary unlikely in Australia. The main potential benefit is downward pressure on the exchange rate. But negative rates come with costs too. They can cause stresses in the financial system that are harmful to the supply of credit, and they can encourage people to save rather than spend.”
Asia markets tumble broadly, particularly serious in Hong Kong, after US President Donald Trump issued an executive order to ban China’s TikTok and WeChat apps. The orders will go into effect in 45 days, and block all transactions with TikTok’s owner ByteDance, and transactions involving WeChat. The move was made under the International Emergency Economic Powers Act, which allows the president to declare a national emergency, block transactions and seize assets, in response to “unusual and extraordinary threat”.
“To protect our Nation, I took action to address the threat posed by one mobile application, TikTok. Further action is needed to address a similar threat posed by another mobile application, WeChat,” Trump said. “This data collection threatens to allow the Chinese Communist Party access to Americans’ personal and proprietary information — potentially allowing China to track the locations of Federal employees and contractors, build dossiers of personal information for blackmail, and conduct corporate espionage”.
At the time of writing, Hong Kong HSI is down -566 pts or -2.27%. It’s still holding above a near term channel support nevertheless. If HSI could rebound from the current level and break through 25201.43 resistance, near term bullish would be retained for another rise through 26782.61. However, sustained trading below the channel support will argue that the corrective rise from 21139.26 has completed and bring deeper fall to 22519.73 support to confirm.
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RBNZ expands QE, prepare for negative rates, NZD/USD tumbles
RBNZ kept the Official Cash Rate unchanged at 0.25% today, but expanded the Large Scale Asset Purchase program to NZD 100B, up from NZD 60B. Eligible assets for the program remain unchanged. RBNZ also said a “package of additional monetary instruments must remain in active preparation”, including negative interest rates and purchases of foreign assets. Full statement here.
NSD/USD tumbles notable after the announcement. The development should confirm short term topping at 0.6715, after rejection by 0.6755 medium term resistance, on bearish divergence condition in daily MACD. The correction will likely take some time to complete and should eventually target 38.2% retracement of 0.5469 to 0.6715 at 0.6239. This will now remain the favored case as long as 0.6626 resistance holds, in case of recovery.