Thu, Sep 29, 2022 @ 08:45 GMT

Philadelphia business outlook: General activity, new orders, shipments, and employment all indicated continued expansion

    Philadelphia business outlook diffusion index rose from 22.3 to 23.2 in April, beating expectation of 21.2. There were nearly 37% of manufacturers reported increases in overall activity during the month, while 14% reported decreases. Philadelphia Fed noted in the release that the responses ” suggest continued growth for the region’s manufacturing sector. The indexes for general activity, new orders, shipments, and employment all indicated continued expansion this month.” And, “looking ahead six months, the firms continued to be optimistic about the outlook for manufacturing activity.”

    Full release here

    Also from US, jobless claims dropped 1k to 232k in the week ended April 21, slightly above expectation of 230k. Four week moving average rose 1.25k to 231.25k. Continuing claims dropped 15k to 1.86m in the week ended April 14.

    Germany’s Joint Economic Forecast Project Group raised 2018 and 2019 growth projections

      In the twice a year published Joint Economic Forecast by leading German institutes, growth projection for 2018 and 2019 were raised to 2.2% and 2.0% respectively. Both were upwardly revised by 0.2% from Autumn report. The released warned that while German economy “continues to boom”, “the air is getting thinner”. Still, “pace of economic expansion nevertheless remains brisk:” It pointed to upturn in the world economy, favorable situation in labor market and fiscal stimulus of the new coalition government as driving forces. Inflation is projected to slow to 1.7% in 2018 then rise again to 1.9% in 2019.

      Global growth projection was revised up by 0.3% to 3.4% in 2018. The reported noted that “tax cuts in the USA will stimulate economic activity there, which may have a knock-on effect on other countries”. However, it also warned that the dynamic in the world economy will “gradually flatten off over the forecasting period”. And that’s partly due to “a harsher trade policy climate, which will burden global investments.”.

      The report also pointed directly to the US announcement of steel and aluminum tariffs as “another step towards greater protectionism”. It warned that “any further escalation of the trade conflict will restrict international trade in goods and significantly damage world economic growth in the mid-term.” Even “mere discussion of such measures can increase uncertainty over a country’s future trade policy and weaken economic sentiment”.

      A summary of the report can be found here. Or more details here.

      Members of the Joint Economic Forecast Project Group

      Deutsches Institut für Wirtschaftsforschung e.V. [www.diw.de]

      in co-operation with:

      The Austrian Institute of Economic Research WIFO [www.wifo.ac.at]

      ifo Institute – Leibniz Institute for Economic Research at the University of Munich[www.ifo.de]

      in co-operation with:

      Swiss Institute of Business Cycle Research (KOF), ETH Zurich [www.kof.ethz.ch]

      Institut für Weltwirtschaft an der Universität Kiel [www.ifw-kiel.de]

      Halle Institute for Economic Research (IWH) [www.iwh-halle.de]

      RWI – Leibniz-Institut für Wirtschaftsforschung [www.rwi-essen.de]

      in co-operation with:

      Institute for Advanced Studies, Vienna [www.ihs.ac.at]

      Another day, another miss. UK retail sales dropped -1.2% in March

        Another day, another data miss in the UK.

        Retail sales including auto and fuel dropped -1.2% mom in March, well below expectation of -0.6%. Annual rate rose 1.1% yoy, below expectation of 1.9% yoy.

        Retail sales excluding auto and fuel dropped -0.5%, below expectation of -0.4%. Annual rate rose 1.1% yoy, below expectation of 1.4% yoy.

        Main points from ONS:

        • In the three months to March 2018 (Quarter 1), the quantity bought in retail sales fell by 0.5% when compared with Quarter 4 (Oct to Dec) 2017, with declines in all sectors except for department stores and non-store retailing.
        • The month-on-month growth rate fell by 1.2% due to a large fall of 7.4% from petrol sales; a likely consequence of adverse weather conditions, which impacted travel.
        • Department stores were the only sector to show positive growth in March at 0.8%, with feedback from retailers suggesting that online offers for Mothering Sunday and Easter boosted internet sales more than usual during the adverse weather.
        • The quantity bought in supermarket stores declined in March, while specialist food stores saw strong growth; possibly due to the easier access to these stores during snow.
        • Online sales accounted for 17.4% of all retailing, seasonally adjusted in March 2018, compared with 15.9% in March 2017; the strongest growth on the same month a year earlier came from department stores at 33%.

        Statistician’s comment

        Commenting on today’s official retail figures, Rhian Murphy, ONS Senior Statistician said:

        • “Retail sales fell in the first quarter due to a large decline in March with petrol sales seeing a significant slump as a result of the poor weather keeping many shoppers indoors. However, the snow actually helped boost online spending with department stores in particular seeing growth in their web sales.
        • “Various shops also reported increased spending on gifts in the run-up to Easter and Mother’s Day, which also helped boost online sales.”

        GBP dips initially after the release, for so far, there is no follow through selling yet.

        RBNZ Orr: Very benign inflation going forward without doubt

          New Zealand CPI slowed notably to 1.1% yoy in Q1, down from prior quarter’s 1.6%, meeting expectation. RBNZ Governor Adrian Orr said in Radio New Zealand interview that he expected “very benign inflation going forward without doubt, as we’ve forecast”.

          He added that “what really matters is the confidence and expectation and belief that we are aiming for that midpoint of 2 percent all of the time.” And he pledged that “we are doggedly determined to aim for two percent, but the accuracy around…that is very limited.”

          Overall, with CPI now close to bottom of RBNZ’s target band, there is little pressure for the central bank to raise interest rates.

          Today’s upside acceleration in AUD/NZD further affirm the case that it’s bottomed in short term at 1.0486. This is supported by bullish convergence condition in daily MACD. Further rise is now likely in near term back to 55 day EMA (now at 1.0683). But the real test will be at 38.2% retracement of 1.1289 to 1.0486 at 1.0793.

          Australia NAB business condition rose to highest since 2007

            Australia quarterly NAB business confidence was unchanged at 7 in Q1. Quarterly business conditions rose from 15 to 17.

            Highlights from the release:

            • Business conditions (an average of trading conditions/sales, profitability and employment) increased by 2pts to +17, its highest level since 2007, although the monthly survey indicates conditions, while still strong, eased late in the quarter.
            • Business confidence was unchanged at +7 and it has been relatively stable since 2016 Q3, staying within a range of 6 to 8 pts, a little above its historical average of +5.
            • Overall, leading indicators continue to look positive, although there was some easing in expectations for the next three months.
            • Labour indicators point to a tightening labour market. While there is no upwards move yet in wage growth the conditions are in place for this to occur.

            FINANCIAL MARKET EXPECTATIONS

            • On average, businesses are pricing in around an 80% probability of a 25bp rate hike in the next 12-months. NAB Economics’ view is that the RBA will want clear evidence that wages growth and inflation are moving higher before removing some policy accommodation, and we don’t expect sufficient evidence of this until late 2018 (with the first hike expected in November), with the risk that it occurs later.
            • Exchange rate expectations in the Survey (6-months-ahead) rose to almost US$0.78, which is around the average level at the time the Survey was taken.

            Full release here.

            AUD stays firm as employment data miss is not a disaster

              AUD is not too bothered by the weaker than expected headline job data from Australia. 4.9k jobs were added in March, below expectation of 20.3k. Full time jobs dropped by 19.9k to 8.51m while part time jobs rose 24.8k to 3.9m. Total employment was at 12.484m.

              Prior month’s figure was revised down from 17.5k to -6.3k. February now had the first monthly drop in employment since September 2016. The record streak of consecutive monthly job growth has shorted to 16 months.

              Seasonally adjusted unemployment rate was unchanged at 5.5%, after downward revision in February’s figure from 5.6% to 5.5%. However, labor force participation rate rose to 65.7%, sitting at a record high in since the series began back in 1978.

              The figures just showed that growth in the Australian labor market is slowing after a very strong period since late 2016. .

              AUD quickly regained some strength after initial dip as markets realized that the data is not a disaster.

              AUD’s unconvincing strength ahead of Australia employment data

                After a rather long day with UK CPI and BoC as main events, GBP and CAD are set to end as the weakest ones. CAD is performing worst, as followed by GBP. GBP is indeed quite resilient from our point of view. For the time being, GBP/USD is still holding above 1.4144, GBPJPY above 151.15 and EUR/GBP below 0.8379. There is no avalanche selloff. On the other hand, EUR and AUD are being the strongest ones.

                Taking a look at AUD action bias table, it’s rather neutral against USD, EUR and JPY. GBPAUD shows downside action bias in H and 6H, neutral D and upside W. H and 6H movements look counter trend and that’s why D is neutral.

                Similarly, AUDCAD show upside action bias in H and 6H, neutral D and downside W. The H and 6H movements are counter trend.

                These counter trend movements are ok for quick intraday or swing pattern trades. But until they’re prove to be reversals, for position trading, they’re rather forgettable.

                And, bear in mind that Australian employment data is upcoming in Asian session. Probably by then, AUD will show its true color.

                — What is trade is as important as how to trade.

                 

                CAD selloff resumes as BoC Poloz offered nothing special, a look at EURCAD and CADJPY

                  CAD’s selloff resumes after BoC governor Stephen Poloz’s press conference offered nothing special.

                  EUR/CAD’s rebound today indicates short term bottoming at 1.5461, on bullish convergence condition in 4 hour MACD. Further rise would be seen to 38.2% retracement of 1.6151 to 1.5461 at 1.5725 first.

                  Currently, the decline from 1.6151 is seen as a corrective move, as it’s held well above 1.5257 key cluster support. Hence, break of 1.5725 will target 61.8% retracement at 1.5887 and above.

                  CAD/JPY’s pull back also suggest that short term topping at 85.75. And deeper retreat could be seen.

                  However, note that CAD/JPY drew strong support from 80.55 and rebounded. The fall from 91.56 is likely completed at 80.52. For now, we’d stay bullish as long as 83.52 minor support holds. And, we’d expect another rise through 85.75 to 91.56 high later.

                  CAD dips as BoC signals it’s not ready for rate hike yet

                    CAD trades notably lower after BoC rate announcement. Overnight rate target was kept at 1.25% as widely expected. The key takeaway from the statement is that the “higher interest rates will be warranted over time”, but “some monetary policy accommodation” will be needed. “Governing Council will remain cautious in considering future policy adjustments”, as “guided by incoming data”. And the “economy’s sensitivity to interest rates, the evolution of economic capacity” and “dynamics of both wage growth and inflation” will be watched. Basically, these were the elements mentioned in the last paragraph of March statement, just juggled into different place.

                    Here is the full statement.

                    In short, BoC is making itself quite clear that it’s not ready to have another rate hike yet.

                    USD/CAD’s rebound and break of 1.2622 minor resistance suggests that a short term bottom was formed at 1.2526. More consolidation would be seen, with risk of stronger recovery. But still, decline from 1.2942 is expected to resume at a later stage.

                    ECB Villeroy: Cumulative risks scenario could derail ECB policy path

                      François Villeroy de Galhau, Bank of France Governor and ECB Governing Council member, warned today that growing risks could alter ECB’s monetary policy path. He said that “we should pay close attention to a possible cumulative risks scenario, the likelihood of which has increased recently: an adverse loop of protectionist threats, unfavorable exchange rate movements, and abrupt financial markets corrections.”

                      And he added that “such a negative loop would tighten financial conditions, and deteriorate the growth outlook in the euro zone. ” Also, “our monetary policy stance would then have to be adapted, depending on the ultimate impact on inflation prospects.”

                      Japan PM Abe’s troubles getting worse

                        While Japanese Prime Minister Shinzo Abe is visiting Trump in the US, his domestic political turmoil continues to spiral out of control. A top finance bureaucrat, Administrative Vice Finance Minister Junichi Fukuda resigned today after alleged sexual harassment. Abe and his cabinet’s ratings have plunged recently on scandals. And the news certainly doesn’t give him any help.

                        It doesn’t look like Abe’s trip to the US would achieve anything fruitful, from both political and economics point of views. As the leader and top US ally in East Asia, Japan seems to be by passed by Trump regarding Korean Peninsula issue. And that already triggered some doubt on Abe’s diplomatic credibility. And, just as they’re meeting in Florida, Trump tweeted today:

                        If further confirms that Japan has no involvement in the issue.

                        And regarding TPP, which Japan has been leading after Trump’s withdrawal last year, Trump also poured cold water on rejoining.

                        It’s the seventh meeting between Abe and Trump since the latter’s election victory. And it look like quantity has nothing to do with quality. It’s time for Abe and his LDP to rethink their stance and position in global politics.

                        UK Hammond cheers CPI, BoE May hike back on table

                          After initial post CPI selloff, GBP stabilizes a bit. But it’s still trading as the weakest major currency for today.

                          Headline CPI slowed to 2.5% yoy in March, notably below expectation of 2.7% yoy. That’s also the lowest level in a year. More importantly, it’s also the first time wage growth beat inflation since January 2017. Average weekly earnings, despite meeting forecast, grew 2.8% 3moy in February, as released a day ago.

                          Chancellor of Exchequer Philip Hammond surely welcomed the data as he tweeted:

                          But the data is certainly not that welcomed by BoE hawks like Ian McCafferty and Michael Saunders. They comments will be closely watched to see if they back down from their hawkish stance.

                          It should be noted that BoE’s February projections were based on market pricing that Bank Rate will rise to 0.7% by 2018 year end. And by 2019 Q1, CPI inflation would drop to 2.3%. Inflation is now already in a clear down trend, diving from 3% in January to 2.5% in March. With Bank Rate staying unchanged at 0.50%. There is much room for BoE to wait through at least another quarter to see how things play out.

                          November rate decision is now closer to certain, “no”. And May hike is back on the table.

                          GBP dives as CPI slowed to 2.5% yoy versus expectation of 2.7% yoy

                            GBP drops sharply after CPI miss. Headline CPI slowed to 2.5% yoy in March versus expectation of 2.7% yoy. Core CPI dropped to 2.3% yoy versus expectation of rising to 2.5% yoy. Now, slowing consumer inflation is putting a May BoE hike in doubt.

                            GBP/USD’s fall from 1.4376 accelerates after the release. And focus is back on 1.4144 minor support. Break will threaten near term reversal.

                            A look at EURGBP and GBPJPY ahead of UK CPI

                              It’s now less than an hour before UK CPI release. The piece of data is even more important after yesterday’s wage growth miss. To recap, headline CPI is expected to be unchanged at 2.7% yoy in March. Core CPI is expected to rise to 2.5% yoy, up from 2.4% yoy.

                              So far, expectations on May BoE hike are firm. According to the latest Reuters poll, all but 7 of the 76 economists surveyed expected a 25bps hike in the Bank rate to 0.75% in May. Barring any disastrous result today, BoE should still be on course for a May hike. The question is indeed on whether BoE would hike again in November.

                              Technically, GBP’s rally stalled this week, particular clear against EUR and JPY.

                              61.8% projection of 0.9305 to 0.8745 from 0.8967 at 0.8621 is so far a difficult level to break.

                              But from the EURGBP action bias table and D action bias chart, downside momentum remains firm. It should be just a matter of time that this 0.8621 level is taken out.

                              GBP/JPY also stalled after hitting 153.84.

                              But near term strengthen is quite apparent as seen in GBPJPY action bias table and D action bias chart.

                              Hence, while a CPI miss today might trigger setback in GBP, that should be temporary. On the other hand, GBP could skyrocket if we get something that beat market expectations.

                              Japan PM Abe meeting Trump on trade, North Korea and TPP

                                Japanese Prime Minister Shinzo Abe is meeting Trump in Florida now. Facing domestic political turmoil, Abe is seeking to achieve something out of the summit. The first and foremost is the 232 steel and aluminum tariff of the US. While most other major partners, like South Korea, got exemptions, there is no progress for Japan yet. White House economic advisor Larry Kudlow said waiver on the tariffs, negotiation of new trade agreement are “all on the table”.

                                Abe could try to persuade Trump in rejoining the Trans-Pacific Partnership, which Japan has been leading since Trump’s withdrawal. There were signs that Trump is reconsidering. But he continued to pour cold water. Trump just tweeted today that “while Japan and South Korea would like us to go back into TPP, I don’t like the deal for the United States. Too many contingencies and no way to get out if it doesn’t work. Bilateral deals are far more efficient, profitable and better for OUR workers. Look how bad WTO is to U.S.”

                                The Korean Peninsula issue is another focus of the summit. Japan, as the leader and closet ally of the US in the region, has so far been bypassed regarding the issue. There could be public perception that Abe is not being consulted, or even being involved in the talks between the US and North Korea. And that would hurt Abe’s own political credibility, which is already at risk.

                                Regarding the summit between North Korea and the US, Trump said that “we have had talks at the highest level.” But later White house spokesman Sarah Huckabee Sanders clarified those talks were not with Trump directly. Meanwhile, give locations are being considered for the highly anticipated between Trump and North Korean leader Kim Jong-un.

                                Chicago Fed Evans: No outsized risk of inflation breakout

                                  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.”

                                  San Francisco Fed Williams: Inflation will stay above target for another couple of years

                                    San Francisco Fed President John Williams said yesterday that inflation is going to rise to and then stay above the 2% target for “another couple of years” even though Fed continues with its tightening path. And he’s not worried because “there are global factors that are holding inflation down.”

                                    Also, Williams was not concerned with the problem on inverted yield curve. Fed’s rate hike will push up short term rates. But at the same time, Fed is unwinding its balance sheet and that will also push up long-term rates. He added that “I personally don’t anticipate having an inverted yield curve in the next few years.” But he would see “an inversion of the yield curve as a warning sign that sentiment is that growth is going to slow markedly.”

                                    Regarding the trade spat between Trump and other countries, he said “what worries me about trade discussion beyond what’s happened is if we have continued uncertainty over trade policy what’s going to happen over the next few years.” And, the uncertainty itself can have a “negative” effect of businesses.

                                    DOW and S&P 500 broke 55 Day EMA firmly, heading higher in near term

                                      The strong close in US indices overnight now cleared up the near term direction. DOW closed up 213.59 pts or 0.87% at 24786.63. S&P 500 gained 28.55 pts or 1.07% to 2706.39. NASDAQ was even better, rising 124.82 pts or 1.74% to 7281.10. All three indices took out nearly flat 55 day EMA respectively.

                                      DOW’s break of the near term trend resistance at the same time confirms that fall from 25800.35 has completed 2344.52. For the near term further rise could be see back to 25800.35 first. But then, rise from 23344.52 is still having a somewhat corrective look. It’s likely just a leg inside the whole corrective pattern from 26616.71 high. Hence, it could start to feel heavy again when it approaches 25800.35.

                                      For S&P 500, first hurdle will be trend line resistance at 2746, and then 2081.90 resistance.

                                      IMF Obstfeld: Some governments pursue reforms, trade disputes divert others

                                        In the new World Economic Outlook released today IMF kept global growth forecast unchanged at 3.9% in 2018 and 3.9% in 2019.

                                        For advanced economies, growth projections for 2018 were generally revised up except Japan and Canada. For 2019, projections were largely unchanged with upward revision in US, France and Spain.

                                        China’s growth projection was kept unchanged at 6.6% in 2018 and 6.4% in 2019.

                                        Here is the summary table.

                                        Full IMF report here

                                        In a blog post by Maurice Obstfeld, Economic Counsellor and Director of Research at the IMF, it’s noted that “the world economy continues to show broad-based momentum. Against that positive backdrop, the prospect of a similarly broad-based conflict over trade presents a jarring picture.”

                                        Obstfeld said that “prospect of trade restrictions and counter-restrictions threatens to undermine confidence and derail global growth prematurely.” And, without naming who, he added that “while some governments are pursuing substantial economic reforms, trade disputes risk diverting others from the constructive steps they would need to take now to improve and secure growth prospects.”

                                        Referring to intensification of trade tensions since US announcement of steel and aluminum tariffs, Obstfeld said “these initiatives will do little, however, to change the multilateral or overall U.S. external current account deficit, which owes primarily to a level of aggregate U.S. spending that continues to exceed total income.”

                                        The full blog post can be found here. Global Economy: Good News for Now but Trade Tensions a Threat

                                        Dollar surges broadly and… Mnuchin said Trump fired warning shots to Russia and China on devaluation

                                          US Treasury Steven Mnuchin talked to CNBC today and he mentioned President Donald Trump’s tweet regarding Russia and China currency devaluation. Mnuchin said that was a “warning shot at China and Russia about devaluation. China has devalued their currency in the past.” Mnuchin added that “they’ve used a lot of their reserves to actually support the currency. The president wants to make sure they don’t change their plans, and he’s watching it.”

                                          Regarding the economy, Mnuchin said “we’re now at a point where we’re comfortably within our 3 percent or higher sustained economic growth”. He added that “we literally have met with hundreds of executives, small companies, big companies, and thousands of workers. We’re beginning to see the impact of the tax cuts, specifically people investing large amounts of money back into the United States.” Also, “the difference between 2.2 and 3 percent will pay for the tax cuts.”

                                          Regarding rejoining TPP, Mnuchin just said that Trump would opt to join only when there are more favorable terms to the US. And Mnuchin is “cautiously optimistic.

                                          Dollar is broadly higher today, entering into US session, after Mnuchin’s comments. Is it a coincidence? Or…?