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France PMI composite rose to 51.6, economy back in growth territory

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    ActionForex.com
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    France PMI Manufacturing dropped notably from 50.5 to 47.9 in February. PMI Services, on the other hand, rose from 49.4 to 52.8. PMI Composite rose from 49.1 to 51.6, hitting a 7-month high.

    Joe Hayes, Senior Economist at S&P Global Market Intelligence said:

    “At face value, the February ‘flash’ PMI survey results for France are positive, showing the economy was in growth territory for the first time since October 2022. More encouragement could be taken from the underlying sector data, which showed the expansion was driven by services, a sector which has been under pressure due to the negative demand impact of eroding real incomes.

    “However, it’s difficult to say for certain if we’re at an inflexion point and the French economy is now on its path to recovery. The manufacturing sector downturn intensified in February, and demand conditions within this sector are clearly still fragile. Factory export orders fell at the sharpest rate since May 2020, providing a downbeat assessment of broader global economic conditions.

    “The likelihood of further increases in interest rates also remains, and this poses a risk to demand and activity. Inflation remained stubborn in the service sector, with rates of input cost and output price inflation holding close to their peaks. How much needs to be done by monetary policymakers to push this lower is uncertain, although sustained resilience in the labour market suggests more needs to be done to take heat out of the French economy.”

    Full release here.

    Conservatives to select the next leader and UK Prime Minister by end of June

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      ActionForex.com
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      The Conservative party chairman Brandon Lewis and the vice-chairs of the 1922 Committee, Cheryl Gillan and Charles Walker, have issued a joint statement setting out the process for selecting the next Conservative Party Leader.

      Nominations will close in the week commencing 10 June. Then, successive rounds of voting will take place until a final choice of candidates to put to a vote of all party members is determined.

      Together, they expect the process to be concluded by the end of June, allowing for a series of hustings around the UK for members to meet and question the candidates, then cast their votes in time for the result to be announced before parliament rises for the summer.”

      European Update: Dollar gaining momentum on Trump’s tariff threats

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        ActionForex.com
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        Dollar seems to be responding rather well to Trump’s threat to escalation tariff war with China. And, it’s gaining momentum in European session. Nevertheless, reactions in other markets are rather muted. There were some jitters as it’s falsely reported that Trump and Xi agreed a deal but was quickly denied. For now, Australian and New Zealand Dollar are still the strongest ones for today. But both look vulnerable and their places could be taken by Dollar and Yen easily.

        Sterling and Euro are the worst performing ones so far. There were rumors that Italy’s 2019 budget target target could finally settle at 2.2% of GDP instead of 2.4%. UK Prime Minister Theresa May issued a TV debate challenge to Labour’s Jeremy Corbyn on Brexit. And Corbyn swiftly accepted. The debate could be held on December 9, just two days ahead of Commons vote on the deal. Eventually, other parties’ representatives may also join. These news provided little support to both currencies.

        Technically, GBP/USD’s break of 1.2764 supports suggests decline resumption and focus will be quickly back on 1.2661 low. USD/CHF is now eying 1.0006 minor resistance and break would put 1.0128 resistance back into focus. We’ll see Dollar could sustain its momentum. Or it will be knocked down by Fed Vice Chair Richard Clarida’s comment at 1330 GMT.

        In European markets, at the time of writing:

        • FTSE is down -0.31%
        • DAX is down -0.15%
        • CAC is down -0.19%
        • German 10-year yield is down -0.0125 at 0.35.
        • Italian 10-year yield is up 0.0035 at 3.266. German-Italian spread stays below 300

        Earlier in Asia:

        • Nikkei gained 0.64%
        • Hong Kong HSI dropped -0.17%
        • China Shanghai SSE dropped -0.04%
        • Singapore Strait Times dropped -0.10%

        Germany PMI composite dropped to 56.0, pandemic third wave stifled progress

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          ActionForex.com
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          Germany PMI Manufacturing dropped slightly to 66.4 in April, down from 66.6, above expectation of 65.9. PMI Services dropped to 50.1, down from 51.5, below expectation of 50.8. PMI Composite dropped to 56.0, down from 57.3.

          Phil Smith, Associate Director at IHS Markit said: “The third wave of the pandemic has stifled progress in Germany’s service sector, with April ‘s flash PMI data showing activity close to stalling following the return to growth at the end of the first quarter. The country’s manufacturing sector remains on a strong footing, though even here the data show growth being held back by supply problems.

          Full release here.

          ECB adopts symmetric 2% inflation target negative and positive deviations equally undesirable

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            ActionForex.com
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            ECB announced to adopts a symmetric 2% inflation target over medium term. Being symmetric meaning “negative and positive deviations of inflation from the target are equally undesirable”.

            “When the economy is operating close to the lower bound on nominal interest rates, it requires especially forceful or persistent monetary policy action to avoid negative deviations from the inflation target becoming entrenched,” ECB said. “This may also imply a transitory period in which inflation is moderately above target.”

            Also, HICP will remain the appropriate price measures, while the Governing Council recommends inclusion of owner-occupied housing over time.

            President Christine Lagarde said, “The new strategy is a strong foundation that will guide us in the conduct of monetary policy in the years to come.”

            Full release here.

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

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              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.

              ECB Knot: Stimulus measures announced, in particular QE, is disproportionate to economic situation

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                ActionForex.com
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                ECB Governing Council member Klass Knot blast the stimulus package announced by the central bank yesterday. He said “this broad package of measures, in particular restarting the asset purchase program, is disproportionate to the present economic conditions, and there are sound reasons to doubt its effectiveness.” He added, “there are increasing signs of scarcity of low-risk assets, distorted pricing in financial markets and excessive risk-seeking behavior in the housing markets,”

                Another Governing Council member Robert Holzmann also questioned that the comprehensive package shouldn’t come before the planned policy review. He pointed to inflation target and said “It may be that 2% at the moment is out of reach and 1.5% also signifies stable prices, almost stable prices. So there is no need to … use all the power you have in order to move up to 2% if the cost is too high.”

                UK Johnson facing resignation warnings from ministers over no-deal Brexit

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                  ActionForex.com
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                  In UK, the Times newspaper reported that a “very large number” of ministers threatened to quit if Prime Minister Boris Johnson is leading the country to a no-deal Brexit. The resignation watch list include Culture Secretary Nicky Morgan, British Minister for Northern Ireland Julian Smith, Justice Secretary Robert Buckland, Health Minister Matt Hancock and Attorney General Geoffrey Cox.

                  Separately, Financial Times said there were at least 50 MPS that will revolve against a general election manifesto pledging to pursue a no-deal Brexit.

                  Canada employment grew 157k in Sep, regained pre-pandemic level

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                    ActionForex.com
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                    Canada employment grew 157k, or 0.8% mom in September, well above expectation of 61.2k. Employment regained pre-pandemic level in February 2020. Jobs in services-producing sector surpassed pre-COVID level but was still down -3.2% in goods-producing sector. Unemployment rate dropped from 7.1% to 6.9%, matched expectations. Labor force participation rate was at 65.5, also matched pre-pandemic levels.

                    Full release here.

                    US Yellen: Higher interest rate environment is a plus for society and Fed

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                      ActionForex.com
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                      US Treasury Janet Yellen said in a Bloomberg interview that the USD 4T spending plan would be good even if it results in higher inflation and interest rates. “If we ended up with a slightly higher interest rate environment it would actually be a plus for society’s point of view and the Fed’s point of view,” she added.

                      “We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade,” the former Federal Reserve chair said, adding that “we want them to go back to” a normal interest rate environment, “and if this helps a little bit to alleviate things then that’s not a bad thing — that’s a good thing.”

                      ECB Smets: Inflation pressures could take more time to build

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                        ActionForex.com
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                        ECB Governing Council member Jan Smets

                        • “It will take somewhat more time to get to the objective than we thought earlier,”
                        • “The level of potential output may have become higher due to structural reforms and… slack may be bigger.”
                        • “It may take more than we thought and inflation pressures could take more time to build,”
                        •  “(But) it is absolutely crucial that we meet our price stability objective and not accept a level below that; the objective is what it is and we are not there yet.”
                        • “We expect exchange rate movements to correspond to fundamentals,”
                        • “It would be too early to conclude that growth is plateauing,”
                        • “Some soft indicators have been a bit weaker but the recovery is on solid footing and we are in a clear, expansionary period.”

                        US consumer confidence rose to 101.8, above expectations

                          By
                          ActionForex.com
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                          Conference Board US Consumer Confidence rose to 101.8 in September, up from 86.3, beat expectation of 90.0. Present Situation Index rose form 85.8 to 98.5. Expectations Index rose from 86.6 to 104.0.

                          “Consumer Confidence increased sharply in September, after back-to-back monthly declines, but remains below pre-pandemic levels,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “A more favorable view of current business and labor market conditions, coupled with renewed optimism about the short-term outlook, helped spur this month’s rebound in confidence. Consumers also expressed greater optimism about their short-term financial prospects, which may help keep spending from slowing further in the months ahead.”

                          Full release here.

                          Fed Rosengren and Kaplan thought rates should stay where they are

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                            ActionForex.com
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                            Boston Fed President Eric Rosengren said yesterday that “the appropriate path of policy is to stay where we are.” He added, “with the recent positive economic news, and with monetary and fiscal policy already accommodative, I see no need to make the current stance of monetary policy more accommodative in the near term.” It’s appropriate to “take a patient approach to considering any policy changes, unless there is a material change in the outlook.””Hopefully this is going to be a boring year for monetary policy”. He had penciled in no change in interest rate through 2020.

                            On the economy, he said ” it is unlikely we will have an economic downturn in the coming year, given the generally positive financial conditions and the continued accommodative monetary and fiscal policies… Plentiful jobs and growth in income have provided improvements in confidence and bode well for holiday sales and beyond… Fortunately for the economy, many consumers seem to be in a buying mood.”

                            Separately, Dallas Fed President Robert Kaplan told Bloomberg that “we’re going to have weak manufacturing next year, sluggish global growth, pretty sluggish business investment, but with a strong consumer”. Still, “there would have to be some material change from that outlook” for him to back a rate change.

                            IMF hailed France made impressive progress in reforms

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                              ActionForex.com
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                              IMF hailed in a report that France has made “”impressive progress” in policies that focuses on “addressing long-term challenges and building up resilience to shocks.” Additionally, it’s reform agenda ahead is “equally ambitious”.

                              Regarding the economy, IMF noted that France is benefitting from a “broad-based recovery”. Outlook is “positive” even though risks are “tilted to the downside”. 2018 and 2019 growth is expected to “remain robust” even though less buoyant than 2017.

                              But there are domestic risks “if the pace of reforms slows” or “if reforms prove less effective than expected”.

                              Externally, “increasing trade tensions, geopolitical uncertainty, or an erosion of confidence in the European project could negatively affect exports and growth”. Faster than expected interest rate normalization could also weigh on public and private balance sheets.

                              Here is the full report.

                              Mid-US Update: Yen strongest as stock dives on surging yields

                                By
                                ActionForex.com
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                                Yen is currently trading as the strongest one for today thanks to risk aversion. US treasury yields are another another day of strong rally. At the time of writing, 30-year yield is up 0.046 at 3.365. 10-year yield is up 0.045 at 3.206. It feels like there is no way back after 10 year yield took out 3.115 key resistance yesterday.

                                Stocks, however, suffer steep selloff as reaction to surging yields. DOW is currently down -1.02% at 26555. S&P 500 down -0.8% and NASDAQ down -1.51%. In Europe, CAC led the decline by losing -1.47%, DAX was down -0.35% and FTSE down -1.22%.

                                It should also be noted that 10 year JGB yield rose 0.0178 to 0.159. German 10 year yield rose 0.056 to 0.533. UK 10 year gilt yield rose 0.0917 to 1.535. So JPY, EUR and GBP are not too bothered by the strength in US yields today.

                                Sterling follows as the second strongest one as lifted by Brexit hope again. The key is that Prime Minister Theresa May’s new Irish proposal, without details yet, seemed to be welcomed by EU as a “step in the right direction”. Also, EU chief negotiator Michel Barnier is reported to be looking at some more improvements in the offer to overcome the remaining obstacles ahead of Oct 17-18 EU summit. Barnier was reported affirming that EU is “definitely engaging with Britain” even though he insisted on the so called “sound backstop solution” on Irish border.

                                New Zealand and Australian Dollar are rather pathetic as suffering from both risk aversion as well as monetary policy divergence. Canadian Dollar dives in delayed reaction to poor Ivey PMI, which tumbled from 61.9 to just 50.3 in September.

                                 

                                Japan CPI core slowed to 0.3%, lowest since Apr 2017

                                  By
                                  ActionForex.com
                                  -

                                  Japan CPI core (all items ex-fresh food), slowed to 0.3% yoy in September, down from 0.5% yoy, matched expectation of 0.3% yoy. That’s also the lowest level in more than two years since April 2017, and drifted further away from BoJ’s 2% target. All items CPI slowed to 0.2% yoy, down from 0.3% yoy and matched expectations. CPI core-core (all items ex-fresh food and energy) slowed to 0.5% yoy, down form 0.6% yoy, matched expectation but remained sluggish.

                                  Japan Finance minister Taro Aso said yesterday that the government was ready to ramp up stimulus to guard against risks from slowing global growth and US-China trade tensions. He said after a meeting of G20 finance leaders, “Given uncertainty over the global economy, exports are falling and weighing on manufacturers’ output. But the weakness has yet to spread to non-manufacturers or domestic demand.

                                  Ado added, “if we need to compile some form of an economic stimulus package, we are ready to take various types of fiscal measures flexibly”. He also emphasized that “When you look back at the problems Japan faced, including deflation, they can’t be fixed by monetary policy alone. You need a coordinated monetary and fiscal response.”

                                  Separately, the good news is that the government estimated the US-Japan trade deal will boost Japan’s economy by 0.8%. There will be around JPY 4T contribution to GDP based on its fiscal 2018 figures. Also, the deal will create around 280k jobs.

                                  Italy may adjust budget plan if markets react negatively

                                    By
                                    ActionForex.com
                                    -

                                    Italian newspaper Il Messaggero reported today that the coalition government is prepared to adjust its budget plan should markets react negatively. For now, the government is sticking to its deficit target of 2.4% of GDP in 2019. And there could be a plan B for the government including redefining the key elements of the expansive budget. Those adjustments could even include retirements and basic income for the poor.

                                    European Commissions will discuss today what’s next regarding Italy, after formally getting its reply. It’s generally expected that the Commission will reject the budget and demand resubmission from Italy.

                                    EUR/USD’s weak recovery ahead of 1.1432 supprot today could be an reaction to the news. But it’s so far very weak.

                                    Italian 10 year yield is down -0.033 at 3.447 for the moment. It’s already way off last week’s high near to 3.8%. But German 10 year yield is currently at 0.445. Spread remains close to 300.

                                    Eurozone retail sales dropped -2.3% mom in Jul, EU down -1.9% mom

                                      By
                                      ActionForex.com
                                      -

                                      Eurozone retail sales dropped -2.3% mom in July, well below expectation of 1.2% mom rise. For the month, the volume of retail trade decreased by -3.5% for non-food products, by -1.6% for automotive fuels and by -0.7% for food, drinks and tobacco.

                                      EU retail sales dropped -1.9% mom. Among Member States for which data are available, the largest monthly decreases in total retail trade were registered in Ireland (-5.9%), Germany (-5.1%) and Austria (-3.9%). The highest increases were observed in Croatia (+2.5%), Malta (+2.3%) and Luxembourg (+2.2%).

                                      Full release here.

                                      Australia AiG construction dropped to 45.3, RBA tightening will end the boom

                                        By
                                        ActionForex.com
                                        -

                                        Australia AiG Performance of Construction Index dropped -0.9 to 45.3 in July. Activity dropped -3.5 to 42.7. Employment rose 2.2 to 53.0. New orders dropped -2.7 to 43.1. Supplier deliveries rose 3.2 to 42.2. Input prices dropped -2.2 to 93.8. Selling prices rose 4.4 to 87.1.

                                        HIA Economist, Thomas Devitt, said: “Confidence in the housing sector has been adversely impacted by rising rates which will compound the rise in the cost of construction. This has not yet materialised in slowing sales or approvals of new homes and there is still a large volume of building work in the pipeline to complete. Recent declines in confidence, as shown in this month’s Australian PCI®, reflect an anticipation on the part of builders of less new work entering the pipeline in coming months as the RBA’s current tightening cycle will, inevitably, bring an end to the boom.

                                        Full release here.

                                        Japan Abe: We’ve already compiled a spending package to forestall various risks

                                          By
                                          ActionForex.com
                                          -

                                          Japan Prime Minister Shinzo Abe said today that the government is ready to implement further stimulus measures to offset the impact from coronavirus outbreak. He noted, “we’ve already compiled a spending package to forestall various risks” in the supplementary budget.

                                          “We’ll scrutinize the impact of the coronavirus on the global and Japanese economies. If further steps are deemed necessary, we will take action without hesitation,” he added.

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