Tue, Jan 31, 2023 @ 16:47 GMT

Fed Rosengren: CARES Act a good start but we have to do more

    Boston Fed President Eric Rosengren said yesterday that Fed has “acted quickly to address spillovers from the economic disruption” caused by coronavirus pandemic. But “we are probably going to have to do more than what was jut in the CARES Act, but I think it was a very good start in trying to mitigate some of the costs”. He referred to the recently passed USD 2T Coronavirus Aid, Relief and Economic Security (CARES) Act.

    Rosengren also added “we’re witnessing the pandemic’s stark effects on public health. Meanwhile, the necessary response – social distancing – has stilled our strong economy, disrupting countless lives and livelihoods.” Social distancing practices are also “distorting the credit and liquidity flows that underpin our economy, threatening the greater pain of a full‐blown financial crisis.”

    Japan PMI manufacturing dropped to 52.2 in July, services down to 51.2

      Japan PMI Manufacturing dropped from 52.7 to 52.2 in July, below expectation of 53.1. PMI Services dropped from 54.0 to 51.2. PMI Composite output dropped from 53.0 to 50.6.

      Usamah Bhatti, Economist at S&P Global Market Intelligence, said: “Flash PMI data indicated that activity at Japanese private sector businesses rose at a softer rate during July. The expansion in output was the softest recorded since March and only marginal as companies noted that shortages of raw materials and rising energy and wage costs had increasingly dampened output and new order inflows. This was notably evident at manufacturers, who recorded a reduction in production levels for the first time in five months. Service providers meanwhile reported the slowest rise in activity since April”.

      Full release here.

      WTI resumes down trend, eyeing 85.9 support

        WTI crude oil falls through 88.20 support today to resume the decline from 124.12.The selloff came following a batch of weaker than expected economic data from China. In particular, refiners processed only 53.21 tonnes of crude oil in July, -8.8% lower than a year ago. The daily equivalent of 12.53m bpd was the lowest since March 2020. Overall, economic data prompt concerns of slowing oil demand from China.

        On the supply side, it could be boosted is the US and Iran could revive the 2015 nuclear deal. Iran’s Foreign Minister Hossein Amirabdollahian indicated that an agreement can be concluded if the US agrees to three remaining issues.

        Immediate focus is now on cluster support at 85.92 in WTI. Current fall from 124.12 is seen as the third leg of the corrective pattern from 131.82. Strong support should be seen from 85.92 to bring reversal to complete the pattern. Break of 95.91 resistance will be the first sign of reversal.

        However, sustained break of 85.92 will argue that fall from 131.82 is probably more than just a correction. Deeper decline would be seen back to 62.90 support.

        US oil inventory dropped -10m barrels, WTI rebounds in range

          US commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) dropped -10m barrels in the week ending August 23. The decline was way larger than expectation of -2.8m barrels fall. At 427.8m barrels, crude oil inventories are at the five year average for this time of year.

          WTI crude oil jumps sharply in response to the data release. Focus is now back on 57.32 resistance. Break will resume the rise from 50.43 to 100% projection of 50.43 to 57.32 from 52.84 at 59.73. Overall, WTI is staying in range of 50.64/60.93. Thus, we’d look for resistance from 60.93 to extend range trading.

          BoC said pandemic measures are showing signs of succeeding

            In its Financial System Review Summary, BoC said since the onset of the coronavirus pandemic, it has established a range of facilities and purchase programs to address the problems with market function and confidence. These measures are “showing signs of succeeding”. It noted that:

            • Access to liquidity has greatly improved in key financial markets that had been showing signs of significant stress.
            • Many of the programs are now being used less than they were at inception.

            Governor Stephen Poloz said: “Our goal in the short-term is to help Canadian households and businesses bridge the crisis period. Our longer-term goal is to provide a strong foundation for a recovery in jobs and growth.”

            He added, “We entered this global health crisis with a strong economy and resilient financial system. This will support the recovery. But we know that debt levels are going to rise, so the right combination of economic policies will be important too.”

            Full release here.

            RBNZ Hawkesby said 50bps hike actively considered, NZD/USD jumps

              RBNZ Assistant Governor Christian Hawkesby told Bloomberg that the decision to stand pat on OCR last week was mostly due to communications problem. It’s hard to explain the case when if the rate hike was delivered on the same day as New Zealand returned to pandemic lockdown.

              He added that the decision was not due to risks and the policy decisions “won’t be tightly linked” to COVID -19. Demand as proven to be more resilient than anticipated.

              Most surprisingly, Hawkesby also indicated that the central bank has considered a 50bps rate hike. “A 50 basis point move was definitely on the table in terms of the options that we actively considered,” he said.

              NZD/USD’s rebound form 0.6804 accelerated higher today but stays well below 0.7087 resistance so far. It’s too early to say that the corrective pattern from 0.7463 has completed, with NZD/USD staying even below 55 day EMA. NZD/USD could have another dip to 38.2% retracement of 0.5467 to 0.7463 at 00.6701 before resuming the medium term up trend.

              Eurozone GDP growth finalized at 2.2% qoq in Q3, EU at 2.1% qoq

                According to the final revised data, Eurozone GDP grew 2.2% qoq, 3.0% yoy in Q3. GDP volumes remained -0.3% below pre-pandemic level in Q4 2019. Household consumption rose 4.1%. Government final consumption expenditure rose 0.3%. Gross fixed capital formation dropped -0.9%. Exports rose 1.2%. Imports rose 0.7%.

                Household final consumption expenditure in Eurozone rose 2.1%. Government final expenditure rose 0.1%. Gross fixed capital formation dropped -0.2%. The contributions from external balance were positive while change in inventories was slightly negative.

                EU GDP grew 2.1% qoq, 4.1% yoy. GDP volumes remained -0.1% below pre-pandemic level in Q4 2019. Austria (+3.8%) recorded the highest increase of GDP compared to the previous quarter, followed by France (+3.0) and Portugal (+2.9%). Lowest growth rates were observed in Romania and Slovakia (+0.4%), while GDP remained stable in Lithuania (0.0%).

                Full release here.

                US CPI unchanged at 1.4% yoy in Jan, core CPI slowed to 1.4% yoy

                  US CPI rose 0.3% mom in January, matched expectations. Core CPI rose 0.0% mom, below expectation of 0.2% mom. Annually, headline CPI was unchanged at 1.4% yoy, below expectation of 1.5% yoy. Core CPI slowed to 1.4% yoy, down from 1.6% yoy, missed expectation of 1.6% yoy.

                  Full release here.

                  Fed Kaplan might need to adjust view on tapering due to Delta

                    Dallas Fed President Robert Kaplan said the the economic impact from the Delta variant is “unfolding rapidly”. “So far it’s not having a material effect” on consumer activity, he added. But, “it is having an effect in delaying return to office, it’s affecting the ability to hire workers because of fear of infection,” and may be affecting production output.

                    Kaplan previously said he would like to start tapering asset purchases in October. But he might now need to adjust he views “somewhat” due to Delta.

                    EU Verhofstadt warns UK: Getting rid of Irish border backstop is irresponsible

                      UK Prime Minister Theresa May is due to meet European Commissioner Jean Claude-Juncker tomorrow, to seek agreement on alternative arrangements on Irish border backstop. Ahead of that, European Parliament’s Brexit coordinator Guy Verhofstadt warned that it’s irresponsible to ditch the backstop.

                      Verhofstadt tweeted, “Today I see Taoiseach Leo Varadkar and tomorrow Prime Minister May. My message to the UK will be that it is not very responsible to try to get rid of a backstop that is meant as an ultimate safeguard to avoid a hard border and the return of violence on the Island of Ireland.”

                      WTI oil hits new 2022 low as down trend resumes

                        WTI oil crude oil extends recent decline and hit the lowest level for the year. Today’s move is part of the selloff in reaction to OPEC+ decision to stick with their existing pace of production cut, rather then raising it. Overall risk sentiment is not helping while China’s easing of pandemic restrictions is largely ignore.

                        With 74.10 support broke, WTI is resuming whole down trend from 131.82. Further decline is now expected as long as 78.21 minor support holds. Next target is 61.8% projection of 124.12 to 76.61. from 94.25 at 64.88. Break of 78.21 will delay the bearish case, but risk will stays on the downside with 83.82 resistance intact.

                        UK PM May bashed by British media for failure at EU summit

                          UK media generally bashed Prime Minister Theresa May’s performance at the informal EU summit in Austria. There are headlines today like “May humiliated,” “Humiliation for May,” “Embarrassing rebuff for PM in Salzburg,” “Your Brexit’s broken,”etc. It’s rather common for UK politicians to get the harshest words back at home. Comments from the EU were so far rather gentle.

                          House Minister James Brokenshire defended her in a BBC radio interview, saying ” the prime minister is getting the right deal for our country. She is sticking up for Britain, sticking up what will work for country. These are tough negotiations.”

                          However, Scottish First Minister Nicola Sturgeon said, “Now that the EU has explicitly rejected it, the Chequers pretence has to stop. At the very least, single market/customs union membership must be back on the table and the Article 50 clock stopped to avoid a cliff edge”.

                          Separately, European Commission President Jean-Claude Juncker urge EU and UK to be like “two loving hedgehogs”. And, “when two hedgehogs hug each other, you have to be careful that there will be no scratches.”

                          BoJ Nakamura: Conditions not fallen into place for modifying monetary policy

                            BoJ board member Toyoaki Nakamura said, “I don’t think conditions have fallen into place for Japan to modify monetary policy.” He warned, “if we raise interest rates now or before wages pick up, we would be taking away from companies money that would otherwise have been used to raise pay.”

                            He added, “we’ll patiently maintain our ultra-easy monetary policy until wages begin to rise sustainably.”

                            “For companies, what’s most important is for currency rates to move stably. If the dollar/yen moves within the current range (of around 103-115), that will make it easier for companies to make business decisions,” he added.

                            Canadian beef export to Japan tripled under CPTPP, Trump still discussing with Abe

                              Leaders of Canada and Japan hailed the success and benefits of the 11-country trade pact when they met in Ottawa on Sunday. Under the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Canadian Prime Minister Justin Trudeau said beef exports to Japan nearly tripled.

                              Trudeau added, the pact “has benefited tremendously Canadian citizens, Japanese citizens and businesses and indeed people throughout the region.” And, that “stands in stark contrast with the United States withdrawal … continuing to move forward on freer more open trade, according to the rules we can all agree on, is something we need more in the world.”

                              Japanese Prime Minister Shinzo Abe also said the CPTPP “should be a model going forward,” describing it as a meaningful way “to disseminate a 21st century type of free and fair rules-based (trade).”

                              Trump pulled out of the Trans-Pacific Partnership (TPP), the former version of CPTPP, as one of the first moves after taking office more two years ago. As of the meeting between Trump and Abe last Friday, the US and Japan are still working on a trade deal.

                              Trump said the deal “can go fairly quickly” and negotiations are “moving along very nicely and we’ll see what happens”. He also said “we’ll be discussing very strongly agriculture because, as the prime minister knows, Japan puts very massive tariffs on our agriculture…and we want to get rid of those tariffs.”

                              Australia PMI composite dropped to 51.8, sharp fall in employment

                                Australia CBA PMI manufacturing dropped to 51.4 in July, down from 52.0. PMI services dropped to 51.9, down from 52.6. PMI composite dropped to 51.8, down from 52.5.

                                CBA noted that “Slower growth fed through to staffing levels, which decreased for the first time in three months.” More importantly, employment decreased for the greatest extent since the survey began in May 2016. Reduction in jobs were centered of service sector.

                                Commenting on the Commonwealth Bank Flash PMI data, CBA Senior Economist, Belinda Allen said:

                                “A slight retreat in growth momentum in business activity in July, although the index does sit comfortably above the critical 50 level that separates expansion and contraction”.

                                “Overall the “flash” PMI does suggest business activity should continue to expand in Q3. A combination of monetary policy stimulus, tax rebates currently hitting household bank accounts and early signs of a recovery in the housing market should see the Australian economy stabilise, if not pick up over the 2H 2019. The sharp fall in employment intentions underlines the importance of the tax cuts now filtering into the economy and calls for more policy stimulus via infrastructure spending and microeconomic reform. Input costs continued to lift and is worth watching if businesses can pass it on, we could see some impact on consumer inflation over 2H 2019 and into 2020″.

                                Full release here.

                                AUD/CAD upside breakout after RBA, pressing 0.95

                                  Australian Dollar rises sharply after the hawkish twist in RBA statement. AUD/CAD’s strong break of 0.9460 resistance confirms resumption of whole rise from 0.8906. Near term outlook will now stay bullish as long as 0.9337 support holds. Sustained break of 61.8% projection of 0.8906 to 0.9460 from 0.9160 at 0.9511 will indicate further upside acceleration. Next target will be 100% projection at 0.9723.

                                  More importantly, the current development affirms the case that medium term corrective fall from 0.9991 has completed at 0.8906. AUD/CAD could be ready to resume the whole up trend from 0.8058 (2020 low).

                                  Into US session: Swiss Franc as strong as Dollar, Sterling selloff accelerates

                                    Entering into US session, Sterling remains the weakest one for today as selloff accelerates after CPI miss. Technically, GBP/USD’s break of 1.3048 confirms resumption of fall from 1.4376. EUR/GBP is extending the rebound from 0.8620 even though momentum is weak. GBP/JPY’s break of 147.63 minor support suggests short term topping at 149.30, ahead of 149.99 resistance. GBP/CHF is on the verge of breaking 1.3022 to resume down trend from 1.3854.

                                    On the other hand, Dollar and Swiss Franc are taking turn to be the strongest one for today. USD/JPY has taken the lead earlier this week, then followed by GBP/USD in breaking out. Focus will now be on which pair to follow, EUR/USD, AUD/USD or USD/CAD. But at the same time, the strength in Swiss Franc is worth a note. EUR/CHF is now pressing 1.1618 minor support. Break there will be an early signal of completion of whole corrective rise from 1.1366. And in that case, we’d see the cross heads back to 1.1366 low.

                                    US consumer confidence rose to 98.1, but too soon to say corner turned

                                      US Conference Board Consumer Confidence rose to 98.1 in June, up from 86.6, beat expectation of 90.1. Present Situation index rose from 68.4 to 86.2. Expectations index rose from 97.6 to 106.0.

                                      “Consumer Confidence partially rebounded in June but remains well below pre-pandemic levels,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The re-opening of the economy and relative improvement in unemployment claims helped improve consumers’ assessment of current conditions, but the Present Situation Index suggests that economic conditions remain weak.

                                      “Looking ahead, consumers are less pessimistic about the short-term outlook, but do not foresee a significant pickup in economic activity. Faced with an uncertain and uneven path to recovery, and a potential COVID-19 resurgence, it’s too soon to say that consumers have turned the corner and are ready to begin spending at pre-pandemic levels.”

                                      Full release here.

                                      Fed Clarida: Easing of financial conditions is buying some time for the economy

                                        Fed Vice Chair Richard Clarida said the US economy is “really in an uncharted situation right now. My own sense is that we’ll begin to get a better sense of the scenario and the trajectory the economy is on in early fall.”

                                        He added that Fed’s efforts helped ease financial conditions during the coronavirus pandemic. “While this easing of financial conditions is, of course, welcome, whether it proves to be durable will depend importantly on the course that the coronavirus contagion takes and the duration of the downturn that it causes,” he said. “At a minimum, the easing of financial conditions is buying some time until the economy can begin to recover.”

                                        WH Kudlow denies cancelling meeting with China, reiterates importance of enforcing promises

                                          There were rumors that Trump’s administration declined, or cancelled, a second deputy-level meeting with China on trade. The meeting was intended for preparation on the top level meeting between US Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He. There were various versions of the rumor. But the key message was that the US is not satisfied with the lack of concrete progress on intellectual property theft and forced technology transfer. China’s offer to buy more goods from the US is simply not enough.

                                          But White House economic advisor Larry Kudlow came out denying the rumor and said there was “no cancellation”. And he maintained the high-level meeting later this month between Lighthizer and Liu was “very, very important” and “determinative.” And, “There were no other intermediate meetings scheduled,” while “The story is unchanged. We are moving towards negotiations.”

                                          Yet, Kudlow also emphasized that “enforcement is absolutely crucial to the success of these talks.” “Promises are great but enforcement is what we want — things like deadlines and timetables and full coverage of the various structural issues,” he said. “Will this all be solved at the end of the month? I don’t know. I wouldn’t dare to predict.”