Thu, Sep 29, 2022 @ 07:57 GMT

UK PMI Manufacturing unchanged at 57.3, services jumped to 60.2

    UK PMI Manufacturing was unchanged at 57.3 in February, below expectation of 57.5. PMI Services surged from 54.1 to 60.8, above expectation of 55.2, an 8-month high. PMI Composite rose from 54.2 to 60.2, also an 8-month high.

    Chris Williamson, Chief Business Economist at IHS Markit, said:

    “The latest PMI surveys indicate a resurgent economy in February, as business activity leapt as COVID-19 containment measures were relaxed.

    “With the PMI’s gauge of output growth accelerating markedly in February and cost pressures intensifying to the second-highest on record, the odds of an increasingly aggressive policy tightening have shortened, with a third back-to-back rate rise looking increasingly inevitable in March.

    “However, the indications of a growing plight for manufacturers will need to be watched, and the service sector’s new business index will need to be monitored for signs of the demand revival losing steam. Given the rising cost of living, higher energy prices and increased uncertainty caused by the escalating crisis in Ukraine, downside risks to the demand outlook have risen.”

    Full release here.

    EUR/CHF holding above 0.9530 temp low after selloff

      Euro drops broadly today, in particular against Swiss Franc. The selloff came after Russian President Vladimir Putin announced partial military mobilization for the invasion of Ukraine. That’s the first such mobilization since World War II, and would call up 300k reservists. Putin also warned that Russia has “various means of destruction”. “If the territorial integrity of our country is threatened, we will certainly use all the means at our disposal to protect” he said, adding that “this is not a bluff!”.

      Last week, Putin had the first face-to-face meeting with Chinese President Xi Jinping since the pandemic, in Uzbekistan. China’s official news agency reported that Xi told Putin China will work with Russia to deepen practical cooperation in trade, agriculture, connectivity and other areas.

      For now, EUR/CHF is still holding above 0.9530 temporary low, and down trend resumption is not confirmed yet. On break of 0.9530, EUR/CHF should target 61.8% projection of 1.0512 to 0.9550 from 0.9864 at 0.9269.

      UK Hammond on Brexit negotiation: Positive process, challenging substance

        Chancellor of the Exchequer Philip Hammond said that there are still big issues to resolve in Brexit negotiation. He said “what has happened over the last week, ten days, is that there has been a measurable change in pace.” However, “that shouldn’t conceal the fact that we still have some big differences left to resolve. So process is a lot more positive this week – substance still very challenging.”

        Separately, it’s reported that Prime Minister Theresa May is going to make a public statement saying UK “will not agree to be trapped permanently in a customs union in any circumstances”.

        Into US session: Sterling recovers on wage growth, but Canadian stronger

          Risk appetite remains generally firm in the global markets today. Asian markets closed broadly higher and strength continues in European session. Mixed economic data from Europe is generally ignored by stock investors. Sentix warned that Eurozone is on threshold of recession as Investor Confidence deteriorated in to -3.3 in June. On the other hand, UK unemployment rate stayed at 44-year low but wage growth accelerated in April.

          In the currency markets, Sterling is lifted by wage growth data but Canadian Dollar is even stronger. After all, sluggishness in UK growth could eventually drags down wage growth if Brexit uncertainty is no resolved swiftly. Dollar is following as the third strongest, awaiting PPI. Yen and Swiss Franc are soft on risk appetite, but New Zealand and Australian Dollar are also weak.

          In other markets, currently:

          • DOW future is up 126 pts or 0.48%.
          • Gold is down -0.38% as Dollar rises.
          • WTI crude oil is up 1.09%.

          In Europe:

          • FTSE is up 0.48%.
          • DAX is up 1.33%.
          • CAC is up 0.80%.
          • German 10-year yield is down -0.0018 to -0.218.

          Earlier in Asia:

          • Nikkei rose 0.33%.
          • Hong Kong HSI rose 0.76%.
          • China Shanghai SSE rose 2.58%.
          • Singapore Strait Times rose 0.67%.
          • Japan 10-year JGB yield rose 0.0109 to -0.11.

          Germany PMI manufacturing finalized at 58.4 in Feb, underlying demand strong

            Germany PMI Manufacturing was finalized at 58.4 in February, down from January’s 59.8. Markit said there were sharp rise in backlogs as growth in the new orders outstripped output. Factory cost inflation slipped further from recent highs. Incidence of supply delays was lowest since November 2020.

            Phil Smith, Associate Economics Director at IHS Markit, said:

            “Underlying demand for German manufactured goods was strong in February, with new order growth accelerating and the survey showing rising sales both domestically and internationally.

            “Production continued to rise, but staff absences linked to the Omicron wave of the pandemic were a constraint on output and added to already stretched capacity, thereby contributing to a sharp rise in backlogs of work. However, with COVID cases in the country looking like they might have already peaked, this particular headwind will hopefully be only temporary. Furthermore, the pace of factory job creation remained rapid as manufacturers looked to address capacity shortfalls.

            “Supply constraints showed further tentative signs of easing in February, and one of the positives from this was a fall in the rate of input cost inflation to an 11-month low. “When the survey was conducted, firms were hopeful of further progress in the supply situation and were highly optimistic about the outlook. With the escalation of the situation in Ukraine since February’s survey, and the surge in oil and gas prices that’s come with it, downside risks to the sector’s performance in 2022 have increased.”

            Full release here.

            US Empire state manufacturing dropped to 2, future optimism waned

              US Empire State Manufacturing Survey general business conditions index dropped to 2.0 in September, down from -4.8 and missed expectation of 4.0. 27% of respondents reported that conditions had improved over the month, but 25% said conditions had worsened. Number of employees index jumped sharply from -1.6 to 9.7, back in positive territory. The index for future business conditions fell -12 points to 13.7, suggesting that “optimism about future conditions waned”.

              Full release here.

              Into US session: Aussie stays firm despite risk aversion, stocks weighed down by Huawei isolation

                Entering into US session, European stocks are trading broadly lower while US futures also point to lower open. Sentiments are hurt as US is stepping up measures to isolate China’s telecom giant Huawei as trade war intensifies. Chipmakers including Intel, Qualcomm, Broadcom indicated that they will stop supply to Huawei. Germany’s Infineon Technologies is also reported to have halted shipments to the Chinese company. But most importantly, Google will also cut up supply of hardware and some software services.

                However, the reactions in currency markets are relatively muted. Australian Dollar remains the strongest one, as boosted by election results over the weekend. New Zealand and Canadian Dollars follow. There is no apparent lift on Yen and Swiss Franc despite risk aversion. On the other hand, Dollar, Euro and Yen are the weakest ones for now.

                In Europe, currently:

                • FTSE is down -0.96%.
                • DAX is down -1.50%.
                • CAC is down -1.61%.
                • German 10-year yield is up 0.0105 at -0.091.

                Earlier in Asia:

                • Nikkei rose 0.24%.
                • Hong Kong HSI dropped -0.57%.
                • China Shanghai SSE dropped -0.41%.
                • Singapore Strait Times dropped -0.77%.
                • Japan 10-year JGB yield rose 0.008 to -0.047.

                China Caixin PMI manufacturing dropped to 48.1, fastest contraction in two years

                  China Caixin PMI Manufacturing dropped from 50.4 to 48.1 in March, below expectation of 49.7. The pace of contraction was quickest since February 2020. Caixin said production fell at quickest rate for just over two years amid tighter pandemic restrictions. Total new work and foreign demand had steep declines. Suppliers’ delivery times worsened while cost pressures intensified.

                  Wang Zhe, Senior Economist at Caixin Insight Group said: “Overall, impacted by factors including the Covid-19 outbreaks in multiple parts of China, manufacturing activity largely weakened in March. Supply contracted. Demand was also under pressure, and external demand worsened. The job market was more or less stable. Inflationary pressure continued to rise. And market optimism weakened.”

                  Full release here.

                  US initial jobless claims dropped slightly to 211k, below expectations

                    US initial jobless claims dropped -1k to 211k in the week ending May 18, below expectation of 215k. Four-week moving average of initial claims dropped -4.75k to 220.25k.

                    Continuing claims rose 12k to 1.676M in the week ending May 11. Four-week moving average of continuing claims rose 5.5k to 1.674M.

                    Full release here.

                    Fed Barkin: Near term inflation pressure to ease into Q4

                      Richmond Fed President Thomas Barkin said yesterday that “we are in the middle of a temporary adjustment cycle during which workers will return to the workplace and schools open and fiscal payments expire and suppliers catch up with demand.” Near-term inflation pressure is expected to “ease as we go into the fourth quarter,”

                      “I think the last 30 years of relative price stability has got to outweigh a few months of pressure, but one can never be too careful,” Barkin added. “That is why the Fed has started the process of discussing normalization” of its policy stance.”

                      Eurozone economic sentiment imrpoved on consumer and retail trade

                        Eurozone Economic Sentiment rose to 101.3 in November, up from 100.8, beat expectation of 101.0. The improvement of sentiment resulted from slight increases in confidence among consumers (up 0.4 to -7.2) and retail trade managers (up 0.7 to -0.2). Confidence remained broadly unchanged in industry (up 0.3 to -9.2) and services (up 0.3 to 9.3).

                        Amongst the largest euro-area economies, the ESI increased in Spain (+0.7), France and Germany (both by +0.4), while it remained virtually unchanged in Italy (-0.1) and worsened in the Netherlands (−1.0).

                        Business Climate Indicator dropped to -0.23, down from -0.20, slightly better than expectation of -0.24. While managers’ assessments of overall order books and, in particular, past production deteriorated, their production expectations and assessments of the stocks of finished products improved. Managers’ assessment of their export order books remained broadly stable.

                        UK Hammond: Chequers plan offer in-the-middle, down the center solution for Brexit

                          UK Chancellor of the Exchequer Philip Hammond talked about Brexit negotiation in a BBC TV interview. He said “the mood is undoubtedly that people want to do a deal with the UK. People want to minimize the disruption of the UK’s departure from the European Union, they want to continue having a relationship with us and smooth trading partnership in the future.”

                          But he also admitted “Clearly there has been a hit to the economy through the uncertainty the Brexit process has caused. Many businesses are sitting on their hands frankly waiting to see what the outcome of this negotiation is before confirming their investment plans.”

                          He also defended Prime Minister Theresa May’s Chequers plan and said “What Chequers does is offer an in-the-middle solution, down the center, taking the best from both models, and proposing a way forward which delivers on the mandate of the British people in the referendum but also protects British jobs and British businesses,”

                          German Gfk consumer sentiment rose to 10.8

                            Germany Gfk consumer confidence rose 0.4 to 10.8 in February, above expectation of 10.3. Gfk noted that rising income prospects and an increasing propensity to buy mean that the consumer climate is improving once more. This is further reinforced by a decrease in propensity to save in January.

                            Rolf Bürkl, GfK Consumer Expert, explains, “For the whole of 2019, GfK is predicting real growth in private consumer spending in Germany of 1.5 percent. The key pillars for the consumer economy will above all be the expected positive trend on the labor market coupled with positive income expectations. However, this is based on there being no significant growth in German consumers’ uncertainty about the economy. For example, if there were an escalation in the trade dispute, putting further strain on export prospects, this would be a bad sign for the export nation of Germany. If this were to again increase workers’ fears of job losses, it would have an adverse impact on the consumer climate, jeopardizing the forecast.”

                            Full release here.

                            EU finance minister to reconvene meeting on coronavirus rescue

                              EU finance ministers failed to agree on the coronavirus rescue package earlier this week after a 16-hour video conference meeting. The meeting is due to reconvene at 1500GMT today.

                              Ahead of that, German Economy Minister Peter Altmaier said, “it’s important that we take this decision today on the 500 billion euros that is in discussion — that’s an incredibly large sum of money that we could use to help a lot of people, especially in the hardest hit countries, Spain and Italy.”

                              “I have confidence that (German Finance Minister) Olaf Scholz, together with his colleague (French Finance Minister) Bruno Le Maire, can push this forward today and we are all working on that together,” he added.

                              European update: Italian stocks lead others higher, but Euros stay soft

                                It’s a rather slow day in terms of news and forex volatility. Italian stocks lead Europeans higher. At the time of writing, the FTSE MIB index is up 2.42%, responding well to S&P’s rating review. S&P kept Italy’s sovereign credit rating unchanged at BBB, two notches above junk, even though outlook is negative. FTSE 100 is up 1.31%, DAX is up 1.28% and CAC is up 0.26%.

                                Italian 10 year yield is down notably by -0.0817 at 3.348 at the time of writing German 10 year bund yield is up 0.034 at 0.392, below 0.4 handle. Also, spread remains at 295, below but close to 300. Euro also gives little reaction as it’s trading down against all other major currencies but Yen and Swiss Franc. JPY and CHF are weaker on receding risk aversion natural. So, we see how weak the Euro remains. On the other hand, commodity currencies are trading generally high as the strongest.

                                Earlier in Asia, major indices closed mixed. China Shanghai SSE closed down -2.18% at 2542.17. But the closely correlated Hong Kong HSI closed up 0.28%. Nikkei lost -0.16% and Singapore Strait Times gained 0.32%. Japan 10 year yield dropped -0.0095 to 0.105, now very very close to BoJ’s allowed range of -0.1 to 0.1%.

                                US personal income and spending, PCE inflation will be featured in US session. Hopefully, the data will trigger more volatility.

                                European Commission Vice Sefcovic: Retaliation duties on US goods will start in July

                                  European Commission Vice President for energy Maros Sefcovic said the commission expects to conclude the “relevant coordination” with member stats regarding the retaliation tariffs to the US in June. The new duties on US imports to EU would start applying in July.

                                  Sefcovic declared earlier this week to make the bid to succeed Jean-Claude Juncker as President in late 2019.

                                  US retail sales rose 1.7% mom in Oct, ex-auto sales up 1.7% mom

                                    US retail sales rose 1.7% mom in to USD 638.2B in October, above expectation of 1.2% mom. Total sales for the August through October period were up 15.4% from the same period a year ago.

                                    Ex-auto sales rose 1.7% mom, above expectation of 1.2% mom. Ex-gasoline sales rose 1.5% mom. Ex-auto, ex-gasoline sales rose 1.4% mom.

                                    Full release here.

                                    ECB Lagarde: Incoming data show a strong recovery, but uneven, uncertain and incomplete

                                      ECB President Christine Lagarde said in a speech on Sunday, global “recovery is incomplete because there is still much ground to recover.” For Eurozone, a :similar assessment applies” as “incoming data show a strong recovery, but also one that is uneven, uncertain and incomplete.”

                                      In particular, “the unevenness of the recovery is highlighted by the divergence between services and industry, in contrast to the crisis a decade ago when activity in these sectors moved in tandem”. She warned, “if the current strength of the rebound does not continue – or fails to spread across all sectors – it is unlikely that they will all be re-employed in the near term.”

                                      She hailed that the EUR 750B Next Generation EU recovery fund “has the potential to make a significant difference to Europe’s economic trajectory over the next few year”. “Confidence in the private sector rests to a very large extent on confidence in fiscal policies,” She added. “Continued expansionary fiscal policies are vital to avoid excessive job shedding and support household incomes until the economic recovery is more robust.”

                                      As for monetary policy, the “June recalibration” had, to a large extent, resulted in the upward revision in 2022 core inflation projections. But, “other factors, such as the appreciation of the euro have partly offset the positive pull coming from our measures.”

                                      Lagarde’s full speech here.

                                      Germany Ifo dropped to 96.5, challenged by supply bottlenecks and 4th wave of coronavirus

                                        Germany Ifo Business Climate dropped to 96.5 in November, down form 97.7, missed expectation of 96.7. Current Assessment index dropped to 99.0, down from 100.2, missed expectation of 100.3. Expectations index dropped to 94.2, down from 95.4, missed expectation of 96.3.

                                        By sector, manufacturing dropped from 17.5 to 16.5. Service dropped sharply again from 16.6 to 11.5. Trade dropped from 3.7 to 2.6. Construction dropped from 12.8 to 12.0.

                                        Ifo said: “Companies were less satisfied with their current business situation, and expectations became more pessimistic. Supply bottlenecks and the fourth wave of the coronavirus are challenging German companies.”

                                        Full release here.

                                        US PMI manufacturing finalized at 15-month low at 53.8

                                          US PMI manufacturing was finalized at at 15-month low of 53.8 in December. Markit added that “new order growth eases to 15-month low” and “business confidence lowest since October 2016”.

                                          Chris Williamson, Chief Business Economist at IHS Markit said:

                                          “Manufacturers reported a weakened pace of expansion at the end of 2018, and grew less upbeat about prospects for 2019. Output and order books grew at the slowest rates for over a year and optimism about the outlook slumped to its gloomiest for over two years. The month rounds of a fourth quarter in which manufacturing production is indicated to have risen at only a modest annualised rate of about 1%.

                                          “Some of the weakness is due to capacity constraints, with producers again reporting widespread difficulties in finding suitable staff and sourcing sufficient quantities of inputs. However, the survey also revealed signs of slower demand growth from customers, as well as rising concerns over the impact of tariffs. Just over two thirds of manufacturers reporting higher costs attributed the rise in prices to tariffs.

                                          “Growth was led by strengthening demand for consumer goods, and robust growth was also reported for investment goods such as plant and machinery. But producers of intermediate goods – who supply inputs to other manufactures – reported the weakest rise in new orders for over two years, hinting at increased destocking by their customers.

                                          “A shift to inventory reduction was highlighted by purchasing activity in the manufacturing sector rising at the weakest rate for one and a half years in December, providing further evidence that companies have become increasingly cautious about spending amid rising uncertainty about the outlook.”

                                          Full release here.