UK PMI construction dropped to 49.2, renewed slide in commercial work

    UK PMI Construction dropped sharply to 49.2 in January, down from 54.6, missed expectation of 52.8. Markit noted the renewed down turn in commercial activity. House building recovery lost momentum. But purchase price inflation was highest since June 2018.

    Tim Moore, Economics Director at IHS Markit: “The latest survey highlighted that construction companies have become more cautious about the business outlook. Output rebounded quickly after stoppages on site at the start of the pandemic, but hesitancy among clients in January and worries about near-term economic conditions resulted in a dip in growth expectations for the first time in six months.”

    Full release here.

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

      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.

      UK PMI services finalized at 48.8, economic contraction rate held steady

        UK PMI services was finalized at 48.8 in November, unchanged from October’s reading, lowest since January 2021, and second second consecutive month of contraction. PMI Composite was finalized at 48.2, unchanged from prior month, and the fourth successive month of contraction.

        Chris Williamson, Chief Business Economist at S&P Global Market Intelligence: “A further economic contraction signalled by the PMI surveys hints at a growing recession risk for the UK. A change of government and its new economic policies may have helped arrested some of the financial market volatility after September’s ‘mini-budget’ but the economic picture remains stubbornly unchanged. ”

        “The overall rate of economic contraction has held steady compared to October, indicative of GDP falling at a quarterly rate of 0.4%. As such, this is the toughest spell the UK economy has faced since the global financial crisis excluding only the height of the pandemic.

        Full release here.

        Eurozone exports rose 14.1% yoy in Dec, imports rose 36.7% yoy

          Eurozone exports of goods to the rest of the world grew 14.1% yoy to EUR 218.7B in December. Imports rose 36.7% yoy to EUR 223.3B. Trade deficit came in at EUR -4.6B. Intra-Eurozone trade rose 27.8% yoy to EUR 191.9B.

          In seasonally adjusted terms, exports dropped -0.6% mom while imports rose EUR 3.1% mom. Trade deficit was at EUR -9.7B, larger than expectation of EUR -2.5B.

          For whole of 2021, exports rose 14.1% to EUR 2434.4B. Imports rose 21.4% to EUR 2305.9B. Trade surplus came in at EUR 128.4B, down from EUR 233.9B in 2020.

          Full release here.

          US initial claims dropped to 206k vs expectation 227k

            US initial jobless claims dropped -27k to 206k in the week ending December 8, better than expectation of 227k. Four-week moving average dropped -3.75k to 224.75k. Continuing claims rose 25k to 1.661M in the week ending December 1. Four week moving average of continuing claims dropped -2.5k to 1.66575M.

            Also released, US import price index dropped -1.6% mom in November, Canada new housing price index rose 0.0% mom in October.

            UK GDP grew 0.2% in three months to May. Modest, driven by services

              UK GDP rose grew 0.3% mom in May and 0.2% in the three months to May.

              Growth were drive by Services with 0.34% growth in the rolling quarter. Production dropped -0.08% while construction dropped -0.10%.

              Head of National Accounts Rob Kent-Smith said in the release:

              “The first of our new rolling estimates of GDP shows a mixed picture of the UK economy with modest growth driven by the services sector, partly offset by falling construction and industrial output.

              “Retailing, computer programming and legal services all performed strongly in the three months to May while housebuilding and manufacturing both contracted.

              Services, in particular, grew robustly in May with retailers enjoying a double boost from the warm weather and the royal wedding. Construction also saw a return to growth after a weak couple of months.”.

              Full UK GDP release.

              Also from UK:

              • Visible trade deficit was unchanged at GBP -12.4B in May.
              • Industrial production dropped -0.4% mom, rose 0.8% yoy. Manufacturing production rose 0.4% mom, 1.1% yoy.
              • Construction output rose 2.9% mom.

              Irish Coveney said Brexit text 90% done, outstanding issues predominantly Ireland related

                Irish Foreign Minister Simon Coveney the Brexit withdrawal treaty is “already about 90% agreed in terms of text”. And, “the issues that haven’t been signed off on yet relate predominantly to Ireland and what’s needed now is the two negotiating teams to lock themselves in a room for the next 10 days.”

                European Commission President Jean-Claude Juncker said earlier in the weekend that “the rapprochement potential between both sides has increased in recent days”. He added, it’s unsure whether the work will be finished in October, but “If not, we’ll do it in November.” And he emphasized EU’s “will is unbroken to reach agreement”

                European Council President Donald Tusk also said “We will try for it in October… and I think there is a chance to have an accord by the end of the year.”

                Into US session: Sterling strongest on wage growth, Kiwi follows on CPI

                  Inflation data is the dominant market drivers today. Entering into US session, Sterling is trading as the strongest one today on faster than expected wage growth data. The Pound also reversed all the earlier losses due to Brexit jitters and is now the second strongest for the week. New Zealand Dollar is the second strongest one after Q3 CPI beat market expectations.

                  On the hand other, Yen is the weakest one for today as markets sentiments generally stabilized. Asian stocks ended the day mixed while DAX and CAC are trading higher. Swiss Franc is trading as the second weakest one.

                  A snapshot of the European markets:

                  • FTSE is down -0.19%
                  • DAX is up 0.63%
                  • CAC is up 0.50%
                  • German 10 year bund yield is down -0.0058 at 0.499
                  • Italian 10 year yield is also down -0.071 at 3.483.
                  • That is, German-Italian spread is back below 300

                  Earlier in Asia:

                  • Nikkei rose 1.25%
                  • Hong Kong HSI rose 0.07%
                  • China Shanghai SSE dropped -0.85% to 2546.33. It actually breached last week’s low of 2536.66 to 2536.44
                  • Singapore Strait Times dropped -0.38%.
                  • 10 year JGB yield rose 0.005 to 0.149

                  SNB Maechler: More signs that price increases are spreading

                    SNB board member Andrea Maechler said yesterday, “We have tightened monetary policy and raised interest rates to send a clear signal that we will do everything to bring down inflation over time.”

                    “There are ever more signs that price increases are spreading to goods and services which have not been affected so far,” she said. “We are acting to make sure that inflation does not become entrenched.”

                    On the question of further rate hike, she said, “I never speak of interest rate expectations. I can only say what the market expects, and it expects the SNB and other central banks to further increase their rates.”

                    Sterling lower after retail sales miss, but loss is limited

                      Sterling suffers some selloff after worse than expected June retail sales data.

                      Retail sales including fuel dropped -0.5% mom, well below expectation of 0.2% mom growth. For the year, Sale including fuel rose 2.9% yoy, missing expectation of 3.7% yoy.

                      Retail sales excluding fuel dropped -0.5% mom, well below expectation of 0.2% mom growth. For the year, Sale excluding fuel rose 3.0% yoy, missing expectation of 3.5% yoy.

                      While the pound dips broadly after the release, selloff is not too serious. In particular, Australian Dollar reversed earlier gains and takes New Zealand Dollar lower with it.

                      Australia wage price index rose 0.5% qoq, consumer sentiment rose 4.5%

                        Australia Wage Price Index rose 0.5% qoq in Q3, matched expectations. The trend and seasonally adjusted indexes for Australia both rose 2.2% through the year. The ABS Chief Economist, Bruce Hockman stated “The rate of annual wage growth eased slightly in September after being stable over the past year, continuing to grow at a slightly faster rate than consumer prices over the past year. The largest contribution to wage growth over the quarter was jobs in the health care and social assistance industry.”

                        Westpac-MI Consumer Sentiment rose 4.5% to 97.0 in November, up from 92.8. Westpac said “This result continues to support the general view that consumers are somewhat unnerved by the announcement of low rates and media controversy around the banks’ responses.”

                        Fed Rosengren and Kaplan thought rates should stay where they are

                          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.

                          UK retail sales volumes down -0.9% mom in Sep, value down -0.2% mom

                            UK retail sales volumes fell sharply by -0.9% mom in September, much worse than expectation of -0.4% mom. Sale volumes excluding automotive fuel dropped -1.0% mom.

                            Looking at some details, non-food stores sales volumes fell -1.9% mom. Non-store retailing sales volumes fell -2.2% mom. Foot stores sales volumes rose rose 0.2% mom. Automotive fuel sales volumes rose by 0.8% mom.

                            Looking at the quarterly picture, sales volumes fell by -0.8% in the three months to September when compared with the previous three months. Ex-fuel sales volumes fell -1.0%.

                            In value term, retail sales value dropped -0.2% mom. Sales value excluding automotive fuel fell -0.4% mom.

                            Full UK retail sales release here.

                            Italy may adjust budget plan if markets react negatively

                              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.

                              RBNZ keeps rate unchanged on heightened uncertainty, NZD spikes lower and recovered

                                RBNZ kept Official Cash Rate unchanged at 0.25% today, instead of raising it. The decision was “made in the context of the Government’s imposition of Level 4 COVID restrictions on activity across New Zealand.” Nevertheless, it reiterated that the “least regrets policy stance” was still to “further reduce the level of monetary stimulus”. But the Committee agreed to stand pat at this meeting “given the heightened uncertainty with the country in a lockdown.”

                                In the summary record, it’s also noted that committee members “now had more confidence that rising capacity pressures will feed through into inflation, and that employment is at its maximum sustainable level.” They concluded that “they could continue removing monetary stimulus”, following haling the LSAP program in July.

                                Full statement here.

                                NZD/USD spiked lower to 0.6867 after the announcement but quickly recovered. Outlook stays bearish as long as 0.7087 resistance holds. Sustained break of 0.6879 support will extend the fall from 0.7463 to 38.2% retracement of 0.5467 to 0.7463 at 0.6701.

                                US consumer confidence dropped to 124.1, point to moderation in economic growth

                                  Conference Board US Consumer Confidence Index dropped to 124.1 in March, down from 131.4 and missed expectation of 132.0. Present Situation Index dropped from 172.8 to 160.6. Expectations Index dropped to 103.8 to 99.8.

                                  “Consumer Confidence decreased in March after rebounding in February, with the Present Situation the main driver of this month’s decline,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board.

                                  “Confidence has been somewhat volatile over the past few months, as consumers have had to weather volatility in the financial markets, a partial government shutdown and a very weak February jobs report. Despite these dynamics, consumers remain confident that the economy will continue expanding in the near term. However, the overall trend in confidence has been softening since last summer, pointing to a moderation in economic growth.”

                                  Full release here.

                                  US ISM non-manufacturing dropped to 55.1, mixed sentiment on trade and tariffs uncertainty

                                    US ISM Non-Manufacturing Composite dropped to 55.1 in June down from 56.9 and missed expectation of 56.0. Looking at some details, Business Activity dropped -3.0 to 58.2. New Orders dropped -2.8 to 55.8. Employment dropped -3.1 to 55.0.

                                    ISM noted in the release: “Although the non-manufacturing sector’s growth rate dipped in June, the sector continues to reflect strength. The comments from the respondents reflect mixed sentiment about business conditions and the overall economy. A degree of uncertainty exists due to trade and tariffs.”

                                    Full release here.

                                    Asian update: Dollar strongest as RBA and China shrugged. Stocks mixed

                                      Following the decline in US stocks, Asian markets turned slightly weaker today. Chinese stocks are resilient though, fluctuating in tight range between gain and loss. The government lowered 2019 growth target to 6.0-6.5%, with the lower bound at lowest pace in more than three decades. But the move was widely expected and thus triggered little reactions. RBA kept interest rate unchanged at 1.50% too. It maintained the central scenarios of growth, inflation and employment forecasts. The tone of the statement is a touch more optimistic comparing to February’s. But it’s largely shrugged off by the Australian Dollar.

                                      In the currency markets, Dollar is so far the strongest one for today, followed by Euro and Swiss Franc.  EUR/USD breached 1.1316 support overnight but there was no follow through buying. The greenback will need to flex some more muscles to show that it’s regaining near term strength. Commodity currencies are the weakest ones, led by New Zealand Dollar.

                                      In Asia:

                                      • Nikkei is down -0.60%.
                                      • Hong Kong HSI is down -0.10%.
                                      • China Shanghai SSE is up 0.15%.
                                      • Singapore Strait Times is down -0.46%.
                                      • Japan 10-year JGB yield is up 0.0023 at 0.003, staying positive.

                                      Overnight:

                                      • DOW dropped -0.79%.
                                      • S&P 500 dropped -0.39%.
                                      • NASDAQ dropped -0.23%.
                                      • 10-year yield dropped -0.033 to 2.722.

                                      There is some improvements in yield curve inversion in the US. 5-year yield at 2.531 is now back above 6-month yield at 2.504. Ad it’s not far from 1-year yield at 2.557.

                                      Fed Bostic comfortable to start tapering in November

                                        Atlanta Fed President Raphael Bostic said the job markets had made “sufficient” gains to allow tapering the USD 120B per month asset purchases. He “would be comfortable starting tapering of asset purchase program in November.”

                                        Nevertheless, he noted that “there is significant uncertainty about how long inflationary pressures will last.”

                                        BCC downgraded UK growth forecasts, economy to grow at a snail’s pace

                                          The British Chambers of Commerce downgraded UK growth forecasts, citing “weaker outlook for trade and investment” as main reasons. Key points in the new forecasts:

                                          • 2018 GDP growth at 1.1%, down from 1.3%. 2019 GDP growth at 1.3%, down from 1.4%. 2020 GDP growth at 1.6%, unchanged.
                                          • 2018 exports growth at 1.7% only, down from 2.8% in prior forecast.
                                          • 2018 total investment growth at 1.4%, down from 1.8%. 2019 at 1.4% and 2020 at 1.5%.
                                          • BoE expected to hike in Q1 2019 and Q2 2020. Bank rate to hit 1.25% by the end of the forecast period.

                                          Quote from Dr Adam Marshall, Director General of the British Chambers of Commerce (BCC):

                                          “UK economy as a whole is set to grow at a snail’s pace. Brexit uncertainty continues to weigh heavily on many firms, as most of the practical questions facing trading businesses remain unanswered. The lack of precision on the nature of the UK’s future relationship with the EU is lowering expectations for both business investment and export growth.”

                                          “The drag effect on investment and trade would intensify in the event of a ‘messy’ and disorderly Brexit”

                                          “A deal with Brussels won’t deliver stronger UK growth on its own. The Prime Minister and the Chancellor must now pull out all the stops here at home to bolster business confidence, slash costs, and crowd in investment.”

                                          Full release here.