Fri, Jun 02, 2023 @ 22:21 GMT

Trump said China devaluating Yuan while PBoC is lifting it

    Trump complained in a Bloomberg interview that China is trying to devalue it’s currency, and his administration is studying whether to name China as a currency manipulator. Additionally, he’s looking into the “formula” for deciding who’s doing currency manipulation. Separately, it’s reported that Trump is ready to impose 25% tariffs on USD 200B in Chinese goods as soon as public hearing ends next week. And he told Bloomberg that, “we are a much stronger country,” and “nobody’s waiting us out. Our country is stronger than it’s ever been financially.”

    At the same time, the People’s Bank of China set the reference rate stronger than estimates for 17 days in a row, to slow the Yuan’s decline. The currency’s fixing was 0.1% stronger than the average forecast in a Bloomberg survey. It’s a consensus among traders and analysts that the market doesn’t want to bet against PBoC for now, as the central bank and the government are ready to deploy further “manipulative” policies to support Yuan’s exchange rate and stabilize it.

    Trump is either living in an alternative world, or his compulsive lying is again in effect.

    Btw, here a report of a former top treasury official blasting Trump as woefully wide of the mark on Yuan manipulation.

    Canada Freeland: No agreement yet and trade talk with US to continue on Friday

      Canadian Foreign Affairs Minister Chrystia Freeland had four meetings with US Trade Representative Robert Lighthizer yesterday, yet there was no conclusion in trade negotiation yet. Freeland said “no, we don’t have an agreement,” and talks would “reconvene in the morning” on Friday.

      She added that “we continue to be encouraged by the constructive atmosphere,” and “there’s a lot we’re trying to do in a short period of time.” And for now, Freeland is “focused on working hard on our issues with the United States”, not the Mexico yet.

      Diary is a key topic in the negotiation and Labour Congress President Hassan Youssef hinted that “the Canadian public should expect the American dairy industry will probably have more access to Canada by the time this agreement is concluded and we should not lose sleep over it,”

      Prime Minister Justin Trudeau’s spokesman reiterated his stance that ” the federal government remains committed to ensuring that any agreement is in the best interests of Canadians.”

      The United States, Canada and Mexico are trying to come up with at least a preliminary agreement in principle by Friday, a deadline unilaterally set by Trump.

      Mid-US Update: Selloff in emerging market currencies could be back in spotlight

        Risk aversion seems to be the main theme in the markets today, as Brexit and NAFTA(?) take a back seat. Instead, selloff in Turkish Lira and stocks are what’s driving the forex markets. Yen is trading as the strongest one for today, followed by Dollar and then Swiss Franc. Yen and the Swissy are clearly benefiting from risk aversion. The greenback continues to take advantage of slump in emerging market currencies.

        Meanwhile, commodity currencies are all weak, including Canadian, Australian and New Zealand Dollar. Sterling also retreats mildly as the lift from Brexit optimism fades. Make no mistake that it’s still likely to have deal when both sides want to, but they have to deliver. And just like Canada-US trade talks, eyes will be on whether there is a conclusion by the end of tomorrow.

        US stocks and yields are trading generally in red. DOW is down -0.40%, S&P 500 down -0.28%, NASDAQ down -0.07%. But remember that both S&P 500 and NASDAQ are on record runs. So such shallow retreat does nothing to change the trend. In Europe, FTSE closed down -0.62%, DAX down -0.54% and CAC down -0.42%.

        USD/CNH (offshore Yuan), is trading up more than 0.6% at the time of writing. Break of the near term channel resistance argues that pull back from 6.9586 could completed with three waves down to 6.7776 already. Immediate focus is on 6.8959, for tomorrow and early next week. Break will bring rest of 6.9586 and even resume the down trend in Yuan.

        And as we mentioned early, USD/TRY’s break of 61.8% retracement of 7.2068 to 5.6919 at 6.6281 could pave the way to retest 7.2069 high.

        Selloff in emerging market currency could come back into spot light. If that happens, Dollar and Yen would be the main beneficiary.


        EU Malmström willing to scrap auto tariffs if US does the same

          EU Trade Commissioner for Trade Cecilia Malmström told the European Parliament’s trade committee that they are willing to scrap auto tariffs in the negotiation with the US. She noted “we said that we are ready from the EU side to go to zero tariffs on all industrial goods, of course if the U.S. does the same, so it would be on a reciprocal basis.”

          And, “we are willing to bring down even our car tariffs down to zero … if the U.S. does the same,” she said, adding that “it would be good for us economically, and for them.”

          But she also emphasized that it’s not about “restarting TTIP” but aiming for “a more limited trade agreement.” And more importantly, “agriculture would not be in the agreement, nor public procurement as it looks to today.”

          US PCE inflation accelerated, jobless claims stay low, Canada GDP missed

            US personal income rose 0.3% in July, spending rose 0.4%, both matched expectations. Headline PCE accelerated to 2.3% yoy, up from 2.2% yoy and beat expectation of 2.2%. PCE core also accelerated to 2.0% yoy, up from 1.9% yoy and matched expectation of 2.0% yoy. Core inflation now formally meet Fed’s target.

            Initial jobless claims rose 3k to 213k in the week ended August 25, below expectation of 214k. Four-week moving average dropped -1.5k to 212.25k. That’s the lowest level since December 13, 1969. Continuing claims dropped -20k to 1.708m in the week ended August 18. Four-week moving average of continuing claims dropped -4.5k to 1.73125m.

            Canada data was slightly less impressive. GDP rose 0.0% mom in June versus expectation of 0.2% mom. For Q2, GDP grew 2.9% annualized, slightly below expectation of 3.0%. Exports was the main driver to Q2’s growth, up 2.9%. Consumer spending growth also rose 0.6%. However, there was deceleration in business investments, contraction in inventories and imports. The set of data doesn’t add any additional reason for BoC to hike in September instead of October.

            USD/CAD recovers strongly after the release with focus now back on 1.2981 minor resistance Break will bring stronger rebound.

            Into US session: Risk aversion back on Turkey and China, Lira down another 4.5%

              Entering into US session, Yen is trading as the strongest one for today, followed by Swiss Franc as markets are back in risk averse mode. Commodity currencies are generally lower. In particular, New Zealand Dollar’s selloff is rather serious after terribly bad business confidence data. Canadian Dollar also turns soft as US-Canada trade negotiation is still in progress even though signs are optimistic. Euro follows commodity currencies as weakest as Turkish Lira crisis might be deepening again.

              USD/TRY is up another 4.5% for today, above 6.72. 61.8% retracement of 7.2068 to 5.6919 at 6.6281 is taken out rather decisively. Now, USD/TRY could head to retest 7.2069 high. Break of today’s low at 6.4088 is needed to be the first sign of stabilization. Otherwise, the Lira will continue to face selling pressure.

              In the stock markets, major European indices are generally in red. FTSE is down -0.52%, DAX is down -0.45%. CAC is down -0.28%. Renewed selloff in China is rightfully blamed as a reason, as there is no war near an end of US-China trade war. Nonetheless, worries over Turkey should have played an important part too. Earlier today Nikkei closed up 0.09%, Hong Kong HSI down -0.89%, China Shanghai SSE down -1.14% and Singapore Strait Times down -0.56%.

              Eurozone economic sentiment dropped for the eighth straight month

                Eurozone economic sentiment dropped -0.5 to 111.6 in August, down from 112.1 and below expectation of 112.2. That’s also the eighth straight month of deterioration. Industrial confidence dropped to 5.5, down from 5.8 and below expectation of 5.5. Services confidence dropped to 14.7, down from 15.3 and below expectation of 15.2. Consumer confidence was finalized at -1.9.

                Eurostats noted that “the decrease in the euro-area sentiment indicator resulted from a marked deterioration of confidence among consumers and a milder decrease in the services sector, which were only partly offset by increases in the retail trade and construction sectors.” Meanwhile, “confidence in the industry sector remained broadly stable”.

                Also, the sentiment indicator was virtually unchanged in Germany, which was down by -0.1. But notable decreases are seen in France (-1.3), Italy (-0.8), Spain (-0.7) and the Netherlands (-0.5).

                Business climate indicator dropped to 1.22, down from 1.29 and missed expectation of 1.25.

                Also released in European session, German unemployment dropped -8k in August, matched expectation. Unemployment rate was unchanged at 5.2%. UK Mortgage approvals was unchanged at 65k in July. M4 money supply rose 0.9% mom in July.

                Swiss KOF dropped to 100.3, growth to hover around 10 year average

                  Swiss KOF Economic Barometer dropped 1.4 pts to 100.3 in August, below expectation of 101.2. KOF noted that it “pints to a level that is only marginally above its long-term average.” And, “in the near future Swiss growth should hover around its average over the last ten years.”

                  Also, it’s noted that “the strongest contributions to this negative result come from manufacturing, followed by the indicators from the exporting sector.” On the other hand, “the indicators related to private consumption give a positive signal. “. Financial and construction sectors were practically unchanged.

                  Full release here.

                  EU Barnier: Irish border the most sensitive point but a solution is possible

                    EU chief Brexit negotiator Michel Barnier talked to German broadcaster Deutschlandfunk with a more neutral tone on Brexit today. He said that EU should be prepared for every outcome, and “that includes the no-deal scenario”. He also mentioned that the issue of Irish border was the “most sensitive point” of the negotiations. But he also noted that it is “possible” to have a solution.

                    Barnier said yesterday that the EU is “prepared to offer Britain a partnership such as there never has been with any other third country.” That’s taken as a sign of commitment to a deal.

                    Separately, it’s reported that EU officials are considering an unscheduled summit in November to conclude Brexit negotiations. It’s actually not news as the October summit is too tight while December one is too late to finalize all the parliamentary approvals.

                    New Zealand business confidence plummets, AUD/NZD rebounds on Kiwi selloff

                      New Zealand ANZ business confidence tumbled by a further -5 pts in August to -50. Meanwhile, Activity Outlook was unchanged at 3.8. ANZ noted that “manufacturing is now the least confident sector – likely a lagged impact from construction sector woes”. On the other hand, The services sector is the most optimistic. Also “activity sub-indicators remain weak” and “threat to near-term activity is real.”

                      It’s a “particularly sharp turnaround” in the manufacturing sector from being the most optimistic in April, to the most pessimistic in August. Manufacturers’ export expectations are holding up. Thus, “this weakness is an echo of construction sector pessimism”. Employment intentions “continue to ease” and are weakest in “agriculture and construction sectors”. And, “it seems increasingly inevitable that wariness amongst firms will have real impacts, in the near term at least, as investment and employment decisions are deferred.”

                      Full release here.

                      Also released in Asian session, New Zealand building permits dropped -10.3% mom in July. Australian building approvals dropped -5.2% mom in July, private capital expenditure dropped -2.5% qoq in Q2. Japan retail sales rose 1.5% yoy in July.

                      The Australia Dollar isn’t a good performer this week, but the New Zealand Dollar is even worse. The strong rebound today suggests temporary bottoming at 1.0870 in AUD/NZD. Given that it was close to medium term trend line support, and there is bullish convergence condition in 4 hour MACD, the decline from 1.1174 is likely finished. Focus is back on 1.0991 minor resistance. Break will at least bring a test on 1.1174 high.

                      Canada-US trade deal (NAFTA?) on track for conclusion by Friday

                        Canadian Dollar softens mildly in Asian session but remains the third strongest for the week, just behind Sterling and Swiss Franc.

                        Progress in Canada-US trade talks appears to be positive. Comments from Trump and Canadian Prime Minister Justin Trudeau suggested that the negotiations are on track to complete by the end of the week.

                        Trump told reporters that “they (Canada) want to be part of the deal, and we gave until Friday and I think we’re probably on track. We’ll see what happens, but in any event, things are working out very well.” That’s an about turn from his recent hostile comments on Canada.

                        Trudeau also said “there is a possibility of getting there by Friday”. But he also emphasized that it is only a possibility, because it will hinge on whether or not there is ultimately a good deal for Canada.” He reiterated that “no NAFTA deal is better than a bad NAFTA deal.”

                        Canadian Foreign Minister Chrystia Freeland, staying in Washington, said “our officials are meeting now and will be meeting until very late tonight. Possibly they’ll be meeting all night long”. And, “this is a very intense moment in the negotiations and we’re trying to get a lot of things done very quickly.”

                        Mexico’s President Enrique Pena Nieto also said in a local radio interview that “I am optimistic that a trilateral deal can be reached… we have from now until Friday for a deal in principle to be announced,”

                        Mid-US Update: Sterling shines of Brexit optimism, Yen dives as stocks and yield rally

                          Sterling is so far, and will stay as, the biggest winner today on EU chief Brexit negotiator Michel Barnier’s positive comments. Even though the conclusion of the Brexit could still be delayed from October, there is very positive sign that there will eventually be a deal. On the other hand, Swiss Franc is notably much stronger than Euro today as Turkish Lira crisis re-emerges. USD/TRY hits as high at 6.479 today and is currently up 2.45% at 6.42. There are deeps concerns on funding problem of Turkish banks. Even though Euro isn’t that strong, it’s still much better than others.

                          Yen is sold off deeply, and is justly performing marginally better than Australian Dollar. Risk appetite picks up again in US session with NASDAQ and S&P 500 extending record run, with strong momentum. NASDAQ is currently up 0.85%, S&P 500 is up 0.56% and DOW is up 0.34%. Also, if should be noted that German 10 year bund yields surged 0.0246 to 0.406 today, back above 0.4 handle. US 10 year yield is also up slightly. Both are reasons that give Yen heavy pressure. Canadian Dollar also trades with undertone as we’re only hearing positive words on trade negotiation with US, but not concrete results yet.

                          In other markets, FTSE closed down -0.71% thanks to the rally in Sterling. DAX closed up 0.27% while CAC up 0.30%. Gold continues to consolidate in tight range above 1200.

                          Sterling surges as US Raab said Brexit deal in sight, EU Barnier to offer unparalleled partnership

                            Sterling appears to be boosted by upbeat comments from Brexit Minister Dominic Raab. He said in the parliament that a Brexit deal with EU was “within our sights” and the negotiation would intensifies as the divorce date approaches. Raab also added that UK’s Brexit plan received positive reactions from EU. He said the plan “had a reasonably positive landing” And “we’re getting a lot of constructive engagement, and … a lot of talk about the practical considerations rather than ‘in principle’ dismissal, and I think that’s valuable from our point of view”.

                            EU chief negotiator Michel Barnier also said that the EU is prepared to offer a partnership with UK unlike with another other country. That’s seen as a gesture that EU is also committed to a deal. Barnier said in Berlin that “we are prepared to offer Britain a partnership such as there never has been with any other third country.” And, “We respect Britain’s red lines scrupulously. In return, they must respect what we are,” he said. “Single market means single market … There is no single market a la carte.”

                            And the these comments invalidated fake news report that Raab is frustrated to get availability from Barnier on face-to-face talks.

                            GBP/USD surges through 1.2956 resistance on the news.

                            GBPJPY also picks up strong upside momentum again.

                            Into US session: Euro down as Turkish Lira loses another 3%, Sterling and Dollar firmer

                              Entering into US session, Euro suffers some heavy selling and is trading as the second weakest one for today, just next to Australian Dollar. ON the other hand Sterling leads the way higher, followed by Dollar. The renewed selloff in Turkish Lira is seen by us as the main driver of the forex markets today. Dollar and Sterling has suffered some selling against Euro and today’s moves are just reversing these selloffs. Canadian Dollar is also trading a touch softer as focus is now on day 2 of Canada-US trade negotiations.

                              In other markets, European indices are mixed with FTSE down -0.32% at the time of writing, DA is up 0.17% and CAC is up 0.26%. German 10 year bund extends this week’s rally and is currently up 0.015 at 0.396. 0.4 handle is back in sight. Earlier today, Asian markets were mixed with Nikkei and HSI up 0.15% and 0.23% respectively. But China SSA and Singapore Strait Times were down -0.31% and -0.11% respectively.

                              USD/TRY is rising another 3% today and hits as high as 6.4732. Break of 6.346 minor resistance confirms resumption of rebound from 5.6919. Further rise would be seen to 61.8% retracement to of 7.2068 to 5.6919 at 6.6281. Firm break there will put 7.000 handle back into focus. And such development could weigh on Euro again.

                              An update on EUR/AUD (cancel order) and GBP/CHF (exit short)

                                An update on EUR/AUD and GBP/CHF short strategy as mentioned in our weekly report.

                                As noted in the report, we planned to buy EUR/AUD on dip to 1.5800, slightly below 38.2% retracement of 1.5601 to 1.5945 at 1.5814, in anticipate to rise to 100% projection of 1.5271 to 1.5886 from 1.5601 at 1.6216. The pull back was contained at 1.5829, above our entry. Thus, the order was not filled. Given that the rise resumption happened already and EUR/AUD has met 61.8% projection, we’ll cancel the order and look for other opportunities.

                                As noted in another update, we’re holding on to GBP/CHF short, sold at 1.2971, stop at 1.2725. Target is 1.2500. But the downside momentum of the move from 1.2722 has been rather unconvincing. More importantly, we see that EUR/GBP retreats quite steeply after touching channel resistance. And, USD/CHF is close to 0.9724 key fibonacci level. There is material possibility for GBP/CHF to rebound ahead of 1.2500.

                                Therefore, we’ll exit out short position at market (1.2587), and pocket 384 pips profits first.

                                German Gfk consumer climate dropped -0.1 to 10.5, mixed consumer mood

                                  German Gfk consumer climate for September dropped -0.1 to 10.5 , below expectation of 10.6. Gfk noted that consumer mood “did not present a uniform picture”. There was improvement in economic expectations, stopping multi-month downswing. consumers believed in the economy’s solid growth trend despite trade conflict with the US. But income expectations and propensity to buy declined. Higher energy prices could have been a reason. Also, savings are increasingly losing value due to inflation.

                                  Over all, Gfk noted that “the positive outlook for the consumer economy will only continue as is if the job market remains stable, which is the current assumption, and there are no additional risks threatening from the price front. A further increase in inflation would certainly dampen the consumer climate. ”

                                  From France, Q2 GDP grew 0.2% qoq, unrevised from initial estimate.

                                  Gold lost momentum after hitting 1214.3, turns into near term consoldiation

                                    Gold’s rebound lost momentum after hitting 1214.30 and retreated sharply. Nonetheless, it’s try to draw support from 4 hour 55 EMA. For now some consolidations would be seen below 1214.30 first. But downside of retreat should be contained above 1182.90 support to bring another rise.

                                    Overall outlook is unchanged. 1160.26 is seen as a medium term bottom. The corrective rise from there should extend to 55 day EMA (now at 1228.18) and possibly above. But we’d expect upside to be limited by 38.2% retracement of 1365.25 to 1160.36 at 1238.62 to bring down trend resumption at a later stage.

                                    UK in shop price inflation for the first time in five years

                                      UK BRC shop price index rose 0.1% yoy in August, up from July’s -0.3% yoy fall. More importantly, that’s the first rise in over five years, breaking a deflation cycle of 63 months. BRC noted in the release that “both higher food price inflation and lower non-food price deflation contributed to the return of Shop Prices to inflation”. However, Shop Price inflation remains well below headline CPI as a result of “high levels of competition”.

                                      BRC Chief Executive Helen Dickinson noted that for now, “retailers are keeping price increases faced by consumers to a minimum”. However, “current inflationary pressures pale in comparison to potential increases in costs retailers will face in the event the we leave the EU without a deal”. And if that happens, “retailers will not be able to shield consumers from price increases.” She also urged that “the EU and UK negotiating teams must deliver a Withdrawal Agreement in the coming weeks to avoid the severe consequences that would result from such a cliff edge scenario next March.”

                                      Full release here.

                                      Canada Freeland had very constructive meeting with Lighthizer, but MILK is the word

                                        Canadian Dollar trades firmer in Asian session today and remains the strongest one for the week. All eyes are on the trade negotiations between Canada and the US. Canadian Foreign Minister Chrystia Freeland, who cut short a European trip to Washington, said she had “very constructive meeting” with US Trade Representative Robert Lighthizer yesterday, and the meeting will continue today. She failed that Mexico had made some “significant concessions” in the are of labor and auto rules of original. And that has “really paved the way for what Canada believes will be a good week”.

                                        Dairy products is believed to be a key area that the US will press Canada on. White House top economic adviser Larry Kudlow said in a TV interview that “there’s a word that Canada has trouble with and it’s M-I-L-K. Milk. Anything to do with milk and dairy — they have this government-run, centrally planned system and some tariffs run upwards of 300 per cent. They’re going to have to fix that.” And, Kudlow warned that “the president did say if he cannot satisfactorily negotiate with [Canada] he may have to go to a large 20 to 25 per cent tax on Canadian automobiles headed for the U.S.” Trump also imposed a Friday deadline for Canada to join the U.S, and Mexico, which is when the administration plans to give Congress its mandatory 90-day notification of the new trade deal.

                                        According to a report by the Globe and Mail, Canada is ready to make a major concession on Diary products.

                                        IMF: Substantial time lag in transmission of Eurozone labor market improvements to inflation

                                          In an IMF blog article titled “Euro Area Inflation: Why Low For So Long?“, the puzzle of the broken relationship of core inflation and unemployment was discussed. The study found that the key is “strong persistence of euro area inflation”. That is, for example, “coefficient on past inflation is high, much higher than for US inflation”. Also, “coefficient on inflation expectations is much lower for the euro area than for the US”.

                                          In layman terms, the implication is that “in the euro area, following a period of weak demand and low inflation, it will take a much longer period of strong demand to get inflation back to the inflation objective”. Or in more technical term, ” there is a substantial time lag in the transmission of improving labor market developments to prices.”

                                          The implication to ECB’s monetary policy is that it reinforces the case for being “patient, prudent and persistent”. And, that will “support the slow process of returning inflation to its objective, through both stronger demand and well anchored inflation expectations.”

                                          Full article here.