WTI oil upside breakout, targets 55.70 first, 58.26 next

    WTI crude oil breaks through 53.92 resistance to resume near term up trend today. Further rise should be seen to 61.8% projection of 47.24 to 53.92 from 51.58 at 55.70 first, and then 100% projection at 58.26.

    In any case, near term outlook will now stay bullish as long as 51.58 support holds. As for the chance of taking on 65.43 medium term structural resistance, we’ll see if WTI could accelerate upwards with the current move.

    Japan Nishimura: Excessive speculative market moves are undesirable

      Japan’s Economy Minister Yasutoshi Nishimura warned that “sudden moves (in financial markets) that don’t reflect fundamentals or excessive speculative moves are undesirable.” Referring to today’s market, he said “while I like to refrain from commenting on the financial market itself, I think moves today have calmed a little.”

      Separately, Finance Minister taro Aso said the economy remains in moderate recovery. He noted, “it’s true that manufacturers are mainly being affected by global slowdown, but fundamentals that support domestic demand remains solid.”

      US Empire state manufacturing fell to -31.3, second largest monthly plunge on record

        US Empire State manufacturing index plunged sharply from 11.1 to -31.3 in August, well below expectation of 5.1. The -42 pts decline was the second largest monthly fall on record. 12% of respondents reported conditions had improved while 55% reported worsened condition.

        Expectations for six months ahead, on the other hand, rose from -6.2 to 2.1. The reading suggests that firms were not optimism about the six-month outlook.

        Full release here.

        Position trading update: Entered GBP/USD short

          As planned in our weekly report, we entered GBP/USD short today at 1.3150, as the pair recovered to 1.3166. Stop is placed at 1.3300, slightly above 1.3297 resistance.

          Our view is unchanged that corrective rise from 1.2661 has completed with three waves up to 1.3297, just ahead of 38.2% retracement of 1.4376 to 1.2661 at 1.3316. Another fall is expected through 1.3042 support to retest 1.2661 low.

          There is prospect of resuming whole decline from 1.4376. Hence, if the trade turns out as expected, we’ll monitor downside momentum to decide whether to exit at around 1.2661, or hold through it.

          Gold finished triangle consolidation, ready to resume up trend?

            Gold’s break of 1723.36 resistance overnight suggests that triangle consolidation from 1747.75 might have finally finished. Focus is immediately back on this high. Break will resume larger up trend. 61.8% projection of 1160.17 to 1703.28 from 1451.16 at 1786.80 will be an important hurdle to overcome. Sustained break there could prompt upside acceleration for the medium term. Meanwhile, break of 1711.14 minor support will dampen the bullish case and bring more range trading first.

            Japan’s Q2 GDP grows 0.8% qoq on strong consumption and capital spending

              Japan’s economy showed stronger-than-expected growth in Q2, with real GDP rising by 0.8% qoq, surpassing the anticipated 0.6% qoq increase. On an annualized basis, GDP surged by 3.1%, well above the expected 2.1%. This marks a significant rebound after the sharp contraction experienced in Q1, and it is the first increase in two quarters.

              The recovery was largely driven by a notable rise in private consumption, which increased by 1.0%. This is particularly significant as it follows four consecutive quarters of decline, a losing streak not seen since the aftermath of the 2008 financial crisis. Additionally, capital spending grew by 0.9%, marking its first gain in two quarters.

              On a nominal basis, GDP increased by 1.8% in Q2, translating to an annualized rate of 7.4%. This growth pushed Japan’s GDP above JPY 600T for the first time, a milestone attributed to the ongoing inflationary pressures driven by a weakening yen.

              BoJ Nakamura: Cannot achieve price target in a sustained, stable fashion yet

                BoJ board member Toyoaki Nakamura said in a speech that “Japan’s economy is still in the midst of recovering from the pandemic-induced slump.”

                “Shifting to a monetary tightening stance, at a time when demand remains short of supply, would hurt the economy and act as a big restraint to household and business activity,” he said.

                “While core consumer inflation may accelerate toward year-end due to rising prices of energy, food and durable goods, such a boost will likely dissipate,” he noted. “Japan is not yet in a situation where it can achieve our price target in a sustained, stable fashion”.

                BoE Bailey: We haven’t addressed the question of using negative rates

                  BoE Governor Andrew Bailey said in a webinar yesterday that the central isn’t ready for implementation of negative interest rate yet. “Given the shock we’ve had, there are good reasons to say we shouldn’t rule them out and therefore they’re in the toolbox,” he said. “We haven’t addressed the question of should we use them.”

                  Earlier, Governor Sam Woods has sent a letter banks asking for their readiness on negative interest. “We are requesting specific information about your firm’s current readiness to deal with a zero Bank Rate, a negative Bank Rate, or a tiered system of reserves remuneration – and the steps that you would need to take to prepare for the implementation of these,” Woods said in a letter. “We are also seeking to understand whether there may be potential for short-term solutions or workarounds, as well as permanent systems changes.”

                  An update on GBP/USD short, lower the stop

                    An update to our GBP/USD position as entered here, sold at 1.3150, stop at 1.3300. Finally, GBP/USD catches up with other dollar pairs and reaches the fall from 1.3297. The recovery from 1.3054 was in a way longer than we expected. But given that it drew support from 55 day EMA, that’s not too much of a surprise.

                    Overall outlook is unchanged that rise from 1.2661 is a corrective move that has completed with three waves up to 1.3297. Just ahead of 38.2% retracement of 1.4376 to 1.2661 at 1.3316. Focus is now on 1.3042 resistance turned support, which GBP/USD has breached already. Sustained trading below this 1.3042 will further affirm our bearish view and should at least target 1.2661/2784 support zone.

                    Meanwhile, it’s a bit early, but we’re looking at the chance of resuming whole down trend from 1.4376. Hence we haven’t decided whether we will exit the trade inside the 1.2661/2784 support zone. We’ll look at downside momentum of the current decline to make an assessment later. Ideally, the current fall is a wave 3, it should be rather powerful after taking out 1.3042.  Though for now, we’d like to lower the stop to break even to guard against a strong reversal from 1.3042.

                    Hence to conclude, we’ll hold short (entered at 1.3150), lower the stop to breakeven at 1.3150, and wait-and-see how it plays out.

                     

                    US ADP grew 195k, recession will remain at bay

                      ADP report showed 195k growth in private sector jobs in August, well above expectation of 140k. Jobs in goods-producing sector grew 11k while jobs in service-providing sectors grew 184k. Small businesses added 66k, medium business added 77k, large businesses added 52k.

                      “In August we saw a rebound in private-sector employment,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “This is the first time in the last 12 months that we have seen balanced job growth across small, medium and large-sized companies.”

                      Mark Zandi, chief economist of Moody’s Analytics, said, “Businesses are holding firm on their payrolls despite the slowing economy. Hiring has moderated, but layoffs remain low. As long as this continues recession will remain at bay.”

                      Full release here.

                      Fed officials optimistic on inflation progress, markets see two rate cuts this year

                        Several Federal Reserve officials welcomed the US June CPI data released yesterday, which showed better-than-expected disinflation progress. This has intensified expectations that Fed would start cutting interest rates in September, with Fed fund futures indicating a 93% chance. More importantly, there is now over 90% probability of two rate cuts by the end of the year, lowering rates to 4.75-5.00%.

                        Chicago Fed President Austan Goolsbee described the latest inflation data as “excellent,” noting the significant deceleration in shelter inflation as “profoundly encouraging.” He added that “this is what the path to 2% looks like.”

                        St. Louis Fed President Alberto Musalem also saw the June CPI data as “encouraging further progress toward lower inflation.” He emphasized the need for greater confidence that inflation will converge to 2% before lowering rates. Musalem noted the importance of seeing a moderation in demand and data that shows inflation converging to 2% by mid to late next year, adding, “we’re on a good path.”

                        San Francisco Fed President Mary Daly highlighted the broader economic context, saying, “With the information we have received today, which includes data on employment, inflation, GDP growth, and the outlook for the economy, I see it as likely that some policy adjustments will be warranted.” However, she noted that the timing of these adjustments is still uncertain.

                         

                        Japan cabinet office: Weakness continues in exports, but investment increase at moderate pace

                          According to the monthly economic report by Japan’s Cabinet Office, the economy is “recovering at a moderate pace,” but there was “weakness continuing mainly in exports.” Asia bound exports were particularly poor due to China’s slowdown and weaker demand for high-tech products. .

                          Nevertheless, the reference to weakness in “industrial production” in the June report was dropped. Instead, production of “transport goods continued to increase, while the decline in machinery production could be seen easing a little,”

                          Businesses show “cautiousness further” but investment is still “on the increase at a moderate pace”. Also, employment situation is “improving steadily” while private consumption is “picking up”.

                          Eurozone retail sales dropped -1.8% mom in Oct, EU down -1.7% mom

                            Eurozone retail sales volume dropped -1.8% mom in October, worse than expectation of -1.6% mom. The volume of retail trade decreased by -2.1% for non-food products and by -1.5% for food, drinks and tobacco, while it grew by 0.3% for automotive fuels.

                            EU retail sales volume dropped -1.7% mom. Among Member States for which data are available, the largest monthly decreases in the total retail trade volume were registered in Austria (-4.6%), Croatia (-4.0%) and Belgium (-3.3%). Increases were observed in Luxembourg (+2.6%), Cyprus, Malta and Portugal (all +0.5%) and Spain (+0.4%).

                            Full release here.

                            Canada housing starts rose 7.4 to CAD 8.7B

                              Canada building permits rose 7.4% mom in December to CAD 8.7B, above expectation of 3.5% mom. Increases were reported in five provinces, led by Ontario (10.5% to CAD 3.4B) and Quebec (15.8% to CAD 2.2B)

                              The standalone monthly SAAR of housing starts for all areas in Canada was 213,224 units in January, an increase of 8.8% from 195,892 units in December.

                              US initial jobless claims rose to 373k, above expectations

                                US initial jobless claims rose 2k to 373k in the week ending July 3, above expectation of 355k. Four-week moving average of initial claims dropped -250 to 394.5k, lowest since March 14, 2020.

                                Continuing claims dropped -145k to 3339k in the week ending June 26, lowest since March 21, 2020. Four-week moving average of continuing claims dropped -44.5k to 3441k, lowest since March 21, 2020.

                                Full release here.

                                BoJ’s Dec meeting highlights lack of urgency in tightening

                                  Summary of Opinions of BoJ’s December 18-19 meeting revealed a prevailing view among the board members on a lack of urgency in tightening monetary policy. The consensus was that delaying the decision to tighten poses minimal risk. This general sentiment indicates BoJ’s preference for a measured approach, prioritizing stability and sufficient data before considering changes.

                                  The summary acknowledged that the sustainable and stable achievement of price stability target, set at 2%, is not yet certain. In considering whether to end the negative interest rate policy and yield curve control framework, the board stressed the importance of confirming a virtuous cycle between wages and prices.

                                  To reach the 2% inflation target sustainably, one member noted that “growth momentum in nominal wages needs to strengthen further”. It’s also noted that wage growth has not kept pace with inflation. And, even with potentially higher wage hikes in the spring, the risk of inflation significantly surpassing 2% remains “low”. Current policy approach does not risk “falling behind the curve” in response to inflation dynamics.

                                  The summary also noted that acknowledged that the need to “rapidly tighten monetary policy is small”. At the same time, “the cost incurred if this risk materializes would be significant.”

                                  Full BoJ Summary of Opinions here.

                                  Fed Bostic: Inflation trajectory not moving in positive way

                                    Commenting on yesterday’s US CPI report, which showed headline inflation surged to 9.1%, Atlanta Fed President Raphael Bostic said the “numbers suggest the trajectory is not moving in a positive way”. But, “how much I need to adapt is really the next question,” as he needed to study the “nuts and bolts” of the report.

                                    “The top-line number is a source of concern,” Bostic said, “Everything is in play.” Asked if that included by raising rates by a full percentage point, following BoC’s surprised move, he replied, “it would mean everything.”

                                    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.

                                      CAD the clear loser this week ahead of BoC

                                        No clear winner this week so far. Yen trades generally higher today. But that’s mainly because rebound in Yen crosses lost steam. While Euro is strongest for the week, there is not much follow through buying.

                                        Nonetheless. CAD is the clear loser so far, as the weakest for the week and stays pressured today.


                                        BoC rate decision is a focus later today. Based on uncertainty around NAFTA and Trump’s steel and aluminum tariffs, there is practically no chance for another hike today. And, further, there is little chance for BoC to sound anything but cautious.

                                        EUR/CAD is a pair to watch today as it’s set to take on 1.6103 key resistance (2016 high). Firm break there will resume long term rebound from 2012 low at 1.2126. Next medium term target will be 161.8% projection of 1.3782 to 1.5257 from 1.4441 at 1.6828.

                                        Fed Powell downplays significance of recent strong labor market and inflation data

                                          Fed Chair Jerome Powell downplayed the significance of recent labor market and inflation data that surpassed expectations, he noted that these developments do not significantly alter the Fed’s overall economic outlook.

                                          “Recent readings on both job gains and inflation have come in higher than expected,” Powell said at a forum at Stanford University overnight. However, he was quick to clarify that these developments do not fundamentally shift the broader economic narrative, which he described as “one of solid growth, a strong but rebalancing labor market, and inflation moving down toward 2 percent on a sometimes bumpy path.”

                                          In discussing the Federal Reserve’s approach to monetary policy easing, Powell affirmed the “meeting by meeting” decision-making process and acknowledged that rate cuts are “likely to be appropriate at some point this year.”

                                          Yet, he stressed the prerequisite of having “greater confidence” in inflation’s downward path towards 2% target before any interest rate red reduction would be considered.

                                          “Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy,” he remarked.