Tue, Jan 31, 2023 @ 15:57 GMT

China retail sales down -11.1% yoy in Apr, industrial production down -2.9% yoy

    China retail sales dropped -11.1% yoy in April, worse than expectation of -6.0% yoy. Industrial production dropped -2.9% yoy, versus expectation of 0.7% yoy. Fixed asset investment rose 6.8% ytd yoy, also below expectation of 7.0%.

    The “increasingly grim and complex international environment and greater shock of [the] Covid-19 pandemic at home obviously exceeded expectation, new downward pressure on the economy continued to grow.” The NBS said in a statement. But it added, “with progress in Covid controls and policies to stabilize the economy taking effect, the economy is likely to recover gradually.”

    Yuan’s decline has somewhat slowed a little last week. USD/CNH is now close to 61.8% retracement of 7.1961 to 6.3057 at 6.8560. Considering bearish divergence condition in 4 hour MACD, USD/CNH could be about to top for the near term. Break of 6.730 support will confirm the turn into a corrective phase in the uptrend.

    US initial jobless claims dropped again to 2.1m, continuing claims dropped to 21m

      US initial jobless claims continued to drop, by -323k to 2123k in the week ending May 23. Four-week moving average of initial claims dropped -436k to 2608k. Continuing claims dropped -3860k to 21052k in the week ending May 16. Four-week moving average of continuing claims rose 765.25k to 22722k.

      Full release here.

      US GDP grew 6.5% annualized in Q2, missed expectations

        US GDP grew at annual rate of 6.5% in Q2, well below expectation of 8.2%. BEA said: “The increase in real GDP in the second quarter reflected increases in personal consumption expenditures (PCE), nonresidential fixed investment, exports, and state and local government spending that were partly offset by decreases in private inventory investment, residential fixed investment, and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased”.

        Full release here.

        German ifo forecasts 2.6% growth in 2018, 2.1% in 2019

          ifo Institute forecasts German economy to grow 2.6% in 2018, then slow to 2.1% in 2019. It’s head of f Economic Forecasting Timo Wollmershaeuser noted that the calculations “confirm figures from our December forecast.: However, “underlying forces have shifted somewhat.”

          In particular, forecast for household consumption expenditure was scaled by by 0.5% in 2018, because of lower than expected spending back in 2H 2017. Government spending forecast was raised by 0.5% in 2018, as new government policy will provide a stimulus. Export growth was revised up by 0.5% in 2018, thanks to upturn in Eurozone economy and US tax cuts.

          Regarding risks, “the debate over the introduction and/or increase in tariffs on transatlantic trade and the appreciation of the euro are weakening sentiment among German companies.” Also, the new coalition government is “disappointing in terms of reforming the tax and social security system.” In particular, Wollmershaeuser said that was no response to US, France and UK tax cuts.

          Kudlow: China is increasingly isolated with a weak economy

            White House’s National Economic Council head Larry Kudlow warned China that “they better not underestimate the president,” and Trump is “going to stand tough” on trade war.

            He added that “we are coming together with the European Union to make a deal with them, so we’ll have a united front against China and, I think, most of our trade team would tell you, we’re moving close on Mexico.” So, “China is increasingly isolated with a weak economy.”

            Regarding the trade negotiations with the EU, he said “we will have a number of announcements coming up, I hope, in the next thirty or so days with respect to transactions and market opening and increased investments with the European Union.”

            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.”

              EU leaders circulating text of three months Brexit extension

                It’s widely reported that, despite objection by French President Emmanuel Macron, EU27 leaders were already circulating the draft texts of granting UK a three month Brexit extension to January 31, 2020. But Brexit could happen earlier on November 30 or December 31 if both sides were able to ratify the agreement in respective parliament in time.

                The draft noted: “The period provided for in article 50 (3) TEU as extended by the European council decision (EU) 2019/584 is hereby further extended until 31 January 2020. In the event that the parties to that agreement complete their respective ratification procedures and notify the depositary of the completion of these procedures in November 2019, in December 2019 or in January 2020, the withdrawal agreement will enter into into force respectively on [the first of the month of the relevant month].”

                EU diplomats will meet in Brussels to discuss the proposal today, a few hours before UK Commons section on general election. Prime Minister Boris Johnson called for generally election on December 12 but it’s believed that he wouldn’t secure two-thirds majority support for the motion.

                Eurozone CPI finalized at 1.0%, core CPI at 0.9%

                  Eurozone CPI was finalized at 1.0% yoy in July, revised down from 1.1% yoy, down from June’s 1.3% yoy. CPI core was finalized at 0.9% yoy, unchanged from flash estimate and June’s figure. The highest contribution to the annual euro area inflation rate came from services (0.53%), followed by food, alcohol & tobacco (0.37%), non-energy industrial goods (0.08%) and energy (0.05%).

                  In EU, annual inflation slowed to 1.4% yoy, down from 1.6% yoy. The lowest annual rates were registered in Portugal (-0.7%), Cyprus (0.1%) and Italy (0.3%). The highest annual rates were recorded in Romania (4.1%), Hungary (3.3%), Latvia and Slovakia (both 3.0%). Compared with June, annual inflation fell in fifteen Member States, remained stable in two and rose in eleven.

                  Full release here.

                  Italy Tria revised down 2018 and 2019 growth forecasts

                    Italian Economy Minister Giovanni Tria told the parliament said the government have downgraded growth forecast for both this year and next.

                    2018 GDP growth is projected to be 1.2%, down from prior forecast of 1.5%. 2019 GDP growth is projected to be at 1-1.1%, down from prior forecast of 1.4%.

                    Tria added that the slowdown would bring deficit to 1.2% in 2019, higher than deficit target of 0.8% of GDP, drawn up by prior administration.

                    A more clearer estimate of the deficit will be available later in September. The figures will depend on the cost of servicing the debts and spending cuts.

                    While the plan appears to be at odds with EU rules, Tria emphasized that it’s still “compatible” with Italy’s commitment to EU on its public finances.

                    Fed Powell: 50bps on the table for May FOMC meeting

                      Fed Chair Jerome Powell said in an IMF discussion that with inflation running three times the 2% target, “it is appropriate to be moving a little more quickly.” He added that “fifty basis points will be on the table for the May meeting.”

                      “We have had an expectation that inflation would peak around this time and come down over the course of the rest of the year and then further,” Powell said. “These expectations have been disappointed in the past…We are not going to count on help from supply side healing. We are going to be raising rates.”

                      Fed Powell: Not is not the time to talk about stimulus exit

                        Fed chair Jerome Powell said yesterday that “now is not the time to be talking about exit” from the asset purchase program. He added, “another lesson of the global financial crisis, is be careful not to exit too early.”

                        “We’ll let the world know. We’ll communicate very clearly to the public and we’ll do so, by the way, well in advance of active consideration of beginning a gradual taper of asset purchases,” he added. “That wouldn’t be a reason to raise interest rates unless we see troubling inflation or other imbalances that could threaten achievement of our mandate.”

                        On the outlook, Powell said, “we’ve got to get through this very difficult period this winter with the spread of COVID, but as the vaccines go out and we get COVID under control, there’s a lot of reason to be optimistic.”

                        BCC pushes for clarify and Brexit hedge

                          According to the Quarterly Economic Survey of the British Chambers of Commerce (BCC), the UK economic conditions “remain sluggish” despite modest improvement in Q2. The survey showed that the economy is in a “holding pattern” and the annual growth this year is set to be the “lowest since the financial crisis.” It called for a push to “fix the fundamentals” to create a “Brexit hedge”. And the government should provide clarity on the “real-world questions” after Brexit to give businesses a clear path that would enable them to invest and grow.

                          Adam Marshall, Director General of the BCC also noted in the release that “amid growing international uncertainty, from escalating trade disputes to oil price rises, the UK economy continues to grow at a sluggish rate. Brexit is a key factor – but long-standing structural issues are also holding companies’ growth back.” And he emphasized again that
                          “Business needs clarity on Brexit, and a strong domestic agenda that creates a ‘Brexit hedge’ as we navigate turbulence over the next few years.”

                          Full report here.

                          Eurozone CPI finalized at 8.6% yoy in Jun, core CPI at 3.7% yoy

                            Eurozone CPI was finalized at 8.6% yoy in June up from May’s 8.1% yoy. Excluding energy, food, alcohol & tobacco, CPI was finalized at 3.7% yoy, down form May’s 3.8% yoy. The highest contribution to the annual Eurozone inflation rate came from energy (+4.19%), followed by food, alcohol & tobacco (+1.88%), services (+1.42%) and non-energy industrial goods (+1.15%).

                            EU CPI was finalized at 9.6% yoy, up from May’s 8.8% yoy. The lowest annual rates were registered in Malta (6.1%), France (6.5%) and Finland (8.1%). The highest annual rates were recorded in Estonia (22.0%), Lithuania (20.5%) and Latvia (19.2%). Compared with May, annual inflation fell in two Member States and rose in twenty-five.

                            Full release here.

                            WTI oil reclaims 50 after Saudi Arabia agrees 1m bpd voluntary production cut

                              Oil prices are given a lift after Saudi Arabia agreed to a larger production cut with OPEC+ allies. The world’s largest oil exporter agreed to make additional, voluntary cut of 1m barrels per day in February and March. The move led to an overall cut of over 900k bpd in production by OPEC+.

                              Saudi energy minister Prince Abdulaziz bin Salman said, “as we see light at the end of the tunnel, we must — at all costs — avoid the temptation to slacken off our resolve. Do not put at risk all that we have achieved for the sake of an instant but illusory benefit.”

                              WTI crude is expending recent rally after brief set back, and it’s now back above 50. Further rise should be seen to channel resistance at 51.71. Some resistance would likely be seen there to limit upside and cap momentum. However, sustained break there would indicate upside acceleration and open up the case for further rally to 65.43 medium term resistance next.

                              BoE Bailey: Acting forcefully is not the only thing on the table

                                BoE Governor Andrew Bailey said the central bank has options to act “forcefully” to tackle inflation if needed. “There will be circumstances in which we will have to do more. We’re not there yet in terms of the next meeting. We’re still a month away, but that’s on the table,” Bailey said. “But, you shouldn’t assume its the only thing on the table.”

                                Bailey also noted that the UK economy was “very clear” at a turning point and starting to slow. As inflation is shifting from goods and into energy and food prices, BoE would watch the development “very, very carefully”.

                                Australia NAB business confidence rose to -20, key factor in how businesses recover

                                  Australia NAB Business Confidence rose to -20 in May, up from April’s -45. Business Conditions rose to -24, up from 34. Looking at some details, trading conditions rose to -14, up from -31. Profitability rose to -19, up form -35. Employment rose just slightly to -31, up from -34.

                                  According to Alan Oster, NAB Group Chief Economist said negative conditions indicates that “activity was still extremely weak in May.” Also, “forward orders suggest that in the short-term activity is likely to remain weak in the business sector and combined with low capacity utilisation and still very weak confidence points to ongoing restraint in Capex spending”. Recovery in confidence will likely be a “key factor” in how businesses recovery from the largest downturn since 1930s.

                                  Full release here.

                                  BoJ Adachi: It’s difficult to envision a post-COVID-19 economy

                                    Bank of Japan board member Seiji Adachi said in a speech that it’s “difficult to envision a post-COVID-19 economy, at least for the time being”. The “process of making drastic changes to the socioeconomic structure can be painful”. It’s worth considering whether monetary might act as a “sort of safety net” for, or a “means of directly promoting” reforms.

                                    Also, he added, “if the pace of economic recovery is much slower than expected, it is not possible to completely rule out the risk that firms’ positive stance toward the outlook will be lost or that corporate bankruptcies and discontinuation of businesses will increase”. Thus, “it remains necessary in the COVID-19 era to maintain an accommodative monetary policy stance while carefully monitoring economic developments.”

                                    Full speech here.

                                    CAD/JPY hesitates ahead of 88.44 resistance

                                      While Hong Kong HSI and Nikkei, to a lesser extent, are trading deeply lower today, there is little reaction in the forex markets so far. But we’d still pay special attention to Yen crosses in case of a turn into risk-off mode in overall markets. In particular, we’d look at 149.03 support in GBP/JPY and 127.91 support in EUR/JPY to see if Yen is going strong.

                                      On the other hand, we’d keep an eye on CAD/JPY to gauge if Yen’s selloff is back. CAD/JPY has lost some momentum ahead of 88.44 resistance so far, failing to confirm completion of the correction from 91.16. But at the same time, it’s still holding on 55 day EMA.

                                      On the upside, decisive break of 88.44 resistance, with either help of WTI’s break of 77 handle or rally in stocks, would confirm near term bullishness in CAD/JPY, as well as be an early sign of rally in Yen crosses elsewhere. The stage would be set for a retest on 91.16 high. However, sustained trading below 55 day EMA (now at 87.28) will revive near term bearishness and bring retest of 84.65 low instead.

                                      France PMI services finalized at 56.3, narrative essentially unchanged

                                        France PMI Services was finalized at 56.3 in August, just slightly down from July’s 56.8. PMI Composite was finalized at 55.9, slightly down from June’s 56.6 Markit said business activity increased at slowest rate in four months. Employment growth, on the other hand, was at strongest since October 2018. Also, cost inflation was at sharpest rate for over a decade.

                                        Joe Hayes, Senior Economist at IHS Markit said: “The economic recovery in France continued to move along at a solid clip during August. The narrative is essentially unchanged – we’re still seeing strong demand, and firms are adjusting their workforces to accommodate growing order books. The rate of jobs growth was at its best in almost three years in August. There’s still ample work-in-hand however, so there’s clearly scope for further expansions in employment and business activity.

                                        “Business confidence is also proving to be resilient, despite the emergence of the delta variant and steep cost pressures across the economy. Whether the recovery in business activity can push on unchecked amid these risks remains to be seen.

                                        “Nevertheless, based on July and August survey data, France looks set for another solid GDP growth number in the third quarter.”

                                        Full release here.

                                        Powell: Fed will carefully assessing incoming data and the evolving risks

                                          In the highly anticipated Jackson Hole speech, Fed chair Jerome Powell said “substantial further progress test has been “met for inflation”. And there has also been “clear progress toward maximum employment”.

                                          At July’s FOMC meeting, he view was that if the economy “evolved broadly as anticipated”, it could be “appropriate to start” tapering this year. However, “the intervening month has brought more progress in the form of a strong employment report for July, but also the further spread of the Delta variant.”

                                          He added that Fed will be “carefully assessing incoming data and the evolving risks”, without giving any hint of the timing and pace of tapering

                                          Full speech here.