Tue, Jan 31, 2023 @ 17:57 GMT

China to put words into action by lowering passenger car levy

    Bloomberg reported that China is going to lower levy on import passenger cars from the current 25% to 15%. That’s seen as Chinese President Xi Jinping putting his word into actions. Xi has already reiterated the initiative at the Boao Forum back in April.

    As in 2017, the total sales of automobiles in China added up to 28.9m. Only 1.22m, or 4.2%, are imported. The lowering of tariff is seen as a strong boost to European vehicle makers and less so the US ones.

    For domestic car makers, the levy cut to 15% is the better case scenario in the rumored range of 10-15%.

    EU Malmstrom reiterated US should end steel tariff threats

      EU trade Commissioner Cecilia Malmstrom reiterated today that the US should end the steel tariff threats to the EU. And EU’s position is clear that there would be discussion of closer trade ties only if EU is granted permanent exemptions from the steel tariffs. However, Malmstrom also noted that “they don’t think it is enough”, referring to the lack of response from the US.

      Separately, German economy minister Peter Altmaier urged more work on trade deal with the US as time is running out for a deal over the steel tariffs.

      The current temporary exemption for EU will expire on June 1.

      Italian President Mattarella called meeting of political leaders after getting Prime Minster nomination

        Italian President Sergio Mattarella called the leaders of the lower and upper houses of the parliament for a meeting today. That came after meeting with anti-establishment 5-Star Movement and far-right League, who have agreed on a deal to form a coalition government.

        5-Star leader Luigi Di Maio said after meeting with Mattarella that Giuseppe Conte, a law professor but a political novice, “will be the prime minister of a political government”. Maio hailed that Conte is “a person that can carry out the government contract” and he’s “proud” of this choice. Leader of the League Matto Salvini also confirmed the name.

        For now, it’s uncertain whether Mattarella will appoint Conte as the Prime Minister, or he’d prefer a more high-profile figure.

        Philadelphia Fed Harker: Appropriate to continue rate hikes judiciously

          Philadelphia Fed President Patrick Harker said yesterday that he sees two more rate hike this year. He noted it’s “prudent to continue to move away from the zero lower bound”. And Inflation “does seem to be moving toward 2%”. He added that there is “not much slack in the labor markets”. Hence, it’s appropriate to continue rate hikes “judiciously”.

          And if there is an “acceleration of inflation”, then he “supportive of a third”. Though, he is not yet seeing a “rapid acceleration” in inflation yet.

          Finance Ministry: Strong upturn in German economy to continue

            The German Finance Ministry said in the latest monthly report that the economy is in a “strong economic upturn” even if growth in Q1 was “a bit less dynamic” than in Q4 due to “special factors”.

            Macroeconomic conditions “remain favorable” and indicators suggest the upturn will continue.

            BoJ Kuroda to patiently pursue powerful monetary easing

              BoJ Governor Haruhiko Kuroda reiterated to the parliament today that the central bank ” won’t end the ultra-easy policy before inflation reaches 2 percent”. And BoJ will “patiently pursue powerful monetary easing”. Though, Kuroda also noted policymakers will take into account the “side effects” such as the “impact of financial institutions, particularly regional banks”.

              Regarding the economy, Kuroda said it’s expanding moderately, with consumption helped by loose monetary policy. While there is sustaining momentum in growth, prices lack so. And there is still some distance to inflation target. BoJ will remain mindful of uncertainties on economic and price outlook.

              Deputy Governor Masazumi Wakatabe said that BoJ can achieve the inflation target “with the current policy”. Though, “if conditions change and our current policy becomes inappropriate, we may need to change policy.”

              DOW breaks 25000, next is 25800

                DOW opens strongly higher today, riding on news regarding US-China trade negotiations. At the time of writing, it’s up over 1.3% and is back above 25000 handle. Rise from 23531.31 and that from 23344.52 is resuming. Solid support from 55 H EMA shows the underlying near term bullishness. However, there is no clear indication of larger up trend resumption yet. Thus, we’re treating the current rise as a leg inside the range pattern from 26616.71. The real hurdle to overcome is between 25800.35 resistance and 78.6% retracement of 26616.71 to 23360.29 at 25919.83. We’ll look for topping signal around there.

                US Pompeo outlined steep demand for Iran, or the strongest sanctions in history

                  US Secretary of State Mike Pompeo outlined a list of demand for Iran to comply to, and threatened the country with “the strongest sanctions in history” if Iran doesn’t change course.

                  12 requirements were listed out. Some include:

                  • Iran must “stop enrichment” of uranium
                  • Iran must also allow nuclear “unqualified access to all sites throughout the country.”
                  • Iran must declare all previous efforts to build a nuclear weapon
                  • Iran must cease from a range of activities throughout the Middle East that have long drawn the ire of the U.S. and its allies.
                  • Iran must end support for Shiite Houthi rebels in Yemen,
                  • Iran must “withdraw all forces” from Syria, halt support for its ally Hezbollah and stop threatening Israel.
                  • Iran must also “release all U.S. citizens” missing in Iran or being held on “spurious charges”.

                  Pompeo also added that “I know our allies in Europe may try to keep the old nuclear deal going with Tehran. That is their decision to make.” But, ‘they know where we stand.”

                  Now, it’s time for EU to respond.

                  Minneapolis Fed Kashkari: Fed should hike only to neutral policy stance

                    Minneapolis Fed President Neel Kashkari said in a article that “inflation and wage growth have been surprisingly low” despite tight job market. Now, wages is only growing at 2.7% annually, comparing to 3.5% before the financial crisis.

                    He pointed out that the headline unemployment rate in the US “captures” only those who are actively looking for jobs. Therefore, the 3.9% unemployment rate may not “capture the true slack” in the market. And “hidden slack” could explain the modest wage growth.

                    And Kashkari concluded that Fed should hike “only to a neutral policy stance, and not move too quickly”. And that’s until there are more evidence of wage growth and the US is “really” at maximum employment.

                    Full article here.

                    CBI Drechsler: Customs union is a “pragmatic decision” after Brexit

                      Paul Drechsler, President of the Confederation of British Industry, will use an upcoming speech to urge UK Prime Minister Theresa May to “break the Brexit logjam and fast”. And he added that UK should remain in the customs union with the EU “unless and until an alternative is ready and workable”.

                      And he emphasized that any solution must meet four customs tests:

                      • Maintain friction-free trade at the UK-EU border
                      • Ensure no extra burdens are incurred behind the border
                      • Guarantee there are no border barriers for Northern Ireland
                      • Boost export growth with countries both inside and outside the EU.

                      Before any solution, he added “a pragmatic decision to be in a customs union with the EU would allow us to move on.”

                      China Liu on US trade talk: Increase imports, re-balance the economy and expand domestic demand is our national policy

                        China’s Vice Premier Liu He was interviewed by the CGTN TV network after the trip to Washington.

                        He noted the trade talks were “constructive, positive and fruitful”, and “very practical”. There were “lots of concrete consensus” reached in terms of trade and structural issues.

                        The concrete issues include agricultural and energy exports to China. Liu added that “the Chinese market will become the largest world market. So to increase imports, re-balance the economy and expand domestic demand is our national policy.” Also, Liu said “we expand our domestic market and increase imports because we want to serve the needs of our people, our economy, and our growth. Speeding reform and growth by means of opening up is a very important national strategy. It worked for China for the past 40 years, and we will continue down that path.”

                        But he emphasized that “exporting to China or making China buy more, one must make the Chinese consumers happy”.

                        Also, Liu noted that the strongest demand from both sides were to stop imposing more tariffs on each other’s products. And he said “this time, both sides pledged to stop the trade war and develop good relations, be it in trade or in investment. I think this is a major demand from both countries.”

                        Liu also pointed to resolutions of some of “our misunderstands from the past. He hailed that “these meetings will not just help bilateral economic and trade relations, but overall ties. It’s good for people in both countries.”

                        JPY broadly lower on receding trade war fear. A look at CADJPY again

                          JPY trades broadly lower today as receding risk of US-China trade war lifted market sentiments. At the time of writing, Nikkei is up 0.46%, back above 23000. Hong Kong HSI is up 1.16%. NZD is the second weakest after poor retail sales data. GBP follows as the third weakest. On the other hand, USD, AUD and CAD are all firm.

                          CADJPY suffered steep post data selloff on Friday. But it’s now regained much ground. Technically, the pull back, while deep, was contained above 85.57 support as mentioned here. Therefore, outlook is still bullish. We’d maintain that the cross will target 61.8% projection of 80.52 to 85.75 from 83.88 at 87.11.

                          However, as 6H Action Bias has turned neutral for 4 bars already. It suggested that the cross is losing upside momentum. Hence, it’s time to get out of long in the next upswing, possibly a bit lower than 87.11 at 87.00.

                          GBPUSD downside breakout, heading to 1.3161 fibonacci level

                            GBPUSD is a pair to note as it has finally taken out 1.3448 medium term fibonacci support. Last week’s consolidation was relatively brief and weak, with upside capped by 1.36. GBP Action Bias table shows that’s it’s generally bearish against all by JPY.

                            GBPUSD Action Bias table is consistent with bearish development in the pair.

                            GBPUSD shows persistent downside red bias in D Action Bias chart.

                            6H Action Bias also turned red and stays red for 4 bars, in line with downside breakout development.

                            50% retracement of 1.1946 to 1.4376 at 1.3161 will be the next near term target.

                            New Zealad retail sales grew 0.1% qoq in Q1, big disappointment

                              New Zealand retail sales was a big disappointment to the markets. Ex-inflation retail sales volume grew merely 0.1% qoq in Q1, much lower than expectation of 1.0% qoq. That’s also a sharp slowdown from Q4’s 1.4% qoq. Besides, it’s the weakest quarter since 2015.

                              Stats NZ noted in the release that “retail spending in the first three months of the year was relatively flat despite rising job numbers, high migration, and record international tourism.”

                              “Of the 15 retail industries, seven had higher sales volumes in the March 2018 quarter, and eight experienced lower sales volumes.”

                              Full release here.

                              NAB pushed forecast of first RBA hike away to May 2019

                                The National Australia Bank finally gave up on their forecast of an RBA rate hike within 2018. Their expectation on the next move is now pushed from November to May 2019. The change put them back in line with market pricing, as well as with other major bank forecasters.

                                RBA chief economist Alan Oster noted that the “change reflects the fact there is no sign yet of stronger wages growth and unemployment has been stuck around 5.5% for the best part of a year.” Also, he added that once the tightening cycle starts “further rate increases will be very gradual”. And after the first move in May 2019, the next move will be “not until November 2019”.

                                Oster also noted that the economy is still expected to strengthen and lead to falling unemployment. And that should “eventually translate into stronger wages growth and give the RBA confidence that inflation will track back to its 2.5% target”. However, there is “considerable uncertainty around the timing at which wages growth will strengthen”.

                                Mnuchin: Trade war with China on hold

                                  Commenting on the US-China joint statement on trade, Treasury Secretary Steven Mnuchin said “we are putting the trade war on hold.” And he added, “we have agreed to put the tariffs on hold while we try to execute the framework”, referring to the agreement.

                                  Trump’s top economic adviser Larry Kudlow said they made “a lot of progress”, even surpassed their own expectation after the Beijing meeting. But it’s not at the stage of taking the threat of tariffs on USD 150B of products yet. And, it’s “too soon to lock that (USD 200B reduction in trade deficit) in” yet. Though he emphasized that “the direction here is the key”.

                                  Kudlow also added that Commerce Secretary Wilbur Ross will go to China and “looking into a number of areas where we’re going to have greatly significant increases,” including energy, liquefied natural gas, agriculture and manufacturing”.

                                  US-China joint statement vowing not to launch a trade war

                                    US and China issued a joint statement on Saturday to conclude the trade talks with Chinese Vice Premier Liu He on May 17 and 18. There was no mentioning of any number, but the statement said there were “consensus on taking effective measures to substantially reduce” US trade deficit in goods with China. And, China agreed to “significantly increase purchase” of US goods and services.

                                    Additionally, there would be “meaningful increases” in US agriculture and energy exports to China, “expanding trade” in manufactured goods and services, encouraging “two-way investment” with “fair, level playing field for competition”. China also pledged to work on laws and regulations on intellectually property protections.

                                    The Chinese State-owned Xinhua news agency described the statement as “vowing not to launch a trade war against each other”.

                                    Here is a graphical summary by Xinhua.

                                    Full statement below:

                                    THE WHITE HOUSE – Office of the Press Secretary
                                    FOR IMMEDIATE RELEASE – May 19, 2018

                                    Joint Statement of the United States and China Regarding Trade Consultations

                                    At the direction of President Donald J. Trump and President Xi Jinping, on May 17 and 18, 2018, the United States and China engaged in constructive consultations regarding trade in Washington, D.C. The United States delegation included Secretary of the Treasury Steven T. Mnuchin, Secretary of Commerce Wilbur L. Ross, and United States Trade Representative Robert E. Lighthizer. The Chinese delegation was led by State Council Vice Premier Liu He, Special Envoy of President Xi.

                                    There was a consensus on taking effective measures to substantially reduce the United States trade deficit in goods with China. To meet the growing consumption needs of the Chinese people and the need for high-quality economic development, China will significantly increase purchases of United States goods and services. This will help support growth and employment in the United States.

                                    Both sides agreed on meaningful increases in United States agriculture and energy exports. The United States will send a team to China to work out the details.

                                    The delegations also discussed expanding trade in manufactured goods and services. There was consensus on the need to create favorable conditions to increase trade in these areas.

                                    Both sides attach paramount importance to intellectual property protections, and agreed to strengthen cooperation. China will advance relevant amendments to its laws and regulations in this area, including the Patent Law.

                                    Both sides agreed to encourage two-way investment and to strive to create a fair, level playing field for competition.

                                    Both sides agreed to continue to engage at high levels on these issues and to seek to resolve their economic and trade concerns in a proactive manner.

                                    CAD trading lower after retail sales and CPI

                                      Canadian Dollar trades notably lower after weaker than expected data.

                                      Headline retail sales rose 0.6% mom in March, above expectation of 0.4% mom. However, ex-auto sales was a big miss, contracted -0.2% mom versus consensus of 0.5% mom growth.

                                      Headline CPI slowed to 2.2% yoy in April, down from 2.3% yoy, and missed expectation of 2.3% yoy. CPI core common was unchanged at 1.9% yoy. CPI core median was unchanged at 2.1%. CPI core trim rose to 2.1% yoy.

                                      EU demonstrates commitment to Iran nuclear deal with measures on four fronts

                                        European Commission formally announced the measures to protect interests of EU companies investing in Iran as part of the EU’s continued commitment to the Joint Comprehensive Plan of Action (JCPoA), the Iran nuclear deal. The EU acted on four fronts. The proposals got unanimous backing of EU Heads of State of Government at the Sofia meeting.

                                        Firstly, it launched the formal process to activiate the “Blocking Statute”, by updating the list of US sanctions on Iran falling within its scope. It “forbids EU companies from complying with the extraterritorial effects of US sanctions, allows companies to recover damages arising from such sanctions from the person causing them, and nullifies the effect in the EU of any foreign court judgements based on them.”. It’s targeted to be in force before August 6, 2018.

                                        Secondly, it launched the formal process to remove obstacles for the European Investment Bank (EIB) to decide under the EU budget guarantee to finance activities outside the European Union, in Iran.

                                        Thirdly, as confidence building measures, the Commission will continue and strengthen the ongoing sectoral cooperation with, and assistance to, Iran.

                                        Fourthly, EC is encouraging Member States to explore the possibility of one-off bank transfers to the Central Bank of Iran.

                                        Full release here and details of the “Blocking Statute” here.

                                        Italy’s “Contract for the Government of Change”

                                          The populist parties of the League and the 5-Star Movement signed an accord to form a ruling coalition. The agreement is called “Contratto Per Il Governo Del Cambiamento” or “Contract for the Government of Change”. Five Star leader Luigi Di Maio said on Facebook that “it has been 70 very intense days, so many things have happened, but in the end we managed to achieve what we announced in the campaign.”

                                          The 58-page document contains no mention of exit from the Eurozone. But it called for a review of EU governance and fiscal rules.

                                          Regarding fiscal policies, it said “the government’s actions will target a programme of public debt reduction not through revenue based on taxes and austerity, policies that have not achieved their goal, but rather through increased GDP by the revival of internal demand.”

                                          That indicates there could be less revenue and more debt for the governement in the near term. Italian 10 year yield jumps to high as 2.22 today, hitting the highest level since last July.

                                          The joint program will be put to vote by 5-Star and League members. After approval, it will be presented to Italian President Sergio Mattarella.