Japan’s export rises 7.3% yoy in Mar, fourth month of growth

    Japan’s exports marked the fourth consecutive month of growth with a 7.3% yoy increase to JPY 9470B in March, slightly surpassing expected 7.0%. This growth was largely fueled by robust performances in automotive and semiconductor & electronic parts, which reported gains of 7.1% yoy and 11.3% yoy respectively.

    Regionally, exports to China accelerated to 12.6% yoy, from just 2.5% yoy in the previous month. However, exports to the US and Europe saw a slowdown, growing at 8.5% and 3.0% respectively.

    Import contracted -4.9% yoy to JPY 9103B, which was slightly better anticipated -5.1% yoy. Overall trade balance for March showed a surplus of JPY 366.5B.

    In seasonally adjusted term, exports rose 2.6% mom to JPY 8768B. Imports rose 3.9% mom to JPY 9470B. Trade balance came in at JPY -701B.

    UK GDP growth stalled in August, Sterling mildly lower

      Sterling trades mildly lower after UK GDP miss. UK GDP was flat in August, grew 0.0% mom, below expectation of 0.1% mom. Though July’s figure was revised up from 0.3% mom to 0.4% mom. For the three months from June to August, GDP grew 0.7% from the  March to May quarter.

      Commenting on today’s GDP figures, Head of GDP Rob Kent-Smith said: “The economy continued to rebound strongly after a weak spring, with retail, food and drink production and housebuilding all performing particularly well during the hot summer months. However, long-term growth continues to lag behind its historical trend.”

      All three main sectors contributed to GDP growth in the three months to August. Services grew 0.42%, production grew 0.10%, construction grew 0.17%.

      Full GDP release here.

      Also from UK, industrial production rose 0.2% mom, 1.3% in August, above expectation of 0.1% mom, 1.1% yoy. Manufacturing production dropped -0.2% mom, rose 1.3% yoy, below expectation of 0.2% mom, 1.5% yoy.

      Visible trade deficit widened to GBP -11.2B in August, above expectation of GBP -10.9B.

      Japan PM Abe: Trade restrictions will not benefit anyone

        Japan Prime Minister Shinzo Abe said today that “imports of our nation’s automobiles and auto parts have never damaged U.S. national security and will not do so in the future.”

        And, he added “trade restrictions will not benefit anyone, and we will keep explaining that to the U.S. and work closely with them to ensure those tariffs are not imposed.”

        It seems like Abe only refer to the threat of auto tariffs. The already-in-effect steel and aluminum tariffs are forgotten? Or, are Japanese steel products security threat to the US?

        China Caixin PMI composite dropped to 28-month low, mounting downward pressure on the economy

          China Caixin PMI services dropped to 50.8 in October, down from 53.1 and missed expectation of 52.9. That’s the lowest level in 13 months.

          PMI composite output index dropped from 51.2 to 50.5, hitting a 28-month low, lowest since June 2016.

          Commenting on the China General Services PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:

          “The Caixin China General Services Business Activity Index slipped significantly to 50.8 in October from the previous month, marking its lowest level since September 2017. The subindex for new business dropped to its lowest point since November 2008, despite staying in expansionary territory, indicating an obviously weakening demand for services. The employment subindex returned to positive territory following a drop in the previous month. The subindex for prices charged by service providers also returned to positive territory, while the one for input costs dropped despite staying in positive territory, suggesting easing pressure on company profit margins. The subindex for business expectations, which gauges services providers’ confidence toward operation prospects over the next 12 months, edged down mildly.

          “The Caixin China Composite Output Index dipped to 50.5 in October from the previous month, reaching its lowest level since June 2016, indicating mounting downward pressure on China’s economy. The subindex for new orders fell, pointing to softening overall demand conditions. The employment subindex edged up despite staying in negative territory, which could possibly be due to government efforts to stabilize the labor market. The subindex for input costs remained unchanged from the month before, while the one for output charges inched up, indicating easing pressure on company profit margins — though upward price pressure remained. The subindex for future output edged down, reflecting weakening confidence among companies.”

          Full release here.

          PBoC lowers SLF rate, to keep liquidity at reasonably ample level

            China’s central bank PBoC announced on Sunday to lower the standing lending facility rate by -30bps. Overnight, seven-day and one-month borrowing costs were lowered to 3.05%, 3.20% and 3.55% respectively. The move was a catch up to similar reductions in other liquidity tools as part of the coronavirus relief measures.

            PBoC also said in the quarterly monetary policy implementation report that “prudent monetary policy will be more flexible and appropriate”. It will maintain liquidity at a “reasonably ample level”. It will also continue to deepen the reform of the loan prime rate regime and improve monetary transmission mechanism.

            However, the phrase of avoiding “excess liquidity flooding the economy” was omitted.

            SNB Zurbruegg: Will stick to boring expansionary policy

              SNB Deputy Chairman Fritz Zurbruegg said the central bank will stick to the boring expansionary monetary policy today.

              He said, “we are boring and are sticking to our expansionary monetary stance.” He reiterated “we speak of negative interest rates and a readiness to intervene in the foreign exchange markets.” And he emphasized “we have flexibility and room to manoeuvre on both core instruments. We are absolutely convinced we can use these tools and will continue to do so.”

              Also Zurbruegg he noticed that international developments are having strongest influences on the Franc exchange rate. However, “it is not a given that we have to react to each and every development.”

              BoJ Kuroda expects economy to recover as pandemic impact subsides

                BoJ Governor Haruhiko Kuroda said Japan’s economy is expected to recover ahead as the impact of the pandemic gradually subsides. BoJ is closely watching the coronavirus impact. He pledged again that it “won’t hesitate to ease policy further if necessary”.

                Kuroda also said that core CPI is expected to linger around 0% for the near term, but it would “pick up pace gradually”. Also, the financial system remains stable and financial conditions are accommodative overall.

                ECB Lane predicts disinflation later this year, despite ongoing core inflation momentum

                  ECB Chief Economist Philip Lane acknowledged the ongoing momentum in inflation but predicted a shift toward disinflation later this year.

                  Speaking at a panel in Berlin, Lane said, “There’s still a lot of momentum in inflation, but later this year and ongoing a lot of this inflation is supposed to reverse, partly because of the reversal of the underlying shocks, partly because of monetary policy.”

                  Despite this outlook, Lane noted that there is still momentum in food and core inflation, which runs counter to the decline in energy inflation.

                  Discussing businesses’ expectations, Lane mentioned, “This year (businesses) expect margins to fall quite a bit, because they may face cost increases, including labour costs increases, but they won’t be able to increase prices by so much because demand is normalising.”

                  He also emphasized the importance of rebuilding real wages in the labor market, stating, “There’s a very basic imperative for the labour market to rebuild real wages.” Lane explained that this transition phase, which will last several years, helps clarify why inflation is not immediately dropping back to 2%.

                  John Williams takes over New York Fed, pledges openness and transparency

                    Ex-San Francisco Fed President John Williams takes over the job of New York Fed President today. In a statement, he pledged openness and transparency, objectivity and independence of thought, and commitment to the diverse needs of familis and business across the District.

                    Below is the full statement.

                    Statement from President Williams

                    I am pleased to be starting my tenure today as president and CEO of the Federal Reserve Bank of New York. As someone who has dedicated his career to public service, I can think of no better place from where to continue to support the nation’s economic well-being.

                    The New York Fed plays a unique role in the Federal Reserve System, with responsibilities for implementing monetary policy, managing a critical payments system, overseeing a large number of complex financial institutions and managing international relationships. I take each of these responsibilities with the utmost seriousness and am committed to executing my role as president of the New York Fed and on the Federal Open Market Committee (FOMC) to the absolute best of my ability.

                    So what can you, the public, expect of me?

                    • Openness and transparency. I am dedicated to learning from a wide range of perspectives and experiences from across the District. Openness flows both ways, and we have a duty to explain the reasoning behind our actions. I am committed to acting in as transparent a manner as possible.
                    • Objectivity and independence of thought. I will continue to make monetary policy recommendations based on what I believe is in the best interest of our economy. Throughout, I will strive to explain my reasoning, particularly when my views may differ from those of others.
                    • Commitment to the diverse needs of families and businesses across our District. Understanding the varied financial and economic needs of families, businesses, and communities, and advocating for them at the policy table is a critical component of my role. I am equally committed to building a diverse and inclusive workforce and workplace at the New York Fed, which will help us better serve our communities.

                    I start my first day with a deep commitment to securing the stability of our financial system and prosperity for our economy. I look forward to engaging with and learning from members of our communities and stakeholders throughout the District and beyond.

                    John C. Williams became the 11th president and chief executive officer of the New York Fed on June 18, 2018.

                    Australia trade surplus jumped to record high, building approvals recovered

                      Australia trade surplus widened to a fresh record high of AUD 5.7B in May, up fro AUD 4.8B in April, and beat expectation of USD 5.3B.

                      Exports rose AUD 1,442M (4%) to AUD41,585m. Non-rural goods rose AUD 1,316M (5%), rural goods rose AUD 46M (1%) and non-monetary gold rose AUD 22M (1%). Net exports of goods under merchanting fell AUD 1M (5%). Services credits rose AUD 58M (1%).

                      Import rose AUD515m (1%) to AUD 35,839M. Capital goods rose AUD 348M (5%), non-monetary gold rose AUD 68M (17%) and intermediate and other merchandise goods rose AUD 66M (1%). Consumption goods fell AUD 73M (1%). Services debits rose AUD 107M (1%).

                      Also from Australia, building approvals rose 0.7% (seasonally adjusted) in May, versus expectation of 0.0%. Rise in Victoria (14.4%) drove the national increase. Meanwhile falls were recorded in Queensland (6.3%), Western Australia (4.7%), South Australia (2.9%) and Tasmania (1.2%), while New South Wales was flat. Private dwellings excluding houses rose 1.2 per cent, while private house approvals decreased 0.3 per cent.

                      US 30-year yield nearing historical low after huge plunge

                        Risk aversion dominated the US session overnight and carried forward in Asian session. DOW closed down -1.48%. S&P 500 dropped -1.22%. NASDAQ lost -1.20%. Technically, all three indices were rejected by 55 day EMAs, suggesting more near term downside pressure.

                        More importantly, treasury yields dived again on massive safe haven flows. 30-year yield took a big plunge by -0.118 to close at 2.130. TYX is now just inch above historical low of 2.102 made back in 2016. A break there is inevitable.

                        10-year yield also dropped -0.095 to 1.639. TNX is now below 78.6% retracement of 1.336 to 3.248 at 1.745. We’d still pay attention to bottoming above 1.336. But a firm break of 2.102 in TYX could likely drag TNX through this 1.336 low at least.

                        China backtracked on all aspects of trade commitments with US

                          According to a Reuters report, China has back tracked on nearly all aspects of their commitment in trade negotiation with the US. In each of the seven chapters of the 150-page draft trade deal, China deleted its comments regarding law changes that addresses US complaints. It’s seen by the US as undermining the “core architecture” of the trade deal. A private sector source said “China got greedy” and “on a dozen things, if not more.” And, China appears to be miscalculating with the US administration even after 20 years dealing with them.

                          Chinese Vice Premier Liu He will arrive in Washington of Thursday to save the trade agreement. At the same time, new round of tariffs will take effect at 0001 Friday, if no deal is agreed. There’s speculation that Liu could agree to scrap the latest proposed text changes and agree to making new laws. But at this point, it’s unsure what level of authority and constraints Liu has got from President Xi Jinping Thus, no one knows what results Liu could achieve.

                          European stocks follow Asia Higher, China Shanghai Composite ended up 2.16%

                            Yen continues to trade as the weakest one for today, followed by Swiss Franc. Meanwhile Dollar pares back some again as markets await US consumer inflation release later today, which could see headline CPI accelerated to 2.9% yoy.

                            Global equities stage a strong rebound today as the impact of trade war escalation faded. Investors are getting tired of the noises from the US and China. Some attributed the chance of resuming negotiation between US and China. But we’re don’t buy into this as Trump is clear with what he’s doing. Negotiation has started and ended abruptly, showing no intention to continue. And, just as Trump is blasting NATO allies on spending again today after the latters promised to increase it. It’s clear to the objective eyes whether one is pushing for reforms or finding excuses to quit, and blame the others for his decision.

                            Anyway, at the time of writing, DAX is up 0.35%, CAC is up 0.39% while FTSE is up 0.68%. Earlier today, Nikkei closed up 1.17%, Hong Kong HSI rose 0.60%, Singapore Strait Times rose 0.12%.

                            More importantly, China Shanghai SSE rose 2.16% to close at 2837.66, back above 2800 handle. The development indicates certain calmness in the markets despite this week’s trade war escalation. And it affirmed the view of strong support between 2016 low at 2638.3 and 2700 psychological level. The rebound from 2691.02 is in progress and break of 2848.37 will extend it to 55 day EMA now at 2984.49. For now, we’re seeing no chance of breakthrough 3000 psychological level. But such near term development is enough to stabilize the Asian markets, which suffered most last week.

                            US consumer confidence rose to 137.9, consumers expect strong growth to carry over into early 2019

                              US Consumer Confidence rose to 137.9 in October, up from revised 135.3, beat expectation of 135.0. That’s also the higest level in 18 years since September 2000. Present Situation Index improved from 169.4 to 172.8. Expectations Index rose from 112.5 to 114.6.

                              Conference Board noted in the release that “Consumers’ assessment of present-day conditions remains quite positive, primarily due to strong employment growth. The Expectations Index posted another gain in October, suggesting that consumers do not foresee the economy losing steam anytime soon. Rather, they expect the strong pace of growth to carry over into early 2019.”

                              Full release here.

                              US stocks appear to be lifted by the stronger than expected release. DOW initially hesitated today but it’s now up 1%.

                              BoE Saunders: Clear evidence that guidance conditions have been met

                                BoE MPC member Michael Saunders reiterated in a speech, “The Committee does not intend to tighten monetary policy at least until there is clear evidence that significant progress is being made in eliminating spare capacity and achieving the 2% inflation target sustainably.”

                                He added that these guidance conditions “have now been met”. There is “clear evidence” that GDP has “regained most of the lost ground in recent months”. Spare capacity in the labor market is “declining”. And the economy “continues to grow rapidly”. GDP is likely to regain pre-pandemic peak in the “next few months”.

                                Also, there is “clear evidence” that core inflation is “no longer below a target-consistent pace”, and it’s “likely to rise further in coming months”. This back drop meets the test of “significant progress in eliminating spare capacity and achieving the 2% inflation target sustainably.”

                                Even though the phrase “at least until” indicates these conditions are necessary but not sufficient for tightening. He said, “the guidance no longer rules out tightening.” Also, “the question of whether to curtail our current asset purchase program early will be under consideration at our forthcoming meetings”.

                                Full speech here.

                                Gold breaches 1700 as correction from 1765 extends

                                  Gold’s decline from 1765.25 extends lower today and breached 1700 handle. The fall is getting better in shape as the correction to whole rise from 1451.16 to 1765.25 as we viewed. Further fall should be seen to 38.2% retracement of 1451.16 to 1765.25 at 1645.26 before bottoming. On the upside, break of 1735.44 resistance is needed to indicate completion of the corrective fall. Otherwise, deeper decline will remain in favor in case of recovery.

                                  Bundesbank Nagel: We must resolutely raise key rates further

                                    Bundesbank President Joachim Nagel said, “We must resolutely raise our key rates further and adopt a restrictive stance… We cannot stop here. Further decisive steps are necessary.”

                                    “We should start reducing the size of our bond holdings at the beginning of next year by no longer fully reinvesting all maturing bonds,” Nagel added.

                                    Bundesbank Nagel: Monetary-policy have to stubborn to fight against inflation

                                      Bundesbank President Joachim Nagel, in an interview with CNBC on the sidelines of the IMF Spring Meetings, described euro-zone price gains as “a very stubborn phenomenon” and emphasized the need for persistent action against inflation. Nagel stated, “it’s definitely the case that we on the monetary-policy side have to be even more stubborn to fight against inflation.”

                                      Nagel acknowledged the necessity to do more on the inflation front, explaining that while headline inflation might be heading in the right direction, core inflation remains at a very elevated level. He expects core inflation to come down before summer but warned that it would likely stay at high levels for the next few months, requiring continued vigilance in addressing the inflation issue.

                                      Regarding the German economy, Nagel expressed confidence in its ability to adapt and overcome challenges, stating that “the energy crisis is more or less solved.” He added, “We had a really worried situation in the past, but this is now over, and the outlook is good.

                                      European Parliament Trade Committee approved EU-Japan trade deal, timely signal in support of open, fair, values-based and rules-based trade

                                        The European Parliament’s international trade committee voted 25-10 today to approve the EU-Japan trade deal signed back in July 17, 2018. The deal could now be sent to the full chamber for a vote in December plenary session. And, if it’s approved, the deal could enter into force as soon as the Japanese Diet ratifies it.

                                        In short, the EU-Japan trade deal will create a trade zone of 600m people, covering a third of of global GDP and around 40% of global trade. Eventually, the deal will remove almost all customs duties, worth roughly EUR 1B annually on European products and services exported to Japan.

                                        The European Parliament’s Trade Committee MEPs emphasized that the agreement “represents a timely signal in support of open, fair, values-based and rules-based trade, while promoting high standards, at a time of serious protectionist challenges to the international order”.

                                        Full European Parliament release here.

                                        China PMI manufacturing edged higher to 51.1, USD/CNH staying in near term decline

                                          China’s official PMI Manufacturing rose to 51.1 in July, up from 50.9, slightly above expectation of 51.0. That’s the highest reading since March too. Looking at some details, production rose 0.1 to 54.0. New orders also improved by 0.3 to 51.7. New export orders rose notably by 5.8 to 48.4, but stayed in contraction. PMI Non-Manufacturing retreated mildly to 52.3, down from 54.4, but beat expectation of 51.2. Overall, the set of data suggests that recovery in on track, but it will remain a long road back to pre-pandemic levels.

                                          USD/CNH drops mildly in Asian session today, following general weakness in Dollar. Prior recovery from 0.6933 was limited at 7.0298, below 7.0396 support turned resistance. The development suggests that fall from 7.1961 is still in progress. It’s seen as the third leg of the pattern from 7.1953 and break of 0.6933 would pave the way back to 6.8452 support.