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Sterling surges as Javid resigns as Chancellor of Exchequer

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    ActionForex
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    Sajid Javid surprisingly resigns as UK Chancellor of Exchequer today. He’s expected to be replaced by Rishi Sunak, the chief secretary to the Treasury. The Guardian said that Javid was asked by Prime Minister Boris Johnson to “fire all his special advisers and replace them with No 10 special advisers to make it one team”. Javid believed that “no self-respecting minister would accept those terms.”

    Sterling responds positively to the news though. Instead of viewing it as some political uncertainty, markets see that Johnson is gaining more control over the cabinet, and thus creating more certainty for the country. EUR/GBP is now heading for a test on 0.8276 low as current decline accelerates.

    EU keeps Eurozone 2020, 2021 GDP forecast unchanged, raises inflation projection slightly

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      ActionForex
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      European Commission kept Eurozone GDP growth forecast unchanged at 1.2% in both 2020 and 2021. Eurozone inflation forecasts is raised by 0.1% in both 2020 and 201, to 1.3% and 1.4% respectively. For the EU as a whole, GDP forecast was also left unchanged at 1.4% in both 2020 and 2021. EU inflation forecast was also raised by 0.1% to 1.5% in 202, but 2021 projection remains unchanged at 1.6%.

      Valdis Dombrovskis, Executive Vice-President, said, “Despite a challenging environment, the European economy remains on a steady path, with continued job creation and wage growth. But we should be mindful of potential risks on the horizon: a more volatile geopolitical landscape coupled with trade uncertainties.”

      Paolo Gentiloni, European Commissioner for the Economy, said: “The outlook for Europe’s economy is for stable, albeit subdued growth over the coming two years. This will prolong the longest period of expansion since the launch of the euro in 1999, with corresponding good news on the jobs front… But we still face significant policy uncertainty, which casts a shadow over manufacturing. As for the coronavirus, it is too soon to evaluate the extent of its negative economic impact.”

      Full release here.

      ECB de Cos: Coronavirus keeps balance of risks to downside

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        ActionForex
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        ECB Governing Council member Pablo Hernandez de Cos said monetary policy will remain highly accommodative for a prolonged period of time.

        But he also warned that “low-for-long interest rate environment could be encouraging excessive risk-taking by some financial intermediaries.” In particular, “asset valuations appear stretched in several advanced economies in markets such as equity, high-yield debt, and property markets.

        Meanwhile, China’s Wuhan coronavirus “does keep balance of risks to downside.” Also, “Brexit entails significant risk of further fragmentation, as some companies may relocate to different financial centres.

        Hawkesby: RBNZ has genuine neutral bias, rates could stay low for a long time

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          ActionForex
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          RBNZ Assistant Governor Christian Hawkesby said in a Bloomberg interview that the central bank has a “genuine neutral bias” on rates, and “a genuine openness about where things go from here.” For now, “we can stay on hold, keep rates low for a long time”.

          Regarding the impact of China’s coronavirus outbreak, disruptions to New Zealand economy could last just six weeks and save only 0.3% off Q1 growth. “If things are a lot worse, then the projections will look different and the policy response will look different,” he said. “At the moment the markets are probably more relaxed than they were earlier in the month. But equally we know that it’s asymmetric. If the median is six weeks it can’t be a whole lot shorter than that but it could be quite a lot longer.”

          On the idea of rate hike, RBNZ is currently adopting a wait and see approached. He said, “When you’re in a period when there is no spare capacity left and we haven’t had inflation below target for a long time then you are in an environment where it’s safer to start lifting interest rates. We’re not close to that time. We’ve still got a long period when we can wait and watch.”

          RBA Lowe: Global interest rates to stay low for years, if not decades

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            ActionForex
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            RBA Governor Philip Lowe said today, “it is quite likely that we are going to be in this world of low interest rates for years, if not decades, because it is driven by structural factors.” For now, he added that RBA is not “obsessed” with getting inflation back to 2-3% target in a hurry.

            Lowe repeated the central bank’s recent decision regarding balancing the risk of more monetary stimulus. “We’re conscious in our interest rate decisions that when we cut interest rates from cyclical perspectives it encourages people to borrow even more from an already high level of debt because of these structural reasons,” he said. “It’s a consideration in our decisions at the moment.”

            Lowe also urged more from the government to help the economy. “We have not had any fiscal stimulus in Australia,” he said. “I would like to see both business and government use the opportunity to make investments. Australian governments and business can borrow at the lowest rates of since Australia became a federation.”

            Wuhan coronavirus death tolls jumped 242 in Hubei, provincial party secretary replaced

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              ActionForex
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              According to health officials in China’s Hubei province, coronavirus death tolls surged by a record 242 on February 12, bringing total deaths in the province to 1310. A massive 14840 new confirmed cases were also reported in Hubei alone, dwarfing the 2015 cases reported for February 11 throughout whole of China. The surge in numbers were said to be due to new counting methods. Excluding cases confirmed using the new methods, the number of new cases rose by only 1,508 in the province.

              The new reporting system created much confusions and raised questions on transparency again. Meanwhile, at the time of writing, there is no update from the National Health Commission on country-wide numbers of the Wuhan coronavirus yet, which is very unusual.

              Separately, Jiang Chaoliang, Chinese Communist Party’s Hubei provincial secretary, is relieved of duty by the central committee. Shanghai Mayor Ying Yong is appointed as replacement.

              OPEC slashes global oil demand growth on China’s coronavirus

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                ActionForex
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                In the latest monthly report published today, OPEC sharply lower 2020 global oil demand growth to 0.99m barrels per day, down -0.23m bpd from the estimate released a month ago.

                The report warned, “the impact of the Coronavirus outbreak on China’s economy has added to the uncertainties surrounding global economic growth in 2020, and by extension global oil demand growth in 2020.”

                And, “clearly, the ongoing developments in China require continuous monitoring and assessment to gauge the implications on the oil market in 2020.”

                Eurozone industrial production dropped -2.1%, EU 27 dropped -2.0%

                  By
                  ActionForex
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                  Eurozone industrial production dropped sharply by -2.1% mom in December, much worse than expectation of -0.4% mom. In the month, production of capital goods fell by- 4.0%, intermediate goods by -1.7%, non-durable consumer goods by -1.3%, durable consumer goods by -1.1% and energy by -0.5%.

                  EU27 industrial production dropped -2.0% mom. Among Member States for which data are available, the largest decreases in industrial production were registered in Ireland (-6.2%), Hungary (-3.8%) and Poland (-3.0%). The highest increases were observed in Denmark (+7.2%), Portugal (+2.9%) and Greece (+2.5%).

                  Full release here.

                  S&P Global: China’s coronavirus to drag Eurozone, UK and US growth

                    By
                    ActionForex
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                    S&P Global estimated that China’s coronavirus outbreak could drag Eurozone and UK growth by -0.1% to -0.2% this year. The impact will likely be felt mostly in Q1 though. It noted, “a large share of economic activity hindered by the outbreak of the virus, especially goods production, would just be postponed rather than canceled altogether.” However, “if a catch-up effect materializes, the economic outlook for 2021 could even be slightly higher than our current baseline forecast of 1.2%.”

                    The agency’s US chief economist also warned that “most of the drag on U.S. growth to be in the first quarter, with a smaller hit in the second quarter and a rebound in the latter half.” And, “along with the potentially devastating human toll, if the virus spreads further and lasts longer, the impact on virtually every economy could be far worse,.” US GDP growth in Q1 could be dragged to just 1% annualized, from previous forecasts of 2.2%.

                    IMF: Coronavirus poses large downsides risks for countries with close ties with China

                      By
                      ActionForex
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                      IMF Director of Asia and Pacific, Changyong Rhee, said that if coronavirus slows the Chinese economy, the government has “policy room” for stimulus. Nevertheless, he insisted that China should continue with “structural reform and credit control”. He added that “(We) don’t want to deny this event definitely increases the downside risk. Especially the downside risk will be large for countries which have close ties with China. At this moment, I think a major channel that has an impact in Asia is tourism”.

                      In China, Cai Fang, the vice head of the Chinese Academy of Social Sciences (CASS), said “although the temporary impact caused by the epidemic will slightly reduce the growth rate and other development indicators, it will not delay the fulfillment of the goal of building a moderately prosperous society.” He added that the government should use policy tools in a timely and flexible way and adopt “unconventional policy tools”, to support the economy.

                      China’s coronavirus death rose to 1113, US warns of supply chain disruption

                        By
                        ActionForex
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                        According to China’s National Health Commission, on February 11, there were 2015 new confirmed coronavirus cases, bringing the accumulated total to 44653. Death tolls increased 97 to 1113. There are currently 8204 serious cases, 16067 suspected cases and 451462 people tracked.

                        US White House national security adviser Robert O’Brien warned “there’s no doubt that the virus could have an impact on the US economy and also on the world economy”. The coronavirus could have disruptive impact on the global supply chain, and “We’ll have to wait and see how it plays out and whether alternate suppliers can be found.”

                        O’Brien also noted, “we expect the Phase 1 deal will allow China to import more food and open those markets to American farmers, but certainly as we watch this coronavirus outbreak unfold in China it could have an impact on how big, at least in this current year, the purchases are.”

                        NZD rebounds after RBNZ’s hawkish hold

                          By
                          ActionForex
                          -

                          RBNZ left the Official Cash Rate unchanged at 1.00% as widely expected. In the accompanying statement, its noted “soft momentum” has continued in 2020″. But “growth is expected to accelerate over the second half of 2020 driven by monetary and fiscal stimulus, and the high terms of trade.” Impact of outbreak of China’s coronavirus will be “of a short duration” only.

                          The statement is seen as slightly more hawkish than November’s. Employment is seen by RBNZ as “at or slightly above its maximum sustainable level”, somewhat upgraded from “around” the level. Consumer inflation is “close to” the 2% mid-point of target range too. While low interest remain necessary, the overall statement suggests that RBNZ is more likely to be on hold for the rest of the year than not.

                          NZD/USD rebounds strongly after the release. The development suggest short term bottoming a 0.6378, on bullish convergence condition in 4 hour MACD. Stronger recovery would be seen to 38.2% retracement of 0.6755 to 0.6378 at 0.6522. That would be close to 55 day EMA (now at 0.6528). We’d expect strong resistance from there to limit upside, at least on first attempt. For now, fall from from 0.6755 is expected resume later after consolidation from 0.6378 finishes.

                          Fed Powell: Current low interest rate means fiscal policy needed if economy weakens

                            By
                            ActionForex
                            -

                            In the Semiannual Monetary Policy Report to the Congress, Fed Chair Jerome Powell warned that while “some of the uncertainties around trade have diminished recently, but risks to the outlook remain. In particular, Fed is ” closely monitoring the emergence of the coronavirus, which could lead to disruptions in China that spill over to the rest of the global economy.”

                            But for now, he said, the “current stance of monetary policy will likely remain appropriate”, if incoming information about the economic remains broadly consistent with FOMC’s outlook. He also reiterated that ” If developments emerge that cause a material reassessment of our outlook, we would respond accordingly.”

                            Powell also pointed out that the current low interest rate environment means “it would be important for fiscal policy to help support the economy if it weakens”. He added, “Putting the federal budget on a sustainable path when the economy is strong would help ensure that policymakers have the space to use fiscal policy to assist in stabilizing the economy during a downturn. A more sustainable federal budget could also support the economy’s growth over the long term.”

                             

                            Full remarks here.

                            WHO: China’s coronavirus a very grave threat for the world

                              By
                              ActionForex
                              -

                              World Health Organization director-general Tedros Adhanom Ghebreyesus warned that China’s coronavirus could pose a “very grave threat for the rest of the world”. He told more than researchers and national authorities at the start of a two-day meeting, “what matters most is stopping the outbreak and saving lives.”

                              Tedros also urged countries to share their data and emphasized “to defeat this outbreak, we need open and equitable sharing, according to the principles of fairness and equity.” However, at the same time, Taiwan, which has 18 confirmed cases, is also allowed to take part in as an observer.

                              EU to trigger an upward dynamic competition with UK

                                By
                                ActionForex
                                -

                                European Commission President Ursula von der Leyen told the European Parliament that she can agreement with UK Prime Minister Boris Johnson on setting high standards in the post Brexit relations. She said, “I’ve heard ambition in Boris Johnson’s speech, ambition on minimum wage, ambition on parental payments… I have heard ambition on cutting carbon emissions, ambition on guaranteeing that our firms are competing in full fairness.”

                                “This is what we also want. Let us formally agree on these objectives. We can formally trigger an upward dynamic competition that would benefit both the United Kingdom and the European Union,” she added.

                                UK GDP flat in Q4, poor production offset services and construction

                                  By
                                  ActionForex
                                  -

                                  UK GDP grew 0.3% mom in December, above expectation of 0.2% mom. For Q4, GDP growth was flat at 0.0% qoq, matched expectations. Services rose 0.1% in the quarter while construction grew 0.5%. But production contracted -0.8%, offsetting the contributions of the other two sectors.

                                  Head of GDP Rob Kent-Smith: “There was no growth in the last quarter of 2019 as increases in the services and construction sectors were offset by another poor showing from manufacturing, particularly the motor industry. The underlying trade deficit widened, as exports of services fell, partially offset by a fall in goods imports.”

                                  For December, industrial production rose 0.1% mom, dropped -1.8% yoy, versus expectation of 0.3% mom, -0.8% yoy. Manufacturing rose 0.3% mom, dropped -2.5% yoy, versus expectation of 0.5% mom, -3.7% yoy. Goods trade balance turned into GBP 0.85B surplus, better than expectation of GBP -10.0B deficit.

                                  Australia NAB business confidence rose to -1, but decline in employment a concern

                                    By
                                    ActionForex
                                    -

                                    Australia NAB business confidence rose from -2 to -1 in January. Business conditions were unchanged at 3. Looking at some details, Trading conditions dropped from 6 to 5. Profitability conditions rose from 1 to 2. But employment conditions dropped sharply from 4 to 1.

                                    Alan Oster, NAB Group Chief Economist warned: “The concern this month is the decline in employment. It is now below average and a worry given the labour market has been a bright spot in the economic data. That said, there is a risk that ongoing weakness in business activity sees a pull-back in hiring intentions”.

                                    Full release here.

                                    Harker: Fed is on track to meet 2% inflation target

                                      By
                                      ActionForex
                                      -

                                      Philadelphia Fed President Patrick Harker said “my own view right now is that we should hold steady for a while and watch how developments and the data unfold before taking any more action.” He added, “we haven’t quite met our 2% inflation target, but we’re on track to get there.”

                                      Harker also said it’s “too early to say what impact the spread of the coronavirus will have on the global economy, but the negative effects on the Chinese economy and international travel are something to watch”. He added, “If the situation gets significantly worse and we start to see significant impact on the U.S. economy, then we have to think about accommodating. But I don’t think we’re at that point right now.”

                                      Fed Daly: Inflation won’t hit 2% until 2021

                                        By
                                        ActionForex
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                                        San Francisco Fed President Mary Daly said “policy is in a good place. The economy is in a good place. And barring a material change in the outlook, then I’m comfortable with policy where it’s at, for the foreseeable future.” Her own forecast for inflation is that “it is gradually moving up to target, but my expectation is it wouldn’t achieve something like 2% until somewhere in 2021 as opposed to 2020.”

                                        She added that “we haven’t seen much yet” regarding the impact of China’s coronavirus outbreak. And, “the most important impact would be through confidence, and we haven’t seen that yet either.”

                                        China’s coronavirus death toll hits 1016, could lose up to 1% GDP

                                          By
                                          ActionForex
                                          -

                                          According to China’s National Health Commission, on February 10, confirmed coronavirus cases rose 2478 to 42638. That’s notably smaller than 3062 new cases reported back on February 9. However, death tolls rose 108 to 1016. Serious cases, surged 849 to 7333, much faster than prior day’s 296 new serious cases.

                                          Zeng Gang, vice chair of the National Institute for Finance and Development, said in “according to different scenario assumptions, researchers expect the negative impact of the epidemic on full-year GDP growth to be in the range of 0.2% to 1%.”

                                          He added, ” in the short term, the epidemic’s impact on economic activity cannot be ignored, especially with tertiary industries and small enterprises with tight cash flows facing greater pressures.”

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