Tue, Jan 31, 2023 @ 22:35 GMT

Shanghai to stop operations until Feb 9, inter-city bus services suspended

    China’s Shanghai government announced that the city will not resume operations until February 9, due to coronavirus outbreak in the country. Government operations and private companies will remain closed during the period. Nevertheless, utilities companies and companies that provide medical equipment and pharmaceutical products will continue to work.

    Separately announced, the city’s Pudong International Airport will suspend long-distance inter-city bus services to-and-from the airport starting today.

    World Bank downgrades 2020 global growth forecast to 2.5% as downside risks predominate

      In its January 2020 Global Economic Prospects report, World Bank forecasts global growth to pick up by 0.1% to 2.5% as “investment and trade gradually recover from last year’s significant weakness”. Even so, that was a -0.2% downgrade from June’s projection of 2.7%. Growth in US is expected slow from 2.3% to 1.8% (revised down by -0.2%). Eurozone growth is projected to slow from 1.1% to 1.0% (revised down by -0.1%). Japan’s growth is estimated to slow from 1.1% to 0.7% (revised up from 0.3%). China’s growth is projected to slow from 6.1% to 5.9% (revised down by -0.1%).

      World Bank also warned: “Downside risks to the global outlook predominate, and their materialization could slow growth substantially. These risks include a re-escalation of trade tensions and trade policy uncertainty, a sharper-than expected downturn in major economies, and financial turmoil in emerging market and developing economies. Even if the recovery in emerging and developing economy growth takes place as expected, per capita growth would remain well below long-term averages and well below levels necessary to achieve poverty alleviation goals.”

      ECB President Mario Draghi press conference live stream

        Draghi’s introductory statement.

        Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council, which was also attended by the Commission Vice-President, Mr Dombrovskis.

        Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.

        Regarding non-standard monetary policy measures, we intend to continue reinvesting, in full, the principal payments from maturing securities purchased under the asset purchase programme for an extended period of time past the date when we start raising the key ECB interest rates, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.

        The incoming information has continued to be weaker than expected on account of softer external demand and some country and sector-specific factors. The persistence of uncertainties in particular relating to geopolitical factors and the threat of protectionism is weighing on economic sentiment. At the same time, supportive financing conditions, favourable labour market dynamics and rising wage growth continue to underpin the euro area expansion and gradually rising inflation pressures. This supports our confidence in the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term. Significant monetary policy stimulus remains essential to support the further build-up of domestic price pressures and headline inflation developments over the medium term. This will be provided by our forward guidance on the key ECB interest rates, reinforced by the reinvestments of the sizeable stock of acquired assets. In any event, the Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner.

        Let me now explain our assessment in greater detail, starting with the economic analysis. Euro area real GDP increased by 0.2%, quarter on quarter, in the third quarter of 2018, following growth of 0.4% in the previous two quarters. Incoming data have continued to be weaker than expected as a result of a slowdown in external demand compounded by some country and sector-specific factors. While the impact of some of these factors is expected to fade, the near-term growth momentum is likely to be weaker than previously anticipated. Looking ahead, the euro area expansion will continue to be supported by favourable financing conditions, further employment gains and rising wages, lower energy prices, and the ongoing – albeit somewhat slower – expansion in global activity.

        The risks surrounding the euro area growth outlook have moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility.

        Euro area annual HICP inflation declined to 1.6% in December 2018, from 1.9% in November, reflecting mainly lower energy price inflation. On the basis of current futures prices for oil, headline inflation is likely to decline further over the coming months. Measures of underlying inflation remain generally muted, but labour cost pressures are continuing to strengthen and broaden amid high levels of capacity utilisation and tightening labour markets. Looking ahead, underlying inflation is expected to increase over the medium term, supported by our monetary policy measures, the ongoing economic expansion and rising wage growth.

        Turning to the monetary analysis, broad money (M3) growth moderated to 3.7% in November 2018, after 3.9% in October. M3 growth continues to be backed by bank credit creation. The narrow monetary aggregate M1 remained the main contributor to broad money growth.

        The annual growth rate of loans to non-financial corporations stood at 4.0% in November 2018, after 3.9% in October, while the annual growth rate of loans to households remained broadly unchanged at 3.3%. The euro area bank lending survey for the fourth quarter of 2018 suggests that overall bank lending conditions remained favourable, following an extended period of net easing, and demand for bank credit continued to rise, thereby underpinning loan growth.

        The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households, access to financing – in particular for small and medium-sized enterprises – and credit flows across the euro area.

        To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed that an ample degree of monetary accommodation is still necessary for the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.

        In order to reap the full benefits from our monetary policy measures, other policy areas must contribute more decisively to raising the longer-term growth potential and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. Regarding fiscal policies, the Governing Council reiterates the need for rebuilding fiscal buffers. This is particularly important in countries where government debt is high and for which full adherence to the Stability and Growth Pact is critical for safeguarding sound fiscal positions. Likewise, the transparent and consistent implementation of the EU’s fiscal and economic governance framework over time and across countries remains essential to bolster the resilience of the euro area economy. Improving the functioning of Economic and Monetary Union remains a priority. The Governing Council welcomes the ongoing work and urges further specific and decisive steps to complete the banking union and the capital markets union.

        We are now at your disposal for questions.

        US initial jobless claims dropped to 712k, continuing claims down to 4.14m

          US initial jobless claims dropped -42k to 712k in the week ending March 6, better than expectation of 725k. Four-week moving average of initial claims dropped -34k to 759k.

          Continuing claims dropped -193k to 4144k in the week ending February 27. Four-week moving average of continuing claims dropped 103.5k to 4355.

          Full release here.

          Comments from ECB de Guindos, Vasiliauskas and Nowotny

            ECB Vice President Luis de Guindos defended the central bank’s decision to ended the asset purchase program this month, without any further stimulus exit said. He said that “We’re in a dark room that sometimes gets a bit darker, and when you are in a dark room you have to be very cautious and try to keep your optionality at the maximum level,”

            Governing Council member Vitas Vasiliauskas warned of growing risks in 2019. He said “next year the balance of risk is more likely to turn in a negative direction but for the moment, because risks and economic data are quite mixed, yesterday’s meeting still described the risk outlook as balanced,”

            Another Governing Council member Ewald Nowotny said the central bank should ends the negative deposit rate policy as son as possible. He said, “My personal view is that specifically this rate, that is this phenomenon of negative interest rates, should be reconsidered as soon as economically possible.” He added, “It is also a specificity of the ECB. The U.S. never had a negative rate.”

            Eurozone economic sentiment dropped to 101.7, substantial deterioration in industry

              Eurozone Economic Sentiment Indicator dropped -1.4 pts to 101.7 in September. Amongst the largest euro-area economies, the ESI decreased significantly in the Netherlands, Spain (both -3.1) and Germany (-1.2) and, to a lesser extent, Italy (-0.8). The ESI remained broadly unchanged in France (-0.2).

              The decreased resulted from a substantial deterioration of confidence in industry, and a slight decline in retail trade, while confidence improved among consumers and remained broadly stable in services and construction. Industry Confidence dropped from -5.8 to -8.8, “markedly more pessimistic views on all three components, i.e. production expectations, the current level of overall order books and the stocks of finished products”. Services Confidence rose from 9.2 to 9.5. Consumer Confidence rose 0.6 to -6.5.

              Business Climate Indicator dropped -0.34 to -0.22. All the components of the BCI worsened. The decline was particularly sharp in managers’ assessments of past production, export order books and overall order books. Albeit to a lesser extent, also their production expectations, as well as their views on stocks of finished products worsened markedly..

              WTI oil rises on geo tension, ready for breakout to 100?

                WTI crude oil edged higher today and it’s now pressing 95.98 resistance. Any deterioration in geopolitical situation could forcefully push WTI through this resistance to resume the medium term up trend. Next target will be 100 psychological level.

                Rejection by 95.98 will extend the corrective pattern from 95.98 with another falling leg, possibly back to 89.23 support. But 88.66 support should provide the floor in this case, to set up the range for sideway trading.

                Australia NAB business condition rose to 20 in Q2, but confidence dropped to 5

                  Australia NAB quarterly business confidence dropped from 15 to 5 in Q2. Current business conditions rose from 11 to 20. Next 3 months business conditions was unchanged at 26. next 12 months business conditions dropped from 34 to 29. Capex plan for next 12 months dropped from 33 to 31.

                  Alan Oster, NAB Group Chief Economist, “Conditions strengthened in Q2 as the disruptions related to the virus receded. Trading, profitability, and employment were all higher with conditions approaching the high levels seen in early 2021.”

                  “Confidence eased in Q2, down to around long-run average levels,” said Oster. “That likely reflects the waning of some of the pandemic-recovery optimism, as well as the mounting challenges of rising inflation and also rising interest rates that businesses are confronting.”

                  Full release here.

                  DOW surged in late hour, Nikkei and HSI follow, JPY paring recent gains

                    Risk aversions receded much as markets, in the end, responded rather positively to news of trade talks between the US and China. For now, it seems both countries will hold fire first, and come back to the table.

                    After struggling below 24000 handle for most of the session, DOW finally made up its mind in the last two hours and surged sharply. DOW ended the day up 669.40 pts or 2.84% at 2420.60. S&P 500 gained 70.29 pts or 2.72% to close at 2658.55. NASDAQ also rose 227.87 pts, or 3.26% to 7220.54.

                    Still, for now, DOW is limited below 24453.14 minor resistance and thus, there is no change in the near term direction yet. It’s still more likely to revisit 23360.29 support then not.

                    Asian markets follow with Nikkei trading up over 1.6% at the time of writing. Hong Kong HSI is up 0.9%.

                    From D heatmap, JPY is extending this week’s fall in Asian session while Canadian Dollar is picking up some steam.

                    The W heatmap shows JPY as the weakest one, consistent with the daily developments. But holding above last week’s low against all but GBP only. Euro and GBP are the strongest ones for the week so far.

                    Also, note that EUR/JPY is held well below 132.40 resistance. GBP/JPY also stays below 150.92 resistance. Current rebound in JPY is more seen as a corrective move. The picture suggests that intraday or swings traders could ride on improved sentiments to sell JPY for quick profits. But for position traders, it could be an opportunity to buy JPY once the rebound loses steam.

                    Cottarelli accepted mandate to form an interim Italian government

                      In swift arrangements, former IMF Director of the Fiscal Affairs Carlo Cottarelli accepted Italian President Sergio Mattarella’s appointment to form an interim government. That came after Giuseppe Conte abandoned the effort to form a new coalition government of the 5-Star Movement and the League, following Mattarella’s veto of eurosceptic Paolo Savona as the as economy minister.

                      The Prime Minister designate Cottarelli said that “I’ll present myself to parliament with a program which – if it wins the backing of parliament – would include the approval of the 2019 budget. Then parliament would be dissolved with elections at the beginning of 2019.”

                      Or, “in the absence of (parliament’s) confidence, the government would resign immediately and its main function would be the management of ordinary affairs until elections are held after the month of August,”

                      ECB stands pat, reconfirm its very accommodative stance

                        ECB left monetary policy unchanged and “reconfirm its very accommodative monetary policy stance”. Main refinancing rate, marginal lending facility rate, and deposit rate are held at 0.00%, 0.25%, and -0.50% respectively.

                        The pandemic emergency purchase programme (PEPP) will continue with an envelop of EUR 1850B, “until at least the end of March 2022”. It also expects PEPP to be carried out at a “significantly higher pace” during the current quarter. ECB also stands ready to “recalibrated” the envelop if required. The asset purchase programme (APP) will continue at a monthly pace of EUR 20B. It will also continue to provide “ample liquidity” through the refinancing operations.

                        Finally, ECB “stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves towards its aim in a sustained manner, in line with its commitment to symmetry.”

                        Full statement here.

                        US PCE price index unchanged at 6.3% yoy, core PCE slowed to 4.7% yoy

                          US personal income rose 0.5% mom, or USD 113.4B, in May, matched expectations. Personal spending rose 0.2% mom, or USD 32.7B.

                          For the month, PCE price index rose 0.6% mom while core PCE price index rose 0.3% mom. For the 12-month period, PCE price index was unchanged at 6.3% yoy while core PCE price index slowed from 4.9% yoy to 4.7% yoy. Energy prices rose 35.8% yoy while food prices rose 11.0% yoy.

                          Full release here.

                          Swiss KOF economic barometer dropped to 96.9 in Jun, subdued outlook in upcoming months

                            Swiss KOF Economic Barometer dropped from 97.7 to 96.9 in June, slightly above expectation of 96.8. It’s now below long-term average for the second month in a row. KOF said, “the outlook for the Swiss economy in the upcoming months therefore remains subdued.”

                            KOF added: “The downward movement of the barometer is primarily driven by bundles of indicators for foreign demand and manufacturing. Only indicators for the financial and insurance services sector and for the construction sector are at a nearly constant level. However, indicator bundles for private consumption show a slight positive trend.”

                            Full release here.

                            EU sets out 10 actions on relationship with systemic rival China

                              The European Commission sets out 10 actions to discuss regarding the relationship with China. In the statement, EU described China a “cooperation partner” and “negotiating partner”. Also, it pointed out that China is a “systemic rival promoting alternative models of governance.”

                              Vice-President, High Representative for Foreign Affairs and Security Policy Federica Mogherini, said it’s the aim of the actions to “strengthen our relations with China, in a spirit of mutual respect.” Vice-President Jyrki Katainen, responsible for jobs, growth, investment and competitiveness, said EU would act to “strengthen its competitiveness, ensure more reciprocity and level playing field, and protect its market economy from possible distortions.”

                              There are a few points within the 10 actions that are worth noting.

                              • Action 5: In order to achieve a more balanced and reciprocal economic relationship, the EU calls on China to deliver on existing joint EU-China commitments. This includes reforming the World Trade Organisation, in particular on subsidies and forced technology transfers, and concluding bilateral agreements on investment by 2020, on geographical indications swiftly, and on aviation safety in the coming weeks.
                              • Action 8: To fully address the distortive effects of foreign state ownership and state financing in the internal market, the Commission will identify before the end of 2019 how to fill existing gaps in EU law.
                              • Action 9: To safeguard against potential serious security implications for critical digital infrastructure, a common EU approach to the security of 5G networks is needed. To kickstart this, the European Commission will issue a Recommendation following the European Council.
                              • Action 10: To detect and raise awareness of security risks posed by foreign investment in critical assets, technologies and infrastructure, Member States should ensure the swift, full and effective implementation of the Regulation on screening of foreign direct investment.

                              Full statement here.

                              Eurozone PMI services finalized at 48.3, improvement in sentiment adds to hopes of Q3 growth

                                Eurozone PMI Services was finalized at 48.3 in June, up from May’s 30.5. PMI Composite was finalized at 48.5, up from May’ 31.9. Among some member states France PMI composite rose to 51.7, Spain rose to 49.7, Italy rose to 47.6, Germany rose to 47.0, Ireland rose to 44.3. All were 4-month highs.

                                Chris Williamson, Chief Business Economist at IHS Markit said:

                                “The headline eurozone PMI surged some 17 points in June, a rise beaten over the survey’s 22-year history only by the 18-point gain seen in May. The upturn signals a remarkably swift turnaround in the eurozone economy’s plight amid the COVID-19 pandemic. Having sunk to an unprecedented low in April amid widespread business closures to fight the virus outbreak, the PMI has risen to a level indicative of GDP contracting at a quarterly rate of just 0.2%, suggestive of strong monthly GDP gains in both May and June. An improvement in business sentiment meanwhile adds to hopes that GDP growth will resume in the third quarter.

                                “However, despite the vigour of the return to work following COVID-19 business closures, we remain cautious as to the strength of any longer-term recovery after the immediate rebound. Companies continued to report weak underlying demand in June. Many remained risk averse, being reticent to commit to spending and hiring due to persistent uncertainty as to the economic outlook, and in particular the likely sustained weakness of demand for many goods and services due to the need to retain many social distancing measures. While confidence in the future has improved, it remains well below levels seen at the start of the year, reflecting how many businesses are far from back to normal.”

                                Full release here.

                                US NAHB housing index rose to 68, highest since last October

                                  US NAHB Housing Market Index rose to 68 in September, above expectation of 66, hitting the highest level since last October. NAHB Chairman Greg Ugalde said “low interest rates and solid demand continue to fuel builders’ sentiments even as they continue to grapple with ongoing supply-side challenges that hinder housing affordability, including a shortage of lots and labor.”

                                  NAHB Chief Economist Robert Dietz “Solid household formations and attractive mortgage rates are contributing to a positive builder outlook. However, builders are expressing growing concerns regarding uncertainty stemming from the trade dispute with China. NAHB’s Home Building Geography Index indicates that the slowdown in the manufacturing sector is holding back home construction in some parts of the nation, although there is growth in rural and exurban areas.”

                                  Full release here.

                                  China State Council to boost private investments, remove obstacles

                                    China’s official news agency Xinhua reported that the State Council decided on a host of measures to boost private investment, at a meeting yesterday. And, a number of projects should be identified for attracting private investments. Additionally, the State Council meeting called for lowering thresholds, shoring up the weak links, boosting domestic demand, promoting employment and strengthening the impetus for long-term development.

                                    The measures will include tax and fee cutting for private businesses, VAT reforms, improvements in financing transmission mechanism, and risk compensation mechanism. In particular, obstacles in fields like healthcare and aged-care would be removed, including regulations on land use, funding support and personnel training.

                                    Premier Li Keqiang was quoted saying that “the potential of consumption as a driver for growth need to be further unlocked. At the same time, more efforts need to be made to reduce business costs, support export, and make better use of foreign investment.”

                                    Australia AiG services rose to 58.7 in Mar, highest since Jun 2018

                                      Australia Performance of Services Index rose 2.9 pts to 58.7 in March. That’s the highest monthly result since June 2018. All five services sectors indicated “strong rates of recovery”. Four activity indicators – sales, new orders, stocks and deliveries – showed “robust recovery”. However, Employment index indicated “stably or mildly decreasing employment”.

                                      Ai Group Chief Executive, Innes Willox, said: “While areas of vulnerability clearly remain, the strong lift in new orders is an encouraging sign that the services sector as a whole is well positioned to work through the winding down of fiscal stimulus in the next few months.”

                                      Full release here.

                                      France PMI manufacturing finalized at 53.6, difficult to imagine the situation improving any time soon

                                        France PMI Manufacturing was finalized at 53.6 in October, down from September’s 55.0, hitting the lowest level since January. Markit said output level declined as firms struggled to secure necessary materials. Demand conditions showed signs of weakening amid supply constraints. Lead times lengthened at near-record pace and cost inflation were at decade high.

                                        Joe Hayes, Senior Economist at IHS Markit, said:

                                        “The supply chain issues we’ve been documenting for some months have been somewhat restrained to the supply-side of the economy, at least until now.

                                        “Rapid rates of inflation have ensued, but production has still continued to grow and order books fill up. In October, French manufacturers recorded lower output volumes for the first time since January, while new business intakes fell for the first time in 2021.

                                        “Because firms cannot secure the inputs needed to make their products, orders are now also falling as clients are facing lengthy delays on orders or are unable to get components and other items needed to turn semi-finished goods into finished goods.

                                        “It’s difficult to imagine the situation improving any time soon. Prudent inventory management will be crucial for businesses hoping to keep production lines going.”

                                        Full release here.

                                        US PPI dropped -1.3% mom in April, worst since 2009

                                          US PPI final demand dropped -1.3% mom in April, below expectation of -0.5% mom. That’s the largest monthly decrease since December 2009. Core PPI dropped -0.3% mom, below expectation of 0.0% mom.

                                          Annually, PPI dropped -1.2% yoy, dropped from 0.7% yoy, versus expectation of -0.4% yoy. That’s also the largest decline since November 2015. PPI core rose 0.6% yoy, slowed from 1.4% yoy, below expectation of 0.9% yoy.

                                          Full release here.