US CPI rose 0.3% mom in July, matched expectations. Core CPI rose 0.3% mom, above expectations. Annually, CPI accelerated to 1.8% yoy, up from 1.6% yoy, beat expectation of 1.7% yoy. Core CPI accelerated to 2.2% yoy, up from 2.1% yoy and beat expectation of 2.1% yoy.
Japanese Kyodo news agency reported that Trump is urging Japanese Prime Minister Shinzo Abe to increase purchase of US agricultural products, worthing several hundred millions USD including transport costs.
The request came as US and Japan are crafting out a broad trade agreement, reportedly by September. Also, it came as China halted its own purchase of US farm goods as trade tensions escalated recently.
Kyodo also said that Trump has specifically asked Japan to by products such as soybeans and wheat. Yet, he preferred such purchases to be outside of the framework of the current trade talks. Japan government is said to be considering its own responses. And one proposal was to by such farm products as food support for Africa.
German ZEW Economic Sentiment dropped to -44.1 in August, down from -24.5 and missed expectation of -28.0. That’s the lowest level sine December 2011, and well below long term average of 21.6. Current Situation Index dropped to -13.5, down from -1.1 and missed expectation of -5.9. Eurozone ZEW Economic Sentiment dropped to -43.6, down from -20.3, missed expectation of -21.7. Eurozone Current Situation dropped -3.9 pts to -14.5.
“The ZEW Indicator of Economic Sentiment points to a significant deterioration in the outlook for the German economy. The most recent escalation in the trade dispute between the US and China, the risk of competitive devaluations, and the increased likelihood of a no-deal Brexit place additional pressure on the already weak economic growth. This will most likely put a further strain on the development of German exports and industrial production,” comments ZEW President Professor Achim Wambach.
UK unemployment rate rose to 3.9% in the three months to June, up from 3.8%, above expectation of 3.8%. Unemployment rate came in at 4.1% for men and 3.6% for women, the latter being joint lowest since comparable records began in 1971. For the same period, an estimated 1.33m people were unemployment, 33k fewer than a year ago.
On wage growth, estimated annual growth in average weekly earnings for employees increased to 3.7% yoy for total pay (including bonuses), matched expectation and up from May’s 3.5% yoy. Excluding bonuses, weekly earnings rose 3.9% yoy, up from 3.6% yoy and beat expectation of 3.8% yoy.
Over 50 retailers in UK sent a joint letter to Chancellor of the Exchequer Sajid Javid, urged him to fix the “broken” business rates system. The letter was coordinated by the British Retail Consortium.
The letter urged four fixes, including a freeze in the business rates multiplier; fixing transitional relief, which currently forces many retailers to pay more than they should; introducing an ‘Improvement Relief’ for ratepayers; ensuring that the Valuation Office Agency is fully resourced to do its job.
Helen Dickinson, Chief Executive of the BRC said:”These four fixes would be an important step to reform the broken business rates system which holds back investment, threatens jobs and harms our high streets. The new Government has an opportunity to unlock the full potential of retail in the UK, and the Prime Minister’s economic package provides a means to do so.
Japan criticized South Korea’s removal of the country from export whitelist today, as trade tension continued to intensify. South Korea announced to move Japan into a newly created export category, for the latter’s frequent violation of basic rules.
Japanese Industry Minister Hiroshige Seko said South Korea has failed to show how Japan had fallen short of international export control measures. He added, “from the start, it is totally unclear under what basis South Korea can say that Japan’s export control measures don’t meet the export control regime.”
On the other hand, South Korean President Moon Jae-in said today that “the Japanese government made a decision to exclude South Korea from white-listed countries, following export restrictions… It is disappointing and regrettable in light of the two countries’ shared efforts for friendship and cooperation.”
Australian NAB Business Confidence rose from 2 to 4 in July. On the other hand, Business Conditions dropped from 4 to 2. In particular, Employment Conditions dropped sharply from 5 to 0.
Alan Oster, NAB Group Chief Economist said “the decline in business conditions since early 2018 has been broad-based and has continued to track at below average levels in recent months.” And, “this is concerning, because while conditions remain positive, it points to a significant loss in momentum in the business sector”.
Business confidence “ticked-up” but is “also below average”. While there were some positive signs with a post-election lift in confidence, this bounce now looks to have been short lived with confidence also tracking at below average levels in the two months since the election”
And, “with a significant loss of momentum in activity, and inflation indicators remaining weak, the survey points to the need to the need for further stimulus in the economy. Indeed, we expect a further easing in interest rates from the RBA and think that some greater fiscal support will be needed from the government to kickstart growth”.
RBA’s Assistant Governor Christopher Kent said the transmission of monetary policy in Australia to financial conditions is “working in the usual way”. Change in RBA’s policy stance has underpinned the decline in risk-free rates along the yield curve. It has also contributed to a decline in the cost of funding in corporate bond markets, supported equity prices, and lowered the cost of funding for banks. Much of the reduction in banks’ funding costs has been passed through to business and household borrowers. Also, decline in interest rates has contributed to the depreciation of the Australian dollar.
On the exchange rate, Kent noted Australian dollar had depreciated over that period when commodity prices had been rising. And, that implies the effect of monetary policy on exchange rate has been “broadly working as usual”. He also pointed to noticeable decline in Australian interest rates relative to those of major advanced economies. And, “this lower return on Australian assets would no doubt have contributed to a decline in the value of the Australian dollar.”
Singapore Ministry of Trade and Industry downgraded 2019 growth forecast to 0.0-1.0%, and expect growth to come in at around mid-point of the forecast range. That’s notably lower from prior estimate of 1.5-2.5%, after Q2 GDP contracted by -3.3%. The Ministry noted in the statement that “GDP growth in many of Singapore’s key final demand markets in the second half of 2019 is expected to slow from, or remain similar to, that recorded in the first half.”.
Also, “uncertainties and downside risks in the global economy have increased since three months ago”. The risks firstly include US new tariffs on USD 300B in Chinese imports. Secondly, a “a steeper-than-expected slowdown” of China, as precipitated by US tariffs, could lead to a “sharp fall” in Chinese import demands and “negatively affect the region’s growth”. Thirdly, risk of no-deal Brexit “has increased with the recent change in UK’s political leadership.” Fourthly, there are risks from uncertainties in Hong Kong, the trade dispute between Japan and South Korea, as well as geopolitical tensions in North Korea and the Strait of Hormuz.
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.
Gold’s up tend extended to as high as 1510.48 last week before forming a temporary top there and turned into consolidation. Downside of retreat should be contained by 1452.94 resistance turned support to bring rally resumption.
Break of 1510.48 will resume the up trend and target 161.8% projection of 1160.17 to 1346.71 from 1266.26 at 1568.08.
In the bigger picture, we’d be cautious on topping ahead of 61.8% retracement of 1920.70 to 1046.37 at 1586.70, at least on first attempt.
German Ifo World Economic Climate Indicator dropped from -2.4 to -10.1 in Q1. Current Situation Indicator dropped from 1.4 to -5.4. Expectations Indicator dropped from -6.1 to -14.7.
Ifo President Clemens Fuest warned that “experts expect significantly weaker growth in world trade”. And, “trade expectations are at their lowest level since the outbreak of the trade conflict last year.” “Respondents also expect weaker private consumption, lower investment activity, and declining short- and long-term interest rates.
German Finance Minister Olaf Scholz emphasized today that the government ” can fulfill the tasks that we’re tackling without new debt”. The comments came after Reuters reported last week that the finance ministry was considering issuance of new debt. Scholz noted policies could be implemented by abolishing an income tax surcharge for most employees, etc.
Chancellor Angela Merkel’s spokesman Steffen Seibert also said “the chancellor has never left any doubt … that she stands by the principle of a balanced budget.” And, “we have a policy that is not being called into question that we had balanced budgets in recent years and we continue to strive for those.”
South Korea announced to move Japan to a newly created export category, away from the so fast-tack trade “white list”, starting September. It’s an expected tit-for-tat move in response to Japan’s measures on South Korea. In short, companies exporting strategic materials and products to Japan are required to submit five documents — up from three — with the process taking up to 15 days, as opposed to the current five.
At this point, Japan is the only country in the category. Industry Minister Sung Yun-mo said, “since it’s hard to work closely with a country that frequently violates the basic rules… we need an export control system that addresses this,” Sung also said, “we are pushing for this regulation revision according to our own examinations… we are doing this legitimately in line with both domestic and international laws.”
Italy’s chairman of the House Budget Committee Claudio Borghi told La Stampa newspaper, as the party’s plan for 2020 elections, there will be cut in personal income tax and freeze in VAT. And, budget deficit will stand at 3% of GDP.
He said that the 15% tax cut must be “achieved gradually”. Though, he added “we must start immediately and guarantee it to many”. He’s aiming at net tax savings of EUR 10-15B.
League leader Matteo Salvinin pulled the plug on coalition government with 5-Star Movement last week. Borghi said the possible government of the League is “already ready”.
UK Prime Minister Boris Johnson and Irish Prime Minister Leo Varadkar are scheduled to meet in early September. But ahead of that, Varadkar’s spokesman clearly indicated there is no prospect of renegotiating the Irish backstop in Brexit withdrawal agreement. The spokesman noted that the discussions “would give both sides an opportunity to gain a better understanding of their respective positions. As has repeatedly been made clear, the withdrawal agreement and the backstop are not up for negotiation.”
In the other hand, Johnson’s chief EU adviser, David Frost, is expected to visit Brussels again in the coming days. Previously, it’s reported that Frost has told EU of the new, central scenario of no-deal Brexit of Johnson. But that was denied by Downing Street. Johnson will also meet the European commission president, Jean-Claude Juncker, for the first time at a G7 meeting in Biarritz at the end of this month.
Goldman Sachs warned in a note released on Sunday that they expect tariffs targeting the remaining USD 300B of US imports from China to go into effect on September 1. And, a trade deal between US and China is no longer expected before 2020 US presidential election. Also, it expects a 0.6% drag on the US economy while “fears that the trade war will trigger a recession are growing.” For Q4, Goldman Sachs lowered US GDP growth forecast by 20 basis points to 1.8% annualized.
The note added “overall, we have increased our estimate of the growth impact of the trade war”. Supply chain disruption could lead US companies to reduce their domestic activity. “The drivers of this modest change are that we now include an estimate of the sentiment and uncertainty effects and that financial markets have responded notably to recent trade news.”
Also, “relatedly, the business sentiment effect of increased pessimism about the outlook from trade war news may lead firms to invest, hire, or produce less.”
According to a Bloomberg report, RBNZ has begun scoping a project to refresh its unconventional monetary policy strategy and implementation this year. Though it’s said o be “at a very early stage” and the central bank declined to made no further comment, nor release any further information.
On interest rate, RBNZ expected rates could drop to as low as -0.35%”before risking the hoarding of physical cash. And this will “only partially mitigate any large economic shock”. Large scale asset purchase is another option but such measures are unlikely to fully delivered the desired results in a major downturn. “targeted use of fiscal policy” is likely required to support any unconventional policy.
NZD/USD dropped through 0.6424 last week after RBNZ’s surprised -50bps rate cut. It’s on track to 100% projection of 0.6938 to 0.6481 from 0.6790 at 0.6333 and then, 0.6102 (2015 low).
Canada employment dropped -24.2k in July, worse than expectation of 10.0k. Unemployment rate rose to 5.7%, up from 5.5%, above expectation of 5.5%. Also from Canada housing starts dropped to 222k in July, above expectation of 210k.
From US, PPI rose 0.2% mom, 1.7% yoy in July, matched expectation. PPI core dropped -0.1% mom, slowed to 2.1% yoy in July, below expectation of 0.2% mom, 2.3% yoy.
USD/CAD recovers notably after the releases but it’s staying below 1.3345 temporary top. Intraday bias remains neutral and some more consolidative trading could be seen. But as long as 1.3177 support holds, further rally is expected in the pair through 1.3345 in a later stage.
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Stock surges, yen dives as US delay some new tariffs on China to Dec 15
US stocks surge sharply while Yen dives after US Trade Representative announced to delay new tariffs on some Chinese products to December 15.
The 10% tariffs on approximately USD 300B of Chinese products will still take effect on September 1. However, certain products are removed from the list based on “health, safety, national security and other factors”.
Also, tariffs on products including cell phones, laptop computers, video game consoles, certain toys, computer monitors, and certain items of footwear and clothing, will be delayed to December 15.
DOW rises strongly after the release and is currently up more than 1.5%. Though, sustained break of 55 day EMA (now at 26500, is needed to be the first indication of near term reversal. Otherwise, further decline will remain in favor through last week’s low of 25440.39.