UK PMI manufacturing finalized at 48.9, signs of a two-speed economy persisted

    UK PMI Manufacturing was finalized at 48.9 in November, revised up from 48.3, down from October’s 49.6. Markit noted that output, new orders and employment all declined. Stocks depleted and purchasing reduced following Brexit delay.

    Rob Dobson, Director at IHS Markit, which compiles the survey:

    “November saw UK manufacturers squeezed between a rock and hard place, as the uncertainty created by a further delay to Brexit was accompanied by growing paralysis ahead of the forthcoming general election. Downturns in output and new orders continued amid a renewed contraction in exports. The pace of job losses also hit a seven-year high as firms sought to reduce overheads in the face of falling sales. Destocking at manufacturers and their clients following the latest Brexit delay was a major contributor to the weakness experienced by the sector. Inflationary pressures meanwhile showed signs of moderating further, with input costs falling slightly for the first time since March 2016.

    “Signs of a two-speed economy persisted, with intensifying business uncertainty leading to a further steep drop in demand for machinery and equipment as firms cut back on investment, but rising demand for consumer goods suggests that households continue to provide some support to the economy.

    “Manufacturers across all sectors will be hoping that the New Year brings clarity on the political, trade and economic fronts, providing a more certain foundation to plan and rebuild as the next decade begins.”

    Full release here.

    Canada Freeland: Time to remove Section 232 tariffs with USMCA concluded

      Canadian Foreign Minister Chrystia Freeland attended the Munich Security Conference over the weekend. There she also met US House Speaker Navy Pelosi and urged to remove the steel and aluminum tariffs. Freeland noted that Canada is now in the process of domestic ratification of the so called USMAC, US-Mexico-Canada agreement on trade. And Canada’s position remains strongly opposed to the section 232 steel tariffs. She also told reporters that “the Canada position is now that we have concluded (USMCA) that is all the more reason why the tariffs must be lifted.”

      Separately at the conference, Freeland also urged to reinforce “rules-based international order”. And she proposed to bring together specific coalitions around specific issues.”

      An update on GBP/CHF short

        Based on the position trading strategy noted in the weekly report, we’ve sold GBP/CHF on break of 1.2971 this week.

        Overall outlook is unchanged with the cross staying well below falling 55 day EMA. It’s also held well inside medium term falling channel from 1.3854. This decline fall from 1.3854 is expected extend to 61.8% projection of 1.3854 to 1.3049 from 1.3265 at 1.2768 as first target.

        There is prospect of further decline to 100% projection at 1.2460 before bottoming. But we’ll monitor downside momentum in the current fall to gauge the chance.

        Stop will be put slightly above today’s high at 1.3040.

        South Korea to put Japan into new export category, starting September

          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.”

          Sterling gaps down as UK PM May cancels emergency cabinet meeting on Brexit

            Sterling gaps down the week and stays the weakest one as it’s getting more unlikely for a Brexit deal within November. There was originally a planned emergency cabinet meeting today to approve a Brexit deal. But UK Prime Minister Theresa May dropped the plan due to resistance within her own cabinet. And it’s unlikely for May to come up with something by Tuesday’s regular meeting to secure enough support.

            Irish backstop remains the sticky point. But now, it’s over the right for UK to unilaterally exit the backstop. EU and Ireland have been explicit that UK cannot do that. On the other hand, it’s unacceptable for some Tories that UK would have to be locked into the customs arrangement of the backstop forever.

            Additionally, May is facing more rebellion even within the remain camp of the Tories. It’s rumored that four more pro-Europe ministers are on the brink of resignation, following ex-transport minister Jo Johnson’s departure last week.

            Swiss SECO upgrades 2021 GDP forecasts to 3.6%

              Swiss government’s Expert Group upgraded GDP growth forecast for 2021 to 3.6% (from March’s 3.0%), as “easing of coronavirus measures has triggered a swift recovery in the domestic economy”. That also means, GDP would climb “well above the pre-crisis level” in H2. Unemployment rate is expected to come to an annual average of 3.1% (March forecast at 3.3%).

              For 2022, The Expert Group expect another year of “above-average growth” at 3.3% (unchanged forecast”. It added that foreign trade is set to “stimulate growth substantially again” while services trade such as tourism is “likely to gather pace”. Unemployment rate is expected to drop further to an annual average of 2.8% (March forecast 3.0%).

              Full release here.

              Good progress on NAFTA talks but no timeline yet

                Canadian Foreign Minister Chrystia Freeland U.S. Trade Representative Robert Lighthizer and Mexican Economy Minister Ildefonso Guajardo started intensive NAFTA talks in Washington yesterday.

                Freeland sounded upbeat as she said there were “good progress” made on the “rules of origin in our conversations with the U.S., with Mexico, and in our trilateral conversation.” But she declined to comment on whether there would be a deal within the next three weeks, as the US is pushing for.

                Freeland just noted that “our commitment is to get a really good win-win-win outcome as quickly as possible and…we’ll work as long as it takes to get a great deal”.

                The talks will continue today.

                Position trading update: Entered GBP/USD short

                  As planned in our weekly report, we entered GBP/USD short today at 1.3150, as the pair recovered to 1.3166. Stop is placed at 1.3300, slightly above 1.3297 resistance.

                  Our view is unchanged that corrective rise from 1.2661 has completed with three waves up to 1.3297, just ahead of 38.2% retracement of 1.4376 to 1.2661 at 1.3316. Another fall is expected through 1.3042 support to retest 1.2661 low.

                  There is prospect of resuming whole decline from 1.4376. Hence, if the trade turns out as expected, we’ll monitor downside momentum to decide whether to exit at around 1.2661, or hold through it.

                  New Zealand’s Q2 GDP outperforms expectations with 0.9% qoq growth

                    New Zealand’s GDP surged by 0.90% qoq in Q2, doubling the expected growth rate of 0.4%. This notable growth is significantly attributed to substantial boost in the business services sector, specifically within the realm of computer system design.

                    Despite a setback in the primary industries, which contracted by 1.9%, goods-producing industries and service sectors pulled their weight, recording a growth of 0.7% and 1.0% respectively. The service sector emerged as a strong pillar of economic advancement.

                    The quarter also saw manufacturing sector shake off its lethargy, reversing a trend of decline sustained over five consecutive quarters to contribute positively to the economic pie.

                    Full NZ GDP release here.

                    DIHK slashed 2018 German growth forecast to 2.2%

                      The Germany’s Chambers of Industry and Commerce (DIHK) lowered 2018 growth forecast for the country to 2.2%, sharply down from prior estimate of 2.7%.

                      It noted in a report that “companies are looking to their future business with a little less optimism than before… scepticism is growing with regard to international business.”

                      Canada employment grew 303k in Mar, unemployment rate dropped to 7.5%

                        Canada employment grew 303k, or 1.6% mom in March, well above expectation of 90k. Full time employment rose 175k while part-time employment rose 128k. Employment was then within 1.5% of its prepandemic level in February 2020. Unemployment rate dropped sharply by -0.7% to 7.5%, below expectation of 8.0%. That’s also the lowest level since February 2020.

                        Full release here.

                        US retail sales rose 0.6% in Aug, ex-auto sales rose 0.7%, both missed expectations

                          US retail sales rose just 0.6% mom to USD 537.5B in August, well below expectation of 1.1% mom. Ex-auto sales rose 0.7% mom, also below expectation of 1.1% mom. Total sales for June through August were up 2.4% yoy from the period a year ago.

                          Full release here.

                          SNB Jordan: Swiss among hardest hit in full-scale trade war

                            SNB Chair Thomas Jordan warned yesterday that Switzerland could be heavily hit if full-scale trade war broke out. He said “All countries would feel the detrimental effect of a global trade war, but small, open economies such as Switzerland would be among those hardest hit.”

                            Additionally, the current trade tensions have already made it more difficult to conduct monetary policy. He noted, “a wave of protectionism would create a lot of uncertainty, be it with regard to the short-term development of the real economy and prices, or with regard to the longer-term macroeconomic context.” And, “the risk of monetary policy mistakes would increase, at least while the economy is in the process of adapting to the changed market conditions.”

                            Jordan also asked the question that the Swiss Franc could be “sought as a safe haven in the event of a trade war”, and Swiss could “face particularly strong exposure to a severe contraction in world trade”.

                            RBNZ kept OCR unchanged at 1.75%, full statement

                              OCR unchanged at 1.75 percent

                              Statement by Reserve Bank Governor Adrian Orr:

                              The Official Cash Rate (OCR) remains at 1.75 percent.

                              We expect to keep the OCR at this level through 2019 and into 2020. The direction of our next OCR move could be up or down.

                              Employment is around its sustainable level and consumer price inflation remains below the 2 percent mid-point of our target, necessitating continued supportive monetary policy. Our outlook for the OCR assumes the pace of growth will pick up over the coming year, assisting inflation to return to the target mid-point.

                              Our projection for the New Zealand economy, as detailed in the August Monetary Policy Statement, is little changed. While GDP growth in the June quarter was stronger than we had anticipated, downside risks to the growth outlook remain.

                              Robust global economic growth and a lower New Zealand dollar exchange rate is expected to support demand for our exports. Global inflationary pressure is expected to rise, but remain modest. Trade tensions remain in some major economies, increasing the risk that ongoing increases in trade barriers could undermine global growth. Domestically, ongoing spending and investment, by both households and government, is expected to support growth.

                              There are welcome early signs of core inflation rising towards the mid-point of the target. Higher fuel prices are likely to boost inflation in the near term, but we will look through this volatility as appropriate. Consumer price inflation is expected to gradually rise to our 2 percent annual target as capacity pressures bite.

                              We will keep the OCR at an expansionary level for a considerable period to contribute to maximising sustainable employment, and maintaining low and stable inflation.

                              Meitaki, thanks.

                              GCEE projects German economy to grow 2.7% this year and 4.6% next

                                In the latest annual report, the German Council of Economic Experts said, “a variety of bottlenecks on the supply side are disrupting global value chains and, combined with the pandemic-related restrictions that are still in place, are holding back growth.”

                                It forecasts Germany GDP to grow 2.7% in 2021 and 4.6% in 2022. And that subject to “significant risks” including “return of extensive measures to stop the spread of the coronavirus or persistent supply and capacity bottleneck”.

                                The GCEE projections an inflation rate for Germany of 3.1% in 2021 and then 2.6% in 2022. “Longer-lasting supply-side bottlenecks, higher wage settlements, and rising energy prices pose a risk, however, that what are in fact temporary drivers of prices could lead to persistently higher inflation rates,” it said.

                                “Fiscal policy needs to normalise following the crisis. Public finances have to be made more sustainable and crisis-resilient again,” says Volker Wieland, member of the GCEE. “The best way for monetary policy to contribute to sustainable economic growth is by maintaining price stability. A normalisation strategy should be published for this purpose.”

                                Full release here.

                                German ZEW had largest fall on record, expect a stagflation in the coming months

                                  German ZEW Economic Sentiment tumbled sharply from 54.3 to -39.3 in March, well below expectation of 10.3. That -93.6 pts decline was the largest on record, since the survey began in December 1991. That’s even worse than the -58.2 pts fall at the beginning of the pandemic. Current Situation Index dropped from -8.1 to -21.4, slightly better than expectation of -22.5.

                                  Eurozone ZEW Economic Sentiment dropped from 48.6 to -38.7, below expectation of 49.3. Current Situation Index dropped 22.5 pts to -21.9.

                                  Inflation expectations indicator stands at jumped sharply from -35.1 to 69.5. 76.5 per cent of the experts expect the inflation rate to increase in the next six months.

                                  “A recession is becoming more and more likely. The war in Ukraine and the sanctions against Russia are significantly dampening the economic outlook for Germany. The collapsing economic expectations are accompanied by an extreme rise in inflation expectations. The experts therefore expect a stagflation in the coming months. The worsened outlook affects practically all sectors of the German economy, but especially the energy-intensive sectors and the financial sector,” comments ZEW President Achim Wambach on current expectations.

                                  Full release here.

                                  EU Moscovic: G20 in Osaka maybe an important moment for US-China trade resolution

                                    European Economic and Financial Affairs Commissioner Pierre Moscovic said the “road map” is set for G20 to go with “intensified” global trade tension. The two things include ” reforming the World Trade Organization” and “finding bilateral solutions”. Moscovic said G20 members “expect the United States and China to find a way to get to an agreement. Maybe the Osaka summit will be an important moment for that.”

                                    Over the weekend, G20 Finance Ministers the Central bank Governors said in the post-meeting communique that “trade and geopolitical tensions have intensified.” The group pledged to “continue to address these risks, and stand ready to take further action.” However, the originally proposed language of “recognize the pressing need to resolve trade tensions” was dropped.

                                    France PMI services finalized at 57.4, keeping the economy afloat

                                      France PMI Services was finalized at 57.4 in November, up from 56.6 in October, signalling the strongest growth since June. Markit said strong jobs growth sustained as business activity continued to grow. Firms reported still-strong demand pressures. output prices rose at fastest rate since June 2011. PMI Composite was finalized at 56.1, up from October’s 54.7.

                                      Joe Hayes, Senior Economist at IHS Markit:

                                      “November presented another positive month for France’s service sector, with growth accelerating to a five-month high amid still-strong hiring activity and improving demand conditions.

                                      “To be clear though, the service sector is what is keeping the economy afloat at the moment as France’s manufacturing sector is struggling with massive supply-related constraints.

                                      “This puts the wider economy in a precarious position, because as we’ve seen on other parts of Europe, the fate of the service sector is still a function of the trajectory of COVID-19 cases. Policymakers in France have so far talked down the potential for the most stringent of restrictions being implemented, which bodes well for economic activity through the next couple of quarters, but as we’ve seen before, this can change rapidly.

                                      “That said, if France manages the current wave of infections, this should allow robust growth in the service sector to continue.”

                                      Full release here.

                                      EUR/CAD downside breakout on broad Euro weakness

                                        EUR/CAD’s down trend finally resumed this week, following broad based selloff in Euro, and hit as low as 1.4211 so far. Current fall is part of the down trend from 1.5991. Next target is 100% projection of 1.5783 to 1.4580 from 1.5096 at 1.3893. For now, outlook will stay bearish as long as 1.4661 resistance holds, even in case of recovery.

                                        Also, it should be noted that 1.4263 key support (2020 low) is now taken out by the cross. Fall from 1.5991 would extend through 1.3782 support before bottoming. Yet, we’re not seeing a strong bearish scenarios for pushing through 1.3019 yet. We’ll see how the downside momentum develops in the medium term.

                                        UK CPI slowed to 1.5% yoy, missed expectation of 1.6% yoy

                                          UK CPI slowed to 1.5% yoy in October, down from 1.7% yoy, missed expectation of 1.6% yoy. Core CPI was unchanged at 1.7% yoy, matched expectations. RPI slowed to 2.1% yoy, down from 2.4% yoy,missed expectation of 2.6% yoy.

                                          PPI input dropped -5.1% yoy in October versus expectation of -1.8% yoy. PPI output rose 0.8% yoy, missed expectation of 1.3% yoy. PPI output core rose 1.3% yoy, missed expectation of 1.9% yoy.