South Korean Moon approved the result of Kim-Trump summit

    South Korean President Moon Jae-in met with US Secretary of State Mike Pompeo today and gave a nod to what the US has done in the Kim-Trump summit.

    Moon said that “there have been many analyses on the outcome of the summit but I think what’s most important was that the people of the world, including those in the United States, Japan and Koreans, have all been able to escape the threat of war, nuclear weapons and missiles.”

    Pompeo said that “we’re hopeful that we can achieve that in the 2-1/2 years,” referring the major nuclear disarmament in North Korea. And he tweaked the meaning of “complete” and said it “encompasses verifiable and irreversible” denuclearization. But no one asked him when the word “complete” started including those extra meaning.

    In Japan, the Yomiuri newspaper reported that Prime Minister Shinzo Abe is arranging a meeting with North Korean Leader Kim Jong-un, possibly in Pyongyang around August.

    Canada’s GDP up 0.1% mom in Sep, down -0.3% qoq in Q3

      Canada’s GDP rose 0.1% mom in September, matched expectations. Goods-producing industries grew 0.3% mom, leading the growth with a first increase in six months. Services-producing industries were essentially unchanged. Overall, 10 of 20 industrial sectors increased. Advance information indicates that GDP rose 0.2% mom in October.

      In Q3, GDP fell -0.3% qoq, reversing Q2’s 0.3% qoq growth. The decrease in international exports and slower inventory accumulation were partially offset by increases in government spending and housing investment. Final domestic demand increased 0.3%, following a similar increase in the second quarter.

      Full Canada monthly and quarterly GDP releases

      UK unemployment rate dropped to 4.7% in Apr, still 0.8% above pre-pandemic level

        UK unemployment rate dropped to 4.7% in the three months to April, down from 4.8%, matched expectations. That’s still 0.8% higher than the level before the pandemic Nevertheless, it’s -0.3% lower than the previous quarter. Average earnings excluding bonus rose 5.6% 3moy, above expectation of 5.3% 3moy. Average earnings including bonus rose 5.6% yoy, above expectation of 4.9% 3moy. Claimant count dropped -92.6k in May.

        Full release here.

        ECB to stand pat, reveal details of strategic review

          ECB rate decision and press conference is the major focus for today. No change in monetary policy is expected. That is, main refinancing rate will be held at 0.00%. Deposit rate should be kept at -0.50% too. Pace of asset purchase program should also be unchanged at EUR 20B per month.

          Forward guidance should also be unchanged as “the Governing Council expects the key ECB interest rates to remain at their present or lower levels until it has seen the inflation outlook robustly converge to a level sufficiently close to, but below, 2% within its projection horizon, and such convergence has been consistently reflected in underlying inflation dynamics.”

          President Christine Lagarde might acknowledge in the press conference that recent data have shown some stabilization. But momentum of recovery, in particular in the manufacturing sector, has been weak. The board will remain cautious and risk to growth and price remain tilted to the downside.

          Most attention will likely be on the details of the strategic review to be announced at the meeting. While this would be lengthy exercise, we expect the market to be particularly interested in the revision of inflation target. There have been talks that the current inflation target as “below but close to 2%” can be revised in favor of a symmetric target.

          Here are some suggested previews on ECB:

          Dallas Fed Kaplan: Trade rhetoric could have chilling effect

            Dallas Fed President Robert Kaplan reiterated his expectation for two for rate hikes this year. And, 2018 is seen a a relatively solid year for growth to him. But Kaplan also noted that it is going to be watching the yield curve “very carefully”. And he won’t “blindly” support rate hikes if yield curve keeps flattening.

            In addition, like other Fed officials, Kaplan said it’s “too early to judge” how the trade spat between the US and China is going to affect the economy. But he warned that if the rhetoric goes on for long enough at this level, it is “having somewhat a chilling effect”.

            He added that “I’m still hopeful when we look back a year or two from now you’ll see very little actually done in the way of tariffs that were implemented”. And, “that would be my base case, and I think we are in the early innings of this.”

            Fed Evans expects interest rate at 2.25-2.50% by year end

              Chicago Fed President Charles Evans said yesterday that he expected interest rate to be above neutral at 2.25-2.50% by the end of the year.

              “That’s my expectation, when I see that, taking out special factors, I’m still left with 3 to 3.5% inflation” by the end of 2022, he said. “That’s not what we want. If we’re at a 2.5% inflation rate, I think we have more things to ponder there.”

              “By December, we’re going to get more data on the micro aspects of the high inflation, price increases, how much is it broadening out,” Evans said. “By that time, we’re at neutral, and to the extent we don’t see it coming down, we’re going beyond neutral, absolutely.”

              US housing starts rose to 1.62m, building permits rose to 1.73m

                US housing starts rose 3.9% mom to 1615k in August, above expectation of 1550k. Building permits rose 6.0% mom to 1728k, above expectation of 1600k. Also released, current account deficit came in at USD -190B in Q2, versus expectation of USD -187B.

                Yellen: The world has changed, defeating the pandemic is the most important thing

                  US stocks closed higher overnight after Treasury secretary nominee Janet Yellen’s Senate confirmation hearing. “The world has changed,” she said. “In a very low interest-rate environment like we’re in, what we’re seeing is that even though the amount of debt relative to the economy has gone up, the interest burden hasn’t.”

                  She gave a strong node to President-elect Joe Biden’s fiscal package, to be unveiled next month. “The most important thing we can do is to defeat the pandemic, to provide relief to American people and to make long-term investments that make the economy grow and benefit future generations,” said Yellen.

                  Yellen described China as the most important strategic competitor with its “abusive, unfair and illegal practices.” She also said China is “guilty of horrendous human rights abuses” in response to a question on whether China had committed “genocide” in treating of Uyghurs.

                  In a last-minute proclamation, outgoing Secretary of State Mike Pompeo determined China “has committed genocide against the predominantly Muslim Uyghurs and other ethnic and religious minority groups in Xinjiang”, and “this genocide is ongoing”. Biden’s nominee for Secretary of State Antony Blinken also said in his confirmation hearing, “The forcing of men, women and children into concentration camps; trying to, in effect, re-educate them to be adherents to the ideology of the Chinese Communist Party, all of that speaks to an effort to commit genocide.”

                  ECB Lane: There could be counterbalances in H2

                    ECB Chief Economist Philip lane said in an interview, Q2 GDP came in “well ahead of out June projections”, reflecting an “earlier opening up”, “strength of the world economy” and “progress in vaccinations”. It’s “still early days” regarding H2, and there could be “counterbalance” like bottlenecks, moderation in world economy, and the Delta variant. Overall, he said, “we’re broadly not too far away from what we expected in June for the full year.”

                    The Delta variant is now “part of the mix in the US and global economies”, while Europe “may not be among the regions hardest-hit thanks to high vaccination rates and prior lockdown measures. Also, the infrastructure and system for vaccination has “eliminated uncertainty about Europe’s ability to carry out vaccinations.”

                    On PEPP, Lane said “we’ll have to assess at the September meeting the appropriate calibration for the final quarter of the year”. He emphasized that “single philosophy” of maintaining favorable financing conditions regarding PEPP. “If favourable financing conditions require more purchases, we’ll conduct more purchases,” he said.

                    Full interview here.

                    DIW: Second wave of coronavirus threatens to stifle German economy upswing

                      Germany’s DIW institute warned that second wave of coronavirus infections “has arrived” and “threatens to stifle the economy upswing”. After growing around 6% in Q3, further prospects are “gloomy considerably”. DIW economic barometer for Q4 dropped from 122 pts to 105 pts.

                      “The upswing will very likely be slowed down significantly,” says DIW economic chief Claus Michelsen. “There are again the threat of sharper restrictions on social and economic life – the pandemic is taking consumers and companies away from confidence. And that at a time when many companies are still struggling with the consequences of the lockdown in spring and have hardly any financial reserves”.

                      Full release here.

                      US oil inventories dropped -9.4m barrels, WTI dips

                        US commercial crude oil inventories dropped -9.4m barrels in the week ending August 28, much larger than expectation of -2.0m barrels decline. At 498.4m barrels, US oil inventories are about 14% above the five year average for this time of year. Total motor gasoline inventories dropped -4.3m barrels. Distillate dropped -1.7m barrels. Propane/propylene rose 4.4m barrels. Commercial petroleum dropped -7.8m barrels.

                        WTI drops notably in early US session and pays little attention to the decline in inventories. It continues to struggle to extend larger rally despite various attempts. Nevertheless, downside of any retreat was limited. It’s also staying above near term trend line support. Thus, further rise remains mildly in favor.

                        However, considering that WTI is close to 55 week EMA (now at 43.89), break of 41.13 should confirm bottoming and bring overdue correction lower.

                        US PCE price index unchanged at 4% yoy in Jun, core PCE rose to 3.5% yoy

                          US personal income rose 0.1%, or USD 26.1B in June, better than expectation of -0.4% contraction. Personal spending rose 1.0%, or USD 155.4B, above expectation of 0.7%.

                          Headline PCE price index was unchanged at 4.0% yoy. Core PCE price index accelerated to 3.5% yoy, up from 3.4% yoy, but missed expectation of 3.7% yoy.

                          Full release here.

                          German government slashes 2022 growth forecast to 3.6%

                            The German government lowered 2022 growth forecast to 3.6%, down from October’s projection of 4.1%. That’s still notably higher that 2021’s preliminary figure of 2.7%.

                            “The consequences of the corona pandemic are still noticeable and many companies still have to struggle with them,” Economy Minister Robert Habeck said . “Nevertheless, our economy is still robust.”

                            “During the still-difficult economic rebound phase, we will continue aid programs for companies and furlough policies,” he noted. “With an increasing vaccination rate, it should soon be possible to contain the pandemic in a sustainable manner and to reduce crisis aid. Then the economic recovery will accelerate noticeably.”

                            Australia employment grew 29.1k in Jan, unemployment rate dropped to 6.4%

                              Australia employment grew 29.1k to 12.9m in January, slightly below expectation of 30.2k. That’s also the fourth consecutive monthly growth in jobs. Full time employment rose 59k to 8.82m. Part-time employment dropped -29.8k to 4.12m.

                              Unemployment rate dropped to 6.4%, down from 6.6%, better than expectation of 6.5%. But that was still 1.1% higher than a year ago. Participation rate dropped -0.1% to 66.1%. Monthly hours worked dropped -4.9%, or -86m hours, to 1667m.

                              Full release here.

                              Eurozone retail sales rises 0.1% mom in Oct, EU up 0.3% mom

                                Eurozone retail sales volume rose 0.1% mom in October, below expectation of 0.2% mom. Volume of retail trade increased by 0.8% mom for non-food products, while it decreased by -0.8% mom for automotive fuels and by -1.1% mom for food, drinks and tobacco.

                                EU retail sales rose 0.3% mom. Among Member States for which data are available, the highest monthly increases in the total retail trade volume were registered in Croatia (+3.1%), the Netherlands (+2.4%) and Slovakia (+1.9%). The largest decreases were observed in France (-1.0%), Belgium and Austria (both -0.8%), Spain and Portugal (both -0.4%).

                                Full Eurozone retail sales release here.

                                RBNZ Orr: Raising rates sooner prevents the need for even higher rates

                                  RBNZ Governor Adrian Orr said in a speech, “amongst many of our central bank peers, we were one of the first to begin removing monetary stimulus and start the tightening cycle”.

                                  “Financial market pricing for future interest rate levels have been very responsive to our signalling,” he added. “Market pricing of future central bank policy rates continue to indicate that New Zealand is expected to tighten policy sooner than many other comparable economies.”

                                  “By getting on top of inflation pressures quickly, by raising interest rates sooner, we aim to prevent the need for even higher rates in the future,” he said. “In other words, we are taking our foot off the accelerator now to minimise having to use the brakes harder in future.”

                                  Full speech here.

                                  Global coronavirus spread intensifies as WHO called for swift and aggressive actions

                                    While new Wuhan coronavirus cases appeared to have slowed to the lowest pace since January, global spread is intensifying. In China, there were 327 new confirmed cases of the coronavirus on Thursday, as reported by the National Health Commission, bringing the total to 78824. Death toll rose 44 to 2788.

                                    On the same day, number of cases in South Korea jumped by another 505 to 1766, with 13 deaths. Italy’s number of cases spiked by more than 50% in just 24 hours, hitting 650, with 17 deaths. Iran’s number rose to 245, with 26 deaths. An Iranian vice president is infected with six other officials. Iran’s former ambassador to the Vatican died of the coronavirus In Japan, total cases reached 210, with 4 deaths, prompted the government to close all schools for a month.

                                    World Health Organization director-general Tedros Adhanom Ghebreyesus warned that “every country must be ready for its first case.” “We’re at a decisive point,” he said. “The epidemics in the Islamic Republic of Iran, Italy and the Republic of Korea demonstrate what this virus is capable of.” He also urged swift and aggressive actions and the preparations will be “the difference between one case and 100 cases in the coming days and weeks.”

                                    Less than a month ago, when the outbreak was mostly confined within China, Tedros urged countries not to impose travel restrictions on people coming out of China. He called the global spread “minimal and slow” back then. over 420k people have signed a petition to call for resignation of Tedros for breaking political neutrality in his handling of the outbreak.

                                    ECB Lagarde: Key challenge is not to overreact to transitory supply shocks

                                      In a speech, ECB President Christine Lagarde said, “the key challenge is to ensure that we do not overreact to transitory supply shocks that have no bearing on the medium term, while also nurturing the positive demand forces that could durably lift inflation towards our 2% inflation target.”

                                      And, “once the pandemic emergency comes to an end – which is drawing closer – our forward guidance on rates as well as purchases under the asset purchase programme will ensure that monetary policy remains supportive of the timely attainment of our medium-term 2% target.”

                                      Full speech here.

                                      Johnson wins UK Conservative leaders, EU Barnier look forward to work constructively

                                        Boris Johnson wins the six-week Conservative leadership race and is set to become the next UK Prime Minister. Johnson defeated his rival Foreign Minister Jeremy Hunt with 92153 to 46656 votes of party members. It’s seen by some as a spectacular victory of the public face of the Brexit campaign. Current Prime Minister Theresa May will leave office tomorrow after meeting Queen Elizabeth, who’s expected to formally appoint Johnson afterwards.

                                        Brexit, due date on October 31, is the first thing for Johnson to handle. He said the three priorities are to deliver Brexit, unite the country and defeat Jeremy Corbyn. And he pledged to “get Brexit done”.

                                        EU chief Brexit negotiator Michel Barnier said EU looks forward to “working constructively with Johnson when he takes office, to facilitate the ratification of the Withdrawal Agreement and achieve an orderly Brexit. Also, EU is ready also to rework the agreed Declaration on a new partnership in line with EUCO guidelines.

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                                        Germany PMI manufacturing finalized at 62.6 in Aug, strong demand

                                          Germany PMI Manufacturing was finalized at 62.6 in August, down from July’s 65.9. Markit said suvery’s output index fell to its lowest level since August 2020. New orders continued to rise sharply, albeit also at a slower pace. Cost pressures remained historically elevated.

                                          Phil Smith, Associate Economics Director at IHS Markit, said:

                                          “While we continue to see strong demand for German goods, with growth in new orders still among the highest on record, production levels are being constrained as manufacturers grapple with supply chain problems. According to August’s data, growth in output has now fallen behind that of new orders to an extent previously unseen in over 25 years of data collection.

                                          “Supply-demand imbalances continue to push up costs at a historically elevated rate, and concerns that higher prices could discourage customers is one of the factors that has seen manufacturers’ expectations for future output fade to the lowest since last October.

                                          “Still, many goods producers are hopeful that conditions will have improved come next summer, and a further steep rise in employment levels shows that efforts are still being made to expand capacity and prepare for higher output in the future.”

                                          Full release here.