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WH Navarro: Technically, we didn’t have a yield curve inversion

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    ActionForex.com
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    White House trade adviser Peter Navarro said that “technically, we did not have a yield curve inversion”. He explained that “an inverted yield curve requires a big spread before short and long,.” But, “all we have had is a flat curve.”

    He also emphasized “we have the strongest economy in the world and money is coming here for our stock market. It’s also coming here to chase yield in our bond markets,”

    Navarro also downplayed the impact of tariffs on Chinese imports. He noted “we’ve had tariffs on for over a year,” and “the Chinese have borne the entire burden of that by slashing their prices and reducing the value of their currency by 12%.”

    Trump not ready for a China trade deal, nor business with Huawei

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      ActionForex.com
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      US President Donald Trump said on Sunday that he was “not ready to make a deal yet” with China on trade. Instead, he repeated he desire to see “Hong Kong worked out in a very humanitarian fashion” first. He added, ” I think it would be very good for the trade deal. Trump also indicated he’s not ready to do business with China’s tech giant Huawei yet. He said “at this moment it looks much more like we’re not going to do business… because it is a national security threat and I really believe that the media has covered it a little bit differently than that.”

      Over 1.7million people turned out to a massive protest Hong Kong on Sunday. Ironically, the protest ended up peacefully with minimal police presence. The movement, prompted by objection to an extradition bill to China, lasted for more than 11 weeks. It also turned into a movement against intervention of Chinese Communist Party in this highly autonomous city, condemnation of excessive police violence and demand for true democracy. More protests are planned ahead and the “valiant” group could take over again if the peaceful demands are not met.

      Asian markets jump as China announced reform to lower funding costs

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        ActionForex.com
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        Asian markets rebound strongly today as positive response to China’s latest interest rate reform that lowers funding costs for firms. The PBoC said over the weekend that it will improve the mechanism used to establish the loan prime rate (LPR) from this month . The central bank also pledged to “deepen market-based interest rate reform, improve the efficiency of interest rate transmission, and lower financing costs of the real economy,”

        The new LPR quotations will be based on rates of open market operations, and the national interbank funding center will publish the rate every month on the 20th, starting August. Banks must set rates on new loans by mainly referring to the LPR and use LPR as the benchmark for setting floating lending rates.

        PBoC expects the new LPR is more market-oriented. It is, thus, difficult for banks to coordinate the implicit lower limit of the loan interest rate. Breaking the implicit lower limit can cause the loan interest rate to decline

        At the time of writing, Nikkei is up 0.68%. China Shanghai SSE is up 0.44%. Singapore Strait Times is up 0.45%. Hong Kong HSI gapped up at open and is currently up around 1.5%. HSI had previous drew support from 2018 low at 24540.63. More consolidation would be seen above 24899.93 low for the near term.

        German 10-year yield hit new record below -0.7 on ECB expectations

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          ActionForex.com
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          German 10-year yield dives again and hit new record low at -0.725%. ECB Governing council member Oilli Rehn is seen as the trigger for the free fall in yields. Rehn hinted that ECB is ready for a “significant and impactful policy package in September”.

          There’s speculation that ECB would lower key interest rate by -10bps from the current -0.40%. And, the break of -0.7% level in 10-year bund yield is seen as significant, as could effectively be the new lower bound for ECB deposite rate after the new package.

          South Korea, Japan and China to meet next week on trade and tensions

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            ActionForex.com
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            South Korea said that top diplomats of the country, Japan and China are planning to meet in Beijing next week for trade and history tensions.

            The meeting will be led by Foreign ministers Kang Kyung-wha of South Korea, Taro Kono of Japan and Wang Yi of China, from Tuesday to Thursday. That would be the first gathering of such kind in three years.

            South Korean Foreign ministry said “we expect the meeting will help reinforce the institutionalization and substantiate the foundation of the three-way cooperative scheme.”

            New Zealand BusinessNZ PMI dropped to 48.2, lowest since 2012

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              ActionForex.com
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              New Zealand BusinessNZ Performance of Manufacturing Index (PMI) dropped -2.9 pts to 48.2 in July. That’s the first contraction reading in 82 months and the lowest reading since August 2012.

              BusinessNZ’s executive director for manufacturing Catherine Beard said that concerns around the direction of activity over the last six months has inevitably led to the sector falling into decline.  BNZ Senior Economist, Craig Ebert said that “while July’s result is no dead-set that the economy at large is contracting, the shrinkage is certainly something to take note of”.

              Full release here.

              RBNZ Orr: We look ahead – not behind

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                ActionForex.com
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                RBNZ Governor Adrian Orr issued a statement to defend the central bank’s decision to the surprised 50bps rate cut earlier this month. That was a response to an opinion piece of BusinessNZ chief executive Kirk Hope titled: ‘Business concerned by blurring of Government and Reserve Bank policy”. Hope criticized that “last week’s OCR cut was less predictable because it did not seem to relate to current inflation or unemployment data.”

                Orr explained that the central banks’ decisions are “forward-looking and transparent”. Also, it’s “operationally independent”, with clear mandates and goals. He emphasized policymakers “cannot, and do not, set the OCR based on current or historical inflation and employment outcomes.” And, “we look ahead – not behind”. He added that “global and domestic low inflation expectations sit as a key reason for lower global and domestic official interest rates.”

                 

                Fed Kashkari leaning towards more stimulus at Sep FOMC meeting

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                  ActionForex.com
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                  Minneapolis Fed President Neel Kashkari described the economic outlook as “mixed” and expressed his support for further rate cuts. He noted that trade tensions are making businesses cautious. The steep stock market fall and yield curve inversion is “an indicator that people are nervous.”

                  For September FOMC meeting, Kashkari is “leaning towards the camp of, ‘yes we need to give more stimulus to the economy, more support, we need to continue the expansion and not allow a recession to hit us.”

                  Fed Bullard rejects inter-meeting emergency rate cut

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                    ActionForex.com
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                    St. Louis Fed President James Bullard said yesterday the US economy is sound despite trade uncertainty. And the “numbers here seem pretty good…2 percent growth. Nice job market. Low inflation. Good consumption growth”. The world is “in the middle of a global slowdown” and policymakers are “just going to have to assess how this is going to affect the U.S. economy.”

                    He also tried to talk down recent stock market declines. While the “steep selloff was big”, the market is “way up this year”. And, “even if nothing else was going on, you might have expected some repricing there.” He also added that “any (yield curve) inversion that is going to send a bearish signal for the U.S. economy would have to be sustained over a period of time,”

                    Bullard also rejected the idea of an inter-meeting emergency rate cut. He said “The timing is never critical on these things. A couple of weeks one way or another probably doesn’t matter. What matters is that you are in the right zone for interest rates and that you are reacting appropriately to incoming data.”

                    WTO Goods Trade Barometer dropped to 95.7, all components below trend

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                      ActionForex.com
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                      WTO’s Goods Trade Barometer dropped to 95.7 as of August 15. That’s slightly down from 96.3 reported in the quarterly report in May. The barometer suggests that below-trend expansion in merchandise trade will persist in the coming months.

                      Looking at the details, sustained weakness in the barometer index was driven by below trend values in all component indices. The international air freight (91.4) and electronic components (90.7) indices showed the strongest deviations from trend, with readings well below previous releases. Indices for export orders (97.5), automobile production and sales (93.5) and agricultural raw materials (97.1) all remained below trend although they show some signs of having bottomed out. Only the index for container shipping (99.0) was close to the baseline value of 100.

                      Full release here.

                      ECB Rehn: Weakening outlook justifies significant and impactful stimulus in Sep

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                        ActionForex.com
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                        ECB Governing Council member Olli Rehn said, “there is a certain weakening of the economic outlook for Europe in the last couple of months”. And, the backdrop “justifies taking further action in monetary policy, as we intend to do in September.”

                        He added, “it’s important that we come up with a significant and impactful policy package in September” monetary policy meeting. He added, “when you’re working with financial markets, it’s often better to overshoot than undershoot, and better to have a very strong package of policy measures than to tinker.”.

                        On the composition of the stimulus, Rehn said A package of several measures “has a stronger impact than sequencing various measures over time,” due to synergies between different policy tools. Currently, markets are expected a -10bps cut to the key interest rate from current -0.4%. Also, ECB could restart asset purchase program with fresh EUR 50B per month buying.

                        China said US violates Osaka agreement with new tariffs

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                          ActionForex.com
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                          Chinese Finance Ministry warned that the new tariffs violate the consensus reached by leaders of the countries at G20 in Osaka. And it pledged that China will take necessary countermeasures.

                          Separately, Foreign Ministry spokesperson Hua Chunying said, “We hope the U.S. will meet China halfway, and implement the consensus of the two heads of the two countries in Osaka.” And, China hopes to find mutually acceptable solutions through dialogue and consultation on the basis of equality and mutual respect.

                          US retail sales rose 0.7%, ex-auto sales rose 1.0%

                            By
                            ActionForex.com
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                            US retail sales rose 0.7% mom in July, well above expectation of 0.3% mom. Ex-auto sales rose strongly by 1.0% mom, versus expectation of 0.4% mom.

                            Empire State Manufacturing index rose to 4.8, up from 4.3 and beat expectation of 1.9. Looking at some details, The employment and average workweek indexes were both slightly below zero, pointing to sluggishness in labor market conditions. Input prices increased as a slightly slower pace while selling price increases were little changed.

                            Philadelphia Fed Business Outlook dropped to 16.8, down from 21.8 but beat expectation of 10.0. The survey’s broad indicators remained positive, although their movements were mixed this month: The general activity, shipments, and employment indicators decreased from their readings last month, but the indicator for new orders increased.

                            US initial jobless claims rose 9k to 220k

                              By
                              ActionForex.com
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                              US initial jobless claims rose 9k to 220k in the week ending August 10, above expectation of 212k. Four-week moving average of initial claims rose 1k to 213.75. Continuing claims rose 39k to 1.726m in the week ending August 3. Four-week moving average of continuing claims rose 9.25k to 1.697m.

                              Full release here.

                              UK retail sales rose 0.2%, non-store retailing the largest positive contributor

                                By
                                ActionForex.com
                                -

                                UK retail sales including auto and fuel rose 0.2% mom 3.3% in July, above expectation of -0.2% mom, 2.5% yoy. Retail sales ex-auto and fuel rose 0.2% mom 2.9% yoy, above expectation of -0.2% mom, 2.3% yoy.

                                Looking at the details, non-store retailing was the largest positive contributor on the month, with the amount spent and quantity bought contributing 0.6 and 0.7 percentage points respectively. In contrast, non-food stores were the largest negative contributor in July 2019, with the amount spent and quantity bought both at negative 0.6 percentage points.

                                Full release here.

                                Australia added 41.1k jobs, but unemployment rate stuck at 5.2%

                                  By
                                  ActionForex.com
                                  -

                                  Australia employment grew 41.1k in July, well above expectation of 14.2k. Full-time jobs rose 34.5k while part time jobs rose 6.7k. Unemployment rate was steady at 5.2%, matched expectations. Participation rate rose 0.1% to 66.1%.

                                  In seasonally adjusted terms, the largest increases in employment were in Queensland (up 19.9), New South Wales (up 13.0k), and Victoria (up 3.6k). The largest decrease was in Western Australia (down -4.2k). Unemployment rate increased in South Australia (up 0.9 pts to 6.9%) and Western Australia (up 0.2 pts to 5.9%), Decreases were recorded in Tasmania (down -0.8 pts to 6.0%), New South Wales (down -0.2 pts to 4.4%) and Queensland (down -0.1 pts to 6.4%), with Victoria recording no change.

                                  The better than expected job growth should keep RBA on sideline in September. However, unemployment continues to be stuck at 5.2%. There is no sign of falling towards RBA’s natural rate of 4.5%. The central bank will still need more easing ahead to push down unemployment rate so as to push up inflation to target.

                                  Full release here.

                                  RBA Debelle: Technology dispute could have larger impacts than tariffs

                                    By
                                    ActionForex.com
                                    -

                                    RBA Deputy Governor Guy Debelle said in a speech today that the direct effects of US-China tariffs “has not been all that large”. However, the larger impact has been the uncertainty generated by the dispute. The uncertainty takes “two forms”. Firstly, there was uncertainty about the “size and incidence” of tariffs. Secondly, it’s unsure how “technology dispute” will be resolved.

                                    Debelle also warned that “it is plausible that the effect of the technology dispute will be larger than that of the tariffs” And, “the technology dispute raises the possibility that any business involved in the technology production chain will have to choose between East and West rather than selling into a global market.”

                                    Also, he said current trade dispute would have a “large and long-lasting impact” on the “system of rules-based trade”. And, “The China–US dispute casts serious doubt on that. We can also see that manifest in the US–Europe trade issues, as well as those between South Korea and Japan.” Also, “trade is being used as the bargaining tool of choice, including for issues that don’t have much to do with trade.”

                                    Debelle’s full speech here.

                                    Trump puts human rights in Hong Kong as precondition to China trade deal

                                      By
                                      ActionForex.com
                                      -

                                      US President Donald Trump appeared to be putting human rights condition in Hong Kong as a prerequisite of a trade deal with China. He tweeted that “Of course China wants to make a deal. Let them work humanely with Hong Kong first!” Trump repeated his usual praise of Chinese President Xi Jinping as a “great leader”, and a good man in a “tough business. He even said he has “ZERO doubt” Xi wanted to “quickly and humanely” solve the Hong Kong problem. And he even called Xi for a “personal meeting” on the issue.

                                      Trump’s comment came after State Department spokeswoman said US was “deeply concerned” about reports of paramilitary movements along the Hong Kong border. Additionally, she urged the Hong Kong government to respect “freedoms of speech and peaceful assembly”. She also noted that recent protests reflected “broad and legitimate concerns about the erosion of Hong Kong’s autonomy.” Further, “the continued erosion of Hong Kong’s autonomy puts at risk its long-established special status in international affairs,” she said.

                                      US House Speaker Nancy Pelosi also issued a statement earlier this week, warning: “The escalating violence and use of force perpetrated against the Hong Kong protestors is extremely alarming. The pro-Beijing Chief Executive and the Hong Kong police forces must immediately cease the aggression and abuse being perpetrated against their own people.

                                      UN Human Rights Office also said in a statement that there were “credible evidence of law enforcement officials employing less-lethal weapons in ways that are prohibited by international norms and standards” in handing the protests in Hong Kong that lasted for more than two months. For example, “officials can be seen firing tear gas canisters into crowded, enclosed areas and directly at individual protesters on multiple occasions, creating a considerable risk of death or serious injury.”. UNHR also urged the Hong Kong Government to ensure “response by law enforcement officials to any violence that may take place is proportionate and in conformity with international standards on the use of force, including the principles of necessity and proportionality.”

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                                      DOW down more than 2% on recession fear, 30-year yield at record low

                                        By
                                        ActionForex.com
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                                        US stocks opened sharply lower today and remains pressured at the time of writing. Currently DOW is down over -2.2%, below 25700 handle and broke yesterday’s low. The lift from delay in US tariffs on China was rather brief. Recession fears resurface, after big miss in Chinese data and GDP contraction in Germany in Q2.

                                        Considering DOW stays below 55 day EMA, further decline remains in favor through 25440.39, to resume the decline from 27398.68, to 2468.47 support and below.

                                        German 10-year yield hits new record low at -0.653 and drags down US yield too. 10-year yield is currently down -0.096 at 1.584. 30-year yield is down -0.096 at 2.041, after hitting new record low of 2.036 earlier in the session.

                                        Canada Freeland hints she won’t call China currency manipulator

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                                          ActionForex.com
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                                          Canadian Foreign Minister Chrystia Freeland sounded like she didn’t think China is a currency manipulator in her comments today. She said in a news conference, “at a time of volatility in the global economy and volatility in the trading space, there can be a lot of explanations for why currencies fall and rise.”

                                          She also referred to IMF, as the body stood by its assessment on Yuan last week, that it’s largely in line with economic fundamentals. Freeland urged “people who are interested in an objective perspective” on the matter to note that assessment.

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