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PBoC: China has not and will not use exchange rate to deal with trade disputes

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    China’s PBoC said today that the country “has not used and will not use the exchange rate as a tool to deal with trade disputes”. And it “advised” the US to “rein in its horse before the precipice, and be aware of its errors, and turn back from the wrong path”.

    Further, PBoC warned that US designation of China as currency manipulator would ratchet up currency tensions and “prevent a global economic and trade recovery.”

    China condemns US deliberately destroying international order

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      In a strongly-worded editorial, the People’s Daily, China’s official newspaper, condemned that the US was “deliberately destroying international order”. The piece was published hours after US decision to designate China as currency manipulator, even though such issue was not mentioned. The editorial said the responsibility of big countries is to provide the world with stability and certainty. However, “some people in the United States do just the opposite”.

      USD/CNH edged higher to 7.1399 earlier today but pulled back from there. It’s currently trading at 7.07, below yesterday’s close. There is sign that PBoC is looking at stem the free fall in Yuan. The general consensus remains that China wouldn’t want steep fall in Yuan exchange rate, which would trigger disastrous capital outflow and decline in asset prices. Instead, the Chinese government would likely prefer controlled depreciation.

      RBA stands pat, tweaks statement towards dovish side

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        ActionForex.com
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        Australian Dollar recovers mildly after RBA left cash rate unchanged at 1.00% as widely expected. The accompanying statement is a tweaked a bit further to the dovish side. The central bank noted that “it is likely to take longer than earlier expected for inflation to return to 2 per cent.” Also, “it is reasonable to expect that an extended period of low interest rates will be required in Australia”. But overall, the statement doesn’t alter expectations for one more rate cut this year, probably another in the first half of next year depending on development.

        On the economy, RBA acknowledged that growth has been “lower than earlier expected” in first half. The central scenario is for growth to be at around 2.50% over 2019 and 2.75 over 2020. Consumption remains the main domestic uncertainty. Unemployment rate is expected to “decline over the next couple of years to around 5 percent”. And RBA reiterated that “Australian economy can sustain lower rates of unemployment and underemployment.” Inflation is projected to stay a “a little under” 2% over 2020 and a little above 2% over 2021.

        Full statement here.

        New Zealand unemployment rate dropped to 3.9%, lowest since 2008

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          New Zealand employment rose 0.8% qoq in Q2, much stronger than expectation of 0.3% qoq. Unemployment rate also dropped to 3.9%, down from 4.2% and beat expectation of 4.3%. That’s also the lowest rate since June 2008.

          Wage growth was also positive. Average ordinary time hourly earnings rose 4.4% yoy, largest jump since 2009. Private sector average ordinary time hourly earnings increased 4.7% yoy. Public  sector average ordinary time hourly earnings increased 3.5%.

          Full release here.

          NZD/JPY recovers after the release but upside is apparently capped by overall risk aversion in the markets. For now, some consolidations could be seen above 68.65 temporary low. But won’t expect a break of 38.2% retracement of 73.24 to 68.65 at 70.40. Break of 68.65 is expected sooner or later.

          US Treasury determined China as currency manipulator, citing PBoC statement

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            ActionForex.com
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            US Treasury Department, formally determined China as currency manipulator yesterday, for the first time since 1994, after USD/CNH surged through the psychologically important 7 handle. In the statement, US said under Section 3004 of the Omnibus Trade and Competitiveness Act of 1988 , the Treasury Secretary Steven Mnuchin has “determined that China is a Currency Manipulator.”And, He will “engage with the International Monetary Fund to eliminate the unfair competitive advantage created by China’s latest actions,”

            It’s pointed out that “the Chinese authorities have acknowledged that they have ample control over the RMB exchange rate.” In particular, US Treasury referred to PBoC statement that noted  it “has accumulated rich experience and policy tools, and will continue to innovate and enrich the control toolbox, and take necessary and targeted measures against the positive feedback behavior that may occur in the foreign exchange market.”US said “this is an open acknowledgement by the PBOC that it has extensive experience manipulating its currency and remains prepared to do so on an ongoing basis.

            Full statement here.

            US ISM non-manufacturing dropped to 53.7, lowest since Aug 2016

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              ActionForex.com
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              US ISM Non-Manufacturing Composite dropped to 53.7 in July, down from 55.1 and missed expectation of 55.5. That’s also the lowest reading since August 2016. Looking at some details:

              • Headline index dropped -1.4 to 53.7.
              • Business Activity index dropped -5.1 to 53.1.
              • New orders dropped -1.7 to 54.1.
              • Employment rose 1.2 to 56.2.
              • Prices dropped -2.4 to 56.5.

              The 13 non-manufacturing industries reporting growth in July — listed in order — are: Accommodation & Food Services; Utilities; Professional, Scientific & Technical Services; Real Estate, Rental & Leasing; Transportation & Warehousing; Construction; Information; Other Services; Finance & Insurance; Public Administration; Management of Companies & Support Services; Mining; and Health Care & Social Assistance. The five industries reporting a decrease are: Arts, Entertainment & Recreation; Agriculture, Forestry, Fishing & Hunting; Retail Trade; Wholesale Trade; and Educational Services.

              Full release here.

              Trump accuses China of currency manipulation

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                ActionForex.com
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                Trump accused China for currency manipulation today, and with the same tweet, he also urged Fed to “listen” He said “China dropped the price of their currency to an almost a historic low. It’s called ‘currency manipulation.’ Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!” But it’s unsure what “historic low” he referred to.

                On the other hand, China dismissed Trump’s claim that the country didn’t buy US agricultural products. A National Development and Reform Commission (NDRC) was reported saying that such accusation was “groundless”. The official noted China bought 130,000 tonnes of soybeans, 120,000 tonnes of sorghum, 60,000 tonnes of wheat, 40,000 tonnes of pork and products, and 25,000 tonnes of cotton from the United States between July 19 and August 2.

                Also, the NDRC official also said China purchased 75,000 tonnes of hay, 5,700 tonnes of dairy products, 4,500 tonnes of processed fruits, and 400 tonnes of fresh fruits from the United States during the same period.

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                Eurozone Sentix dropped to -13.7, spectre of recession is going around

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                  ActionForex.com
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                  Eurozone Sentix Investor Confidence dropped to -13.7 in August, down from -5.8 and missed expectation of -7.0. That’s also the lowest level since October 2015. Current Situation Index dropped from 1.8 to -7.3, lowest sine January 2015. Expectations Index de August 2012.

                  Sentix warned that “the spectre of recession is going around.” It also said number of economists merely dismissed the deterioration as a “mood correction”. The current “manufacturing deterioration” is referred to as a “recession in the manufacturing sector” only, with “service sectors excluded. And it’s a “big mistake” from Sentix’s view.

                  For Germany, Overall Index dropped from -4.8 to -13.7, lowest since August 2009. Current Situation Index dropped from 7.0 to -5.5, lowest since March 2010. Expectations Index dropped from -16.0 to -21.5, lowest since July 2012.

                  Sentix said, “the former world champion exporter is feeling the effects of the backward roll of globalisation.” It also complained that the “entire political spectrum in Germany is discusses climate issues but “completely overlooks the fact that the economic climate is fading”.

                  Full release here.

                  UK PMI services rose to 51.4, 9-month high, economy stagnating at start of Q3

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                    ActionForex.com
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                    UK PMI Services recovered to 51.4 in July, up from 50.2 and beat expectation of 50.4. That’s already the highest level since October 2018 even though rate of expansion remained subdued overall. Markit noted there was modest increase in service sector output. There was rebound in new work, helped by export sales. But business expectations eased to a four-month low.

                    Chris Williamson, Chief Business Economist at IHS Markit, which compiles the survey:

                    “An improved rate of growth in the service sector to the highest since October is welcome news after other PMI surveys showed the sharpest drop in manufacturing output for seven years and a construction sector that is mired in its deepest downturn for a decade. However, the overall picture is one of an economy that is only just managing to skirt recession, with July’s performance among the worst since the height of the global financial crisis in 2009.

                    “The latest PMI numbers are indicative of the economy stagnating at the start of the third quarter after indicating a 0.1% decline in the second quarter.

                    “Even growth in the service sector remains worryingly subdued, constrained by a marked fall in business services activity, where the rate of decline in July has been exceeded only once in the past ten years. The best performing sector was consumer services, highlighting how the economy remains dependent on consumer spending to avoid contraction.

                    “Inflationary pressures remained muted, with average prices charged for goods and services rising at one of the weakest rates recorded over the past three years, as firms increasingly resorted to competing on price to help drive sales.”

                    Full release here.

                    Eurozone PMI Composite finalized at 51.5, scale of manufacturing downturn starting to overwhelm

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                      ActionForex.com
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                      Eurozone PMI Services was finalized at 53.2, down from 53.3, and June’s 53.6. PMI Composite was finalized at 51.5, down from 52.2. Looking at the member states, Germany PMI Composite dropped to 50.9, 73-month low. Italy hit 51.0, 4 -month high. Spain dropped to 51.7, 68-month low. France hit 51.9, 2-month low.

                      Chris Williamson, Chief Business Economist at IHS Markit said:

                      “The service sector continued to sustain the expansion of the overall eurozone economy at the start of the third quarter, but there are signs that the scale of the manufacturing downturn is starting to overwhelm.

                      “Trade war worries, slower economic growth, falling demand for business equipment, slumping auto sales and geopolitical concerns such as Brexit led the list of business woes, dragging manufacturing production lower at its fastest rate for over six years. While the service sector has helped offset the manufacturing downturn, growth also edged lower among service providers in July, meaning the overall pace of expansion of GDP signalled by the PMI has slipped closer to 0.1%.

                      “The main source of expansion currently appears to be the consumer, in turn buoyed by the relative strength of the labour market. However, with the July survey indicating the weakest jobs gains in over three years, there are signs that this growth engine is also losing impetus, and adding another headwind to the economy for the coming months.”

                      Full release here.

                      China Caixin PMI services dropped to 51.8, economic slowdown is under control

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                        ActionForex.com
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                        China Caixin PMI Services dropped to 51.8 in July, down from 52.0 and missed expectation of 52.0. PMI Composite rose slightly from 50.6 to 50.9. Markit noted that manufacturing sector stabilized but service sector growth weakened further. Total new work expanded at a slightly faster pace. Also, optimism regarding future output improved to three- month high.

                        Commenting on the China General Services PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:

                        “The Caixin China General Services Business Activity Index dipped to 51.6 in July, falling from 52.0 in the previous month.

                        1. Demand for services remained solid. The gauge for new business edged down, although it remained in expansionary territory. The gauge for new export business rebounded back into positive territory, signaling a recovery in overseas demand.
                        2. The employment gauge stayed in expansionary territory and edged up, indicating the services sector’s strengthening capacity to absorb workers.
                        3. Both gauges for prices charged by service providers and input costs climbed further into positive territory. Prices remained stable.
                        4. The measure for business activity expectations stayed the same as the previous month, suggesting service providers’ confidence regarding the outlook for their businesses was stabilizing.

                        “The Caixin China Composite Output Index inched up to 50.9 in July from 50.6 in the month before, chiefly thanks to an improvement in the manufacturing sector.

                        1. The gauge for new orders increased and the one for new export business returned to expansionary territory, suggesting firmer demand for products and services.
                        2. The measure for employment edged up, although it remained in contractionary territory. This indicates that lingering downward pressure on the job market didn’t escalate.
                        3. The gauge for input costs edged down, but remained in positive territory, while that for output charges dipped into negative territory, pointing to downward pressure on the profitability of downstream companies.
                        4. The measure for future output expectations climbed further into positive territory, suggesting a recovery in business confidence.

                        “In general, China’s economy showed signs of recovery in July, thanks to large-scale tax and fee cuts, as well as ongoing support from monetary policy and government-driven infrastructure investment. It remains to be seen if the economic recovery can continue amid trade fictions with the U.S. and rigid regulations on the financial sector and debt levels. The recovery in July suggests that China’s economic slowdown is under control.”

                        Full release here.

                        Australia AiG Performance of Services dropped sharply to 43.9, largest monthly decline since 2018

                          By
                          ActionForex.com
                          -

                          Australia AiG Performance of Services dropped sharply to 43.9 in July, down from 52.2. The -8.3 pts fall is the largest monthly decline since July 2018. Reading below 50 signaled a return to contraction, as trading conditions for many businesses dived again.

                          Looking at some details, among the business-oriented sectors, only wholesale trade reported positive results. Among the consumer-oriented segments, the large ‘health, education & community services’ sector was strongest. The retail trade sector continued to perform very weakly.

                          Full release here.

                          Chinese Yuan dives through 7 as China seen as weaponizing it in trade war

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                            ActionForex.com
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                            Chinese Yuan dropped sharply in Asian session partly in response to trade war escalation with US. The PBoC set its daily reference rate at just a slightly weaker level than 6.9 for the first time since December. By USD/CNH (offshore Yuan) then surged to a new low at 7.111, break through the psychological level of 7 decisively. In the stock markets, Nikkei is currently down -2.30%. Hong Kong HSI down -2.89%. China Shanghai SSE down -0.81%. Singapore Strait Times down -1.83%.

                            Last week, Trump announced to impose 10% tariffs on USD 300B of effectively all untaxed Chinese imports, starting September 1. China responded with hard-line rhetorics. The developments suggested a return to ti-for-tax retaliations and suspension of trade talks.

                            Meanwhile, today’s free fall in Yuan argues firstly that the Chinese government is seeing no need to keep Yuan exchange rate stable. Further, it’s a sign that Beijing is weaponizing the Yuan as a tool to offset the impact of tariffs in trade war.

                            Technically, USD/CNH is now eyeing 61.8% projection of 6.2359 to 6.9804 from 6.6704 at 7.1305. We don’t expect a solid break there on first attempt. However, sustained trading would pave the way to 100% projection at 7.4149. That would further pressure Asian equities and spread to global markets.

                            US non-farm payroll grew 164k, unemployment rate unchanged at 3.7%, wage growth accelerated

                              By
                              ActionForex.com
                              -

                              US non-farm payroll grew 164k in July, slightly below expectation of 169k. That was still in-line with the average growth in the first six months of the year, but notably below 2018 average of 223k per month. Prior month’s figure was revised down from 224k to 193k.

                              Unemployment rate was unchanged at 3.7%, matched expectation. Participation rate was unchanged at 63.0%. The upside surprise comes from wage growth. Average hourly earnings rose 0.3% mom in July, above expectation of 0.2% mom.

                              Also released, US trade deficit narrowed slightly to USD -55.2B in June. Canada trade surplus came in smaller than expected at CAD 0.1B.

                              UK PMI construction dropped to 45.3, retrenchment could soon spillover to other parts of economy

                                By
                                ActionForex.com
                                -

                                UK PMI Construction recovered to 45.3 in July, up from 43.1 (10 year low) but missed expectation of 46.0. And, it’s still the fifth straight month of sub-50 contraction reading. Markit noted that construction activity fell for the third month in a row. There was sharp drop in new work and purchasing activity during July. Business optimism also slid to its lowest since November 2012.

                                Tim Moore, Economics Associate Director at IHS Markit, which compiles the survey:

                                “UK construction output remains on a downward trajectory and another sharp drop in new orders has reduced the likelihood of a turnaround in the coming months.

                                “Total business activity declined at a softer pace than the ten-year record seen in June, but this should not detract attention from the challenges ahead for the construction sector. Customer demand has been squeezed on all sides in recent months, which has pushed down business expectations to the lowest since the second half of 2012.

                                “July data revealed declines in house building, commercial work and civil engineering, with all three areas suffering to some degree from domestic political uncertainty and delayed decision-making.

                                “Construction companies have started to respond to lower workloads by cutting back on input buying, staffing numbers and sub-contractor usage. If the current speed of construction sector retrenchment is sustained, it will soon ripple through the supply chain and spillovers to other parts of the UK economy will quickly become apparent.”

                                Full release here.

                                Eurozone retail sales rose 1.1%, well above expectation

                                  By
                                  ActionForex.com
                                  -

                                  Eurozone retail sales rose strongly by 1.1% mom 2.6% yoy in June, well above expectation of 0.2% mom, 1.3% yoy. EU28 retail sales grew 1.2% mom, 2.8% yoy.

                                  Looking at the sectors, in Eurozone, volume of retail trade increased by 1.6% for automotive fuel, by 1.2% for food, drinks and tobacco, and by 1.1% for non-food products.

                                  Among members states for EU28, total retail trade volume were registered in Croatia (+6.8%), Germany (+3.5%) and Poland (+2.8%). The largest decreases were observed in Portugal (-0.9%), Ireland (-0.8%) and Slovenia (-0.5%).

                                  Also released, Eurozone PPI came in at -0.6% mom, 0.7% yoy, below expectation of -0.4% mom, 0.8% yoy.

                                  South Korea pledges not to be defeated again as trade tension with Japan escalates

                                    By
                                    ActionForex.com
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                                    South Korean Finance Minister Hong Nam-ki gave his warning to Japan regarding escalating tensions between the two countries. Hong said the government is planning to take steps to drop Japan from the white list countries with fast-track export status. This is in response to similar move by Japan earlier.

                                    Hong also added that Japan’s measures will affect 159 exports items from South Korea. And the government pledged to provide support the companies affected.

                                    South Korean President Moon Jae-in pledged “we won’t be defeated by Japan again”, regarding the trade tensions. He described Japan as a “selfish nuisance” for disrupting the global supply chain.

                                    China warned of retaliation against new US tariffs

                                      By
                                      ActionForex.com
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                                      In response to new US tariffs, Chinese Foreign Ministry spokesperson Hua Chunying reiterated that China doesn’t want a trade war, but it isn’t afraid of fighting one. She added that China will take counter-measures if the US is bent on putting more tariffs.

                                      Senior Chinese diplomat Wang Yi also warned “additional tariffs is definitely not a constructive way to resolve economic and trade frictions. Hu Xijin, editor-in-chief of the government backed hawkish Global Times newspaper, said “new tariffs will by no means bring closer a deal that the U.S. wants; it will only make it further away.”

                                      At this point, it’s uncertain what retaliation China would take yet. Possible measures include banning export of rare earth, and penalties against US companies in China, tariffs on crude oil and aircrafts, formalizing the “unreliable entities”, etc.

                                      Japan Aso: US-China relation developing into not just trade war

                                        By
                                        ActionForex.com
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                                        Japan Finance Minister Taro Aso warned on Yen’s recent gains today and emphasized importance of exchange rate stability. He spoke as Yen surges through key levels on risk aversion, after Trump announced new tariffs on China. Aso said Yen’s fluctuation “will have various impacts”. And “at least, current stability is extremely important. We need to pay close attention to the markets”.

                                        On Trump’s new tariffs on China, Aso said “this will surely affect China’s economy, which I think will have various impacts on the global economy”. And, “there’s already a movie among companies to shift factories out of China. It’s developing into not just trade war but various other things, so it warrants careful attention.”

                                        Australia retail sales rose 0.4%, growth in five of six industries

                                          By
                                          ActionForex.com
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                                          Australia retail sales rose 0.40% mom in June, above expectation of 0.3%. This followed 0.1% rise back in May. Ben James, Director of Quarterly Economy Wide Surveys said “there were rises in five of the six industries this month, although overall the retail environment remains subdued”. Full release here.

                                          In seasonally adjusted terms, there were rises in New South Wales (0.3%), Western Australia (0.8%), Queensland (0.4%), Victoria (0.3%), Tasmania (1.5%), and the Australian Capital Territory (0.3%). South Australia (-0.3%) and the Northern Territory (-0.2%) fell.

                                          Also from Australia, PPI rose 0.4% qoq, 2.0% yoy in Q2, above expectation of 0.2% qoq, 1.9% yoy.

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