According to the second estimate, US GDP grew 2.1% annualized, revised up from first estimate of 1.9%. With the second estimate for the third quarter, upward revisions to private inventory investment, nonresidential fixed investment, and personal consumption expenditures (PCE) were partially offset by a downward revision to state and local government spending.
US durable goods orders rose 0.6% to USD 248.7b in October, well above expectation of -0.5% contraction. ex-transport orders rose 0.6%, also above expectation of 0.2%. Excluding defense, new orders increased 0.1%.
US initial jobless claims dropped -15k to 213k in the week ending November 23, better than expectation of 223k. Four-week moving average of initial claims dropped -1.5k to 219.75k.
Continuing claims dropped -57k to 1.640m in the week ending November 16. Four-week moving average of continuing claims dropped -13k to 1.681m.
ECB President Christine Lagarde said in a speech that the existence of Euro is to secure that trust in money so that people can focus on what really matters to them. And that’s the reason why ECB’s mandate and objectives reflect the well-known “functions of money”. Policy makers are tasked to “ensure that euro is safe and stable”.
The Euro also serves as the “most tangible symbol of European integration”, and “bears witness to the degree of integration we have achieved.” Support in the Euro is there with “76% of our citizens are now in favour of the single currency”. Though, she also warned that “trust takes years to build, seconds to break and forever to repair”.
New Zealand goods exports rose 4.3% yoy to NZD 5.0B in October. Goods exports dropped -1.4% yoy to NZD 6.0B. Trade deficit narrowed slightly to NZD 1.013B, down from NZD -1.319B, in line with expectations.
Exports to China rose NZD 279m to NZD 1.5B, led by rises in milk powder, lamb and beef. Exports to Australia was little changed at NZD 791m. Imports from China dropped NZD -100m to NZD 1.4B. Imports from EU dropped slightly by NZD-9.9m to NZD 965m.
BoJ board member Makoto Sakurai, warned in a speech, “in guiding monetary policy, there’s an increasing need to be mindful of the side-effect of continuing our low-rate policy such as that on Japan’s banking system.”
“If there’s a crisis that could disrupt Japan’s financial system,” he noted, “a bold policy response is necessary”. However, ” if the overseas slowdown driven by trade woes is moderate, and the speed at which it affects Japan’s economy is slow, we have room to scrutinise economic indicators in deciding on policy”.
He added, “the next half-year is when we need to carefully scrutinise economic developments”, including the impact of sales tax hike and global slowdown.
US President Donald Trump said yesterday, “we’re in the final throes of a very important deal”. He hailed again that it’s “one of the most important deals in trade ever” and “it’s going very well. But, “at the same time we want to see it go well in Hong Kong”. He added, “I think that President Xi can make that happen. I know him and I know he’d like to make it happen”, without elaboration.
For now, it’s unsure when Trump will sign the Hong Kong Human Rights and Democracy Act. The bill was for backing Hongkonger’s defense of its autonomy, and was passed by both Senate and House last week nearly unanimously. China has warned by retaliation if Trump signs it into law.
Separately, White House adviser Kellyanne Conway said US and China were “getting really close” on the phase one trade deal. And the US will “continue to negotiate”. She added, “those forced tech transfers, the theft of intellectual property, the trade imbalance of a half a trillion a year with the world’s second largest economy, China – this makes no sense to people.”
US Conference Board Consumer Confidence dropped to 125.5. in November, down from 126.1, missed expectation of 126.9. Present Situation Index dropped from 173.5 to 166.9. Expectations Index rose from 94.5 to 97.9.
“Consumer confidence declined for a fourth consecutive month, driven by a softening in consumers’ assessment of current business and employment conditions,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The decline in the Present Situation Index suggests that economic growth in the final quarter of 2019 will remain weak. However, consumers’ short-term expectations improved modestly, and growth in early 2020 is likely to remain at around 2 percent. Overall, confidence levels are still high and should support solid spending during this holiday season.”
US goods trade deficit narrowed -5.7% mom to USD -66.5B in October, well below expectation of USD -71.3B. Exports of goods dropped USD -0.9B to USD 135.3B. Imports of goods dropped USD -5.0B to USD 201.8B. Wholesales inventories rose 0.2% mom to USD 676.1B, matched expectations.
Dallas Fed President Robert Kaplan said monetary policy is “in the right place now” And the mid-cycle adjustment” is over “for the time being”. Though, he added that Q4 is “going to be weak” on destocking due to some pessimism over the past few months. But “we thing things will stabilize. We’ve got a good chance to grow at 2% next year.”
Kaplan also said that “weak manufacturing, weak global growth, weak business investment all relate to uncertainty regarding trade,” he said. “If that got stabilized, I think we’d have a chance to see those measures improved.”
RBA Governor Philip Lowe said in a speech that negative interest rates in Australia are “extraordinarily unlikely”. He added that Australia is “not in the same situation” as faced in Europe and Japan, with stronger growth prospects, better banking system, demographic profile, without deflation. Also, internationally, it’s not clear that negative interest rates has been a success.
Also, the threshold for undertaking QE “has not been reached” and he didn’t expect it to be reached in the near future. He also didn’t expect the country to reach the point where “QE could help promote our collective welfare”. QE would become an option to when cash rate hits 0.25%, “but not before that”.
Lowe also said “the Board continues to discuss what role it can play in ensuring that this progress takes place and how it might be accelerated. It recognizes the benefits that would come from faster progress, but it also recognizes the limitations of monetary policy and the importance of keeping a medium-term perspective squarely focused on maximizing the economic welfare of the people of Australia.”
Germany Gfk Consumer Sentiment picked up again in rose 0.1 pts to 9.7 for December, matched expectations. Rolf Bürkl, consumer expert at GfK said: “The exceptionally high levels of consumer confidence among German consumers have significantly contributed to preventing a recession in Germany in the third quarter. Private consumption has thereby perfectly fulfilled its role as an important pillar of the economy. Consumers are therefore optimistic about the upcoming holiday season, one of the busiest times of year for a number of retail industries such as consumer electronics and toys. How the year as a whole will be evaluated is determined during this period. And the retail sector can certainly look forward to this period with a healthy dose of optimism.”
Economic Expectations also improved drastically from -13.8 to 1.7. Gfk noted: “This decline in pessimism is most likely due to the trade war between the US and China showing tentative signs of easing during recent days. In addition, it is clear that an increasing number of Germans are hopeful that after the forthcoming elections in the UK a decision on Brexit will be made.”
RBA Deputy Governor Guy Debelle said in a speech the increase in labor supply in Australia has meant that “the strong employment outcomes in recent years has not generated the pick-up in wages growth that might otherwise have occurred”. He expected “wages growth to remain largely unchanged at its current level over the next couple of years.”
He noted that “dynamics of participation and unemployment flows will have an important bearing on wages growth as well as household income growth”. Also, “the more wages growth is entrenched in the 2’s [2-3 per cent range], the more likely it is that a sustained period of labour market tightness will be necessary to move away from that.”
RBA has so far failed to push unemployment down to the 4.5% level, which should generate sustainable wages growth and inflation. Markets are expecting more policy easing from the central bank next year, including possibility of QE.
A phone call was held between US and China top trade negotiators this morning. Accord to statement of China’s Ministry of Commerce: “Both sides discussed resolving core issues of common concern, reached consensus on how to resolve related problems and agreed to stay in contact over remaining issues for a phase one agreement”.
Chinese Vice Premier Liu He, US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin participated in the call. Also, joined were Chinese Commerce Minister Zhong Shan, People’s Bank of China Governor Yi Gang and Ning Jizhe, vice chairman of China’s top economic planning body, the National Development and Reform Commission.
Yet, after another phone calls, there is no concrete news regarding the phase one trade deal. It’s reported that farm purchases and tariff rollbacks are currently the two sticky issues. It looks like officials from both sides are still targeting to complete the phase one by the end of the year. But negotiations could eventually drag on to next year.
Fed Chair Jerome Powell said in a speech yesterday that “monetary policy is now well positioned to support a strong labor market and return inflation decisively to our symmetric 2 percent objective.” He added that “if the outlook changes materially, policy will change as well.” The comments reaffirmed the case that Fed has done with mid-cycle adjustment. The default position is to hold interest rates unchanged at current level.
On the economy, he said the as the economy continued its record 11th year of expansion, the benefits are now reaching many communities, and there is plenty of room to build on the impressive gains achieved so far. Also, “outlook for further progress is good: Forecasters are generally predicting continued growth, a strong job market, and inflation near 2 percent.”
US House appeared to have moved closer to ratifying the US-Mexico-Canada trade agreement. House speaker Nancy Pelosi said yesterday, “we are within range of a substantially improved agreement for America’s workers”. And, “now, we need to see our progress in writing from the Trade Representative for final review.”
She criticized that the original version of USMCA crafted last year “still left American workers exposed to losing their jobs to Mexico, included unacceptable provisions to lock in high prescription drug prices, and fell short of key environmental standards.” She contended it also lacked “concrete, effective enforcement mechanisms.” Months were spent in the negotiations between Democrats and the administration on fine tuning the details. President Donald Trump and Republicans are pushing for a vote to ratify the deal by the end of the year.
Mexican President Andres Manuel Lopez Obrador also stepped up the pressure on US and planed to send another letter to Pelosi this week urging Congress to approve the USMCA. Jesus Seade, Deputy Foreign Minister for North America, however, sounded pessimistic as he noted, “far from reaching a deal, in the last two weeks, statements from certain labor sectors have re-emerged, floating ideas that would be totally unacceptable to Mexico.”
Germany Ifo Business Climate rose to 95.0 in November, up from 94.6, matched expectations. Current Assessment Index rose to 97.9, up from 97.8, missed expectation of 98.0. Expectations Index rose to 92.1, up from 91.5, missed expectation of 92.5. Ifo said the Germany economy is “showing resilience” and it expects 0.2% GDP growth in Q4.
However, manufacturing (down from -5.3 to -5.9) is “still stuck in recession” while companies still find their current order backlog very disappointing and they are planning further production cutbacks. Trade (up from -3.3 to 9), on the other hand, has “increased strongly”, with signs that “business will be very good this Christmas”.
IMF lowered Japan’s GDP growth forecasts in 2019 to 0.8%, down from 0.9%. It expects growth to slow further to 0.5% in 2020. IMF Managing Director Kristalina Georgieva urged that “strengthening the effectiveness of coordination between monetary and fiscal policy remains a high priority” for the country.
She added, “fiscal policy should be supportive to protect near-term growth and promote inflation momentum”. Also, “beyond the short-run, a clear commitment to long-term fiscal sustainability is essential.” On monetary policy, IMF called on BoJ to maintain support for the economy. It suggested BoJ to shift 0% yield target on 10-year JGB to a shorter maturity, and cut back its buying of long tern government bonds. Such action could steepen the yield curve and help financial institutions’ profitability.
The Global Times, China’s hawkish tabloid run by the ruling Communist Party’s official People’s Daily, said in a tweet that US and China are “very close” to the phase one trade deal. China “remains committed to continuing talks for a phase two or even a phase three deal”with US “on equal footing”.
Foreign ministry spokesman Geng Shuang also reiterated that China hopes to work with US on a basis of equality and mutual respect on the ongoing bilateral trade negotiations.
The comments came after Reuters reported that some Chinese and US officials believed the ambitious “phase two” trade deal is looking less likely as the two countries struggle to strike a preliminary agreement.
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US PCE unchanged at 1.3%, core PCE slowed to 1.6%
US Personal Income rose less than 0.1% October while spending rose 0.3%. Headline PCE inflation was unchanged at 1.3% yoy, above expectation of 1.2% yoy. However, core PCE slowed to 1.6% yoy, below expectation of 1.7% yoy.
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