Australia goods and services exports rose 5% mom in July to AUD 45.94B. The strong rise is exports was based on strong Asian demand for LNG and thermal coal, combined with sharply higher prices for iron ore. Exports to China also rose to record AUD 19.4B. Goods and services imports rose 3% mom to AUD 33.83B, due to sharp increase in parts and accessories for telecommunications equipment.
Trade surplus widened to AUD 12.12B, above expectation of AUD 10.1B., hitting a new record.
US commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.9m barrels in the week ending October 2019, above expectation of 1.8m barrels.. At 425.6m barrels, crude oil inventories are at the five year average for this time of year.
WTI crude oil is steady after the release. Decline from 63.04 lost momentum ahead of 50.43 support. This level is also close to 61.8% retracement of 42.05 to 66.49 at 51.38, as well as 50 psychological level. Thus, we’d expect stronger support from there to bring rebound, to extend medium term trading. On the upside, break of 54.71 will target 63.04 resistance.
The minutes of FOMC November 1-2 meeting noted, the considerations that would influence the pace of future rate hikes include “the cumulative tightening of monetary policy to date, the lags between monetary policy actions and the behavior of economic activity and inflation, and economic and financial developments”.
“A number of participants” observed that, as monetary policy approached a stance that was “sufficiently restrictive”, it would become appropriate to slow the pace of rates increase.
Also, “a substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate”.
The Ifo institute lowers Germany growth forecast for 2021 to 3.3%, down from March forecast of 3.7%. 2022 GDP growth is now estimated to be 4.3%, upgraded from prior projection of 3.2%. Unemployment rate is expected to drop from 5.9% in 2020 o 5.8% in 2021, and then 5.2% in 2022. CPI is expected to accelerate from 0.5% in 2020 to 2.6% in 2021, but slowed to 1.9% in 2022.
“With falling infection rates and progress in vaccination against Covid-19, the existing economic restrictions should gradually be lifted,” it said. “There are no longer any obstacles to an economic recovery in trade and contact-intensive services by the end of 2021.” However, “in the short term, bottlenecks in the supply of intermediate products will have a dampening effect, so the manufacturing boom is likely to cool somewhat in its further course.”
Canada CPI accelerated to 1.1% yoy in February, up from 1.0% yoy, but missed expectation of 1.3% yoy. Excluding gasoline, CPI slowed to 1.0% yoy, down from 1.3% yoy. CPI Common was unchanged at 1.3% yoy, missed expectation of 1.4% yoy. CPI median was unchanged at 2.0% yoy, matched expectations, CPI trimmed rose to 1.9% yoy, up from 1.8% yoy, below expectation of 1.8% yoy.
Fed Vice Chair Richard Clarida said he forecast the US to have a “rebound in economic activity in the third-quarter data”. However, “the course of the economy is going to depend on the course of the virus, and it’s a complex picture”.
“It will take some time I believe before we get back to the level of activity we were at in February before the pandemic hit,” he added. “My baseline view is that we could get back to the level of activity perhaps towards the end of 2021.”
Also, ‘”there are a lot of moving parts with the virus and the global outlook.” One being additional fiscal support which the Congress and the White House are still struggling to reach an agreement. “The longer this drags on, the greater risk there is to long-term damage to the economy,” Clarida said. “I don’t think we’re at that point yet.”
Conference Board US Consumer Confidence Index dropped to 125.9 in October, down from 126.3 and missed expectation of 128.2. Present Situation Index rose from 170.6 to 172.3. Expectations Index dropped from 96.8 to 94.9.
“Consumer confidence was relatively flat in October, following a decrease in September,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “The Present Situation Index improved, but Expectations weakened slightly as consumers expressed some concerns about business conditions and job prospects. However, confidence levels remain high and there are no indications that consumers will curtail their holiday spending.”
In UK, three Conservative lawmakers announced to quit the party today, for “this government’s disastrous handling of Brexit.” Heidi Allen, Anna Soubry and Sarah Wollaston complained that “we no longer feel we can remain in the party of a government whose policies and priorities are so firmly in the grip of the ERG and DUP”
Prime Minister Theresa May’s position ahead of the crucial Brexit meaningful vote appeared to be weakened. Together with coalition DUP, May only has a working majority of 7 seats. However, the three are seen as defects who’ve often voted against the Brexit plan. Thus, their votes couldn’t be counted on anyway.
May said she’s “saddened by this decision”. But she reiterated that “by delivering on our manifesto commitment and implementing the decision of the British people we are doing the right thing for our country. And in doing so, we can move forward together towards a brighter future.”
Sterling appears to weaken mildly after the news.
Brexit will be an important topic in the upcoming European Council meeting in Salzburg on September 19 and 20. European Council President Donald Tusk laid out three key issues to focus on, in a statement:
Tusk said a no deal scenario is “still quite possible”. But, “if we all act responsibly, we can avoid a catastrophe.”
Separately, UK Brexit Minister Dominic Raab told Spiegel newspaper that Prime Minister Theresa May’s Chequers plan are “so far the only proposals that guarantee smooth trade between Britain and the EU and take account of the specific problems in Ireland.” And he saw “no other credible alternative, either from here or from the EU side.”
Raab also added that “We have already made extensive compromises.. We have shown ourselves to be very pragmatic and ambitious. Now the ball is in the European Union’s court.”
Trump indicated overnight that the US is “very, very close” to completing a trade agreement with China. And there will be a “signing summit” with Chinese President Xi Jinping soon. Trump said that “we’re going to have another summit, we’re going to have a signing summit” and “so hopefully, we can get that completed. But we’re getting very, very close.”
He later also tweeted that “China Trade Deal (and more) in advanced stages. Relationship between our two Countries is very strong. I have therefore agreed to delay U.S. tariff hikes. Let’s see what happens?” “If a deal is made with China, our great American Farmers will be treated better than they have ever been treated before!”
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Trump decided to delay new tariffs on USD 200B of Chinese imports beyond March 1. For not, there is no information on how long that would that be postponed. A spokeswoman for the U.S. Trade Representative’s Office said the agency had no announcements at this time beyond the president’s remarks.
Separately, Trump has left for a summit with North Korean leader Kim Jong-un in Vietnam. An initial one-on-one meeting is scheduled for Wednesday, followed by dinner with advisers.
UK Cabinet Minister David Lidington told BBC radio the default for the government is still to leave the EU on March 29. He said “I hope still we can leave as soon as possible in an orderly fashion but that depends upon parliamentary approval both in principle of a withdrawal agreement but also then the implementing legislation that has to follow before lawfully we can ratify that treaty”.
And, by the end of March we have to have an alternative in place, not just a resolution of the House of Commons, a preference, but a solution in place that enables us to have an extension so there isn’t crash out on March 29.”
German Justice Minister Katarina Barley told rbb broadcaster that “the EU would be ready to delay Brexit, but one has to have a plan on what is supposed to happen during this period.” She added that delaying Brexit doesn’t bring a solution.
According to the Make UK/BDO Manufacturing Outlook Q3 survey, balance on investment intentions fell to -32% from -26% in the last quarter. Output and orders improved but were still way below historic averages. There were significant cuts to investment while employment prospects weakened. Forward looking indicators suggest conditions will improve albeit slowly. Overall, there was “no evidence of V shape recover”.
Also, Make UK is now forecasting manufacturing output to fall by -10.9% this year. 2021 recovery was downgraded by 6.2% to 5.1%. GDP is forecast to fall by -8.5% this year and recover by 10.1% in 2021.
In a speech titled “Monetary Policy: The Road Ahead“, Chicago Fed President Charles Evans said the economy is now “approaching the tenth year of the expansion” and “fundamentals for growth are solid”. He expected unemployment rate to drop further to around 3.5% by the end of 2020, a full percent point below “natural rate”. Evans also expected inflation to “rise a bit further” over the next few years. And he added ” I expect tighter labor markets to lead to higher wage growth before too long.”
On monetary policy, he noted that most FOMC members put neutral rate somewhere between 2.5 – 3.0%. The 3-3.5% projected for 2019 and 2020 is “mildly restrictive”. Evans noted that “given an unemployment rate forecast below the natural rate, such a policy stance would be quite normal and consistent with some moderation in growth and a gradual return of employment to its longer-run sustainable level.”
Nonetheless, he also pointed out there may be need to tighten further is the “currently unexpected tailwinds emerge that push the economy too far beyond sustainable growth and employment levels, potentially leading to unacceptably high inflation beyond our symmetric 2 percent objective. ” On the other hand, Fed may need a “shallower policy path if expected headwinds emerge”, such as trade tensions.
Evans also said it’s premature to read a signal into flattening yield curve. He noted that long-term borrowing costs have been declining for a while. And all other signals suggest a strong economy.
Overall, Evans just repeated what he said before. He was one of the few who openly said recently that interest rate may need to enter into restrictive region.
UK Prime Minister Theresa May warned yesterday that “a change of leadership at this point isn’t going to make the negotiations any easier “. Instead she added “what it will do is mean that there is a risk that actually we delay the negotiations and that is a risk that Brexit gets delayed or frustrated.” May also emphasized that “these next seven days are going to be critical, they are about the future of this country”. And she pledged not to be “distracted from the important job.”
May is also expected to reiterate the same message in a speech to the CBI’s annual conference today. According to advance extracts, May would say “We now have an intense week of negotiations ahead of us in the run-up to the special European Council on Sunday (Nov 25).” And, “during that time I expect us to hammer out the full and final details of the framework that will underpin our future relationship and I am confident that we can strike a deal at the council that I can take back to the House of Commons.”
European Commission Spokesman Margaritis Schinas, said President Jean-Claude Juncker will meet UK Prime Minister Theresa May in Brussels tomorrow to “take stock of the latest state of play on Brexit”.
He reiterated EU’s position that “The EU 27 will not reopen the withdrawal agreement. We cannot accept a time limit to the backstop or unilateral exit clause.”
European Commission reiterates its stance that there will be renegotiation of the Brexit deal even with a new UK Prime Minister. The Commission’s spokesman said today, “Everybody knows what is on the table. What is on the table has been approved by all member states and the election of a new prime minister will not change the parameters.”
The stance is echoed by both Germany and France. Germany’s Europe Minister Michael Roth said “I see no willingness to restart negotiations from the beginning. The candidates would do well to bear that in mind in the course of their internal party campaigns.” France’s state secretary for European affairs Amélie de Montchalin said “We consider it is up to Britain to decide how it wants to proceed. The exit agreement was not negotiated against the British; negotiators on both sides tried, painstakingly, to find the best solution for all concerned.” Also, without a “new political line” in the UK or a second referendum, Britain must expect to leave the bloc on 31 October.
US Trade Representative Robert Lighthizer told the House Ways and Means Committee that he’s going to have a phone call with Chinese Vice Premier Liu He “in the next day and a half”, regarding restarting trade negotiation. And, he will meet Liu together with Treasury Secretary Steven Mnuchin in Osaka next week, ahead of the Trump-XI summit.
Lighthizer noted that “we have a very unbalanced relationship with China and we have one that risks literally the jobs of the future.” But he also admitted that “it’s in the interests of both China and the United States to have some kind of successful agreement.”
US stocks surge sharply while Yen dives after US Trade Representative announced to delay new tariffs on some Chinese products to December 15.
The 10% tariffs on approximately USD 300B of Chinese products will still take effect on September 1. However, certain products are removed from the list based on “health, safety, national security and other factors”.
Also, tariffs on products including cell phones, laptop computers, video game consoles, certain toys, computer monitors, and certain items of footwear and clothing, will be delayed to December 15.
DOW rises strongly after the release and is currently up more than 1.5%. Though, sustained break of 55 day EMA (now at 26500, is needed to be the first indication of near term reversal. Otherwise, further decline will remain in favor through last week’s low of 25440.39.
UK PMI Services was finalized at 50.0 in December, up from November’s 49.3. PMI Composite was unchanged at 49.3. Stabilization of the service sector was offset by a sharp and accelerated decline in manufacturing output (index at 45.6).
Tim Moore, Economics Associate Director at IHS Markit, which compiles the survey:
“Service companies widely commented on delayed spending decisions and a headwind to sales from domestic political uncertainty in the run-up to the general election. With manufacturing and construction output also subdued in December, the latest PMI surveys collectively signal an overall stagnation of the UK economy at the end of 2019. “However, the latest UK service sector figures are an improvement on those seen in November and strike a slightly more positive tone than the earlier ‘flash’ PMI for December. The final IHS Markit/CIPS UK Services data includes survey responses from after the election, unlike the earlier flash estimate.
“It is notable that the forward-looking business expectations index is now the highest since September 2018 and comfortably above its ‘flash’ reading for December. The modest rebound in new work provides another signal that business conditions should begin to improve in the coming months, helped by a boost to business sentiment from greater Brexit clarity and a more predictable political landscape.”
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Germany Ifo rose to 88.6, entering holiday with a sense of hope
Germany Ifo Business Climate rose from 86.4 to 88.6 in December, above expectation of 87.2. Current Situation Index rose from 93.2 to 94.4, above expectation of 93.5. Expectations Index rose from 80.2 to 83.2, above expectation of 82.0.
By sector, manufacturing rose from -11.5 to -5.6. Services rose from -5.3 to -1.2. Trade rose from -26.9 to -20.0. Construction, however, dropped from -21.5 to -22.2.
Ifo said: “Sentiment in the German economy has brightened considerably. The ifo Business Climate Index rose to 88.6 points in December, up from 86.4 points (seasonally adjusted) in November. Companies assessed their current situation as better again. This comes on the heels of six consecutive falls in the indicator for the current situation. Expectations also improved noticeably. German business is entering the holiday season with a sense of hope.”
Full release here.