According to the second estimate, US GDP grew 2.0% annualized in Q2, unrevised from first estimate, down from Q1’s 3.1%. The deceleration in real GDP in the Q2 primarily reflected downturns in inventory investment, exports, and nonresidential fixed investment. These downturns were partly offset by accelerations in PCE and federal government spending.
The PCE price index increased 2.3%, compared with Q1’s 0.4%. Excluding food and energy prices, the PCE price index increased 1.7%, Q1’s 1.1%.
US initial jobless claims rose 4k to 215k in the week ending August 24, matched expectations. Four-week moving average of initial claims dropped -0.5k to 214.5k. Continuing claims rose 22k to 1.698m in the week ending August 17. Four-week moving average of continuing claims dropped 250 to 1.697m.
Advanced goods trade deficit dropped -2.5% to USD 72.3B in July, smaller than expectation of USD 74.0B. Exports of goods for July were USD 137.3B, USD 0.9B more than June exports. Imports of goods for July were USD 209.7B, USD 0.9B less than June imports. Wholesale inventories rose 0.2% mom, matched expectations.
UK Leader of Commons Jacob Rees-Mogg challenged other MPs to collapse the government if they can, as criticism over Prime Minister Johnson’s move to suspend the parliament grew. Rees-Mogg told BBC, “All these people who are wailing and gnashing of teeth know that there are two ways of doing what they want to do… One, is to change the government and the other is to change the law. If they do either of those that will then have an effect… If they don’t have either the courage or the gumption to do either of those then we will leave on the 31st of October in accordance with the referendum result.”
Some EU ministers sang a chorus against no-deal Brexit today as risks grow. Dutch Foreign Minister Stephan Blok said “it’s in nobody’s interest to see a no-deal Brexit,” and, “we still hope it will be possible to avoid a no-deal Brexit and we are looking forward to any proposals from the British government that fit into the Withdrawal Agreement”. Austria’s Alexander Schallenberg said “I fear so, yes,” that a no-de Brexit is more likely. But he also reiterated EU’s stance that “the ball is in the UK’s court… We have done whatever is possible to ensure an orderly exit of Britain.” Finnish Foreign Minister Pekka Haavisto said: “To support Brexit with the deal is a key issue because otherwise we will face a lot of negative consequences to our economies and our border traffic.”
Germany CPI dropped -0.2% mom in August, worse than expectation of -0.1% mom. Annually, CPI slowed to 1.4% yoy, down from 1.7% yoy, missed expectation of 1.5% yoy.
Released earlier today, German unemployment rose 4k in August, matched expectations. Unemployment rate was unchanged at 5.0%, also matched expectations.
Eurozone Economic Sentiment improved to 103.1 in August, up from 102.7 and beat expectation of 102.3. The slight improvement of euro-area sentiment resulted from markedly higher confidence in industry and retail trade, while confidence deteriorated significantly in services and construction and, to a lesser extent, among consumers.
Industry Confidence rose 1.4 while Retail Trade Confidence rose 1.2. On other hand, Services Confidence dropped -1.3. Consumer Confidence dropped -0.5. Construction Confidence dropped -1.3. Amongst the largest euro-area economies, the ESI rose strongly in Spain (+1.9) and edged up in Germany (+0.4), while it remained broadly stable in France (+0.1) and the Netherlands (+0.2) and decreased only in Italy (−0.9).
Business Climate Indicator rose 0.22 to 0.11. Managers’ assessments of past production and of export order books improved sharply. Also their production expectations, as well as their views on overall order books and the level of stocks of finished products improved markedly.
New Zealand ANZ Business Confidence dropped sharply from -44.3 to -52.3 in August. Activity Outlook also turned negative again, down from 5.0 to -0.5. ANZ noted that “employment, investment and export intentions all fell to dismal levels, along with profit expectations.” Also, “inflation indicators were weaker despite higher reported costs.”
Just over a third of this month’s survey responses were received after the surprised RBNZ -50bps OCR cut. ANZ noted “there were small differences in the responses before and after” and “none of the differences were statistically significant for any of the data series.” ANZ further said “the outlook for the economy appears to be deteriorating further, with firms extremely downbeat despite easier monetary conditions, fairly robust commodity prices, and positive population growth. Whatever the cause, the risk is rising that it becomes self-fulfilling.”
NZD/USD drops to as low as 0.6306 today. 100% projection of 0.6938 to 0.6481 from 0.6790 at 0.6333 was broken this week. Next stop will be 161.8% projection at 0.6051 in the medium term, which is slightly below 2015 low at 0.6102.
BoJ board member Hitoshi Suzuki said while there are risks from heightening overseas uncertainties, there was no sign of recession yet. He emphasized that “if the BOJ were to consider and implement specific monetary easing measures, it will take action deemed appropriate at the time while weighing the benefits and demerits of each step.”
He further pointed out, “if bank deposit rates effectively turn negative, it could hurt the economy by cooling consumer sentiment”. And excessively low interest rates could also discourage lending and lower the impact of monetary easing. He added, “once the financial system destabilizes, it will become very difficult to achieve price stability.”
ECB Governing Council member Ewald Nowotny complained that “in past years we perhaps followed markets’ expectations too intensively and avoided disappointing them.” He emphasized “central banks should be the decisive institution and must therefore sometimes disappoint markets.”
On inflation targeting, Nowotny favors aiming for 2% plus or minus one percentage point. And, it means that inflation of 1.6% is also within the target area and therefore requires no monetary policy measures”. However, he said “Draghi by contrast interprets ‘symmetry’ in such a way that lower interest rates are in place for a longer period: ‘lower for longer’ is the slogan here. I actually consider that to be a problematic signal.”
San Francisco Fed President Mary Daly said she’s in a “watch-and-see position right now” regarding further interest-rate cut. In inflation data comes in “more robust, that would be confidence-generating for me”. However, if data is soft, “that would be something I would want to consider.”
Though she also noted that “right now, with little inflationary pressure and considerable uncertainty about the threshold for full employment, I’m biased towards including as many workers as possible in the expansion.”
SNB governing board member Andrea Maechler said that “franc remains at a very high value, absolutely”. And that’s why “we need an expansionist monetary policy”. Also, she stressed that SNB’s willingness to intervene in the currency markets.
Though, she also noted that SNB will weigh the pros and cons of intervention, as “we need to have a sustainable monetary policy and keep our margin of maneuver.”
Richmond Federal Reserve President Thomas Barkin said in a speech that the “national economy appears great”. Unemployment rate is at 50-year lows and GDP growth is solid. Consumers also “feel confident and are spending”. However, “international economies are weaker”, with “elevated” uncertainty particularly around trade. Business investment dropped in Q2.
Hence, with muted inflation risk, Barkin said, Fed decided to make a “mid-cycle reduction” in interest rates earlier this month. That goal was to provide a “little insurance for the continued growth of the economy and strength of the labor market.”
US Trade Representative office affirmed that the administration is carrying on with the plan to impose new tariffs on China. In Federal Register notice, it’s noted that 15% tariffs will take effect on part of the USD 300B in Chinese goods, starting September 1.
The second batch of products include cell phones and laptop computers. 15% tariffs on this second batch will take effect of December 15.
US commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) dropped -10m barrels in the week ending August 23. The decline was way larger than expectation of -2.8m barrels fall. At 427.8m barrels, crude oil inventories are at the five year average for this time of year.
WTI crude oil jumps sharply in response to the data release. Focus is now back on 57.32 resistance. Break will resume the rise from 50.43 to 100% projection of 50.43 to 57.32 from 52.84 at 59.73. Overall, WTI is staying in range of 50.64/60.93. Thus, we’d look for resistance from 60.93 to extend range trading.
UK Prime Minister Boris Johnson confirmed that he has asked the Queen for permission to suspended the parliament from “the second sitting week in September”. MPs will then return on October 14, when there will also be a new Queen’s speech. Johnson insisted that MPs would still have “ample time” to debate Brexit, and there is a “bold and ambitious domestic legislative agenda for the renewal of our country after Brexit”. The net effect for the suspension will cut short the time for MPs to introduce legislations to block no-deal Brexit on October 31.
House Speaker John Bercow issued a strong statement, saying that Johnson’s move “represents a constitutional outrage”. He added, “however it is dressed up, it is blindingly obvious that the purpose of prorogation now would be to stop Parliament debating Brexit and performing its duty in shaping a course for the country”.
Labour leader Jeremy Corbyn said “I have protested in the strongest possible terms on behalf of my party and all the other opposition parties that are going to join in with this in saying that suspending parliament is not acceptable, It’s not on.”
Scotland’s First Minister, Nicola Sturgeon also complained that “it’s absolutely outrageous”. And, “shutting down parliament in order to force through a no-deal Brexit which will do untold and lasting damage to the country against the wishes of MPs is not democracy. It’s a dictatorship.”
Sterling tumbles sharply after BBC reported that Prime Minister Boris Johnson would ask the Queen to suspend parliament, in an attempt to stop blocking of no-deal Brexit. MPs are originally expected to return to work in September. But the new government want to tie it to Queen’s speech on or around October 14. Opposition MPs and Tory rebels will then be left with not enough time to pass any laws that could avert no-deal Brexit on October 31. Additionally, the UK would be in constitutional crisis as furious MPs would push for a vote to bring down the government.
GBP/USD’s sharp fall and break of 1.2208 minor support suggests that corrective rebound from 1.2014 has completed earlier than expected at 1.2309. Intraday bias is now back on the downside for retesting this 1.2014 low.
Eurozone M3 money supply growth accelerated to 5.2% yoy in July, up from 4.5% yoy and beat expectation of 4.7% yoy. M3 growth averaged 4.8% in the three months to July.
Meanwhile, household lending growth accelerated to 3.4% yoy, up from 3.3% yoy, hitting a post-crisis high. Corporate lending growth was unchanged at 3.9% yoy, staying at the highest level this year.
The overall set of data is seen as indication of future activities. And, robust growth in money supply and lending argues that even though the economy is cooling, there is no imminent risk of recession yet.
German Gfk Consumer Confidence for September was unchanged at 9.7, slightly above expectation of 9.6. The underlying picture was mixed though, with increase in propensity to buy, slight deterioration in income expectation. By contrast, the economic outlook suffered a significant decline.
Economic indicator dropped -8.3 pts to -12.0, hitting the lowest level in more than six years since January 2013. Gfk noted: “The global economic downturn, trade wars and the ongoing discussions surrounding Brexit are all putting increasing pressure on the economic outlook of consumers.”
RBNZ Governor Adrian Orr said in an article that “monetary policy (the domain of central banks) has its limitations and needs to be partnered with broader fiscal and structural economic policy (the domain of the government of the day)… Providing certainty in uncertain times is a great skill to have, and central bankers world-wide are working hard to do just that.”
He added that “lower interest rates do not remove the global political uncertainty.” But they “offer greater certainty on the financial and investment front”. And, “businesses and governments should be re-assessing their hurdle rates on their investment projects. Low and stable global interest rates mean that what was once costly may now be a sound investment for the future.”
The 20-minute telephone call between UK Prime Minister Boris Johnson and European Commission President Jean-Claude Juncker appeared to have delivered nothing new. Johnson’s spokespersons said he released that ” UK will be leaving the EU on October 31, whatever the circumstances, and that we absolutely want to do so with a deal.” Also, Johnson was “clear, however, that unless the Withdrawal Agreement is reopened and the backstop abolished there is no prospect of that deal.”
On the other hand, Juncker’s spokesperson said he “repeated his willingness to work constructively with Prime Minister Johnson and to look at any concrete proposals he may have, as long as they are compatible with the Withdrawal Agreement.” And, Juncker underlined the EU27’s support for Ireland is steadfast and that the EU will continue to be very attentive to Ireland’s interests.” Also, EU was “fully prepared for a no-deal scenario” and “a no-deal scenario will only ever be the UK’s decision, not the EU’s.”
Separately, the opposition parties were seeking to pass a law to force a Brexit delay to prevent no-deal Brexit.
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China backs down from tariff escalation, urges continuing negotiations
China’s Ministry of Commerce spokesman Gao Feng said today that “China has ample means for retaliation, but thinks the question that should be discussed now is about removing the new tariffs to prevent escalation of the trade war.” And, “China is lodging solemn representations with the U.S. on the matter.”
Additionally, Gao reiterated the usual rhetoric that “escalation of the trade war won’t benefit China, nor the US, nor the world,” and “the most important thing is to create the necessary conditions for continuing negotiations.” He also repeated Vice Premier Liu He’s comment that China is “willing to solve the problem through consultation and cooperation with a calm attitude, but firmly opposes escalation of trade war.”
The comments suggested that China is backing down from its hard-line stance after recent escalation by US President Donald Trump. Trump tweeted earlier this month that 25% tariffs on some USD 250B in imports from China would rise to 30% come Oct. 1. He also lifted planned levies on USD 300B in Chinese goods due on Sept. 1 and Dec. 15 by 5%.