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China said to cut import tariffs again in October

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    ActionForex.com
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    Following up on Chinese Premier Li Keqiang’s pledge to further reduce tariffs on Wednesday, it’s reported that China is planning to cut average tariff rates on goods from the majority of its trading partners as soon as next month. Around 1500 consumer products lines could be included in the list. It is a follow up move to a similar tariff cut back in July on a number of consumer goods. So far, there is no official comments from the Ministry of Finance regarding the topic.

    The act is seen as a tactic in the trade war with US that achieve multiple purposes. Firstly, domestic consumptions can be boosted. Secondly, it can should to the world that China is working on opening its markets and it’s consistent with its own claim of advocating free trade. Thirdly, it’s unsure how the cut in tariffs affect US goods as the so-called most favored nation rate also applies. But the act will certainly give extra incentive for Chinese consumers to buy more non-US products.

    EU officials generally want a Brexit deal done despite Irish border differences

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      ActionForex.com
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      As the informal EU summit in Austria continues today, there are more comments regarding the Brexit deal that UK Prime Minister Theresa May is selling. There are still notable different in the issue of Irish border. EU chief negotiator Michel Barnier will brief the leaders of the 27 nations today and a unified position should be reached afterwards. For now, comments from EU officials suggested that they’re working towards deal, rather than away from it.

      Irish Prime Minister Leo Varadkar met with May this morning. He said afterwards that “Ireland is a country that obviously wants to avoid a no deal scenario, we want to avoid a no deal Brexit, (but) we are preparing for that. Also, “we need to double our efforts over the next couple of weeks to make sure that we have a deal.”

      Varadkar added that a “political border” does exist between Ireland and Northern Ireland. And “what we want to avoid is any new barriers to the movement of goods, any new barriers to trade, any new barriers to the movement of people”.

      French President Emmanuel Macron said “we have very clear principles regarding the integrity of the single market and regarding precisely the Irish border. It was precise in March and it was endorsed by the 27 members. So, we have to find collectively and we need a UK proposal precisely preserving this backstop in the framework of a withdrawal agreement.”

      Belgian Prime Minister Charles Michel said “it is necessary to make all the steps because the proposals are not enough in order to have an agreement.”

      Luxembourg Prime Minister Xavier Bettel said “I fully believe that we will be able to find an agreement” and “It’s a compromise from both sides, it’s not on one side.”

      Austrian Chancellor Sebastian Kurz said “both sides are aware that they will only reach a solution if they move towards each other.”

      Sterling jumps as retail sales beat expectations, growth in all four sectors

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        Sterling surges broadly again after August retail sales data beat market expectations.

        • Retail sales include fuel rose 0.3% mom versus expectation of -0.2% mom
        • Retail sales include fuel rose 3.3% yoy versus expectation of 2.3% yoy
        • Retail sales exclude fuel rose 0.3% mom versus expectation of -0.3% mom
        • Retail sales exclude fuel rose 3.5% yoy versus expectation of 2.3% yoy

        All four main sectors contributed positively to growth. In volume term, Food stores contributed 1.0% yoy, non-food stores 0.9% yoy, non-retailing stores 1.2% yoy and petrol stations 0.2% yoy.

        SNB left monetary policy unchanged as widely expected. Full statement

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          ActionForex.com
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          SNB left monetary policy unchanged as widely expected. Full statement below.

          Monetary policy assessment of 20 September 2018

          Swiss National Bank leaves expansionary monetary policy unchanged

          The Swiss National Bank (SNB) is maintaining its expansionary monetary policy, thereby stabilising price developments and supporting economic activity. Interest on sight deposits at the SNB remains at –0.75% and the target range for the three-month Libor is unchanged at between –1.25% and –0.25%. The SNB will remain active in the foreign exchange market as necessary, while taking the overall currency situation into consideration.

          Since the monetary policy assessment of June 2018, the Swiss franc has appreciated noticeably, against the major currencies as well as against emerging market currencies. The Swiss franc is highly valued, and the situation on the foreign exchange market is still fragile. The negative interest rate and the SNB’s willingness to intervene in the foreign exchange market as necessary remain essential in order to keep the attractiveness of Swiss franc investments low and thus ease pressure on the currency.

          The new conditional inflation forecast suggests that inflation up to the beginning of 2019 will be higher than predicted in June due to a slight rise in domestic inflation. From the second quarter of 2019, the new conditional forecast lies below the June forecast as a result of the appreciation in the Swiss franc. For 2018, the SNB continues to anticipate inflation of 0.9%, while the inflation forecast of 0.8% for 2019 is 0.1 percentage points lower than projected at the last assessment. For 2020, the SNB expects to see inflation of 1.2%, compared with the 1.6% forecast in the last quarter. The conditional inflation forecast is based on the assumption that the three-month Libor remains at –0.75% over the entire forecast horizon.

          Overall, global economic growth was solid in the second quarter. In the advanced economies, utilisation of production capacity continued to improve and employment figures once again rose. In the emerging economies, too, economic momentum remained generally robust. International goods trade nonetheless slowed somewhat.

          Economic signals for the coming months remain favourable. Supported by ongoing expansionary monetary policy in the advanced economies and improved labour markets, the global economy is likely to continue to grow. However, following strong growth in the previous quarters, the pace is expected to slow slightly. To date, the crises of confidence in Turkey and Argentina have not materially impacted the global economic outlook.

          The risks to this positive baseline scenario are more to the downside. Chief among them are political uncertainties in some countries as well as potential international tensions and protectionist tendencies.

          Switzerland’s economy has continued to recover. The revised GDP figures for recent years reveal stronger growth momentum than was originally reported. In the second quarter 2018, GDP once again grew faster than estimated potential output, at an annualised rate of 2.9%. The positive development in the first half of the year was, however, partly due to special factors. Overall, utilisation of total production capacity has improved further, and unemployment has also continued to decline over recent months.

          Leading indicators suggest that the economic outlook remains favourable. Some loss of momentum is expected, however, due to a slight slowdown in global growth and the dampening effect of recent Swiss franc appreciation. The SNB now anticipates GDP growth of between 2.5% and 3% for the current year and a further slight fall in unemployment. The stronger growth forecast is attributable to the upward revision for the previous quarters.

          Imbalances on the mortgage and real estate markets persist. Both mortgage lending and prices for single-family homes and privately owned apartments continued to rise at a moderate rate over recent quarters. Although prices in the residential investment property segment have stabilised, there is the risk of a correction due to strong price increases in recent years and growing vacancy rates. The SNB will continue to monitor developments on the mortgage and real estate markets closely, and will regularly reassess the need for an adjustment of the countercyclical capital buffer.

          Japan PM Abe re-elected as LDP leader in landslide victory

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            ActionForex.com
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            Japanese Prime Minister Shinzo Abe was re-elected as the leader of the ruling Liberal Democratic Party. That was a landslide victory as Abe won 553 votes out of 807. He is now set to become the longer serving PM in Japan. Abe said in a victory speech that “it’s time to tackle a constitutional revision,” and “let’s work together to make a new Japan.”

            On the political side, Abe would seek to amend the constitution to confirm the legality of the country’s self-defence forces. The current article 9 of the constitution was written by the US after the second world war, forbidding Japan to use forces to settle international disputes. But under regional pressure, Abe would likely retain passages that forbid Japan from war of aggression. But one way or the other, such change would be a huge test in relationship with its neighbor South Korea and China.

            On the economic front, Abe would continue with the three arrows of his Abenomics, ultra loose monetary policy, fiscal spending and structural reform. The next for Abe is social security reforms including raising retirement age above 65 and defer pension payouts beyond 70. The planned sales tax high from 8% to 10% will be carried out in October 2019.

            On monetary policy Abe hailed that “the biggest goal of our macroeconomic policy has been fulfilled as a result of measures taken by the government and the BOJ to achieve 2 percent inflation”.

            New Zealand GDP grew 1.0%, fastest in two year, but no trend reversal in NZD/USD yet

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              ActionForex.com
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              New Zealand GDP grew 1.0 qoq in Q2, doubled the speed of 0.5% in Q1 and beat expectation of 0.8% qoq. That’s also the fastest quarterly rate in two years. Over the year ended June 2018, growth also accelerated to 2.8% yoy, up fro 2.6% yoy and beat expectation of 2.5% yoy. Growth was broad based with 15 of 16 industries up. GDP per capita also gained 0.5%.

              Looking at more details, the 1.0% quarterly rise in services was the main contributor. Goods-producing industries were up 0.9%. Primary industries grew 0.2%, with strong growth in agriculture, forestry, and fishing offset by a significant fall in mining.

              Full release here.

              NZD/USD’s strong rally today solidify the case that 0.6500 is a short term bottom. There is prospect of it being a medium term bottom considering bullish convergence condition in daily MACD. But it’s early to tell as NZD/USD is held well below 0.6726 resistance. For now, outlook stays bearish as we’d still expect recent down trend to extend lower to 161.8% projection of 0.7557 to 0.6779 from 0.7436 at 0.6177 on down trend resumption.

              NAFTA negotiation restarted with constructive talks but no end in sight yet

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                ActionForex.com
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                Canadian Foreign Minister Chrystia Freeland met US Trade Representative Robert Lighthizer again on NAFTA overnight. After the meeting, Freeland said the talks had been constructive, without giving any details. She said earlier that while Canada is a “country that is good at finding compromises”, the team was also there to “defend the national interest”.

                Back at home in Ottawa, Canadian Prime Minister Justin Trudeau urged more flexibility from the US side in making a deal. He said, “we’re interested in what could be a good deal for Canada but we’re going to need to see a certain amount of movement in order to get there and that’s certainly what we’re hoping for.”

                Referring a key deadlock in Canadian diary market access, Dairy Farmers of Canada vice president David Wiens said, “For American farmers the Canadian market is a drop in the bucket. For us it’s our livelihood.” And he added that concessions in past trade deals had already hurt Canadian farmers.

                US Chamber of Commerce President Thomas Donohue warned that a damaging trade war would be underway if Trump puts all his tariff threats to China into practice. However, he also added “if we can do something next week and get NAFTA done and we do it on a tripartite deal, if we make progress, by the way we are talking in Europe, if we can get that done…we can pretty quickly resolve some of this.”

                In Japan, the chairman of the Japan Automobile Manufacturers Association, Akio Toyoda said “Japanese automakers’ businesses in North America are based on the NAFTA framework, and that framework is based on a three-party agreement.” And, “We hope that framework continues this way, and that it remains well-balanced.”

                Selling her serious and workable Brexit proposal, UK PM May got cold responses from EU leaders

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                  ActionForex.com
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                  At the dinner in the first day of the EU summit in Salzburg, Austria, UK Prime Minister Theresa May was given the stage to sell her Chequers Brexit proposal. It’s reported that she said theses were “serious and workable proposals” and hoped that the EU will “respond in kind”. She emphasized the Irish border problem could be solved by the type of “frictionless trade” envisaged in the Chequers plan. But the Commission’s proposal is “not credible.

                  But there were little responses from the leaders of the other 27 EU nations. They are expected to discuss the issues among themselves over lunch on Thursday today, so as to give a united stance for chief negotiator Michel Barnier to conclude a final in two months.

                  After the dinner, Lithuanian President Dalia Grybauskaite said “At this stage, it’s a standstill. There is no progress.” Slovak Prime Minister Peter Pellegrini said, “On the border issue, there has been no progress.” An unnamed diplomat said “She spoke. There was no reaction.”

                  Mid-US Update: Strong rally in DOW and yield, when will Dollar follow?

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                    ActionForex.com
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                    Solid risk appetite and surging treasury yields are the main theme in the financial markets today. At the time of writing, DOW is up over 190pts or 0.73% at 26438.91. S&P 500 trails and is up 0.23%. But NASDAQ lags behind. US treasury yields continue to show tremendous trend, in particular in the long end. 30 year yield is currently up 0.030, 10 year yield 10 up 0.028 and five yield up 0.021. In Europe, FTSE gained 0.42%, DAX rose 0.50% and CAC added 0.56%.

                    In the currency markets, Swiss Franc remains the weakest one for the day. Dollar gets no support from yield and is the second weakest. Sterling experienced a roller coaster ride on strong CPI and negative Brexit news. But for now, the Pound is patiently awaiting the outcome of the EU summit in Austria. Commodity currencies are the strongest ones, led by Australian Dollar.

                    DOW is having a rather strong rally this week and it shows upside acceleration with daily MACD back above signal line too. Current momentum suggests that DOW will soon challenge 26616.71 record high and should take it out without much difficulty. This will stay the preferred case as long as 26030.35 support holds.

                    TNX’s rally is showing rather strong upside acceleration as seen in daily MACD. 3.115 key resistance should be challenged soon too. It’s early to tell but based on current momentum, it shouldn’t be too difficult to break this key resistance level decisively. And with such developments, Dollar should eventually follow and stage strong rally against other major currencies. It’s just a matter of time.

                    Gold bounded in range, more upside still in favor through 1214

                      By
                      ActionForex.com
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                      Gold continues to gyrate in range of 1187.58/1214.30. More sideway trading could still be seen. But as long as 1187.58 minor support holds, rebound form 1160.36 is in favor to extend higher. Break of 1214.30 will 38.2% retracement of 1365.24 to 1160.36 at 1238.62.

                      For now, such rebound from 1160.36 is seen as a corrective move. Hence, we’d expect strong resistance from 1238.62 to limit upside. On the downside, break of 1187.58 will suggest that the rebound is completed and bring retest of 1160.36 low.

                      EU Tusk: Chequers plan indicated positive evolution, calls for Nov summit on Brexit

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                        ActionForex.com
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                        Just ahead of the EU leaders summit in Salzburg, Austria, European Council President Donald Tusk said he would call for an extra summit in November for Brexit. He said in a news confidence “the Brexit negotiations are entering their decisive phase. Various scenarios are still possible today but I’d like to stress that some of Prime Minister May’s proposals from Chequers indicated positive evolution in the UK’s approach.”

                        He added that “today there is perhaps more hope but there is surely less and less time”, and “every day that is left we must use for talks. I’d like to finalize them still this autumn.” However, he also noted that the part in UK Prime Minister Theresa May’s Chequers plan
                        “will need to reworked and further negotiated”.

                        Yesterday, Tusk laid down three key Brexit issues to focus on at the Salzburg meeting, including:

                        • First, we should reach a common view on the nature and overall shape of the joint political declaration about our future partnership with the UK.
                        • Second, we will discuss how to organise the final phase of the Brexit talks, including the possibility of calling another European Council in November.
                        • Third, we should reconfirm the need for a legally operational backstop on Ireland, so as to be sure that there will be no hard border in the future.

                        Into US session: Sterling torn apart by CPI and Prime Minister May

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                          ActionForex.com
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                          Sterling had a roller coaster ride today. It’s firstly shot up by stronger than expected CPI, at 2.7% yoy in August, which beat BoE’s own projections. However, it’s then hammered down by news that UK Prime Minister Theresa May rejects EU Michel Barnier’s “improved” Irish border proposal. At the time of writing, the Pound is trading as the second weakest one, just next to Swiss Franc, followed by Dollar. On the other hand, Australian Dollar continues to lead New Zealand and Canadian Dollar up on improved risk appetite.

                           

                          In European markets, FTSE is currently up 0.29%, DAX up 0.19%, CAC up 0.23%. German 10 year yield drops a little bit by -0.003 at 0.483. It’s still on track to test key resistance zone around 0.5.

                          Talking about yield, it should be noted that 10 year Japan JGB yield rose 0.0058 to 0.122, hitting the highest level since January 2016.

                          Earlier in Asia, Nikkei closed up 1.08%, Hong Kong HSI gained 1.19% and Singapore Strait Times rose 1.19%. China SSE rose 1.14% to 2730.85, taken 2700 handle out firmly. There was no impact on sentiments after this week’s escalation in US-China trade war. SSE is now suddenly looking back to 2800 resistance zone again.

                          Sterling knocked down as UK PM May said to reject EU Barnier’s proposal

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                            ActionForex.com
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                            Sterling is knocked down heavily after the Times reported that Prime Minister Theresa May will reject EU negotiator Michel Barnier’s “improved” proposal regarding Irish border. That would happen at the EU summit in Salzburg today.

                            Earlier, the Guardian reported that May hit back at Barnier’s criticism on her Cheques Plan. May wrote in  Die Welt that “there have been arguments made against our proposals that have been at odds with the reality of trade negotiations elsewhere and indeed the current trading relationship between EU member states”.

                            And she emphasized “neither side can demand the unacceptable of the other, such as an external customs border between different parts of the United Kingdom – which no other country would accept if they were in the same situation – or the UK seeking the rights of EU membership without the obligations.”

                            Sterling surges as CPI accelerated to 2.7%, beat BoE’s projections

                              By
                              ActionForex.com
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                              Sterling surges broadly after stronger than expected consumer inflation reading. Headline CPI jumped to 2.7% yoy, up from 2.5% yoy and beat expectation of 2.4% yoy. Core CPI also accelerated to 2.1% yoy, up from 1.9% yoy and beat expectation of 1.8% yoy. The headline inflation reading is notably higher than BoE’s own projection of 2.5% as projected in the latest inflation report. That could prompt policy rethink among BoE MPC members. And inflation hawks likes Michael Saunders now have some reasons to strike back. Full release of CPI here.

                              Also released, RPI jumped to 3.5% yoy, up from 3.2% yoy and beat expectation of 3.4% yoy. PPI input slowed to 8.7% yoy, down from 10.3% yoy. PPI output slowed to 2.9% yoy, down from 3.1% yoy. PPI output core slowed to 2.1% yoy, down from 2.3% yoy. Also from UK, house price index accelerated to 3.1% yoy in July, above expectation of 2.9% yoy.

                              South Korean Moon declared era of no war with North Korean Kim

                                By
                                ActionForex.com
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                                South Korean President Moon Jae-in had a rather successful summit, the third one this year, with North Korean Leader Kim Jong-Un. Speaking at a joint news conference in Pyongyang after the meeting, hey pledged to turn Korean peninsula into “land of peace without nuclear weapons and nuclear threats” and take “prompt steps” toward the goal.

                                Kim added that “the world is going to see how this divided nation is going to bring about a new future on its own”. Meanwhile, Moon said “the era of no war has started,” and “today the North and South decided to remove all threats that can cause war from the entire Korean peninsula.”

                                According to Moon, Kim also “expressed its readiness” on permanent dismantlement of its main nuclear facilities in Yongbyon. However, correspondingly measures have to be taken by the US.

                                Trump, as cheerleader on the sideline, tweeted “Kim Jong Un has agreed to allow Nuclear inspections, subject to final negotiations, and to permanently dismantle a test site and launch pad in the presence of international experts. In the meantime there will be no Rocket or Nuclear testing.” But again, there was no well deserved credit given to Moon.

                                Chinese Premier Li: One-way depreciation of the yuan brings more harm than benefits for China

                                  By
                                  ActionForex.com
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                                  Chinese Premier Li Keqiang said in a forum today that the talk of China deliberately weakening the Yuan exchange rate was “groundless”. He added that “one-way depreciation of the yuan brings more harm than benefits for China.” Also, a weaker currency “will only come at a cost of damaging China’s economic environment”.

                                  And he pledged that “China will never go down the road of relying on yuan depreciation to stimulate exports.” Instead, China would “tick to market-oriented foreign exchange reform”. But he also said, the currency would be kept “basically stable at an adaptive level”.

                                  On US-China trade war, Li said “no unilateralism will offer a viable solution”. Instead, “it is essential that we uphold the basic principles of multilateralism and free trade.” He noted intellectual property theft would be “dealt with seriously” with “doubled or even tripled unaffordable penalties” for breaches in order to ensure firms are “comfortable” bringing their business to China.

                                  Li also said China is “deeply integrated into the world economy, the Chinese economy is inevitably affected by notable changes in the global economic and trade context.” And he admitted that “we’re facing greater difficulties in keeping stable performance of the Chinese economy.” But he also indicated Beijing has “prepared sufficient tools for us to deal with risks and challenges” and added that “these policy tools will boost China’s resilience to cope with various challenges and difficulties.”

                                  BoJ Kuroda watching US-China trade war with grave concern

                                    By
                                    ActionForex.com
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                                    BoJ Governor Haruhiko Kuroda warned in the post meeting press conference “protectionism could affect not only the countries that are engaged (in trade wars) but the global economy as a whole through supply chains.” He added that the BoJ is “watching developments with grave concern.” For the moment, Kuroda said “it’s hard to say what specific impact this could have”. But he noted “there could be wide-ranging effects, given the complex global supply chain in the world economy.”

                                    On monetary policy, he said that “we must maintain our powerful monetary easing given it will take time to achieve our inflation target.” And, if 2% inflation is met, “we won’t be continuing our current unconventional policy”. Also, he commented on the bond market activity since BoJ explicitly allowed 10 year JGB yield to move between -0.1% and 0.1%. He said “bond market trading activity has heightened somewhat… but trading tends to thin in August of each year, so it’s too early to gauge the impact of our July decision.”

                                    BoJ kept short term rate at -0.10%, asset purchase as JPY 80T pa

                                      By
                                      ActionForex.com
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                                      BoJ left monetary policies unchanged as widely expected. Short term policy interest was held at -0.10%. BoJ will also continue with JGB purchase to keep 10 year yield at around 0%, but allow it to “move upward and downward to some extent”. Annual pace of monetary base expansion is kept at JPY 80T. The decision was made by 7-2 vote. Harada opposed again on allowing yield to move in a range as that’s “too ambiguous” as guideline. Kataoka continued his push to “strengthen monetary easing”.

                                      The central bank expected the economy to “continue its moderate expansion”. Domestic demand is likely to “follow an uptrend”. Exports are expected to continue the “moderate increasing trend”. CPI is “likely to increase gradually toward 2 percent, mainly on the back of the output gap remaining positive and medium- to long-term inflation expectations rising”

                                      Risks to outlook include US macroeconomic policies, consequences of protectionist moves, developments in emerging and commodity-exporting economies, Brexit and geopolitical risks.

                                      Full statement here.

                                      China state media said trade war an opportunity to replace imports, promote localization or develop advanced manufacturing

                                        By
                                        ActionForex.com
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                                        A front page article in China’s official People’s Daily newspaper said that the country is not afraid of “extreme measures” of the US regarding trade war. The article urged that “to deal with the trade war, what China really should do is to focus on doing its own thing well.” It also said China should use the situation “as an opportunity to replace imports, promote localization or develop export-oriented advanced manufacturing.”

                                        Another official news paper China Daily also said “the trade conflict will not force China to succumb to US pressure. Instead, given its economic resilience, it will squarely face those challenges, find the right solutions, and emerge stronger.”

                                        Canada Freeland repeats no deal is better than a bad deal ahead of NAFTA talk restart

                                          By
                                          ActionForex.com
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                                          High level NAFTA talks between Foreign Minister Chrystia Freeland and US Trade Representative Robert Lighthizer will resume on Wednesday, working towards a US imposed deadline of October 1. head of the meeting, Freeland reiterated the government’s position that “no deal is better than a bad deal.” And she explained that “any negotiator who goes into a negotiation believing that he or she must get a deal at any price … (will) be forced to pay the maximum price for that deal.”

                                          On the other hand, Trump continued to attack Canada. He told reporters “we love Canada, we love the people of Canada, but they are in a position that’s not a good trade position for Canada.” And, “they cannot continue to charge us 300 per cent tariff on dairy products, and that’s what they’re doing.”

                                          Trump close ally House Republican Steve Scalise also warned that “there is a growing frustration with many in Congress regarding Canada’s negotiating tactics.” And, “members are concerned that Canada does not seem to be ready or willing to make the concessions that are necessary for a fair and high-standard agreement.” But it’s unsure how much this such a view is shared among congressmen.

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