In May, US personal income rose 0.5% or USD 88.6B, above expectation of 0.3%. Personal spending rose 0.4% or USD 59.7B, below expectation of 0.5%. Headline PCE deflator slowed to 1.5% yoy, down from 1.6 yoy but matched expectations. Core PCE was unchanged at 1.6% yoy, also matched expectations.
Ahead of tomorrow’s meeting with Chinese President Xi Jinping, Trump denied today on offering Xi a six-month reprieve on new tariffs. He expected the meeting to “productive” at a minimum, but didn’t elaborate further.
Xi, on the hand, warned of “bullying practices” in his remarks to African leaders. And he said “any attempt to put one’s own interests first and undermine others’ will not win any popularity”, without directly mentioning Trump’s “America First” policies.
Eurozone CPI was unchanged at 1.2% yoy in June, matched expectations. However, CPI core accelerated to 1.1% yoy, up from 0.8% yoy and beat expectation of 0.9% yoy.
Looking at the main components of euro area inflation, ‘food, alcohol & tobacco’, ‘energy’ and ‘services’ are expected to have an annual rate of 1.6% in June. The annual rate of ‘non-energy industrial goods’ is expected to be 0.2%
EUR/USD has little reaction to the release. For now, consolidation from 1.1412 is held well above 1.1317 minor support, keeping near term outlook bullish for another rally. Focus will stay on G20 summit in Japan, as well as US PCE inflation to be released later in the day.
Japan Economy Minister Toshimitsu Motegi said US and Japan agreed to speed up trade negotiations. He noted that after meeting US Trade Representative Robert Lighthizer in Osaka as sideline of G20 leaders summit. Working level meetings will be held starting next month, towards a bilateral trade agrement.
However, Motegi also said there is no time frame for completing the deal. He said noted “we share understanding of each other’s thinking and stance and where our gap lies. Based on that, we are discussing ways to narrow our differences.”
UK Q1 GDP was finalized at 0.5% qoq, 1.8% yoy, unrevised. Services output rose 0.4%, production rose 1.1% while construction rose 1.4%.
Services sector provided the largest contribution to growth in the output approach to measuring GDP, while production also contributed positively, due largely to growth of 1.9% in manufacturing output.
Household expenditure, government consumption and investment contributed positively to GDP growth in Quarter 1 2019, while net trade contributed negatively.
Swiss KOF Economic Barometer dropped to 93.6 in June, down from 93.8 and missed expectation of 94.9. KOF said “the downward tendency that has been present since the beginning of the year is now flattening out.” But economic outlook “remains dampened” in the middle of 2019.
The almost unchanged reading is primarily due to balancing tendencies in foreign demand, the goods producing sector (manufacturing and construction) and private consumption. While indicators show a positive tendency with regard to foreign demand, the joint indicators of the goods producing sector and private consumption point in the opposite direction with almost equal magnitude. In addition, there is a slight slowdown in the banking and insurance sector.
In the summary of opinions at June 19-20 BoJ meeting, it’s noted that Japan’s economy is “likely to continue on a moderate expanding trend”. And “year-on-year rate of change in the consumer price index (CPI) is likely to increase gradually toward 2 percent”. Although “downside risks warrant attention”, it’s “appropriate” to continue with “current monetary policy stance”.
However, there was “an increase in uncertainties regarding overseas economies. US-China trade conflicts and threat of no-deal Break has “started to affect Japan’s economy and people’s sentiment”. The schedule consumption tax hike could “exert downward pressure on economic activity and prices.”
It’s argued that it’s important for BoJ to take “some kind of policy responses if some changes emerge in the baseline scenario of the outlook for prices”. And, “all policy measures — including adjustments in short- and long-term interest rates, an acceleration in the pace of expansion in the monetary base, and an increase in the amount of assets to be purchased — should be deliberated when considering additional easing.”
Additionally, it’s also argued that considering growing expectation for easing by Fed and ECB, BoJ “also needs to strengthen monetary easing”. And, “it is necessary to further consider in depth the feasibility of a wide range of additional easing measures, as well as their effects and side effects.”
At sideline of G20 today, in Japan, Chinese President Xi Jinping said in a BRICS meeting that protectionist measures taken by some developed countries are “destroying global trade order”. He added “this also impacts common interests of our countries, overshadows the peace and stability world-wide.” Xi called for BRICS to This also impacts common interests of our countries, overshadows the peace and stability world-wide,”
Trump met Japan Prime Minister Shinzo Abe and Indian Prime Minister Narendra Modi. Trump said he expects to announce “very big” trade deals with both Japan and India. Modi noted that four issues were discussed including Iran, 5G communications networks, bilateral relations and defense relations.
At a news conference, European Commission President Jean-Claude Juncker warned the “difficult” US-China trade relations are “contributing to the slowdown of the global economy”. He’d draw both US and Chinese attention to the “harmful impact this controversial matter is creating.”
Trump and Xi are scheduled to meet at 0230 GMT on Saturday. For now, it’s believed that some form of agreement is already in place to halt recent escalation in US-China trade war. But nothing is done until it’s done. A Trump-Kim style negotiation breakdown cannot be totally ruled out or now.
Japanese Prime Minister Shinzo Abe and Chinese President Xi Jinping held bilateral meeting today, ahead of G20 leaders summit that starts tomorrow. Both sides agreed to work together to promote “free and fair trade”. A wide range of topics were also discussed.
Xi said the G20 summit will be held “against the backdrop of an increasingly complicated world economic situation.” He added I strongly hope the summit will form shared views and send out a clear message to protect multilateralism and free trade.” Abe also said he welcomes the”new developments” in relationship with China that is based on the principles of “promoting free and fair trade.”
Deputy Chief Cabinet Secretary Yasutoshi Nishimura noted that Abe urged Xi to maintain the free and open society, one-country, two systems with Hong Kong. This is a response to highly controversial extradition bill that prompted a March of 2 millions Hongkongers against the bill. Also, a world wide newspaper ad campaign is launched by Hong Kong activities, urging G20 leaders to stand by them to defend Hong Kong’s freedoms and autonomy.
According to Nishimura, Abe also asked Xi to “exercise self-restraint over its activities” around the Japan-held Senkaku islets in the East China Sea and emphasized the importance of demilitarization of disputed islands in South China Sea.
US initial jobless claims rose 10k to 227k in the week ending June 22, above expectation of 220k. Four-week moving average of initial claims rose 2.25k to 221.25k. Continuing claims rose 22k to 1.688m in the week ending June 15. Four-week moving average of continuing claims rose 6.5k to 1.687m.
Q1 GDP growth was finalized at 3.1% annualized, unrevised. .Upward revisions to nonresidential fixed investment, exports, state and local government spending, and residential fixed investment were offset by downward revisions to personal consumption expenditures (PCE) and inventory investment and an upward revision to imports.
Ahead of the Xi-Trump meeting in Japan on Saturday, Chinese reiterated their hard-line stance. Ministry of Commerce spokesman Gao Feng warned that “China’s core concerns must be addressed properly” in trade negotiations. He added, “we hope the U.S. side could drop its wrong practices, and we can solve the problems through equal dialogue and cooperation.” Gao also urged US to ” cancel immediately sanctions on Chinese companies including Huawei to push for the healthy and stable development in Sino-U.S. ties”.
Separately, Foreign Ministry spokesman Geng Shuang said “the Chinese people are not afraid of pressure and never buy this kind of strategy,” referring to Trump’s tariff threats. And, he warned “starting a trade war and adding tariffs harms itself and others.”
On the other hand, WSJ reported that Xi will insist on lifting Huawei ban as part of a set of terms before China would come back to the table. Xi could also request US to lift all punitive tariffs and drop efforts to get China to buy even more US exports than Xi said it would back in December.
Eurozone Economic Sentiment Indicator dropped -1.9 to 103.3 in June, below expectation of 104.7. The deterioration was driven by lower confidence in industrial (-2.7 to -5.6) and services (-1.1 to 11.0). The fall in industrial confidence was largest in eight years. Also, it’s below long-term average for the first time since 2013. On the other hand, Confidence improved in retail trade (+1 to 0.1) and construction (+3.6 to 7.7).
Also, the ESI decreased in all of the largest euro-area economies, most so in Germany (-2.9), followed by Italy, the Netherlands (both -1.5), France (-1.0) and Spain (-0.6).
Business Climate Indicator dropped -0.13 to 0.17, below expectation of 0.28. Managers’ production expectations, as well as their views on overall and export order books and the level of stocks deteriorated. Only the assessments of past production improved.
New Zealand ANZ Business Confidence dropped to -38.1 in June, down from -32.0. Agriculture scored worse at -54.5, followed by construction at -42.3 and manufacturing at -41.4. Activity Outlook also dropped from 8.5 to 8.0.
ANZ noted: “The outlook for the economy is murky. As things stand, there is no reason for the economy to fall into a deep hole. Commodity prices are good, interest rates are at record lows, and the labour market is tight. But the economy is facing credit and cost headwinds and the global outlook is deteriorating. On the latter, for all that our commodity prices have been resilient, the risks are looking decidedly one-sided. Upside risks to growth appear few and far between and with the inflation outlook not consistent with the target midpoint we expect two more OCR cuts this year.”
BoJ Deputy Governor Masazumi Wakatabe said told business leaders in Aomori that “the ultimate objective of monetary policy is the sound development of the economy. In other words, monetary policy won’t be normalized until the economy and prices are in a normal state.” And he pledged “the BoJ will guide policy to ensure Japan never falls into deflation again.”
Meanwhile, Wakatabe urged ” increased attention to heightening risks to the BoJ’s scenario”. In particular, prolonged US-China trade tensions would not just hit the global economy through higher tariffs. Sentiments would be dampened and businesses could be discouraged from investing.
The Trump-Xi meeting on sideline of G20 in Japan is confirmed to be held at 0230 GMT on Saturday. The South China Morning Post in Hong Kong reported that conditions on stopping further escalation in tariffs are already agreed upon. And the agreement will be laid out after the meeting in form of coordinated press releases, rather than joint statement.
Public comments regarding 25% tariffs on USD 300B of Chinese imports, essentially all untaxed, would end on July 2. Trump could formally make a decision to start imposing the tariffs very soon, should trade negotiations collapse once again. Trump also made himself very clear yesterday and said “I would do additional tariffs, very substantial additional tariffs, if that doesn’t work, if we don’t make a deal.”
San Francisco Fed President Mary Daly said yesterday that she is uncomfortable with current direction of inflation. And, “headwinds, slowing growth could strengthen argument for rate cut.” And that could help “bring the economy back to potential growth, support return of inflation to target”
However, she emphasized that it’s a “challenging time” and “risk management is on my mind”. wants to “see another US jobs report to see if last report was noise or a more meaningful sign.” Also, the next several weeks will be key to showing how much of an argument there is for a rate cut.
US commercial crude oil inventories dropped sharply by -12.8M barrels in the week ending June 21. That’s a much larger decline than expectation of -2.7M barrels. At 469.6M barrels, crude oil inventories are about 5% above the five year average for this time of year.
WTI crude oil jumps sharply to as high as 59.84 after the release. It’s now in a strong resistance zone between 60.03 and 61.8% retracement of 66.49 to 50.64 at 60.34. We’d be cautious on strong resistance from there to limit upside. However, as there is upside re-acceleration above 55 day EMA, further rise would remain expected as long as 58.14 support holds.
Sustained break of 60.34 will pave the way to retest 66.49 resistance. This will also add to the case that rise from 42.05 is resuming. Though, break of 58.14 will suggest rejection by the 60.03/34 resistance zone and turn near term outlook bearish for 50.64 support again.
US advance goods trade deficit widened 5.1% to USD -74.5B in May, up from USD -70.9B. That’s also larger than expectation of USD -71.8B. Exports rose USD 4.1B to USD 1402.B. Meanwhile, imports rose USD 7.8B to USD 214.7B.
Durable goods orders dropped -1.3% in May, worse than expectation of -0.1%. But ex-transport orders rose 0.3%, above expectation of 0.1%. Ex-defense order dropped -0.6%.
Entering into US session, New Zealand Dollar remains the strongest one for today, followed by Australian and then Canadian. On the other hand, Yen is so far the weakest, followed by Swiss Franc. Sentiments were lifted by optimistic comments from US Treasury Secretary Steven Mnuchin on trade. He reiterated that the negotiations are 90% complete and could be done by end of the year. Additionally, Bloomberg reported, quoting unnamed source, that US is preparing to delay imposition of new tariffs, in exchange for China’s agreement to return to negotiation take. And, some advisers went further to push Trump to refrain from setting a hard deadline, to avoid a situation similar to last December’s Trump-Xi summit.
RBNZ kept OCR unchanged and hinted on an August rate cut. The easing bias is actually well priced in and traders responded to the positive reference to the economy instead. That is, RBNZ noted that “GDP growth had held up more than projected” in Q1. And “some of the factors supporting growth in the quarter would continue.” BoE Governor Mark Carney noted again policy response to no-deal Brexit is not automatic. Nevertheless, it’s more likely for BoE to provide additional monetary accommodation in case of no-deal Brexit, then to tighten.
In Europe, currently:
Earlier in Asia:
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Canada GDP rose 0.3% in April, above expectation of 0.2%
Canada GDP rose 0.3% mom in April, above expectation of 0.2% mom. Goods-producing industries rose 0.4%, while services producing industries increased 0.2%. The 20 industrial sectors were nearly evenly split between gains and losses. On three-month rolling basis, GDP grew 0.3%, up from 0.1% in the three months to March.
Also from Canada, IPPI rose 0.1% mom in May versus expectation of 0.0% mom. RMPI dropped -2.3% mom, versus expectation of -3.0% mom.
USD/CAD dips mildly after the releases. Focus remains on 1.3068 cluster support (38.2% retracement of 1.2061 to 1.3664 at 1.3052). Decisive break should confirm medium term bearish trend reversal.