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China posted solid production but weak retail sales data

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    ActionForex.com
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    After a delay amid the 20th Communist Party Congress last week, China released a batch of economic data today.

    GDP grew 3.9% yoy in Q3, and beat expectation of 3.3% yoy. In September, industrial grew 6.3% yoy, faster than August’s 4.2% yoy, and beat expectation of 4.9% yoy. Retail sales, however, rose only 2.5% yoy, slowed from August’s 5.4% yoy, and missed expectation of 3.1% yoy. Fixed asset investment rose 5.9% ytd yoy, below expectation of 6.0%.

    Also released, in USD term, exports rose 10.7% yoy in September. Imports rose 0.3% yoy. Trade surplus widened from USD 79.4B to USD 84.0B, above expectation of USD 81B.

    SNB Maechler sees risk of more persistent inflation

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      ActionForex.com
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      SNB board member Andrea Maechler said yesterday, “our mandate is to bring down inflation and we will use the tools we have to do so… If we see our inflation forecast above 2 percent, we will continue to raise rates.”

      “Inflation started with shocks but it’s no longer just shock-driven,” Maechler said. “We see inflation as having the risk of being more persistent.”

      “It’s very important that we maintain the focus on implementing the policies to reach price stability in a consistent and sustainable way.”

      Regarding Swiss Franc exchange rate, she said the appreciation “has been actually helping us keep our inflation much lower than in some of our neighboring countries.”

      Yet, she added, “We’re willing – if the exchange rate were to rise too rapidly, too high – to use intervention to buy foreign exchange… We’re also willing, if the exchange rate were to become too weak, to sell exchange rate but we’re not yet ready to reduce our balance sheet as a policy in itself. This is not the right time.”

      Swiss CPI rose 0.4% mom, 0.8% yoy in March

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        ActionForex.com
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        Swiss CPI rose 0.4% mom in March, above expectation of 0.3% mom. Annual rate rose to 0.8% yoy, up from 0.6% yoy in February and beat expectation of 0.7% yoy.

        Swiss Federal Statistical Office (FSO) noted that “various factors contributed to the 0.4% rise compared with the previous month, such as an increase in the price of international package holidays, air transport and hotel accommodation. However, prices fell for medicines and fuel.”

         

        ECB Villeroy: We remain committed to low interest rates

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          ActionForex.com
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          ECB Governing Council member Villeroy de Galhau said today that “We remain committed to maintaining interest rates very low, which is good for the economy:” And, “Progressively we are withdrawing monetary stimulus… but it is very progressive and depends on improvement in the economy. We’ll take the time it takes.”

          Villeroy also noted that uncertainties are the main reason for the slow down in the economy. That also echoed ECB President Mario Draghi’s comment. The economic projections to be released during March ECB meeting will be watched closely. And, Villeroy hinted that there may be downgrade in GDP forecasts.

          Yen stablized for now, but S&P 500 reversal could push it higher again later

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            ActionForex.com
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            The forex markets have stabilized from Turkish turmoil. Swiss Franc is trading as the weakest one in Asian session so far, followed by Yen, as risk aversion receded. New Zealand Dollar, Canadian Dollar and Australian Dollar are the relatively stronger one. Rally in Yen and Swiss Franc could has passed the near term climax. But the lack of strength in recovery in EUR/USD, GBP/USD and AUD/USD suggests that the greenback might be taking over.

            Nikkei clearly benefits from the pull back in Yen as it’s trading up more than 400pts, or 1.85% at the time of writing. Monday’s gap is nearly closed. But stocks stay generally weak elsewhere. Hong Kong HSI is down -0.89%, China Shanghai SSE is down -0.50% and Singapore Strait Times is down -0.17%. That followed -050% decline in DOW overnight. S&P 500 lost -0.40% while NASDAQ also dropped -0.25%.

            It’s looking increasing likely that SPX is ready for a near term reversal. Momentum is clearly diminishing just ahead of 2872.87 high, as seen in bearish divergence condition in daily MACD. At this point, we’re not seeing any momentum for an upside breakout yet. Break of 2795.14 will instead indicate short term topping. When that happens, it could be the time for another round of selloff in Yen crosses.

            AUD/NZD extending decline after RBNZ

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              ActionForex.com
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              AUD/NZD is extending the decline from 1.1489 after RBNZ’s rate hike today. For the near term, outlook will stay bearish as long as 1.1043 resistance holds, even in case of recovery.

              In the bigger picture, whole up trend from 0.9992 (2020 low) should have completed with three waves up to 1.1489. Current down side momentum argues that fall from 1.1489 is an impulsive move. But at this point, it’s viewed as a leg inside the long term sideway pattern that started in 2015. Even in such case, AUD/NZD would try to hit 61.8% retracement of 0.9992 to 1.1489 at 1.0560 before forming a bottoming.

              ECB Liikanen assures no abrupt sudden changes when QE ends

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                ActionForex.com
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                ECB Governing Council member Erkki Liikanen spoke on monetary policy today:

                • “We have been careful in our communication,” and “we said we’re extending net asset purchases until September and beyond if needed.”
                • “And our monetary policy is and will be data dependent. So we must follow fresh incoming data every time,”
                • “A gradual tightening of monetary policy will rest on a more solid basis when indications of inflation rates to potentially temporarily exceed two percent become more prominent in inflation expectations,”
                • “The euro area inflation rate is sustainable when the ECB’s price stability objective can be met even without an exceptionally accommodative monetary policy,”
                • ” If the economy will be stronger and more convergence will take place, the role of the net asset purchase program will be smaller. And at the same time the other three elements will gain more importance especially forward guidance.”
                • But, “there will be no abrupt sudden changes even if one day the net purchases will be finished.”
                • “Downside risk is mainly political. We must follow that attentively,”

                Risk aversion intensifies, GBP/CHF and USD/JPY break important support

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                  ActionForex.com
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                  Swiss Franc and Yen accelerate higher in European as risk aversion appear to intensify again. Major European indexes are down more than -2% at the time of writing, while US futures also reversed earlier gains.

                  In response to the heightened risk aversion, there is a massive flight-to-safety in bond markets. US 10-year yield has hit the lowest level since February and threatens to take out 3.5%, while Germany 10-year yield also broke the 2.2% handle, hitting the lowest level since early February.

                  GBP/CHF breaks through an important support level at 38.2% retracement of 1.0183 to 1.1574 at 1.1043. Deeper fall is expected to lower channel support (now at 1.0922). Decisive break there could prompt downside acceleration to 61.8% retracement at 1.0714.

                  USD/JPY’s strong break of 38.2% retracement of 127.20 to 137.90 at 133.81 and 55 day EMA argues that whole rebound from 127.20 has completed at 137.90. Deeper fall should be seen to 61.8% retracement at 131.28. Sustained break there will raise the chance of resumption of whole fall from 151.93 through 127.20 low.

                  US PCE inflation unchanged at 2.6%, core PCE slows to 2.9%

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                    ActionForex.com
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                    US personal income rose 0.3% mom or USD 60.0B in December, matched expectations. Personal spending rose 0.7% mom or USD 133.9B, above expectation of 0.4% mom.

                    PCE price index rose 0.2% mom, matched expectations. Core PCE price index (excluding food and energy) rose 0.2% mom, matched expectations. Goods prices fell -0.2% mom while services prices rose 0.3% mom. Food prices rose 0.1% mom and energy prices rose 0.3% mom.

                    From the same month a year ago, PCE price index was unchanged at 2.6% yoy, matched expectations. Core PCE price index slowed from 3.2% yoy to 2.9% yoy, below expectation of 3.0% yoy. Goods prices increased less than 0.1% yoy while services prices rose 3.9% yoy. Food prices rose 1.5% yoy while energy prices fell -2.2% yoy.

                    Full US Personal Income and Outlays release here.

                    Fed Williams: Full scale of coronavirus economic consequences still unknown

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                      ActionForex.com
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                      New York Fed President John Williams said yesterday, “the coronavirus pandemic has created circumstances we have never experienced before in our lifetimes. The reality is that the full scale of the economic consequences is still unknown.”

                      The economy is “going to be underperforming for some time”. “There’s a lot of uncertainty about how long it will take,” Williams added, and Fed will “use all of our tools as appropriate” to support the economy.

                      BoJ: All nine regions expanding or recovering, but uncertainties heightened

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                        ActionForex.com
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                        In the quarterly Regional Economic Report, BoJ kept assessment of all nine regions unchanged. All nine regions reported that their economy had been “either expanding or recovering”. Domestic demand had “continued on an uptrend”, with a virtuous cycle from income to spending operating in both the corporate and household sectors. But, exports and production had been affected by the “slowdown in overseas economies”.

                        Also, while the assessments were overall unchanged, “a somewhat increasing number of firms were pointing to heightening uncertainties over the outlook for overseas economies and their impacts, reflecting, for example, the U.S.-China trade friction.”

                        Full report here.

                        UK Q3 GDP growth fastest since 2016, but September weakness clouds

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                          ActionForex.com
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                          UK Q3 GDP growth accelerated to 0.6% qoq, matched market expectations. That’s also the fastest rate since Q4 2016.

                          Head of National Accounts Rob Kent-Smith noted that “The economy saw a strong summer, although longer-term economic growth remained subdued. There are some signs of weakness in September with slowing retail sales and a fall-back in domestic car purchases. However, car manufacture for export grew across the quarter, boosting factory output. Meanwhile, imports of cars dropped substantially helping to improve Britain’s trade balance.”

                          However, it should be noted that the rolling three month growth rate slowed from 0.7% in both May-Jul and Jun-Aug periods. This is in line with the above comment that there were some weakness in September. Indeed, monthly GDP growth in September was at 0.0% mom, missed expectation of 0.1% mom.

                          Full GDP release here.

                          Also released from UK

                          • Trade deficit narrowed to GBP -9.7B in September versus expectation of GBP -11.4B.
                          • Industrial production rose 0.0% mom, 0.0% yoy in September versus expectation of 0.1% mom, 0.5% yoy.
                          • Manufacturing production rose 0.2% mom, 0.5% yoy versus expectation of 0.1% mom 0.4% yoy.
                          • Construction output rose 1.7% mom in September versus expectation of 0.2% mom.

                          Overall, Sterling turns a bit weaker after the batch of data release.

                          RBNZ’s Conway: OCR to stay restrictive for some time into the future

                            By
                            ActionForex.com
                            -

                            RBNZ Chief Economist Paul Conway, speaking at a webinar today, noted that emphasizing the contractionary nature of current interest rates is effectively “tapping the brakes” on the economy to moderate its pace of growth and address inflationary pressures.

                            Conway expressed optimism about the recent declines in core inflation and business inflation expectations. However, he also highlighted ongoing concerns regarding elevated household inflation expectations, which pose a potential risk to the inflation outlook.

                            Looking forward, Conway underscored the necessity for OCR to maintain a restrictive level “for some time into the future” to get headline inflation, currently at 4.7%, back into the 1-3% target band.

                            An interesting consideration Conway raised was the impact of Fed’s policy moves on New Zealand’s monetary policy trajectory. He suggested that if Fed were to initiate rate cuts towards the end of the year, and RBNZ did not follow suit, the resulting appreciation in NZD could alleviate inflationary pressures in New Zealand. This scenario might prompt RBNZ to reassess its rate cut timeline, leading to earlier-than-anticipated adjustments depending on the broader economic implications.

                            US ADP employment grew 807k in Dec, broad-based gains

                              By
                              ActionForex.com
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                              US ADP private employment grew 807k in December, much better than expectation of 358k. Looking at some details, small businesses added 204k jobs. Medium businesses added 214. Large businesses added 389k. By sector, goods-producing jobs grew 138k. Service-providing jobs grew 669k.

                              “December’s job market strengthened as the fallout from the Delta variant faded and Omicron’s impact had yet to be seen,” said Nela Richardson, chief economist, ADP. “Job gains were broad-based, as goods producers added the strongest reading of the year, while service providers dominated growth. December’s job growth brought the fourth quarter average to 625,000, surpassing the 514,000 average for the year. While job gains eclipsed 6 million in 2021, private sector payrolls are still nearly 4 million jobs short of pre-COVID-19 levels.”

                              Full release here.

                              US stocks tumbled as Trump pulled out of stimulus talks

                                By
                                ActionForex.com
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                                US stocks staged a reversal and tumbled sharply overnight after US President Donald Trump halted stimulus negotiations with Democrats, until after election. He revealed in a tweet “I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business.” The USD 2.2 trillion price tag is an issue that some Republicans explicitly opposed to. Besides, they’re also against the bailout of state and local governments. Separately, Trump urged immediately approval of USD 25 billion bailout for airline and small businesses, with the unused funds from the Cares Act.

                                DOW closed down -1.34% or 375.88 pts at 37772.76, nearly all of Monday’s gains. Our overall view on DOW is unchanged. Current rise from 26537.01 is seen as the second leg of the consolidation pattern from 29199.35 high. While further rise cannot be ruled out, we wouldn’t expect a clean break of 29199.35. Another falling leg is expected before the consolidation completes. Sustained break of 55 day EMA (now at 27407.26) will suggest that the third leg has started towards 38.2% retracement of 18213.65 to 29199.35 at 25002.81.

                                Into US session: CHF weakest in quiet markets, Brexit plan B awaited

                                  By
                                  ActionForex.com
                                  -

                                  Swiss Franc’s selloff pick up momentum in a rather quiet day today. USD/CHF has broken 0.9963 resistance while EUR/CHF is pressing 1.1348. More downside is in favor in the Franc. But it’s just the second weakest one, next to New Zealand Dollar. Australia Dollar and Canadian Dollar follow even though there is no clear sign of risk aversion. WTI crude oil is also staying firm at around 54. Meanwhile, Yen is the strongest one in very tight range, followed by Euro and Sterling. Overall, the forex markets are mixed except for that weakness in Franc.

                                  The US markets are on Martin Luther King Day holiday today. Main focus is across the Atlantic on UK Prime Minister Theresa May’s Brexit plan B. She’s due to make a statement in the parliament at 1530 GMT. Her spokesman said the Brexit will have to be changed if it’s to be approved by lawmakers. And there were talks going on to understand what exact changes are needed.

                                  Currently in European markets:

                                  • FTSE is up 0.13%.
                                  • DAX is down -0.45%.
                                  • CAC is down -0.16%.
                                  • German 10 year yield is down -0.013 at 0.251.

                                  Earlier in Asia:

                                  • Nikkei rose 0.26%.
                                  • Hong Kong HSI rose 0.39%.
                                  • China Shanghai SSE rose 0.56%.
                                  • Singapore Strait Times dropped -0.12%.
                                  • Japan 10-year JGB yield dropped -0.0099 to 0.004, stayed positive.

                                  UK GDP grew 0.5% mom in May, much better than expectations

                                    By
                                    ActionForex.com
                                    -

                                    UK GDP grew 0.5% mom in May, much better than expectation of 0.0%. Services rose 0.4% mom. Production rose 0.9% mom. Construction also rose 1.5% mom. Monthly GDP is estimated to be 1.7% above its pre-pandemic levels in February 2020. In the three months to May, GDP grew 0.4%. Annual growth in monthly GDP was 3.5% yoy.

                                    Also published, industrial production was up 0.9% mom, 1.4% yoy, versus expectation of 0.0% mom, 1.7% yoy. Manufacturing production was up 1.4% mom, 2.3% yoy, versus expectation of 0.1% mom, 0.3% yoy. Goods trade deficit was little changed at GBP -21.4B, versus expectation of GBP -18.3B.

                                    Full GDP release here.

                                    Asian update: AUD lower on unemployment rate, Yen strong on persistently weak yields

                                      By
                                      ActionForex.com
                                      -

                                      US stocks staged a broad based recovery overnight on reports that Trump would delay the decision on auto tariffs, due May 18, by up to 6 months. Though, strength of recovery was relatively limited. More importantly, 10-year yield still closed down -0.0040 at 2.379, breaking 2.4 handle firmly. With 3-month yield closed at 2.404, this most crucial part of yield curve, 3-month to 10-yield, is inverted. Asian markets are mixed with mild recovery in China and Hong Kong stocks, but Nikkei is clearly down despite the auto tariff news.

                                      In the currency markets, Australian and New Zealand Dollar are the weakest ones for today. Aussie was somewhat weighed down by unexpected rise in unemployment rate to 8-month high of 5.2%. But we’d like to emphasize that was due to rise in participation rate to record high of 65.8%. It’s healthy in a strong labor market. Canadian Dollar is the third weakest for today. On the other hand, weak treasury yields continue to support Yen as strongest, while Euro and Sterling recover.

                                      For the week, Yen and Swiss Franc remain the strongest one on free fall in major global treasury yields. Dollar remains the third strongest. Sterling is the weakest one on never ending Brexit impasse. Australian and New Zealand Dollar are the next weakest.

                                      In Asia, currently:

                                      • Nikkei is down -0.67%.
                                      • Hong Kong HSI is up 0.24%.
                                      • China Shanghai SSE is up 0.28%.
                                      • Singapore Strait Times is up 0.05%.
                                      • Japan 10-year JGB yield is down -0.0097 at -0.061.

                                      Overnight:

                                      • DOW rose 0.45%.
                                      • S&P 500 rose 0.58%.
                                      • NASDAQ rose 1.13%.
                                      • 10-year yield dropped -0.040 to 2.379.

                                      Fed Williams: It’s a matter of fiscal policy that tilts the economic trajectory

                                        By
                                        ActionForex.com
                                        -

                                        New York Fed President John Williams said the economy is on a “pretty good trajectory”. And, “it’s really a matter of if there’s more or less fiscal policy that maybe tilts that trajectory”. He expects the economy to be back close to full employment in “about three years time”, but “there’s clearly a lot of unknowns”.

                                        On Fed’s average inflation targeting, “we’re purposely overshooting that moderately for some time to get that balance,” he said. “To me, success is not some arithmetic or some formula but it’s really this notion of inflation expectations, how people think about what’s inflation going to be in the future.”

                                        Fed Kashkari: Recovery looks like it’s going to be slow

                                          By
                                          ActionForex.com
                                          -

                                          Minneapolis Fed President Neel Kashkari told NBC today that tomorrow’s NFP report might show unemployment rate surging to 17%. But the actual rate might be even higher at 23%. Also, “that bad report tomorrow is actually going to understate how bad the damage has been.”

                                          He emphasized that “the Federal Reserve is acting aggressively, we will continue to act aggressively,” to support the economy. But “Unfortunately, the recovery looks like it is going to be slow,” after the coronavirus pandemic.

                                          “The virus is still spreading throughout much of the country,” he said. “We have to continue to be very measured and not reopen too quickly because we may pay the price for that.”

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