New Zealand ANZ Business Confidence rose to -41.8, recovery going to be a long haul

    New Zealand ANZ Business Confidence improved to -41.8 in May, up from May’s prelim reading of -45.6, and April’s -66.6. All industry stayed negative, worst in Agriculture at -82.1. Activity Outlook improved to -38.7, up from May’s prelim reading of -42.0, and April’s -55.1. Retail activity was worst at -45.3. Also, with the Activity Outlook stayed well below 2008.09 lows, and would “need to rise another 17 points just to reach its lows from the 2009 recession”.

    ANZ also noted, “it’s a long way back to normality” while “the recession is just starting to make itself felt”. The economy needs to “reshape to face to the new reality”, in particular, the loss of international tourists “completely for now, but likely still at a hugely significant scale for years”. “Fiscal and monetary policy are doing what they can to cushion the blow and sow the seeds of recovery, but it’s going to be a long haul.”

    Full release here.

    GBP/CHF accelerates lower as BoE close to end of tightening cycle

      Sterling dives broadly after BoE rate decision. CPI is now projected to fall back to below 2% target in the medium term, based on conditioned forecasts with interst rate peaking at 4.50% in mid-2023. That is, with Bank Rate at 4.00% after today’s 50bps hike, BoE is now close to the end of the tightening cycle.

      GBP/CHF ‘s fall from 1.1433 accelerates lower after the announcement. At this point, such decline is still viewed as the fifith leg of the triangle pattern from 1.1574, Hence, while breach of 1.1094 couldn’t be ruled out, strong support should be seen at 1.1045 cluster (38.2% retracement of 1.0183 to 1.1574 at 1.1043) to contain downside and bring rebound.

      However, decisive break of 1.1043/5 will argue that priace actions from 1.1574 are indeed a triple top reversal pattern. Deeper decline would then be seen to 61.8% retracement at 1.0714 and below.

      Sterling gapped lower as Brexit talks stalled at Irish border backstop again

        Sterling gapped lower as the week started with negative Brexit news again. The backstop on Irish border remained an unresolved issue despite efforts from both sides. And furthermore, as the negotiations stalled, there will be no more scheduled talks before the EU summit on later this week.

        EU chief Brexit negotiator Michel Barnier tweeted after meeting UK Brexit secretary Dominic Raab in Brussels that “Despite intense efforts, some key issues are still open, including the backstop for IE/NI (Ireland/Northern Ireland) to avoid a hard border.”

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        Brexit Ministry said that there was progress “in a number of key areas”. “However there remain a number of unresolved issues relating to the backstop. The UK is still committed to making progress at the October European Council.”

        Germany PMI composite dropped to 17.1, shocking picture of the pandemic’s impact

          Germany PMI Manufacturing dropped to 34.4 in April, down from 45.4, a 133-month low. PMI services dropped to 15.9, down from 31.7, record low. PMI Composite dropped to 17.1, down from 35.0, also a record low.

          Phil Smith, Principal Economist at IHS Markit said: “The headline PMI’s reading of 17.1 paints a shocking picture of the pandemic’s impact on businesses. “Service providers bore the initial brunt of the virus containment measures, but the collapse in demand and supply constraints have caught up with manufacturers, who are now also recording an unpreceded drop in output. “The short-term work scheme is having the desired effect of curbing job losses, with employment falling much less than output during April. Still, redundancies and contract cancellations have led to a record drop in workforce numbers as firms look to cut costs and position themselves for a hard slog in the months ahead.”

          Full release here.

          WTI crude oil heading to 90, then 95.5?

            US commercial crude oil inventories rose 2.4m barrels in the week ending January 21. At 416.2m barrels, oil inventories are about 8% below the five year average for this time of year. Gasoline inventories rose 1.3m barrels. Distillate dropped -2.8m barrels. Propane/propylene dropped -4.6m barrels. Commercial petroleum rose 4.1m barrels.

            WTI crude oil resumes recent up trend today and hits as high as 88.16 so far. Next target will be 90, which is a psychological level to overall. Sustained break there would pave the way to 61.8% projection of 66.46 to 87.70 from 82.42 at 95.54. In any case, outlook will now stays bullish as long as 82.42 support holds, in case of retreat.

            US crude oil inventories dropped -10.6m barrels, WTI shrugs and stays in right range

              US commercial crude oil inventories dropped -10.6m barrels in the week ending July 24, versus expectation of 1.0m barrels rise. At 526.0m barrels, crude oil inventories are about 17% above the five year average for this time of the year. Gasoline inventories rose 0.7m barrels. Distillate fuel rose 0.5m barrels. Propane/propylene rose 2.0m barrels. Commercial petroleum dropped -6.5m barrels.

              WTI crude oil is steadily in range after the release. We’d still expect strong resistance from around 42.05 to limit upside to bring correction. Break of 38.45 support will confirm short term topping and bring deeper decline to 55 day EMA (now at 37.90, and below.

              BoC Poloz: Downside risks and deflation possibility the dominant concerns in coronavirus response

                BoC Governor Stephen Poloz delivered his final speech yesterday, before stepping down next week. He noted that the “dominant concerns” for the coronavirus crisis response was “was with the downside risk and the possibility that deflation could emerge.”

                “Deflation interacts horribly with existing debt, the two main ingredients of depressions in the past,” he added. “In effect, then, we were saying that the downside risks were sufficiently dire that there were no relevant trade-offs for monetary policy-makers to consider.”

                He admitted that the actions will “clearly lead to higher indebtedness, for governments in particular”. Getting the economy back onto its growth track is “the surest means of servicing those debts over time”.

                However, with the situation “more like a disaster than a recession”, confidence is expected to be “buttressed by fiscal income supports” and a “reasonably swift return to growth”. But, “any structural damage, such as business failures and labour market scarring, will of course take longer to repair.”

                Poloz’s full speech here.

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                UK PM May on Brexit vote: My deal, no deal, or no Brexit

                  In a BBC radio interview, UK Prime Minister Theresa May tried to play down the chance of delaying the December 11, Tuesday, Brexit vote in the parliament. And she added what she’s doing is leading up to the vote, rather than talking about delaying it.

                  May said that there are three options for the MPs. The first one is leaving EU with a deal, that is her deal. Second is leading EU with no deal. And the final one is having no Brexit at fall. She also insisted that if the deal is voted down, it’s up for those who opposed to propose a plan B.

                  Separately, the European Court of Justice said it will deliver the judgement, on December 10 at 0800GMT, on whether UK can unilaterally reverse Brexit. That would be a day ahead of the scheduled UK parliamentary vote. Earlier this week, ECJ’s advocate general said that UK has the right to withdraw Brexit notice unilaterally, up to the point of formal conclusion of the deal. It’s generally expected, while not binding, ECJ will follow the advocate’s opinion.

                  New Zealand BusinessNZ manufacturing rose to 55.3, ending 2020 on a positive note

                    New Zealand BusinessNZ Performance of Manufacturing Index rose to 55.3 in November, up 2.9 pts. Production rose 3.4 pts to 55.4. New orders surged 4.8 pts to 57.6. However, Employment dropped -0.9 pts to 51.5.

                    BusinessNZ’s executive director for manufacturing Catherine Beard said, “overall, the sector is shaping up to end 2020 on a positive note, which would be a considerable contrast to what was seen during the first half of the year.”

                    BNZ Senior Economist, Doug Steel said that “as a measure of change, the PMI suggests that the manufacturing sector continues to move in the right direction after getting hit hard earlier in the year by COVID related restrictions.”

                    Full release here.

                    Into US session: Dollar firm as ISM manfacturing awaited

                      Entering into US session, Dollar is trading as the strongest one for today. A wave of buying flushed into markets in European session. But the greenback’s rally somewhat stalled quickly. Yen is trading as the second strongest while Sterling is the third. On the other hand, New Zealand Dollar’s selloff resumes today. Canadian Dollar and Euro are the second and third weakest ones.

                      In other markets, European stocks are are trading generally lower. DAX is down -1.35% while CAC is down -1.57% at the time of writing. FTSE is down -0.54%. Earlier today, Asian markets strengthened towards the end of the session as led by China. The Chinese SSE rose 1.1% to close at 2750.58. Hong Kong HSI rose 0.94% and Singapore Strait Times rose 0.10%. Nikkei closed much earlier and didn’t catch the ride, closed down -0.05%.

                      Immediate focus in early US session as BoE Governor Mark Carney’s parliamentary hearing. The most interesting question is whether he’ll stay after his term expires next year. US ISM manufacturing will catch a lot of attention too.

                      US oil inventories rose 7.7m barrels, WTI stays in consolidations

                        US commercial crude oil inventories rose 7.7m barrels in the week ending March 6, way above expectation of 2.0m. At 451.8m barrels, oil inventories are about 2% below the five year average for this time of year.

                        Earlier today, OPEC slashed said global demand will rise by just 60k barrels a day this year, a sharp a reduction of 920,000 bpd from its previous forecast. It said, “considering the latest developments, downward risks currently outweigh any positive indicators and suggest further likely downward revisions in oil demand growth should the current status persist.”

                        WTI crude oil is staying in consolidation above 27.50 low for now. Some more sideway trading is expected until certain breakthrough in Saudi Arabia-Russia oil price war, on either side. We’re not expecting a firm break of 27.69 (2016 low. Meanwhile, rebound attempt should be capped by 42.05 support turned resistance.

                        G20 pledged to realize free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment

                          G20 leaders ended the summit in Japan pledging to realize a free and fair trade and investment environment. But they stopped short of denouncing protectionism. Though, the group still agreed on continuing with WTO reform while acknowledging the complementary roles of bilateral and free trade agreements.

                          In the joint communique, the group said “we strive to realize a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, and to keep our markets open”.

                          And they “reaffirm our support for the necessary reform of the World Trade Organization (WTO) to improve its functions”. Actions are needed on the “functioning of the dispute settlement system”.

                          Also, “we recognize the complementary roles of bilateral and regional free trade agreements that are WTO-consistent. We will work to ensure a level playing field to foster an enabling business environment.”

                          Full communique here.

                          China PMI manufacturing dropped to 49.2, new export orders hit decade low

                            The official China PMI manufacturing dropped to 49.2 in February, down from 49.5 and missed expectation of 49.5. That’s the third straight month of sub-50 reading. Looking at the details new export orders index dropped -1.7 to 45.2, its lowest level in 10 years, suggesting trade war with the US continues to have an impact on exports. Production dropped -1.4 to 49.5. Employment dropped -0.3 to 47.5. PMI services dropped to 54.3, down from 54.7, missed expectation of 54.5.

                            However, analyst Zhang Liqun tried to talk down the deterioration in the statement. He noted that the decline in PMI was mainly due to Lunar New Year factor. He pointed to the significant decline in the production, the purchase volume, and the raw material inventory as indications.

                            Also from Asia, Japan industrial production dropped -3.7% mom in January versus expectation of -2.5% yoy. Japan retail sales rose 0.6% yoy in January, below expectation of 1.5% yoy.

                            RBNZ to stand pat this week, NZDUSD & NZDJPY stay near term bearish

                              RBNZ rate decision is a major focus of the week. After lowering the policy rate by -25 bps to 1.50% in May, the central bank would likely remain on hold this month. Domestic economic developments came in largely consistent with policymakers’ projections. Q1 GDP growth beat RBNZ’s expectations, but breakdowns were mixed. Forward-looking indicators signaled that risks to growth are skewed to the downside.

                              Global economic outlook remains uncertain and major central banks have recently shifted their stance on the dovish side. It is unlikely that G20 summit this week would resolve US-China trade war. At best, both sides would agree to resume negotiations. All these should lead the RBNZ to adopt a cautious tone this month, while opening the door for reducing interest rates again later this year.

                              Here are some previews:

                              NZD/USD recovered ahead of 0.6481 support last week mainly due to Dollar’s weakness. Upside of recovery is so far limited below 0.6681 resistance. Thus, near term outlook stays bearish for another decline through 0.6481 to 0.64245 low. Break will resume larger medium term down trend. Though, on the upside, break of 0.6681 will suggests that consolidation pattern from 0.6424 has started the third leg. Rise from 0.6481 could extend towards 0.6969 resistance before completing such consolidation.

                              NZD/JPY turned sideway after hitting 70.26. Some consolidations might be seen in near term. But outlook remains bearish as long as 72.25 resistance holds. Current fall from 67.78 is expected to resume sooner or later to retest 69.18 low. Though, break of 72.25 will confirm short term bottoming and bring stronger rebound.

                              DOW surges to new record high, target 28461 projection level next

                                DOW finally catches up with S&P 500 and NASDAQ and hits new record high today. Considering overall upside momentum in the markets, DOW should target 100% projection of 24680.57 to 27398.68 from 25440.39 at 28461.57. This will remain the favored case as long as 26918.29.

                                The strong support from 55 week EMA is also a sign of medium term bullishness. Though, we’d still be cautious on near term topping as DOW approaches 61.8% projection of 15450.56 to 26951.81 from 21712.53 at 28820.30.

                                EU announced mandate to negotiate ambitious, wide-ranging and balanced partnership with UK

                                  European Council announced the mandate for chief Brexit negotiator Michel Barnier to open the negotiations for a new partnership with the UK after the Brexit transition period. Andreja Metelko-Zgombić, Croatian State Secretary for European Affairs, said, “This confirms our readiness to offer an ambitious, wide-ranging and balanced partnership to the UK for the benefit of both sides. The EU is now ready to start negotiations.”

                                  In the announcement, EU said the future partnership “should be underpinned by robust commitments to ensure a level playing field for open and fair competition, given the EU and the UK’s geographic proximity and economic interdependence.” EU also intends to establish a free trade agreement which “ensures that zero tariffs and quotas apply to trade in goods.” The agreement should provide for “cooperation on customs and regulatory aspects”, and “include effective management and supervision, dispute settlement and enforcement arrangements.”

                                  Full release here.

                                  RBA stands pat, drop the patient stance

                                    RBA keeps cash rate unchanged at 0.10% today as widely expected. The central bank dropped the line that “the Board is prepared to be patient as it monitors how the various factors affecting inflation in Australia evolve.” It’s seen as a sign that RBA is preparing the markets for an earlier rate hike.

                                    In the forward guidance, RBA said “the Board has wanted to see actual evidence that inflation is sustainably within the 2 to 3 per cent target range before it increases interest rates.”. While inflation has picked up and further increase is expected, “growth in labour costs has been below rates that are likely to be consistent with inflation being sustainably at target.”

                                    RBA concluded, “over coming months, important additional evidence will be available to the Board on both inflation and the evolution of labour costs. The Board will assess this and other incoming information as its sets policy to support full employment in Australia and inflation outcomes consistent with the target.”

                                    Canadian PM Trudeau: High chance of win-win-win deal of NAFTA

                                      Canadian Prime Minister Justin Trudeau also expressed his optimism regarding NAFT renegotiation. He told reports that “we have a high chance of reaching a win-win-win deal for Canada, the United States and Mexico.”

                                      And, “with the pressures of the elections in Mexico, and the U.S. elections, if we could announce something at the Summit of the Americas, that would be great.”

                                      That is the April 13-14 summit of regional leaders of the Americans in Peru. And it’s rumored that there will be at least a symbolic NAFTA agreement reached for announcement during the summit.

                                      US 10-year yield reclaims 2.5, strong resistance ahead

                                        Both US and German bond yield enjoy solid rally today despite poor economic data. Sentiments are generally lifted by optimism on US-China trade negotiations despite lack of concrete news on the progresses. Nevertheless, German 10-year yield turns positive for the first time since late March, and that’s significant. Meanwhile, US 10-year yield also breaks 2.5% handle.

                                        10-year yield (TNX) hits as high as 2.524 so far today. The extended rebound is not too much of a surprise considering that it was supported just above 61.8% projection of 3.248 to 2.554 from 2.759 at 2.330. For now, we’d maintain that sustained break of 2.554 support turned resistance is needed to be the first sign of trend reversal. Otherwise, the currently rebound is nothing more than a corrective recovery.

                                        To put it into longer term perspective, TNX is actually still limited well below long term channel support. Current development suggests that fall from 3.248 is at least corrective whole up trend from 1.336. And, further decline is in favor to 2.034 cluster support before bottoming. So, it’s too early to be optimistic.

                                         

                                        RBA cuts rate to 0.25%, starts government bond purchases

                                          RBA announces a package of coronavirus response today. Firstly, cash rate is cut by 25bps to 0.25%. Additionally, the central bank will start purchases of government bonds to keep 3 year yield at around 0.25%, starting tomorrow. A three-year funding facility will also be set up to provide credit support to small and medium-sized businesses. Lastly, exchange settlement balances will be remunerated at 10 basis points, instead of zero.

                                          The central said, “the various elements of this package reinforce one another and will help to lower funding costs across the economy and support the provision of credit, especially to small and medium-sized businesses.” “Today’s policy package from the Reserve Bank complements the welcome fiscal response from governments in Australia. Together, these measures will support jobs, incomes and businesses through this difficult period and they will also assist the Australian economy in the recovery.”

                                          Full statement here.