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Japan cabinet revised down fiscal 2018 growth forecast

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    ActionForex.com
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    Japan Cabinet Office presented new economic projections at the Council on Economic Fiscal Policy today.

    For current fiscal 2018, the economy is projected to grow 1.5% in real term. That’s a downgrade from prior projection of 1.8%, down at the start of the year. In nominal terms, the economy is projected to grow 1.7%, sharply lower from prior forecast of 2.5%, due partly to slowdown in property investment.

    The office forecasts the economy to grow 1.5% in the fiscal-2019, in price adjusted real terms. That’s after adjustment to the planned sales tax hike in October 2019. In nominal term, GDP is projected to grow 2.8%.

    For the current fiscal 2018, overall CPI is projected to be at 1.1%, unchanged from prior estimate. Overall price CPI is forecast to rise 1.5% in fiscal 2019. With adjustment on the sales tax hike, overall CPI is projected to slow to 1.0%.

    RBA SoMP: Economic projections largely unchanged

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      ActionForex.com
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      In the Monetary Policy Statement, RBA said the economy is “gradually coming out of a soft patch” with GDP growth recovering. Outlook is largely unchanged from three months again, supported by low interest rates, tax cuts, ongoing infrastructure spending and upswing in house prices. Labor markets “has been resilient”, but unemployment will still be “somewhat short of” estimated full employment rate of around 4.5%. Inflation remains “low and steady”, and it’s expected to pick up “only gradually”.

      RBA also noted that the board was “mindful that rates were already very low and that each further cut brings closer the point at which other policy options might come into play.” And, further easing could “unintentionally convey an overly negative view of the economic outlook”. After three rate cuts this year, RBA stood pat in November, and this “allows time to assess the effects of the recent easing of monetary policy as well as global developments.” But the central also pledged it’s “prepared to ease monetary further if needed”.

      The new economic projections are largely unchanged. GDP growth is forecast to average 1.75% in 2019 (revised down from 2.00%), 2.75% in 2020 (unchanged), 3.00% in 2021 (unchanged). Unemployment rate is forecast to be at 5.25% by end of 2019 (unchanged), 5.25% by end of 2020 (unchanged), 5.00% by end of 2021 (unchanged). CPI if forecast to be at 1.75% by end of 2019 (unchanged), 1.75% by end of 2020 (unchanged), 2.00% by end of 2021 (unchanged).

      Full monetary policy statement here.

      New Zealand BusinessNZ manufacturing rose to 54.3, recovery from a large hard hit

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        ActionForex.com
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        New Zealand BusinessNZ Performance of Manufacturing Index rose from 51.6 to 54.3 in October. Looking at some details, production rose from 49.8 to 54.0. Employment dropped from 54.2 to 52.1. New orders dropped from 54.1 to 53.9. Finished stocks rose from 50.2 to 54.9. Deliveries rose from 47.9 to 59.9.

        BNZ Senior Economist, Doug Steel stated that “even though October’s reading is above average, we’d classify it more in the realm of some recovery from a large hit rather than an indication of outright strength.”

        Full release here.

        US retail sales down -0.6% mom in Nov, ex-auto sales down -0.2% mom

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          ActionForex.com
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          US retail sales dropped -0.6% mom to USD 689.4B in November, worse than expectation of -0.1% mom. Ex-auto sales dropped -0.2% mom to USD 562.9B, worse than expectation of 0.2% mom rise. Ex-gasoline sales dropped -0.6% mom to USD 625.1B. Ex-auto, ex-gasoline sales dropped -0.2% to USD 498.6B. Total sales for September through November were up 7.7% yoy from the same period a year ago.

          Full retail sales release here.

          Initial jobless claims dropped -20k to 211k in the week ending December 10, smaller than expectation of 230k. Four-week moving average of initial claims dropped -3k to 227k. Continuing claims rose 1k to 1671k in the week ending December 3. Four-week moving average of continuing claims rose 43k to 1625k.

          Full jobless claims released here.

          Germany GDP grew 1.8% qoq in Q3, below expectations

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            ActionForex.com
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            Germany GDP grew only 1.8% qoq in Q3, below expectation of 2.2% qoq. Overall GDP was still -1.1% lower (price-, seasonally and calendar-adjusted) than in the fourth quarter of 2019, the quarter before the coronavirus crisis began.

            Full release here.

            US initial jobless claims rose to 225k, matched expectations

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              ActionForex.com
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              US initial jobless claims rose 9k to 225k in the week ending December 24, matched expectations. Four-week moving average of initial claims dropped -250 to 221k.

              Continuing claims rose 41k to 1710k in the week ending December 17. Four-week moving average of continuing claims rose 25k to 1680k.

              Full release here.

              US Treasury: Not contemplating blocking Chinese companies from listing at this time

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                ActionForex.com
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                US Treasury spokesperson Monica Crowley partially denied the report that US is considering to de-list some Chinese companies from US exchanges. She said in a statement that “the administration is not contemplating blocking Chinese companies from listing shares on U.S. stock exchanges at this time.”

                The statement was in response to a Bloomberg report that White House economic adviser Larry Kudlow was leading deliberations regarding a potential “financial decoupling” of US and China. Options discussed included forced delisting of Chinese companies, imposition of investment in China by US government pension funds, and limits on value of Chinese companies in US managed indexes. However, it’s later said that the deliberations are at very early stage, without even a time line.

                Separately, Reuters reported that Nasdaq is already cracking down on IPO s of small Chinese companies, by tightening restrictions and slowing down approvals. The new listing rules raised the average trading volume requirements for a stock. Additionally, Nasdaq could delay listing of a company that does not demonstrate a strong enough nexus to the US capital markets. While not being directly targeted, small Chinese IPOs have experienced longer waiting times and scrutiny.

                NZ BNZ manufacturing rises to 47.3, still someway off to expansion

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                  ActionForex.com
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                  New Zealand BusinessNZ Performance of Manufacturing Index rose from 43.4 to 47.3 in January, hitting the highest level since June last year. Despite this uptick, it’s important to note that the manufacturing sector remained in contraction for eleven straight months.

                  BusinessNZ’s Director of Advocacy, Catherine Beard noted that while there are signs of improvement, “the sector is still someway off returning to expansion.”

                  Looking at some details, production rose from 40.5 to 42.1. Employment rose from 47.0 to 51.3. New orders rose from 44.0 to 47.7. Finished stocks rose from 45.9 to 47.3. Deliveries rose from 43.7 to 49.3.

                  However, the persistence of negative sentiment among businesses cannot be overlooked. The proportion of negative comments in January rose to 63.2%, up from 61% in December and 58.7% in November, reflecting concerns over seasonal factors such as holiday disruptions and a sustained lack of demand or orders.

                  Full NZ BNZ PMI release here.

                  Fed Harker: In the upcoming months, we will slow the pace of our rate hikes

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                    ActionForex.com
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                    Philadelphia Fed President Patrick Harker said, “In the upcoming months, in light of the cumulative tightening we have achieved, I expect we will slow the pace of our rate hikes as we approach a sufficiently restrictive stance.”

                    He added, “at some point next year, I expect we will hold at a restrictive rate for a while to let monetary policy do its work”. What happened after there will be driven by data. “If we have to, we can always tighten further, based on the data.”

                    “What we really need to see is a sustained decline in a number of inflation indicators before we let up on tightening monetary policy,” he said, adding “we need to make sure inflation expectations don’t become unanchored.”

                    Fed to announce tapering, some previews

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                      ActionForex.com
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                      FOMC monetary policy decision is the major focus today, as Fed should finally make a formal announcement on QE tapering. As the September minutes indicates, the pace would be “monthly reductions in the pace of asset purchases, by US$10B in the case of Treasury securities and US$5B in the case of agency mortgage-backed securities (MBS)”. The would eventually lead to completion of entire asset purchases by mid -2022. But, a hawkish surprise – monthly reduction at a faster pace – cannot be ruled out given the inflationary pressure.

                      Also, September’s dot plot revealed that half of the members had anticipated a rate hike in 2022. Meanwhile, the market has priced in futures have priced in over 60% of a rate hike by June next year. But Fed Chair Jerome Powell would likely reiterate that decision on interest rate is complete separated from that of asset purchases. There wouldn’t be any new hint on the timing of rate hike until December’s dot plot.

                      Suggested readings on Fed

                      Japan’s PMI shows modest growth, manufacturing still in contraction

                        By
                        ActionForex.com
                        -

                        Japan’s PMI Manufacturing rose fractionally from 47.9 to 48.0 in January, below expectation of 48.2. Manufacturing remained in contraction for the eighth consecutive months. PMI Services rose from 5.15 to 52.7. PMI Composite rose from 50.0 to 51.1.

                        Usamah Bhatti, Economist at S&P Global Market Intelligence, noted that while “modest” the private sector is having the strongest growth since September. However, there was disparity between the sectors, with services reaching a four-month high, while manufacturing marked its eighth consecutive month of contraction.

                        Regarding inflation, Bhatti said input price inflation “remains high historically”. But output inflation eased to its “lowest since February 2022”. This indicates that while input costs are still elevated, businesses are not passing these costs fully onto consumers.

                        Full Japan PMI release here.

                        US non-farm payrolls rose 266k, unemployment rate dropped to 3.5%

                          By
                          ActionForex.com
                          -

                          US Non-Farm Payroll report showed 266k growth in November, well above expectation of 183K. Job growth averaged 180k per months thus far in 2019, versus 223k monthly average in 2018. Manufacturing jobs rose 54k, versus -43k contraction back in November.

                          Unemployment rate dropped to 3.5%, down from 3.6%, better than expectation of 3.6%. That also matches the lowest since 1969Participation rate was little changed at 63.2%. Average hourly earnings rose 0.2% mom in November, below expectation of 0.3% mom.

                          Full release here.

                          ECB Stournaras: We can’t yet say how many more rate hikes will happen

                            By
                            ActionForex.com
                            -

                            In an interview with Greece’s Imerisia, ECB Governing Council member Yannis Stournaras indicated that while the end of the tightening cycle was in sight, it was not yet complete.

                            “We’re close to the end,” Stournaras remarked. But, “we’re not there yet, so I agree with Madame Lagarde that we still have some distance to go.”

                            Stournaras acknowledged the inherent uncertainty in projecting the number of additional rate hikes, with such decisions being heavily influenced by inflation forecasts, economic growth and the state of financial conditions.

                            “We can’t yet say how many more rate hikes will happen,” he said, tempering expectations for a concrete timeline. “As things stand today and if nothing dramatically changes, we can say that in 2023 rate hikes will end.”

                            He also emphasized the persistence of current or potentially higher rates, a measure deemed necessary until inflation approaches the 2% target. “Rates will remain where they are today or higher for some time until inflation comes very close to the 2% target,” he clarified.

                            BoE Saunders: Appropriate to price in a significantly earlier path of tightening

                              By
                              ActionForex.com
                              -

                              BoE hawk Michael Saunders said over the weekend, “markets have priced in over the last few months an earlier rise in Bank Rate than previously and I think that’s appropriate.”

                              Saunders noted that markets have fully priced in a February hike, and half priced a December hike. “I’m not trying to give a commentary on exactly which one, but I think it is appropriate that the markets have moved to pricing a significantly earlier path of tightening than they did previously,” he said.

                              Separately, BoE Governor Andrew Bailey warned in an interview that inflation is “going to go higher, I’m afraid”. “We have got some very big and unwanted price changes,” he said, as the pandemic altered consumer behavior.

                              An update on GBP/CHF short

                                By
                                ActionForex.com
                                -

                                An update on our GBP/CHF short position, sold at 1.2971 (prior post here). 61.8% projection of 1.3854 to 1.3049 from 1.3265 at 1.2768 first target is met. But there is no sign of bottoming yet, in spite of oversold condition. We’ll stay short but lowers the stop to 1.2820 (slightly above 1.2816 minor resistance) to lock in some profits.

                                Theoretically, if the decline from 1.3854 is an impulsive move, the current 1.2768 projection level should be taken out with ease, without hesitation. That is, GBP/CHF should either power lower, or reverse from here. So, tightening the stop will give it no mercy should there be a rebound.

                                Next target is 100% projection at 1.2460. Note that this projection level is close to 61.8% retracement of 1.1638 to 1.3854 at 1.2485. Hence, we’ll take all profit and exit if 1.2500 is met (slightly above 1.2460 and 1.2485).

                                 

                                US CPI slowed to 6.5% yoy in Dec, core CPI down to 5.7% yoy

                                  By
                                  ActionForex.com
                                  -

                                  US CPI declined -0.1% mom in December, below expectation of 0.0% mom. CPI core (ex food and energy) rose 0.3% mom, matched expectations. Food index rose 0.3% mom. Energy index dropped -4.5% mom.

                                  Over the last 12 months, CPI slowed from 7.1% yoy to 6.5% yoy, matched expectations. That’s also the lowest level since October 2021. CPI core slowed from 6.0% yoy to 5.7% yoy, matched expectations. Energy interest was at 7.3% yoy while food was at 10.4% yoy.

                                  Full release here.

                                  Canada retail dales dropped -2.1% in May, more contraction expected in June

                                    By
                                    ActionForex.com
                                    -

                                    Canada retail sales dropped -2.1% mom to CAD 53.8B in May, better than expectation of -3.0% mom decline. The largest declines occurred at building material and garden equipment and supplies dealers (-11.3%) and motor vehicle and parts dealers (-2.4%). Sales decreased in 8 of 11 subsectors, representing 65.6% of retail trade. Advance estimate showed further -4.4% mom contraction in retail sales in June.

                                    Full release here.

                                    US Mnuchin had productive meetings with China

                                      By
                                      ActionForex.com
                                      -

                                      There is so far no known progress as US-China trade talks conclude in Beijing. US Treasury Secretary Steven Mnuchin just tweeted “Productive meetings with China’s Vice Premier Liu He and @USTradeRep Amb. Lighthizer”, without any elaboration.

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                                      On the Chinese side, Foreign Ministry spokesman Geng Shuang said in a regular press briefing that “just wait for a while and the answer will be revealed soon”.

                                      Mnuchin and Lighthizer will meet Chinese President Xi Jinping later this afternoon.

                                      UK PM May talked about a further idea of extending the Brexit implementation period

                                        By
                                        ActionForex.com
                                        -

                                        UK Prime Minister Theresa May said today that she had already put forward on a proposal for avoiding a hard Irish border to the EU. Meanwhile, “a further idea that has emerged – and it is an idea at this stage – is to create an option to extend the implementation period for a matter of months – and it would only be for a matter of months.” But she emphasized that “this is not expected to be used, because we are working to ensure that we have that future relationship in place by the end of December 2020.”

                                        The extension is believed to be a proposal put forward by EU’s chief negotiator Michel Barnier. Under the proposal, both sides could commit to a free trade agreement by the end of 2021. That is, a year of extension in the transition period. And, only if the FTA failed to deliver so called “frictionless” trade would the Irish backstop come into action. Barnier believed that the extension would unlock the stalled debate on Irish border backstop while there would be enough time for the trade deal.

                                        However, the idea of extending the implementation period would catch furious responses from Brexiteers. That would effectively mean another year of EU budget payments as well as continued free movements.

                                        Into US session: Australian Dollar strongest on iron ore, shrugs China stocks selloff

                                          By
                                          ActionForex.com
                                          -

                                          Entering into US session, Australian Dollar defy all the negative factor and it’s trading as the strongest one, followed by New Zealand Dollar. Australian job data was just a mixed bag as fall in unemployment rate was mainly due to contraction in labor force as shown indicated in drop in participation rate. Meanwhile, Chinese stocks are suffering another day of steep selloff. Strength in iron ore price is the key factor in driving the Aussie higher. According to Metal Bulletin spot price for benchmark 62% iron ore hit the highest level since March at 73.36.

                                          Canadian Dollar is trading as the worst performing one as oil prices continue deep decline. WTI crude oil is now below 69 at 68.68 and is accelerating downwards. Sterling is the second weakest one on Brexit impasse. Dollar is mixed today but is showing some sign of strength at the time of writing. Let’s see if it can resume the post FOMC minutes rally in US session.

                                          In European markets, at the time of writing:

                                          • FTSE is down -0.18%
                                          • DAX is down -0.18%
                                          • CAC is up 0.19%
                                          • German 10 year yield is up 0.0033 at 0.467
                                          • Italy 10 year yield up even more by 0.056 at 3.600
                                          • German-Italian spread stays above 300 alarming level

                                          Earlier today in Asia:

                                          • Nikkei dropped -0.80%
                                          • Singapore Strait Times dropped -0.05%
                                          • Hong Kong HSI dropped -0.03%
                                          • China Shanghai SSE dropped -2.94% to 2486.42, taken out 2500 handle as down trend extended

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