In September, UK payrolled employment fell -11k. Median monthly pay rose 5.7% yoy, slowed notably from August’s 7.7% yoy. Annual growth in median pay was highest in the transportation and storage sector, with an increase of 13.5%, and lowest in the health and social work sector, with a decrease of -0.3%.
In the three months to August, unemployment rate fell from 4.3% to 4.2%, below expectation of 4.3%.
Eurozone CPI was finalized at 5.1% yoy in January, up from December’s 5.0% yoy. The highest contribution to the annual euro area inflation rate came from energy (+2.80%), followed by services (+0.98%), food, alcohol & tobacco (+0.77%) and non-energy industrial goods (+0.56%).
EU CPI was finalized at 5.6% yoy, up from December’s 5.3% yoy. The lowest annual rates were registered in France (3.3%), Portugal (3.4%) and Sweden (3.9%). The highest annual rates were recorded in Lithuania (12.3%), Estonia (11.0%) and Czechia (8.8%). Compared with December, annual inflation fell in eight Member States and rose in nineteen.
Ahead of the highly anticipated meeting with China’s Xi, Trump tried to sound hardline in his comments on the trade negotiations today.
He told reporters that “I think we’re very close to doing something with China but I don’t know that I want to do it.” And, “because what we have right now is billions and billions of dollars coming into the United States in the form of tariffs or taxes, so I really don’t know.” Also, “I will tell you that I think China wants to make a deal, I’m hoping to make it a deal but, frankly, I like the deal we have right now.”
The question is, who was Trump talking to? His own base? Republicans? Democrats? Or Xi?
Separately, the WSJ reported that the US and China are exploring a trade pact that would halt further tariffs. But it’s uncertain if it’s real or fake.
Two major central banks will announce their monetary policy decisions today, with SNB leading, followed by BoE.
SNB is widely expected to lower its policy rate by 25bps to 0.25%. With inflation at just 0.3% in February, well below the mid-point of target range, there is both room and necessity for further easing to keep medium-term inflation expectations anchored closer to 1%.
However, the urgency for additional policy support appears to be diminishing, especially with growing optimism around Eurozone economy. Stronger Eurozone growth, driven by major fiscal expansion plans, is expected to lift Euro and boost demand for Swiss exports, which could help mitigate recession and deflation risks in Switzerland.
A Reuters poll of economists showed that most expect rates to remain at 0.25% by year-end, while 10 foresee a move to 0%, and only three expect SNB to maintain the current 0.50% level.
Meanwhile, BoE is widely expected to hold its Bank Rate steady at 4.5%, with little change to its cautious forward guidance. A Reuters poll of 61 economists showed unanimous expectations for a rate hold today, with the next cuts projected for May, August, and November.
The key focus for markets will be whether any additional Monetary Policy Committee members join Catherine Mann and Swati Dhingra in voting for an immediate rate cut, which could signal a shift toward a more dovish stance in the coming months.
Technically, while GBP/CHF extended the rally from 1.1086, it has clearly struggled to find convincing momentum. It’s plausible that this rise is the third leg of the corrective rebound from 1.0741, which has already completed after meeting 61.8% projection of 1.0741 to 1.1368 from 1.1086 at 11437. Break of 1.1299 support will solidify this bearish case and bring deeper fall back to 1.1086 support. Nevertheless firm break of 1.1501 will pave the way to 1.1675 resistance next.
The People’s Bank of China announced to lower the reserve requirement ratios (RRR) by 100 basis points to “support the development of the real economy, optimize the liquidity structure, and reduce financing costs”. The RRR will be lowered by 0.5% on January 15 and another 0.5% on January 25. Currently, the RRR stands at 1.4% for large banks and 12.5% for smaller banks. Additionally the Medium Term Lending Facility will not be renewed after expiry in Q1.
In the statement, PBoC pledged to “continue to implement a prudent monetary policy, maintain a moderate degree of tightness, not engage in flooding, reorientation and regulation, maintain a reasonable and sufficient liquidity, maintain a reasonable growth in the scale of money and credit and social financing, stabilize macro leverage, and balance internal and external balances.
UK retail sales volume fell -0.3% mom in September, much worse than expectation of 0.3 mom rise. Ex-automotive fuel sales volume fell -0.1% mom.
Looking broader, sales volumes (include and excluding fuel) fell by -1.1% in the three months to October 2023 when compared with the previous three months.
In value term, retail sales rose 0.1% mom while ex-fuel sales was flat 0.0% mom.
NASDAQ suffered most among major US indices on Trump’s intention to curb foreign investments in US tech industry. This week’s downside acceleration is starting to argue that it’s in a medium term correction. For the near term, outlook will stay bearish as long as 7610.67 resistance holds. Focus is on 55 day EMA (now at 7460.17). Sustained trading below this EMA will add more weight to this bearish case.
Looking at the bigger picture, outlook isn’t too good neither with bearish divergence condition seen in weekly MACD and RSI. Long term trend line support at around 7125 is another line of defence. Firm break there would confirm that fall from 7806.60 is correcting whole up trend from 4209.76. In that case, we’ll likely see more downside to 38.2% retracement of 4209.76 to 7806.60 at 6432.60) before forming a bottom.
Australia’s economic indicators from October paint a worrisome picture, as PMI Manufacturing dipped to a six-month low at 48.0, down from 48.7. More significantly, PMI Services plunged to a 10-month trough, dropping from 51.8 to 47.6. PMI Composite, which combines both manufacturing and services, dropped to a concerning 21-month low of 47.3 from 51.5.
Weighing in on these figures, Warren Hogan, Chief Economic Advisor at Judo Bank, mentioned PMI output index reverting to cyclical lows around 47 after a brief rise above the neutral 50 mark in September. These PMI indicators resonate with the ongoing narrative that Australia’s economic momentum has decelerated in 2023, aligning with the anticipated gentle slowdown most economists had projected.
A silver lining, however, emerges from the employment index, which remains steadfastly above the 50-mark. Hogan interprets this as a sign that the deceleration in business activities hasn’t notably dampened hiring trends.
However, a significant area of concern highlighted by Hogan is the enduring nature of inflation pressures, which he refers to as “stickiness”. Both input and output price indexes remain elevated, not hinting at an imminent return of inflation to RBA’s target.
As RBA prepares for its board meeting, set to coincide with Melbourne Cup day, the latest PMI readings, especially concerning inflation, are unlikely to drastically influence the interest rate decision. Hogan articulated, “A strong case exists for a further modest upward adjustment to the Australian cash rate target, to ensure the economy remains on the so-called ‘narrow path’. If we are to avoid recession, Australia will need an extended period of below-trend growth to ensure inflation returns to target by 2025.”
Australia PMI Manufacturing rose from 57.7 to 57.9 in April, a 5-month high. PMI Services rose from 55.6 to 56.6. PMI Composite rose from 55.1 to 56.2.
Jingyi Pan, Economics Associate Director at S&P Global said: “The expansion of the Australian economy continued in April, according to the S&P Global Flash Australia Composite PMI, buoyed by the easing of COVID-19 disruptions. Foreign demand played a part as well with new export business rising for the first time since December 2021.
“Price pressures persisted, however, for private sector firms that faced higher costs across raw material to wages. Input costs rose at the fastest pace since data collection began in May 2016, reflecting the impact from both the Ukraine war and lockdowns in China.
“Higher employment levels in April remained a bright spot to highlight, though the lack of suitable candidates have contributed to a slowdown of hiring activity. Meanwhile, despite better output growth, business confidence eased in April which is a worrying trend.”
Risk aversion is back as the dominate theme while Yen surges broadly today. However, Australian Dollar is surprisingly resistent as and it’s following Yen as the second strongest. Canadian is trading as the weakest one as WTI crude oil dives after larger than expected increase in oil inventories. Dollar is trading mixed for the day. Gold drops to as low as 1175.74 so far and looks set to take out 1172.06 fibonacci level with ease.
At the time of writing, DOW is down -0.78%, S&P 500 down -0.84%, NASDAQ down -1.28%. NASDAQ is clearly affected by the poor earnings recent of Chinese tech giant Tencent. As noted before, DOW’s strong break of 25120.07 is a strong signal of near term reversal. Focus will now be on whether it can draw support on 55 day EMA (now at 25033.) Or DOW would just go straight to channel support (now at 24412).
European indices also suffered steep selloff today. DAX closed down -1.58%, CAC down -1.82% and FTSE down -1.49%. CAC’s strong break of 5342.29 support confirms completion of corrective rebound from 5242.64, at 5539.41. Further decline should now be seen through 5242.64 to 100% projection of 5657.44 to 5246.24 from 5539.41 at 5124.62. But, the real test is in 5038.12 key support level.
It looks like Euro bulls are finally giving up. We’re unsure of the reason yet. But the selling has a lot of intensity.
EUR/USD powers through 1.2154 key support level. That’s an important indicate of medium term trend reversal. For the near term, 161.8% projection of 1.2475 to 1.2214 from 1.1991 in the next target.
EUR/GBP’s break of 0.8688 also indicates that rebound from 0.8620 has completed. And deeper fall should be seen back to this support level.
EUR/CAD’s rebound from 1.5461 should also be completed at 1.5712, ahead of 38.2% retracement of 1.6151 to 1.5461. Deeper fall would be seen back to retest 1.5461 first.
ECB Governing Council member Madis Muller said, “given the recovery that we’re seeing in the economy, also the outlook for inflation and most importantly the extremely favorable financing conditions that we continue to have in the euro area, we should be able to end PEPP in March as it has been communicated and as it has been the original plan.” He added, “if you ask what is the most likely outcome then to me personally, this is the base case.”
Muller also argued that inflation could start stronger than ECB’s forecasts. “Looking at possible factors that could be pushing prices higher and those that could be pulling it lower, the factors pushing prices higher seem to be stronger at the moment,” he said. “It’s more likely that we will have inflation, for example, in 2023 higher than 1.5% rather than lower. The same probably applies for the 1.7% inflation forecast for 2022.”
However, “it would be a problem if there is a very sharp cliff effect at the end of the pandemic emergency purchase program,” he noted. “”part of the discussion we will have on how to phase out PEPP and what it would mean for asset purchases going forward.” A potential increase in the APP program was being discussed. But, “of course the decision will depend on market conditions next spring and the economic outlook at that point.”
BoE MPC member Michael Saunders said yesterday, “the economy is in significant excess demand, and inflation expectations are not as well anchored as I would like.”
“My preference is to move quite quickly towards a more neutral stance in order to prevent the recent trend of higher inflation expectations and rising pay growth from becoming more firmly embedded,” he said.
However, he emphasized that his vote for 50bps hike in February “does not necessarily imply that I would vote for a 50 basis-point hike in the event that further tightening is required.”
“All else equal, the case for policy to move in a larger step probably is greater when Bank Rate is clearly further away from the approximate level that, if maintained, would return inflation to target and keep it there,” he added.
Entering into US session, Yen is the weakest one for today as risk appetite returns to the European markets. Swiss Franc is the second weakest naturally, followed by New Zealand Dollar In particular, Franc CAC is lifted solidly by the massive 300 jet planes purchase from Airbus by China as President Xi Jinping visits EU. German 10-year yield also rises to -0.004, attempting to turn positive.
Meanwhile Sterling is the strongest one, lifted mildly by news that Brexiteers are starting to offer support for Prime Minister Theresa May’s Brexit deal. The argument is that, to them, May’s deal is definitely much better no Brexit, and even second referendum which could lead to no Brexit too. Also, after leaving EU, there are still chances to adjust the relationship by future Prime ministers. For now, Australian Dollar is the second strongest, follow by Canadian.
On the data front, German Gfk consumer confidence dropped to 10.4 but economic expectations improved. UK BBA mortgage approvals dropped notably to 35.3k in February. US will release housing starts and building permits, house price indices, and more importantly, consumer confidence.
In Europe, currently:
Earlier in Asia:
Eurozone Q4 GDP growth was finalized at 0.2% qoq, unrevised. Annually, GDP grew 1.1% yoy. Over the whole 2018, GDP grew 1.8%. During Q4, household final consumption expenditure rose by 0.2%. Gross fixed capital formation increased by 0.6%. Exports increased by 0.9%. Imports increased by 0.5%. Eurozone Employment growth in Q4 was finalized at 0.3% qoq, 1.3% yoy.
AUD/NZD is a focus today with RBA and RBNZ featured. It started a rebound since mid September, even though market are expecting RBNZ to hike soon while RBA is still extending it’s QE. The reactions to both central banks this week would determine whether the cross has indeed been reversing the down trend.
Technically, the conditions for a bullish reversal are there, with 55 day EMA broken. Also, fall from 1.1042, as a corrective move, has met it’s target of 100% projection of 1.1042 to 1.0415 from 1.0944 at 1.0314 already, as well as the medium term channel support. Slight bullish convergence condition is also seen in daily MACD.
On the upside, sustained break of 1.0538 resistance will firstly indicates that fall from 1.0944 has completed. Also, whole fall from 1.1042 might also have finished with three waves down to 1.0278 too. Near term outlook will be turned bullish for an eventual retest on 1.0944/1042 resistance zone. However, failure to break through 1.0538, followed by break of 1.0390 minor support, will bring retest of 1.0278 low, and retain medium term bearishness instead.
France PMI Services was finalized at 56.6 in May, up from April’s 50.3. PMI Composite was finalized at 57.0, up from April’s 51.6.
Shreeya Patel, Economist at IHS Markit said: “Latest PMI data indicated a strong improvement in business activity across the French service sector after virus-related restrictions eased in May… Stronger demand, particularly from the domestic market, underpinned the uplift…
“That said, output was somewhat hindered by capacity constraints after a softer increase in headcounts contributed to a marked rise in backlogs. Nevertheless, the upturn across France’s private sector, and a rising vaccination rate will place the country in good stead for strong growth as we head into the summer.”
Euro suffers steep selling after ECB’s announcement. ECB did deliver an the decision on asset purchase program. That is, tapering it for three months after September and end it after December. But the markets seem to be rather unhappy with it. The decision to taper, instead of ending it right after September could be a factor.
The more important one could be this part of the statement. “The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019 and in any case for as long as necessary to ensure that the evolution of inflation remains aligned with the current expectations of a sustained adjustment path.”
It suggests that for now, ECB is not even eyeing mid 2019 as the timing for the first rate hike.
Focus on EUR/USD is now back on 1.1713 minor support. Break will bring retest of 1.1509 low next. Euro now looks to Mario Draghi’s press conference for rescue. Based on our experience on Draghi, he usually delivers something more cautious then the statements.
BoJ Governor Haruhiko Kuroda warned that “recent rise of protectionist moves and tightening of financial conditions in some economies remind policymakers of the importance of being vigilant at all times:. And he urged to “pay more attention to protectionist moves, as global economies have become increasingly interdependent through global value chains.”
Domestically, Kuroda said “when 2 percent inflation target is met or is close to be met, of course we can change the target, the monetary operating target of interest rate.” But he also reiterated that “at this moment, inflation is only 1 percent, so we will continue the current yield curve control at the current level of interest.”
Kuroda also talked down the impact of the planned sales tax hike in 2019 and said “at this stage, there would not be any major negative impact on the economy”. He expected to impact of growth would be “much, much smaller” than from an increase in 2014.
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Japan CPI core turned negative for the first time since 2016
Japan slipped back into deflation as data released today show. All item CPI slowed to 0.1% yoy in April, down form 0.4% yoy. CPI core (all-item less fresh food), dropped to -0.2% yoy, down from 0.4% yoy. That’s the first negative core CPI reading since December 2016. CPI core-core (all-item less energy, fresh food) slowed to 0.2%, down from 0.6% mom.
The data suggests clear downward pressure on prices due to coronavirus containment pressure. Also, core CPI could head deeper into negative territory as services and energy inflation wane ahead.