SNB Jordan: Swiss Franc no longer highly valued

    SNB Chairman Thomas Jordan said in the post-meeting pressing conference, “the new inflation forecast shows that further increases in the policy rate may be necessary in the foreseeable future.”

    “In the current environment, price increases were being passed on more quickly, and are also being more readily accepted, than was the case until recently,” he said. “There is the threat of second-round effects becoming entrenched if inflation remains above 2% for a long period.”

    Jordan also noted that the Franc’s strength on safe-haven flow helped dampen the impact on higher fuel and food import prices. But that was less the case following recent decline. “Thus the inflation imported from abroad has increased,” he said. “Another consequence of this depreciation coupled with significantly higher inflation abroad is that the franc is no longer highly valued.”

    Australia AiG manufacturing dropped to 48.4, modest contraction

      Australia AiG Performance of Manufacturing Index dropped sharply by -6.4 pts to 48.4 in January. Production dropped -0.6 to 51.9. Employment dropped -4.6 to 45.4. New orders dropped -8.0 to 51.3. Supplier deliveries dropped -15.6 to 37.8. Exports dropped -9.5 to 45.1. Input prices rose 4.0 to 82.3. Selling prices dropped -3.3 to 64.8. Wages rose 1.1 to 63.5.

      Innes Willox, Chief Executive of Ai Group said: “Australia’s manufacturers reported a modest contraction in performance over December and January as businesses reported further disruptions to supply chains and as staff availability emerged as a major constraint on many businesses. Cost pressures were keenly felt with input prices continuing to rise and the selling prices index indicating only a partial recovery of these costs in the market.”

      Full release here.

      AUD/NZD soars, setting up long term up trend?

        AUD/NZD soars in response to much better than expected Australia job data, and heightened expectation of RBA rate hike this year. The strong break of 100% projection of 1.0278 to 1.0610 from 1.0314 at 1.0646 is seen as a sign of upside acceleration. Further rally is now expected as long as 1.0583 support holds. Next target is 161.8% projection at 1.0851.

        The bigger question now is whether the medium term fall from 1.1042 has completed as a corrective pattern, with three waves down to 1.0278. Break above above mentioned 1.0851 resistance will add credence to this bullish case. That would also argue that rise from 1.2078 is developing into a long term up trend, resuming the move from 2019 low at 0.9992 through 1.1042.

        Fed: US firms repatriated USD 300B offshore funds after tax cut, but not for investment

          In a note titled “U.S. Corporations’ Repatriation of Offshore Profits“, Fed studied how companies used the cash holdings outside the US after the Tax Cuts and Jobs Act. Under the new act, tax disincentives on the repatriation of foreign earnings were eliminated. Fed found that US firms repatriated just over USD 300B in Q1 2018, roughly 30% of the estimated stock of offshore cash holdings. However, funds repatriated in Q1 have been associated with a dramatic increase in share buybacks only. And, evidence of an increase in investment is less clear at this stage.

          After the passage of the TCJA, hare buybacks spiked dramatically for the top 15 cash holders, which accounted for roughly 80% of total offshore cash holdings.

          However, there is no obvious spike in investment among the top 15 cash holders in Q1 relative to the previous quarter.

          And,  the top 15 cash holders were net sellers in 2018:Q1, with their total securities holdings, mostly in US fixed-income securities, falling by about 3 percent of their total assets.

          Full article here.

          Fed: Economic activity increased in almost all districts

            Fed’s Beige Book economic report noted that “economic activity increased in almost all Districts, but remained well below where it was prior to the COVID-19 pandemic.”

            Looking at some details, consumer spending “picked up” while retail sales “rose”, but was “far below year-ago levels”. Manufacturing activity “moved up” in most districts, from a “very low levels”.

            Employment “increased on net in almost all districts”, but payrolls in all districts were “well below pre-pandemic levels”. Prices were “little changed overall”.

            Full report here.

            Hong Kong stocks lead Asia higher after pro-democracy voters score landslide victory

              Hong Kong stocks lead Asian markets generally higher in reaction to the results of Sunday’s district council elections. While the district councils have few real powers, the elections are seen as a referendum on the current unrest, and a confidence vote on the government.

              The ballot saw record turnout of 71% with 2.94 million people casting their votes. Pro-democracy candidates won 388 of 446 seats, i.e., near 87%. That’s a huge jump from 125 seats they won back in 2015. On the other hand, the pro-Beijing camp won only 58 seats, down from 299 in 2015.

              The elections results should put extra pressure on the Chinese and Hong Kong government to answer the five demands of the protesters. The government will have “no excuse” not to appoint a commission of inquiry on all that happened regarding the extradition bill, including police brutality. Such development would offer some hope for ending the near six month unrest in the city.

              The Hong Kong HSI gaps up in Monday’s trading and is currently up 1.76%. Despite the rebound, there is no change in the overall technical outlook. Corrective rise from 24889.93 should have completed at 27894.68. Hence, another decline is still in favor. Break of 26203.97 support will affirm this bearish case and target a test on 24889.93 low next.

              UK begins CPTPP negotiations to seize a glittering post-Brexit prize

                UK begins negotiations to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership today. Trade Minister Liz Truss said, “This part of the world is where Britain’s greatest opportunities lie. We left the EU with the promise of deepening links with old allies and fast-growing consumer markets beyond Europe. It is a glittering post-Brexit prize that I want us to seize.”

                Trade Department also said in a statement: “The CPTPP agreement has strong rules against unfair trade practices like favouring state-owned enterprises, protectionism, discriminating against foreign investors, and forcing companies to hand over private information,” the trade department said in a statement… The UK’s joining will strengthen the international consensus against such unfair practices.”

                The CPTPP removes 95% tariffs between its members, including Japan, Canada, Australia, Vietnam, New Zealand, Singapore, Mexico, Peru, Brunei, Chile and Malaysia.

                Australia’s PMI composite falls to 50.6, slowing business expansion, manufacturing weakness

                  Australia’s PMI data for June indicates a slowdown in business expansion, with Manufacturing PMI falling from 49.7 to 47.5, Services PMI dropping from 52.5 to 51.0, and Composite PMI decreasing from 52.1 to 50.6, hitting a five-month low.

                  Warren Hogan, Chief Economic Advisor at Judo Bank, noted that while business activity continues to grow, the pace of expansion has slowed compared to the strong performance in the first half of 2024.

                  The manufacturing sector showed significant weakness, with PMI, output, and new orders declining towards the cyclical lows of 2023, all falling below the 50 threshold that separates expansion from contraction. In contrast, the services sector experienced a slight pullback but remained in expansionary territory.

                  The composite input price index dropped below 60 for the first time since January 2021, suggesting that business cost growth is easing. Final prices also decreased but still indicate above-target inflation. Service sector price indicators retreated in June, aligning with the view that inflation is gradually easing in 2024, yet they remain above RBA’s target range of 2-3%.

                  Full Australia PMI release here.

                  RBA Jul minutes: Hike considered, hold to reassess in Aug

                    Minutes from RBA’s July 4th meeting reveal that two options were considered: raising cash rate by additional 25 bps, or keeping it unchanged. RBA eventually chose the latter, acknowledging the “uncertainty around the outlook and the significant increase in interest rates to date.” Members agreed to “reassess the situation at the August meeting.”

                    Despite maintaining status quo, RBA members acknowledged the possibility of future policy tightening. “Members agreed that some further tightening of monetary policy may be required to bring inflation back to target within a reasonable timeframe, but that this depended on how the economy and inflation evolve,” the minutes read.

                    RBA’s decision underscores the central bank’s caution amid shifting economic conditions. With August meeting on the horizon, the Board anticipates additional data on inflation, the global economy, labor market, and household spending. This incoming information, combined with updated staff forecasts and a revised risk assessment, will guide the next policy decision.

                    Full RBA minutes here.

                    US-China trade negotiation said to resume on Oct 10-11

                      It’s reported that US-China trade negotiations will resume on October 10-11 in Washington. Chinese Vice Premier Liu He will lead a delegation representing Beijing. US President Donald Trump had previously delayed a planned tariffs escalation, raising tariffs on USD 250B in Chinese imports to 30%, from October 1 to October 15. Whether such increase would be imposed would be the main reflection on the progress at the upcoming meeting.

                      Yesterday, Chinese Ministry of Commerce spokesman Gao Feng confirmed that China has resumed its purchase of US agricultural products. Also, tariffs on those orders will be exempted. He noted that both sides are maintaining “close communication”. And, “China’s stance has always been consistent and clear, hoping the US side will meet China half way.”

                      ECB press conference live stream

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                        BoE’s Bailey cautions against premature rate cut expectations

                          BoE Governor Andrew Bailey, in his remarks at an event overnight, has strongly indicated that the central bank is not yet in a position to consider reducing interest rates, stating it was “far too early to be thinking about rate cuts”.

                          He warned about the persistently high services inflation and noted that wage growth remains “elevated.” He added, when inflation is high, we take no chances.”

                          In his remarks, Bailey pointed out that the Monetary Policy Committee’s latest projections suggest that restrictive monetary policy stance will likely be necessary for “quite some time yet”.

                          Bailey also stressed the need for vigilance regarding inflation trends, indicating that BoE remains open to further interest rate increases if necessary. “We must watch for further signs of inflation persistence that may require interest rates to rise again,” he cautioned.

                          Australia PMI composite fell to 50.5, RBA has time on their side

                            Australia PMI Manufacturing ticked up from 48.4 to 48.6 in June. PMI Services fell from 52.1 to 50.7. PMI Composite declined from 51.6 to 50.5.

                            Warren Hogan, Chief Economic Advisor at Judo Bank said:

                            “The loss of momentum in recent months will probably give the RBA some comfort that economic activity is slowing down across the economy in 2023, following their consecutive rate hikes in May and June…

                            “The survey suggests that the RBA has time on their side and does not necessarily need to hike rates again in July. The slowdown taking place across the economy provides further evidence that the point at which the RBA can undertake a genuine pause in their tightening cycle is getting closer.

                            “We cannot rule out a further hike in the next few months, but we are close to a level of interest rates whereby the RBA can sit back for 4-6 months and observe the effects of past interest rate increases.”

                            Full Australia PMI release here.

                            Japan PMI manufacturing dropped to 52.9 in Feb, services dropped to 42.7

                              Japan PMI Manufacturing dripped from 55.4 to 52.9 in February, below expectation of 55.0. PMI Services dropped sharply from 47.6 to 42.7, worst reading since May 2020. PMI Composite dropped from 49.9 to 44.6.

                              Usamah Bhatti, Economist at IHS Markit, said:

                              “Activity at Japanese private sector businesses contracted sharply during February as the Omicron variant of COVID-19 led to record case numbers and renewed restrictions in Japan. The decline was the second in successive months though was the sharpest recorded for 20 months and came amid the steepest downturn in the services sector since the first wave of the pandemic in May 2020. Moreover, manufacturers signalled a reduction in output for the first time in five months, though the rate of contraction was considerably softer than that seen in the dominant services sector, and was only mild overall.

                              “Private sector firms also noted a decrease in aggregate new business for the first time since September, largely driven by domestic reductions while new export orders broadly stagnated. Firms continued to report that rising input prices and material shortages, notably in fuel and metals continued to dampen private sector activity. In fact, February saw the strongest rise in average cost burdens since August 2008.

                              “Companies were optimistic that activity would improve in the year ahead, though the continued resurgence of COVID-19 had clouded the outlook and drove optimism to a six-month low.”

                              Full release here.

                              EU Barnier and UK Frost in twitter war on IE/NI protocol

                                UK Prime Minister Boris Johnson’s newspaper article, saying that EU is threatening a “blockade” in the Irish sea, triggered a twitter war between EU negotiator Michel Barnier and UK negotiator David Frost over the weekend.

                                Barnier insisted that “protocol on IE/NI is not a threat to the integrity of the UK”. EU is “not refusing to list” UK as a third country for food imports. But “we need to know in full what a country’s rules are, incl. for imports”.

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                                On the other hand, Frost quoted Barnier’s tweet and said the protocol is a “careful balance in order to preserve peace and the Belfast (Good Friday) Agreement”. “It is precisely to ensure this balance can be preserved in all circumstances that the Govt needs powers in reserve to avoid it being disrupted. He also emphasized, ” if GB were not listed (food), it would be automatically illegal for NI to import food products from GB.”.

                                 

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                                ECB Lagarde: Vaccine provides eagerly awaited light at the end of the tunnel

                                  ECB President Christine Lagarde told the European Parliament yesterday that vaccine rollout across the Eurozone “provides the eagerly awaited light at the end of the tunnel… When containment measures are lifted and uncertainty recedes, we expect the recovery to be supported by favorable financing conditions, expansionary fiscal policies and a recovery in demand.”

                                  Though, she also emphasized, “if we want to pave the way for a sustainable recovery, we need to maintain and strengthen the common European approach that proved so effective last year. The ECB is committed to doing its part, within its mandate.”

                                  “Underlying price pressures are likely to remain subdued owing to weak demand, low wage pressures and the appreciation of the euro exchange rate,” Lagarde said. “Our pledge to preserve favorable financing conditions is crucial in the current environment.”

                                  Bundesbank: Inflation at 4-5% temporarily possible until year-end

                                    In the monthly report, Bundesbank said German economy continued recovery at a “faster pace” in summer. economic output is “likely to grow more stronger in the third quarter than in Spring”. But, due to supply-side difficulties, output had not reached pre-pandemic level yet.

                                    Production level “continued to lag behind strong demand” because of supply bottlenecks. In July, demand for industrial productions already exceeded pre-pandemic level by a whopping 18%. But production remained -3.5% below the pre-pandemic levels. Labor market “recovered extraordinarily strongly since June” and unemployment is likely to continue to fall sharply in the next three months.

                                    On inflation, Bundesbank said, “rates between 4 percent and 5 percent are temporarily possible from September until the end of the year”. One reason for this is the base effect of the temporary VAT reduction in the previous year. The economists assume that inflation will decrease noticeably at the beginning of 2022, but will still be over 2 percent by the middle of the year.

                                    Full release here.

                                    Mid-US update: Yen overtakes Aussie as strongest as stock selloff intensifies

                                      Yen overtakes Australian Dollar as the strongest currency today as risk aversion intensifies. At the time of writing, DOW is down -1.38%, S&P 500 down -1.30%. NASDAQ is the worst and is down -1.88%. Treasury yields also reversed earlier gains. 10 year yield hit as high as 3.215 earlier today but is now back at 3.173, down -0.006. It’s clear sign of flight to safety. For now, Australian and New Zealand Dollar are the next strongest ones.

                                      On the other hand, Sterling remains the worst performing, as weighed down by Brexit impasse, retail sales miss and yesterday’s CPI miss. Canadian Dollar is the second weakest as WTI crude oil stays soft, even though it’s back above 69. Euro is the third weakest on Italian Concern.

                                      In European markets:

                                      • FTSE closed down -0.39% at 7026.99
                                      • DAX closed down -1.07% at 11589.21
                                      • CAC closed down -0.55% at 5116.79.
                                      • German 10 year yield drops -0.0441 to 0.420
                                      • Italian 10 year yield rose 0.1334 to 3.677.
                                      • That is, German-Italian spread is above 320!

                                      Upcoming in Asian session, focus will be on Japan CPI and a batch of Chinese data included GDP.

                                      Germany PMIs improve, but points to economic contraction in current quarter

                                        While Germany witnessed a modest improvement in its economic indicators for September, underlying concerns persist. PMI Manufacturing saw a slight climb from 39.1 to 39.8. Similarly, PMI Services edged up from 47.3 to just below the 50 mark at 49.8. Composite PMI experienced an uptick, moving from 44.6 to 46.2.

                                        Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, addressed the improvements, particularly noting, “The German services PMI stopped its slump and nudged up near 50 in September.” Nonetheless, despite this upward nudge, the service sector remains virtually unchanged following the dip seen in August.

                                        Encouragingly, recent PMI data suggests a deceleration in the decline of new orders and a slowdown in the reduction of purchasing activity in manufacturing. However, a closer look into the data indicates that manufacturing production might experience a drop surpassing 2 percent compared to the preceding quarter.

                                        The broader picture is not particularly optimistic. “Germany has entered once again into contraction during the current quarter.” Hamburg Commercial Bank’s latest projections anticipate a sharp GDP decline of 1 percent relative to the prior quarter.

                                        Full Germany PMI release here.

                                        Fed Daly ready for tapering by the end of the year or early next

                                          San Francisco Fed President Mary Daly said in a PBS interview, she didn’t expect the Delta variant to “derail recovery” in the US. nevertheless, “it’s already very seriously interrupting the recoveries in the global economy,” which is a “headwind on US growth.

                                          She’s looking for “continued progress in the labor market, continued putting COVID behind us, rising vaccination rates, the things that are so fundamental to us saying that the economy has achieved that metric of substantial further progress.”

                                          Right now, her modal outlook is that “we will achieve that metric later this year or early next”. And, “we will do something on the asset front, asset purchase tapering, by the end of this year or early next.”

                                          Full interview here.