US initial jobless claims dropped another week, by -195k to 2981k in the week ending May 9. Four-week moving average of initial claims dropped -564k to 3616.5k.
Continuing claims rose 456k to 22833k in the week ending May 2. Four-week moving average of continuing claims rose 2730k to 19760k.
China stepped up its rhetoric against US threat of tariffs through an English editorial in the official China Daily. There it warned that “faced with this heightened intimidation from the US, China has no choice but to fight back with targeted and direct measures aimed at persuading the US to back off, since it appears that any concessions it makes will not appease the Trump administration, which wants to suck the lifeblood from the Chinese economy.”
And, “Beijing will have to ensure that Washington is aware that there will be heavy price to pay every action it strikes against China if it is to avoid being a victim of the Trump administration’s growing blood lust.” “Those US companies and workers that feel the brunt of China’s retaliation should pass the word to Washington, that despite the pronounced aim of the Trump administration being to protect domestic industries and workers, the injuries that will be done them will be because of its actions.”
On other hand, White House trade adviser Peter Navarro warned China “may have underestimated the strong resolve of President Donald J. Trump.” And, “if they thought that they could buy us off cheap with a few extra products sold and allow them to continue to steal our intellectual property and crown jewels, that was a miscalculation.”
UK PMI Manufacturing was finalized at 46.2 in December, down from November’s 47.2. This marks the seventeenth consecutive month where the index has remained below the neutral 50 threshold, indicating ongoing contraction. According to S&P Global, key aspects such as output, new orders, and employment are all in decline. Additionally, business optimism has reached a 12-month low.
Rob Dobson, Director at S&P Global Market Intelligence, pointed out demand environment remains challenging, with new orders continuing to decline due to difficult conditions in both domestic and key export markets, particularly the European Union.
The downturn is prompting companies to adopt a more cautious approach to costs. There have been notable cutbacks in stock levels, purchasing, and employment as firms grapple with the ongoing challenges.
Sterling surges on news that a Brexit deal is finally clinched in Brussels today, after marathon discussions this week. The news also take stocks and commodity currencies higher. The agreement came just a few hours ahead of the EU summit. European Commission President Jean-Claude Juncker said in a letter that he would recommend EU27 leaders to approve the deal. And it’s a “high time” to complete the Brexit process.
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UK Prime Minister Boris Johnson also said “we have a great new Brexit deal”. His spokesperson added that Johnson is confidence that the new Brexit deal will go forward for a vote in the parliament on Sunday. And, “The public would expect if the deal is passed, for MPs to do everything they can to pass it on time and yes we are confident that we can do that, referring to leaving EU on October 31.
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Canadian Foreign Affairs Minister Chrystia Freeland had four meetings with US Trade Representative Robert Lighthizer yesterday, yet there was no conclusion in trade negotiation yet. Freeland said “no, we don’t have an agreement,” and talks would “reconvene in the morning” on Friday.
She added that “we continue to be encouraged by the constructive atmosphere,” and “there’s a lot we’re trying to do in a short period of time.” And for now, Freeland is “focused on working hard on our issues with the United States”, not the Mexico yet.
Diary is a key topic in the negotiation and Labour Congress President Hassan Youssef hinted that “the Canadian public should expect the American dairy industry will probably have more access to Canada by the time this agreement is concluded and we should not lose sleep over it,”
Prime Minister Justin Trudeau’s spokesman reiterated his stance that ” the federal government remains committed to ensuring that any agreement is in the best interests of Canadians.”
The United States, Canada and Mexico are trying to come up with at least a preliminary agreement in principle by Friday, a deadline unilaterally set by Trump.
According to a Bloomberg report, OPEC members could finally compromise of raising production by 300k – 600k barrels a day over the next few months. Such increase will likely be taken up mainly by those with spare capacity, like Saudi Arabia, Russia and the United Arab Emirates. But it’s unsure whether this can be the consensus in the upcoming OPEC+ meeting in Vienna this week.
Russia is proposing an increase of of 1.5m barrels a day. And the increase would be shared proportionally among all members. But some countries like Venezuela would be unable to raise the output.
Oil price responded positively to the news. WTI crude oil dipped to as low as 63.59 earlier today but is now back at 64.69.
Summary of opinions at September 18-19 BoJ meeting, BoJ warned that the “contrast between the manufacturing and nonmanufacturing sectors has become more evident” at home and abroad. Downside risks to the global economy “have been increasing further” mainly in Europe due to Brexit.
Also, ” it is becoming necessary to pay closer attention to the possibility that the inflation momentum will be lost”. BoJ needs to “reexamine economic and price developments” at the next monetary policy meeting (MPM).
It is also important for BoJ to “communicate with an emphasis that it has not reached an impasse on monetary policy measures”. Additionally, with regard to a negative interest policy, “its impact on the overall economy should be considered first, rather than on banks’ business conditions.”
Full summary of opinions here.
Also released, industrial production dropped -1.2% mom in August, below expectation of -0.5% mom. Retail sales rose 2.0% yoy in August, above expectation of 0.9% yoy. Weak production data reconfirm that impact from global slowdown on exports. Strength of retail sales might partly be due to pre sales tax hike effect and could wane ahead.
Eurozone CPI was finalized at 2.4% yoy in March, down from February’s 2.6% yoy. CPI core (energy, food, alcohol & tobacco) was finalized at 2.9% yoy, down from prior month’s 3.1% yoy.
The highest contribution to annual Eurozone inflation rate came from services (+1.76 percentage points, pp), followed by food, alcohol & tobacco (+0.53 pp), non-energy industrial goods (+0.30 pp) and energy (-0.16 pp).
EU CPI was finalized at 2.6% yoy, down from prior month’s 2.8% yoy. The lowest annual rates were registered in Lithuania (0.4%), Finland (0.6%) and Denmark (0.8%). The highest annual rates were recorded in Romania (6.7%), Croatia (4.9%), Estonia and Austria (both 4.1%). Compared with February, annual inflation fell in thirteen Member States, remained stable in four and rose in ten.
Gold dropped notably this week on the back of strong Dollar. Rising treasury yield, with 10-year yield breaching 3% handle for the first time since 2018, also weigh on the precious metals.
Gold’s fall from 1998.23 resumed after slightly stronger than expected recovery last week. Such fall is seen as the third leg of the decline from 2070.06, and should target 100% projection of 2070.06 to 1889.79 from 1998.23 at 1817.86 next. In any case, more downside is expected for the near term as long as 1919.63 resistance holds.
Also, such decline is seen as the third leg of the corrective pattern from 2074.84 (2020 high). Sustained trading below 55 week EMA (now at 1843.71) would pave the way back to 1682.60 support, where is should finish the pattern and bring long term up trend resumption.
Nobel prize-winning economist Joseph Stiglitz commented on the intensification of trade war between US an China. He pointed out that China is “sitting on $3 trillion of reserves that it can use to help those adversely affected. On the other hand, in the US, “we don’t have an economic framework that is able to respond to the particular places that will be affected by a trade war. Also, he pointed out that “the fiscal resources of the United States are strained.”
In addition, Stiglitz also said that “when you have a bully like Trump, it would not be good to respond in a weak way.” He added that “we know about appeasement from Munich. It’s a different kind of a war but in a trade war appeasement could lead to more and more demands.”
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Eurozone retail sales volume dropped -0.3% mom in August, matched expectations. Retail trade volume decreased by -0.8% for food, drinks and tobacco, while it increased by 0.2% for non-food products and by 3.2% for automotive fuels.
EU retail sales volume dropped -0.2% mom. Among Member States for which data are available, the largest monthly decreases in the total retail trade volume were registered in the Netherlands (-2.2%), Germany (-1.3%) and Malta (-1.1%). The highest increases were observed in Slovenia (+7.0%), Luxembourg (+3.8%) and Ireland (+3.5%).
Japan PMI Manufacturing dropped from 44.8 to 43.7 in April, biggest contraction in 2009. PMI Services dropped from 33.8 to 22.8, worst contraction since survey began in 2007. PMI Composite dropped from 36.2 to 27.8.
Joe Hayes, Economist at IHS Markit, said: “The crippling economic impact from global coronavirus pandemic intensified in April… The decline in combined output across both manufacturing and services was the strongest ever recorded by the survey in almost 13 years of data collection, surpassing declines seen during the global financial crisis and in the aftermath of the 2011 tsunami.
“Overall, GDP looks set to decline at an annual rate in excess of 10% in the second quarter. The current state of emergency will stay in place until 6 May, although given Japan’s lagged response relative to other parts of the world, one would expect this to be extended, meaning the the harsh economic effects are likely to drag out further”.
US PPI for final demand rose 0.5% mom in September, matched expectations. For the 12-month, PPI accelerated to 8.6% yoy, up from 8.3% yoy, below expectation of 8.8% yoy. But that’s still the largest 12-month advance on record since 2010. PPI core rose 0.2% mom, 6.8% yoy, versus expectation of 0.4% mom, 7.1% yoy.
Minutes of the December FOMC meeting will be a major focus today. Back then, Fed decided to speed up tapering and end it in March instead of June. Also, the new projections saw three rate hikes this year. The markets would like to see more in-depth information an related discussion, and hints on the timing of the first hike. Currently, Fed fund futures are already pricing in nearly 60% chance that federal funds rate will be raised to 0.25-0.50% and above in March.
Dollar index is staying well in range of 95.51/96.93, much reflecting the movements in EUR/USD. With 95.51 support intact, further rally is expected in DXY, and an upside breakout could come as soon as a reaction to non-farm payroll report this week. A set of strong job numbers could easily push DXY through 61.8% retracement of 102.99 to 82.0 at 97.72. In the case, 100 handle would be within reach very soon.
Entering into US session, Sterling is once again the weakest one for today as Brexit uncertainty continues. But still, the Pound is holding above near term support levels against Dollar, Euro and Yen. And thus, it’s just experience volatility in tight range. After rejecting all four alternatives in the Commons, there remains no majority on the way forward regarding Brexit. And it’s reported that Conservative MP Oliver Letwin might be a abandoning attempts to use indicative votes to find a consensus.
Meanwhile, Prime Minister Theresa May is maintaining the firm opposition to second referendum and a long Article 50 extension. The Financial Times even reported that May would rather go for a no-deal Brexit than revocation. It’s also reported that May is still considering to bring back her deal for a fourth vote. But Speaker John Bercow is said to reject it. After all, it seems no one knows what’s next.
Staying in the currency markets, New Zealand Dollar is currently the second weakest, followed by Australian Dollar. Aussie dropped notably earlier today after RBA loosen up its monetary policy stance and hinted the next move is data-dependent. But there is no follow through selling yet. Meanwhile, Dollar and Yen are the strongest ones for today
In Europe, currently:
Earlier in Asia:
China Caixin PMI Services dropped to 52.5 in December, down from 53.5, missed expectation of 53.2. PMI Composite fell fro a 21-month high of 53.2 to 52.6. Markit said December saw softer, but still strong, rise in business activity. Total new work continued to rise solidly. Output charges rose in manufacturing sector, but fell at services companies.
Commenting on the China General Services PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said: “The Caixin China Composite Output Index dropped to 52.6 in December from 53.2 in the previous month. Rates of expansion in both the services and manufacturing sectors moderated. However, China’s overall economy continued to stabilize. The gauges for new orders, employment and output prices all remained in positive territory despite modest drops. It is difficult for the measure of business confidence, which remained at a relatively low level in December, to improve. That has become a major hurdle to stabilizing the economy. Looking forward, the phase one trade deal between China and the U.S. should be able to help corporate sentiment recover. China’s economy is likely to get off to a quick start in 2020, but it will still be constrained by limited demand for the rest of the year.”
ECB’s Chief Economist Philip Lane voiced his ongoing concerns regarding the elevated inflation levels in the Eurozone during a conference. Despite a drop in inflation in September to its lowest in two years, Lane emphasized the need for continued efforts to steer price increases back towards the 2% target.
Lane stated, “Price increases are still well above 2%, we are not at the inflation target yet and therefore there is still work to be done in terms of bringing inflation down.”
While wage inflation is anticipated to decline, Lane cautioned that this process would be gradual, as “it’s going to take months, it will take time”. Lane’s focus appears to be more on services inflation data. “I think we will be looking at services inflation data for quite a while,” he shared
One key area of focus for the ECB is the unpredictable nature of energy prices. “We don’t expect the current low gas price to be maintained, we do expect to see gas prices go up from where they are now,” he said. “Energy has been such a volatile component, it’s going to be very important to us to keep an eye on energy in the coming months and years.”
US initial jobless claims dropped -2k to 229k in the week ending June 18, matched expectations. Four-week moving average of initial claims rose 4.5k to 223.5k.
Continuing claims rose 5k to 1315k in the week ending June 11. Four-week moving average of continuing claims dropped -7k to 1310k, lowest since January 3, 1970.
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Trump to delcare national emergency and sign the shutdown averting bill
White House spokesperson Sarah Sanders confirmed that Trump will sign the bill that avert another government shut down. However, as the bill doesn’t include the full sum of the funding that Trump demands for the border wall, he’s going to declare national emergency.
Sanders said “President Trump will sign the government funding bill, and as he has stated before, he will also take other executive action – including a national emergency.”
Top Democrat in the Congress, House of Representatives Speaker Nancy Pelosi said she might file a legal challenge to Trump’s action and “that’s an option”. Senate Democrat leader Chuck Schumer also criticized Trump of a “gross abuse of the power of the presidency.”