Australia leading index improved modestly to -4.44

    Australia Westpac Leading Index rose from -5.29 to -4.44 in June. Despite the modest improvement, the index growth rate remains in deep negative territory, “consistent with recession”. Westpac added, “overall, the component mix points to downside risks near term with the drivers behind the weak July readings on sentiment likely to impact on other, less timely, components that track real activity in coming months.”

    Also, after yesterday’s announcement of extension to JobKeeper and JobSeeker packages, Westpac expected the government to inject around AUD 13.5B in December quarter. The stimulus was estimated to be at AUD 65B in June quarter and AUD 95B in September quarter. Thus, “the challenge for the economy…. is to adjust to such a sudden reduction in the size of government support”.

    Full release here.

     

    IMF Lagarde nominated to be next ECB president

      After three days of marathon summit negotiations, EU leaders have finally agreed to nominate two women for the two top posts. France’s IMF Managing Director Christine Lagarde is chosen as the successor of Mario Draghi as ECB President. German Defence Minister Ursula von der Leyen, a close ally of Chancellor Angela Merkel, would succeed Jean-Claude Juncker as European Commission President.

      In other decision, Belgium’s Liberal caretaker Prime Minister Charles Michel would overtake Donald Tusk as European Council President. Spain’s acting Foreign Minister, Josep Borrell, is nominated as EU’s foreign policy chief.

      PBoC kept LPR unchanged for the fifth straight month

        China’s PBoC kept its benchmark lending rates unchanged for the fifth consecutive month today. The one-year Loan Prime Rate was held at 3.85%. Five-year LPR was kept at 4.65%. That was basically in line with market expectations.

        Recent economic data from China suggested that the economy is on track for recovery. PBoC is expected to continue to stand pat, keeping the policy rate unchanged in the coming months. The main question now is when PBoC would start tightening up policy again. Some speculates that the LPR increase might come early next year.

        USD/CNH is now reversing the whole up trend from 2018 low at 6.2354 to 7.193. As long as 6.8600 near term resistance holds, USD/CNH would continue its decline to 6.6699 support, and possibly further to 61.8% retracement at 6.6021.

        Japan industrial production rose 2.7% in June, unemployment rate dropped to 2.8%

          Japan industrial production rose 2.7% mom in June, above expectation of 1.2% mom. Annually, production dropped -17.7% yoy. Looking at some details, shipment rose 5.2% mom, inventories dropped -2.4% mom, inventory ratio dropped -7.0%. The data showed slight improvement after production hit its decade low in May. The METI also said manufacturers are expecting further rebound in production by 11.3% mom in July and 3.4% in August.

          Also released, unemployment rate dropped to 2.8% in June, down from 3-year high of 2.9% in May, better than expectation of 3.1%.

          China’s NBS PMI manufacturing rises to 50.8, first expansion in six months

            China’s official NBS PMI Manufacturing climbed from 49.1 to 50.8 in March, surpassing expectations of 50.1. This uptick not only marks the sector’s first expansion in six months but also represents its highest reading in a year

            Details showed notable increases in manufacturing production, which leaped from 49.8 to 52.2, and new orders, which surged from 49.0 to 53.0. Furthermore, new export orders rose from 46.3 to 51.3.

            PMI Non-Manufacturing also showed positive momentum, climbing from 51.4 to 53.0, slightly above anticipated figure of 51.3. PMI Composite index, which encompasses both manufacturing and non-manufacturing activities, improved from 50.9 to 52.7,

            Zhao Qinghe, senior statistician at NBS, attributed the March surge to increased production resumption efforts following Lunar New Year holiday, alongside improvement in market vitality.

             

            BoE Carney and Cunliffe to testify on financial stability at the Commons, live stream

              BoE Governor Mark Carney is going to testify on the Financial Stability report at the Commons. Deputy Governor Jon Cunliffe will be there too. Starts at 0800 GMT

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              US initial jobless claims rises to 229k vs exp 215k

                US initial jobless claims rose 8k to 229k in the week ending May 25, above expectation of 215k. Four-week moving average of initial claims fell -750 to 222k.

                Continuing claims rose 2k to 1792k in the week ending May 25. Four-week moving average of continuing claims rose 3k to 1789k.

                Full report in PDF.

                UK PMI services rose to 51.4, 9-month high, economy stagnating at start of Q3

                  UK PMI Services recovered to 51.4 in July, up from 50.2 and beat expectation of 50.4. That’s already the highest level since October 2018 even though rate of expansion remained subdued overall. Markit noted there was modest increase in service sector output. There was rebound in new work, helped by export sales. But business expectations eased to a four-month low.

                  Chris Williamson, Chief Business Economist at IHS Markit, which compiles the survey:

                  “An improved rate of growth in the service sector to the highest since October is welcome news after other PMI surveys showed the sharpest drop in manufacturing output for seven years and a construction sector that is mired in its deepest downturn for a decade. However, the overall picture is one of an economy that is only just managing to skirt recession, with July’s performance among the worst since the height of the global financial crisis in 2009.

                  “The latest PMI numbers are indicative of the economy stagnating at the start of the third quarter after indicating a 0.1% decline in the second quarter.

                  “Even growth in the service sector remains worryingly subdued, constrained by a marked fall in business services activity, where the rate of decline in July has been exceeded only once in the past ten years. The best performing sector was consumer services, highlighting how the economy remains dependent on consumer spending to avoid contraction.

                  “Inflationary pressures remained muted, with average prices charged for goods and services rising at one of the weakest rates recorded over the past three years, as firms increasingly resorted to competing on price to help drive sales.”

                  Full release here.

                  German ZEW dropped to -16.1. Trade war, Italy and data weighed

                    German ZEW economic sentiment dropped to -16.1 in June, down from -8.2, below expectation of -14.6. Current situation index dropped to 80.6, down from 87.4, below expectation of 85.0.

                    Eurozone ZEW economic sentiment dropped to -12.6, down from 2.4, below expectation of 0.1. Current situation index dropped -16.2 to 39.9.

                    Quote from the release:

                    “The recent escalation in the trade dispute with the United States as well as fears over the new Italian government pursuing a policy which potentially destabilises the financial markets have left their mark on the economic outlook for Germany. On top of this, German industry has been reporting worse than expected figures for exports, production and incoming orders for April. As a result, the economic outlook for the next six months has worsened considerably,” comments ZEW President Professor Achim Wambach.

                    Full release here.

                    EU working on plurilateral car agreement to avoid trade war with US

                      The Financial Times reported that EU is considering negotiations with the world’s largest car exporters to prevent and all-out trade war. The talks would involve the US, South Korea and Japan, aiming at a so called “plurilateral agreement” to reduce tariffs to an agreed level for a specified set of products. In such setting, the deal could be struck without involving all of WTO member nations.

                      European Commission President Jean-Claude Juncker is believed to bring the proposal to the US for his meeting with Trump later in July. German Chancellor Angela Merkel also told the German parliament yesterday that Juncker will travel to the US and “submit proposals setting out what we can do.” Merkel urged that it’s worth trying to defuse this conflict, so that it doesn’t turn into a real war”. But she also emphasized that “we need two parties for that to happen.”

                      Separately, it’s also reported that Trump would agree to end the trade dispute on car if both EU and the US would drop all auto tariffs. German newspaper Handelsblatt reported that US ambassador to Germany Richard Grenell had met with executives from Daimler, Volkswagen and BMW to brief the idea.

                      Fed’s Goolsbee: January too soon for committing to future rate cuts

                        Chicago Fed Austan Goolsbee has highlighted the critical role of ongoing inflation data in shaping Fed’s future interest rate decisions. In an interview with Reuters, Goolsbee underlined that it is premature to make definitive decisions about rate adjustments at this juncture.

                        Goolsbee’s said, “I still think that the primary determinant of when and how much rates should be cut will be driven off what’s happening to the inflation data, and are we meeting the mandate goals.”

                        He also emphasized the importance of not rushing into policy decisions based on incomplete data sets. “When we have weeks or months of data to come, I don’t like tying our hands … We don’t make decisions about March, June, and whatever, in January,” he remarked.

                        Regarding the December CPI reading, Goolsbee noted that it was largely in line with expectations. However, he observed some variations within the data, specifically mentioning that services inflation was cooler than anticipated, while housing inflation was slightly higher.

                        Swiss KOF rose to 102.2, down trend halted

                          Swiss KOF Economic Barometer rose notably to 102.2 in September, up 3.3 pts from 98.9. It also beat expectation of 100.1. KOF noted the this may imply that the downward trend, which has been visible since the beginning of 2018, might have come to a halt.

                          The strongest positive contributions came from manufacturing sector. And among manufacturing, “positive development can be attributed mainly to the metal processing industry, followed by the machine building and the food processing as well as the textile industries and finally the chemical industry.” Meanwhile, overall improvement in manufacturing is driven by “a more optimistic assessment of employment, followed by the assessments of production and the overall business situation”.

                          Full release here.

                          Gold resumes rally, targets 1946 next

                            Gold’s rally resumed after brief consolidation and hits as high as 1931.07 so far. In any case, outlook will stay bullish as long as 1889.42 support holds. Next target is 100% projection of 1682.60 to 1877.05 from 1752.12 at 1946.57. Sustained break there, as well as the channel resistance, could prompt some strong upside acceleration ahead.

                            It should also be noted again that sustained break of 1916.30 should confirm that whole correction from 2074.84 (2020 high) has completed at 1682.60, after defending 38.2% retracement of 1046.27 to 2074.84. Further decisive break of 1946.57 would quickly shot Gold up to 161.8% projection at 2066.74, which is close to 2074.84 high.

                            EU: No-deal Brexit is not our preferred option, but current deal is best possible

                              A European Commission spokesperson said today that the bloc was still hoping to avoid no-deal Brexit. But EU is prepared for such an outcome. She noted that “a no-deal scenario is not our preferred option,” but reiterated that the current withdrawal agreement was the “best possible” one. And, “our no-deal preparedness protects the EU 27 and the interests in the case of a no-deal Brexit,”

                              She also noted that the Commission does remain available over the coming weeks should the United Kingdom wish to hold talks and clarify its position in more detail, whether by phone or in person.”

                              Earlier, The Guardian reported that no-deal Brexit is now UK government’s central scenario. An unnamed EU official was quoted saying the UK has ““no intention to negotiate, which would require a plan”.

                              UK Hammond said Brexit deal do-able in 6-8 weeks, but will be less detailed

                                UK Chancellor of Exchequer Philip Hammond told upper house of parliament today that a Brexit deal can be agreed in 6-8 weeks with EU. Though, the agreement would be less detailed. He said “there’s merit in having quite a bit of detail, but clearly we don’t have enough time to negotiate the full draft legal text in what will be quite a complex future partnership agreement.”

                                Hammond’s Treasury also announced earlier today that BoE Governor Mark Carney will extend his term till January 2020. Hammond also told MPs that “if we leave the European Union without a deal… we could expect a period when there would be some turbulence and when there would be some issues arising for financial services businesses.” And, “a governor who was leaving at the end of June, with his bags already packed, would be in a poor position to represent the UK in what might be some quite critical – and time critical – negotiations over that period.”

                                US non-farm payroll grew 164k, unemployment rate unchanged at 3.7%, wage growth accelerated

                                  US non-farm payroll grew 164k in July, slightly below expectation of 169k. That was still in-line with the average growth in the first six months of the year, but notably below 2018 average of 223k per month. Prior month’s figure was revised down from 224k to 193k.

                                  Unemployment rate was unchanged at 3.7%, matched expectation. Participation rate was unchanged at 63.0%. The upside surprise comes from wage growth. Average hourly earnings rose 0.3% mom in July, above expectation of 0.2% mom.

                                  Also released, US trade deficit narrowed slightly to USD -55.2B in June. Canada trade surplus came in smaller than expected at CAD 0.1B.

                                  US ISM manufacturing fell to 48.4, corresponds to -0.1% contraction in GDP

                                    US ISM Manufacturing PMI dropped from 49.0 to 48.4 in December, below expectation of 48.6. That’s the lowest level since Mary 2020. Looking at some details, new orders dropped from 47.2 to 45.2. Production dropped from 51.5 to 48.4. Employment rose from 48.4 to 51.4. Prices dropped from 43.0 to 39.4.

                                    ISM said: “The past relationship between the Manufacturing PMI and the overall economy indicates that the Manufacturing PMI for December (48.4 percent) corresponds to a 0.1-percent decrease in real gross domestic product (GDP) on an annualized basis”.

                                    Full release here.

                                    China Caixin PMI composite unchanged at 50.1, still under triple pressure

                                      China Caixin PMI Services dropped from 51.4 to 50.2 in February. PMI Composite was unchanged at 50.1.

                                      Wang Zhe, Senior Economist at Caixin Insight Group said: “Overall, the manufacturing PMI rose in February, while the services PMI fell, but both remained in positive territory. Demand in the manufacturing sector improved, while demand in the services sector was greatly affected by the epidemic….

                                      “Under the ‘triple pressure’ of demand contraction, supply shocks and weakening expectations, the economy’s recovery is still not robust. Stabilizing economic growth remains an important focus of the government.”

                                      Full release here.

                                      UK PM May urged support to her Brexit deal to turn a corner

                                        UK Prime Minister Theresa May continued to sell her Brexit agreement in her New Year message. He said that “the Brexit deal I have negotiated delivers on the vote of the British people and in the next few weeks MPs will have an important decision to make.” She emphasized that “if parliament backs a deal, Britain can turn a corner.”

                                        May added that “the referendum in 2016 was divisive but we all want the best for our country and 2019 can be the year we put our differences aside and move forward together, into a strong new relationship with our European neighbors and out into the world as a globally trading nation,” And, “we have all we need to thrive and if we come together in 2019 I know we can make a success of what lies ahead.”

                                        MPs are expected to re-start the debate on the Brexit agreement in the week of January 7 and a Commons vote is scheduled for the week of January 14. In the coming days, a focus will be on what further political and even legally assurances the EU will give regarding the non-permanent nature of the Irish backstop.

                                        S&P 500 dips on Fed’s definitive hawkish stance

                                          US equities ended their trading session in the red, following a definitive hawkish stance from Fed, even though interest rate was kept unchanged as expected. Fed sent a clear signal that another rate hike is still on the cards this year, and interest rate is going to stay higher for longer. Fed Chair Jerome Powell confirmed in the post meeting press conference, “We’re in a position to proceed carefully in determining the extent of additional policy firming.”

                                          The new batch of economic projections divulged a prevailing sentiment among 12 of 19 Fed officials in favor of one more rate hike within this year. Investors were taken by surprise not by the rate hike anticipation but by the foreseeing of lesser rate cuts in 2024, a strategic shift attributed largely to the resilient labor market.

                                          Furthermore, the projections hinted at a steeper path for interest rates in the years ahead. Median outlook for federal funds rate was adjusted upwards, settling at 5.1% for 2024, from a prior 4.6%, and 3.9% for 2025, up from 3.4%. This suggests that monetary policy will lean on the tighter side stretching into 2026. A 2.9% funds rate is projected for 2026, marking a divergence from the long-run neutral rate, which remains pegged at 2.5%.

                                          More on Fed:

                                          Reflecting these developments, S&P 500 took a dip, shedding -0.94% or -41.75 points to conclude at 4402.20. In a technical context, S&P 500’s movements stemming from 4607.07 are perceived a correction pattern. D deeper slide is on the cards to 4335.31 or even lower.

                                          However, robust support levels are anticipated around the 38.2% retracement of 3491.58 to 4607.07 at 4180.95. This is expected to limit further losses, at least at first attempt. Meanwhile, a close above 55 D EMA (now at 4438.25) will neutralize the bearish outlook.