BoJ opinions: No significant change in the situation in Japan

    In the Summary of Opinions of BoJ’s September 21-22 meeting, it’s noted, “since there is no significant change in the situation in Japan where economic activity, such as of firms, has been supported by accommodative financial conditions, it is appropriate for the Bank to maintain the current monetary policy measures”.

    One opinion also noted, “although financial markets have been stable on the whole, it is necessary to be vigilant in closely monitoring economic and financial developments, including the impact of developments in the Chinese real estate sector on global financial markets, and be ready to respond promptly if necessary.”

    Full Summary of Opinions here.

    ECB Makhlouf: German court ruling won’t get in the way of ECB doing its job

      ECB Governing Council member Gabriel Makhlouf said German Constitutional Court ruling on ECB asset purchases was an “interesting judgment”. Yet, “fundamentally it doesn’t actually get in the way of the ECB carrying on with its incredibly important job, especially at this time in the crisis”.

      “We are determined to respond forcefully to the challenges and to do whatever it takes to deliver our mandate,” he added. “The judgement is directed at the German government and the German parliament. It looks as if it runs counter to what the European Court of Justice indicated just over a year ago but the ECB itself acts very transparently,” he said.

      US ADP jobs grew 278k, pay growth slowing substantially

        US ADP private employment grew 278k in May, well above expectation of 167k. By sector, goods-producing jobs grew 110k while service-providing jobs grew 168k. By establishment size, small companies added 235k jobs, medium companies added 140k, large companies cut -106k.

        Job changers saw a gain of 12.1% yoy, down a full percentage point from April. For job stayers, the increase was 6.5% yoy in May, down from 6.7% yoy.

        “This is the second month we’ve seen a full percentage point decline in pay growth for job changers. Pay growth is slowing substantially, and wage-driven inflation may be less of a concern for the economy despite robust hiring.” Nela Richardson, Chief Economist, ADP said.

        Full US ADP release here.

        Trump’s bilateral NAFTA idea shunned immediately by Canada and Mexico

          It’s reported that US Treasury Secretary Steve Mnuchin urged President Donald Trump to exempt Canada from the steel and aluminum tariffs at a meeting with director of the National Economic Council Larry Kudlow, Commerce Secretary Wilbur Ross, Trade advisor Peter Navarro, trade representative Robert Lighthizer and chief of staff John Kelly. But Mnuchin’s recommendation met opposition from some others in the meeting.

          Separately, Kudlow said in on Fox News that Trump is trying to negotiate with Mexico and Canada separately, in bilateral way. But Kudlow emphasized that Trump is “not going to leave NAFTA”, but just “going to try a different approach”. But the idea was shunned by NAFTA counterparts quickly.

          Canada International Trade Minister Francois-Philippe Champagne said “We want a trilateral agreement – we’ve always said this.” And, “we know it works, we know it underpins a very integrated supply chain. So, when you talk about this issue you have to look at reality – the reality is that over the last 24 years we have built a very integrated supply chain, which has been good for (the) economy, good for consumers, good for workers on all sides.”

          Mexico’s Economy Minister Ildefonso Guajardo said NAFTA “has to be a trilateral accord, given the conditions of integration in North America.” And, “it must be that way.

          Abe to announce Japan style lockdown in seven prefectures tomorrow

            Japanese Prime Minister Shinzo Abe indicated that he could formally announce a month-long state of emergency as soon as on Tuesday. The seven prefectures include Tokyo, Osaka, Kanagawa, Saitama, Chiba, Hyogo and Fukuoka. Though, he insisted that “we are not changing Japan’s policy, but strengthening it and asking for full cooperation.”

            “Japan won’t, and doesn’t need, to take lockdown steps like those overseas,” he added. “Trains will be running and supermarkets will be open. The state of emergency will allow us to strengthen current steps to prevent an increase in infections while ensuring that economic activity is sustained as much as possible.”

            Additionally, Abe is planning to boost virus testing capacity to 20,000 a day, with increased number of hospital beds and ventilators. There will also be cash handouts of JPY 200m to small and midsize businesses.

            USD/JPY rejected by channel resistance, keeping outlook bearish

              Dollar drops broadly today after some Fed officials toned down the talks of tapering the asset purchase program. In general, they believe it’s premature to even start the discussion of withdrawing stimulus.

              USD/JPY’s break of 103.59 minor support suggests that it’s already rejected by falling channel resistance, after failing to sustain above 55 day EMA too. Daily MACD suggests that the down trend from 111.71 has been losing momentum for a while. But there is no end to it yet. Focus will now turn back to 102.58 support.

              USD/CHF also dropped sharply after touching 0.8918 resistance. Focus is back on 0.8821 minor support. Break will also confirm rejection by the resistance and maintain near term bearishness, for extending the larger down trend through 0.8756 low.

              EUR/CAD downside breakout after BoC, GBP/CAD to follow?

                Canadian Dollar jumps broadly after surprisingly hawkish BoC policy decision. USD/CAD and CAD/JPY are still bounded in range. But EUR/CAD is taking the lead with downside breakout.

                The break of 1.4317 in EUR/CAD suggests resumption of fall from 1.5096. More importantly, it’s now resuming the medium term down trend. Sustained trading below 1.4317 will confirm the breakout and pave the way to 100% projection of 1.5783 to 1.4580 from 1.5096 at 1.3839. In any case, outlook will stay bearish as long as 1.4439 resistance holds, even in case of recovery.

                GBP/CAD will be a focus now too as it’s diving towards 1.6889 support. Firm break there will resume the fall from 1.7623, and the decline from 1.57784 too. 100% projection of 1.7884 to 1.6849 from 1.7623 at 1.6588 will be next target.

                ECB Stournaras: Adjustment of interest rates needs to be more gradual

                  ECB Governing Council member Yannis Stournaras said “in my opinion, the adjustment of interest rates needs to be more gradual, taking into account the slowdown in growth of the euro area economy.”

                  “Given the high uncertainty, ongoing geopolitical and macroeconomic turmoil, and volatility in the markets, it is very difficult to accurately predict the level at which interest rates need to be set,” he added.

                  US retail sales up 0.4% mom in Apr, ex-auto sales up 0.4% mom

                    US retail sales rose 0.4% mom in USD 686.1B in April, below expectation of 0.8% mom. Ex-auto sales rose 0.4% mom to USD 556.1B, below expectation of 0.5% mom. Ex-gasoline sales rose 0.5% mom to USD 631.4B. Ex-auto, gasoline sales rose 0.6% mom to USD 501.4B. Total sales for the February through April period were up 3.1% yoy.

                    Full US retail sales release here.

                    USD in corrective mode after uninspiring FOMC statement

                      Market’s reaction to FOMC rate decision overnight was rather muted. The balanced to slightly positive statement secured the chance for June hike, which fed fund futures are already pricing in 100% odd. But it did little on changing the market expectations on the chances of the fourth hike this year in December. That is, it’s still uncertain.

                      Nonetheless, be patient. Expectations could build up again after today’s ISM services and tomorrow’s non-farm payroll. And, the rate path for the year should be much clearer after new Fed projections to be delivered after next FOMC meeting on June 13.

                      Here are some reports on FOMC that are worth a read:

                      And the full statement here: (FED) FOMC Statement May 2, 2018

                      USD is staying in corrective mode after FOMC announcement. There is broad based selloff in the current 4H bar as seen in the USD Heat Map. But USD is held above yesterday’s low against all at this point. So the retreat is shallow so far. And the greenback remains the strongest one for the week. It just cannot overwhelm CAD still.

                      China’s export decline deepens while imports rebound

                        China’s export figures have taken a sharper downturn than anticipated in October, contracting by -6.4% yoy to USD 274.8B, exceeding market predictions of -3.1% yoy. This downturn marks the sixth consecutive month where China’s exports have receded.

                        In contrast, imports defied expectations with a 3.0% yoy increase, a significant departure from the forecasted -5.4% yoy decline, and putting an end to an 11-month streak of contraction.

                        The culmination of these trade activities resulted in a considerable narrowing of the trade surplus, which shrunk from USD 77.7B to USD 56.5B. This is a stark contraction compared to the anticipated figure of USD 84.2B.

                        EUR/CAD weak in tight range after BoC, down trend intact

                          Canadian Dollar stays firm in general after BoC left monetary policy unchanged yesterday, and delivered and slightly more upbeat outlook. While interest rate will remain on hold until into 2023, the central bank is ready to taper asset purchases if board members “gain confidence in the strength of the recovery”.

                          Suggested readings on BoC:

                          EUR/CAD turned into consolidation after hitting as low as 1.4984 earlier this week. Some sideway trading could be seen but upside of recovery should be limited below 1.5208 support turned resistance to bring down trend resumption. Current down trend should target 161.8% projection of 1.5978 to 1.5313 from 1.5783 at 1.4707 on next fall.

                          Japan Nikkei dropped -2%, as corrective pattern develops the third leg

                            Japan’s Nikkei closed sharply lower by -2.07%, or -617.9pts, to 29174.15. Markets attribute the decline to many reasons, from the fire at semiconductor supplier Reneasas’ plant, to BoJ’s stop in purchasing Nikkei-linked ETFs, to surging US treasury yields, and even to the free fall in Turkish Lira.

                            But technically, the sharp fall was seen as nothing more than the third leg of the consolidation pattern from 30714.52. There wasn’t remotely enough evidence to suggest a change in the medium term up trend from 16358.19.

                            While deeper correction cannot be ruled out, the first line of defense will be from 55 day EMA (now at 28767.46). Sustained break of that would turn focus to channel support (now at 27170). We’d see how deep the correction would develop into.

                            Sterling rebounds as UK Supreme Court rules Johnson’s parliament suspension unlawful

                              Sterling rebounds notably after UK’s Supreme Court ruled that Prime Minister Boris Johnson’s move to shut down the parliament was unlawful. And Supreme Court President Brenda Hale said both houses should return as soon as possible. The ruling gave MPs a boost to continue with their work to block no-deal Brexit on October 31.

                              Hale said, “The decision to advise Her Majesty to prorogue parliament was unlawful because it had the effect of frustrating or preventing the ability of parliament to carry out its constitutional functions without reasonable justification.” “Parliament has not been prorogued. This is the unanimous judgment of all 11 justices,” she added. “It is for parliament, and in particular the speaker and the Lords speaker, to decide what to do next.”

                              Speaker of the House of Commons John Bercow called for Parliament to reconvene. “As the embodiment of our Parliamentary democracy, the House of Commons must convene without delay,” Bercow said in a statement. ” To this end, I will now consult the party leaders as a matter of urgency.”

                              Australia trade minister: China’s anti dumping investigation disappointing and perplexing

                                Trade dispute between China and Australia heightens after China’s Ministry of Commerce indicated it had decided to initiate the anti-dumping investigation into Australia’s wine industry. Australia Trade Minister Simon Birmingham hit back and criticized the move as ”disappointing and perplexing”

                                Birmingham said, “Australian wine is not sold at below market prices and exports are not subsidized. Australia will engage fully with the Chinese processes to strongly argue the case that there are no grounds to uphold the claims being made.” “This is a very disappointing and perplexing development”.

                                US, UK, France struck Assad’s chemical weapons facilities in one-time shot

                                  US, UK and France launched attack in Syria in retaliation for a chemical weapon attack outside Damascus by Bashar al-Assad’s regime. US Defence Secretary Jim Mattis said more than 100 missiles were fired, and struck three of Syria’s main chemical weapons facilities. Mattis also said that is a “one-time shot” to send a “very strong message” to Assad to “dissuade him, to deter him”. And no attack is planned for now. Russia’s Defence Ministry said the majority of missiles fired were intercepted by Syrian government air defence systems.

                                  Anatoly Antonov, Russia’s ambassador to the US responded by writing on Facebook that “Our worst apprehensions have come true. Our warnings have been left unheard.” And, “we warned that such actions will not be left without consequences.” He also condemned that “insulting the President of Russia is unacceptable and inadmissible” apparently referring to US President Donald Trump’s mention of Russian President Vladimir Putin is his speech.

                                  In Trump’s televised speech, he said “in 2013 President Putin and his government promised the world that they would guarantee the elimination of Syria’s chemical weapons. Assad’s recent attack and today’s response are the direct result of Russia’s failure to keep that promise. Russia must decide if it will continue down this dark path, or if it will join with civilized nations as a force for stability and peace.”

                                  Into US session: Risk appetite recedes mildly, Swiss and Sterling Strongest

                                    Entering into US session, New Zealand Dollar and Australian Dollar soften mildly ask risk appetite recedes today. ECB Vice President Luis de Guindos affirmed the stance that the central bank is ready to “act” should inflation expectation expectations “de-anchor”. Messages from China affirmed that there will be a Trump-Xi meeting at G20 next week. But traders generally turn cautious ahead of FOMC rate decision today

                                    Staying in the currency markets, Canadian Dollar is the third weakest ahead of Canada CPI and oil inventory. Dollar is also softer ahead of Fed. The key will be Fed’s two Ps, “patience” and “projections”. We’d see if Fed is ready for an “insurance” rate cut in July. For now, Swiss Franc is the strongest one for today, followed by Sterling, and then Euro.

                                    In Europe, currently:

                                    • FTSE is down -0.31%.
                                    • DAX is up 0.10%.
                                    • CAC is up 0.10%.
                                    • German 10-year yield is up 0.0308 at -0.287.

                                    Earlier in Asia:

                                    • Nikkei rose 1.72%.
                                    • Hong Kong HSI rose 2.56%.
                                    • China Shanghai SSE rose 0.96%.
                                    • Singapore Strait Times rose 1.53%.
                                    • Japan 10-year JGB yield dropped -0.0042 to -0.134.

                                    Fed Mester: Quite a while away from change in monetary policy stance

                                      Cleveland Fed President Loretta Mester said she’s “comfortable” with monetary policy at the moment. “Asset purchases will be tapered once the Fed is ready to make changes, not reduced suddenly.” “It’s very premature to think we’re getting to the point to change our policy stance,” she added. “We’re quite a while away from a change in the policy stance.”

                                      Separately, Kansas City Fed President Esther George said, “overall, the outlook is for monetary policy to remain accommodative for some time… It is too soon to speculate about the timing of any change in this stance.”

                                      Gold breaches 1700, close to critical support

                                        Gold’s down trend continued this week and breached 1700 handle overnight. Further fall is still in favor but Gold is now close to a critical support zone.

                                        Whole pattern from 2074.84 (2020 high) is seen as a three wave consolidation pattern, with fall from 2070.06 as the third leg. Strong support is expected around 1682.60, with 38.2% retracement of 1046.27 to 2074.84 at 1681.92, to complete the pattern. Break of 1745.21 minor resistance will now be a sign of short term bottoming and bring stronger rise back to 1786.65/1878.92 resistance zone.

                                        However, sustained break of 1682.60 will complete a double top reversal pattern (2074.84, 2070.06), and could prompt deeper decline to 61.8% retracement at 1439.18.

                                        Australia PMI composite dropped to 47.3, first signs of desired soft landing

                                          Australia PMI Manufacturing dropped from 51.3 to 50.4 in December, a 31-month low. PMI Services dropped from 47.6 to 46.9, an 11-month low. PMI Composite dropped from 48.0 to 47.3, also an 11-month low.

                                          Warren Hogan, Chief Economic Advisor at Judo Bank said:

                                          “The December results are one of the most up to date readings on the Australian economy and show that higher interest rates are starting to have the desired impact on activity. The Flash PMI readings for December are still well above levels that would normally be associated with recession. What we are seeing could be the first signs of a desired soft landing for the Australian economy in 2023…

                                          “The slowing in this leading indicator of Australian economic activity will be welcomed by the RBA. Tighter monetary policy is having the desired effect, that is, a gradual slowing in domestic demand that should eventually filter through to lower inflation…

                                          “This important leading indicator of Australian economic activity raises the prospect of an extended pause in the rate hiking cycle. As the rate hikes of 2022 continue to work through the economy over the first half of 2023, the RBA appears to have some scope to sit back and watch for a while.”

                                          Full release here.