Eurozone Sentix investor confidence rose to -4.5, deeper recession could be averted

    Eurozone Sentix Investor Confidence improved to -4.5 in November, up from -16.8 and beat expectation of -13.0. Current Situation Index rose to -5.5, up from -15.5. Expectations Index rose to -3.5, up from -18.0, highest since May, 2019.

    Sentix said that the indices “give hope that a deeper recession can be averted in the eurozone”. The turnaround in ECB’s monetary policy has been “well received” by investors. It’s also measuring a stronger rise in money supply aggregates again, which usually has a “stimulating effect” on the economy. Growth is also expected to be supported by “higher government spending”.

    For Germany, the Overall Index rose to -6.5, up from -19.4. Current Situation Index rose from -18.0 to -8.3.l Expectations Index rose from -20.8 to -4.8, also highest since May. “Since the trend reversal that is now becoming apparent is also being led by the Asia ex Japan region, the hope that the slide into recession can be averted is also nourishing hope for the German economy”.

    Full release here.

    BoJ Kuroda: Optimism over global outlook and vaccine rollouts behind surge in stock prices

      BoJ Governor Haruhiko Kuroda told the parliament that “optimism over the global economic outlook and steady vaccine rollouts may be behind the recent surge in stock prices”. Nevertheless, he also warned that “global outlook remains highly uncertain and risks to Japan’s economy remained tilted to the downside. His comment came when Nikkei closed above 30k level for the first time in three decades.

      Kuroda also noted that it’s premature to consider exiting the massive monetary stimulus measures, including ETF purchase. “It’s likely to take significant time to achieve our price target. As such, now is not the time to think about an exit including from our ETF buying,” he said.

      Finance Minister Taro Aso also said, it’s not time to withdraw fiscal support. “The biggest issue now is when to shift from crisis-mode policy to fiscal restoration. In doing so, it’s important for such action to be coordinated,” he added.

      First day of US-China trade talks went well, Trump to meet Liu on Friday

        The first day of US-China trade negotiations in Washington appeared to have completed well, with positive mood. President Donald Trump said: “We just completed a negotiation with China, we’re doing very well, we’re having another one tomorrow. I’m meeting with the vice premier over at the White House, and I think it’s going really well. We’re going to see them tomorrow, right here, and it’s going very, very well.” Trump is scheduled to meet Chinese Premier Liu He at 1845 GMT on Friday.

        Myron Brilliant, US Chamber of Commerce head of international affairs, appeared to be upbeat too after being briefed by both sides. He said he negotiators were “trying to find a path toward the bigger deal” with progress on market access and less controversial intellectual property and other issues. Also, “I believe that there’s even the possibility of a currency agreement this week. I think that could lead to a decision by the U.S. administration to not put forth a tariff rate hike on Oct. 15.”

        Fed left federal funds rate unchanged at 1.75-2.00%, full statement.

          No surprise from Fed. Below is the full statement.

          Federal Reserve issues FOMC statement

          Information received since the Federal Open Market Committee met in June indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.

          Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.

          In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 1-3/4 to 2 percent. The stance of monetary policy remains accommodative, thereby supporting strong labor market conditions and a sustained return to 2 percent inflation.

          In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

          Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Esther L. George; Loretta J. Mester; and Randal K. Quarles.

          ECB’s Centeno: Inflation trajectory is very positive

            At the World Economic Forum in Davos, ECB Governing Council member Mario Centeno highlighted the positive direction of medium-term inflation, noting that its “trajectory is very positive right now.” He further told CNBC that “we don’t need to do more than is needed”

            On the topic of rate cuts, Centeno noted “once inflation starts going down sustainably, with an economy … that is not growing, where the challenges are huge, we need to be open to get all data on board and decide upon that.”

            Meanwhile, another ECB Governing Council member, Francois Villeroy de Galhau, speaking at a panel in Davos, cautioned against premature declarations of victory over inflation. However, he admitted that “our next move will be a cut, probably this year” evenh though he refrained from commenting on the timing.

            A look at falling AUD/JPY and GBP/CHF as risk aversion intensifies

              Risk aversion comes back again today, as led by the -807pts, or -2.89%, free fall in Hong Kong HSI. At the time of writing, FTSE and DAX are down -1.4% while CAC is down -1.9%. DOW future is down around -400pts. In the bond markets, Germany 10-year yield is down -0.04 at -0.33. US 10-year yield dis down -0.05 at -1.265.

              In the currency markets, Yen and Swiss Franc are currently the strongest ones. AUD/JPY breaks through 82.11 support to as low as 81.50 so far, resuming whole decline from 85.78. Rejection by 55 day EMA is a clear sign of near term bearishness. Such decline is seen as correcting the rise from 73.12 for the moment. Hence, we’d look for strong support from 38.2% retracement of 73.12 to 85.78 at 80.94 to contain downside and bring rebound. However, sustained break of 80.94 will argue that it’s indeed correcting whole up trend from 59.85 and target 73.12/78.44 support zone.

               

              GBP/CHF’s sharp fall today now argues that consolidation from 1.2579 might have completed with three waves up to 1.2853. Immediate focus is now on 1.2579/2610 support zone. Decisive break there will confirm this bearish case and target 100% projection of 1.3070 to 1.2579 from 1.2853 at 1.2362. At this point, we’d expect strong support around 1.2259 resistance turned support to contain downside and bring rebound.

              Australia leading index records 11th consecutive negative month

                Australia’s Westpac Leading Index rose to -0.51% in June from -1.01% in May, marking the eleventh consecutive negative print. This trend indicates that the Australian economy is likely to operate below its potential trend over the six to nine months outlook.

                In light of these results, Westpac maintains a modest forecast for Australian economic growth. It expects modest expansion of 0.3% over the year to June 2024, with contraction in consumer spending of -0.2%.

                Commenting on the upcoming RBA meeting on August 1, Westpac anticipates a 25 bps hike in interest rate. It noted, “By the August meeting we expect that the Board will be dealing with an inflation read still above 6%; an unemployment rate registering nearly 1ppt below the Board’s current estimate of full employment; and the recent report from the national accounts showing unit labour costs growing at 7.9% over the year.”

                Full Australia Westpac Leading Index release here.

                Bundesbank Weidmann: ECB should consider only purchasing climate compliant securities

                  Bundesbank President Jens Weidmann urged a Financial Times article that the Eurosystem should consider “only purchasing securities or accepting them as collateral for monetary policy purposes if their issuers meet certain climate-related reporting obligations”.

                  Additionally, central banks should only use credit ratings from agencies that that appropriately include climate-related financial risks.

                  Weidmman also said governments should do their part on climate, by raising taxes on carbon, or using “cap and trade” schemes. It is not the task of the Eurosystem to penalize or promote certain industries, Weidmann added.

                  Australia NAB Business confidence unwound post election spike

                    Australia NAB Business Conditions improved from 1 to 3 in June, but remain below average. Business Confidence dropped from 7 to 2, largely unwound the bounce from 0 to 7 in May. NAB said “the recent run of results also suggest that the economy is unlikely to record a significant pickup in growth in Q2.” Further, “forward orders also remain below average (and are negative), suggesting a near-term turn around in business activity is unlikely.”

                    According to Alan Oster, NAB Group Chief Economist, “Business confidence appears to have unwound its spike in May, which we think was driven by a short-term election bounce and increased optimism around a renewed interest rate easing cycle by the RBA. While business conditions increased slightly in the month, they remain well below average after trending lower for over a year now. The decrease in conditions has been relatively broad-based across states and industries – suggesting that there has been sector wide loss of momentum over the past year”.

                    Full release here.

                    Eurozone PMI composite finalized at 53.3, weakest growth since Mar

                      Eurozone PMI Services was finalized at 53.1 in December, down from November’s 55.9. PMI Composite was finalized at 53.3, down from November’s 55.4, lowest since March.

                      Looking at some member states, Ireland PMI composite dropped to 9-month low at 56.5. France dropped to 55.8. Spain dropped to 55.4, an 8-month low. Italy dropped to 54.7. Germany dropped to 49.9, an 18-month low.

                      Joe Hayes, Senior Economist at IHS Markit said:

                      “The accelerated expansion in output we saw in November unfortunately turned out to be brief. Amid a resurgence of COVID-19 infections across the euro area, growth slowed to the weakest since March in December. In Germany, where measures to combat COVID-19 have been more stringent than other monitored euro area countries, levels of economic activity broadly stagnated in December. Nonetheless, slower growth was seen across the board.

                      “There was also little to cheer with regards to inflation. Although there was a marginal easing of price pressures, we’re still in excessively hot territory – increases in both input and output costs were the second-quickest on record… As euro area nations deal with the latest developments in the pandemic, it’s clear that risks to the economy are now greater as tighter restrictions to curb the spread of COVID-19 are more likely than they have been recently.”

                      Full release here.

                      Japan PMI manufacturing finalized at 52.4 in June, strong optimism

                        Japan PMI Manufacturing was finalized at 52.4 in June, down from May’s 53.0. Markit said output and new orders both rose at softest rates for five months. Input prices rose at fastest pace in over 10 years. Optimism was strongest on record.

                        Usamah Bhatti, Economist at IHS Markit, said: “Japanese manufacturers commented that the degree of optimism regarding the outlook for output over the coming 12 months strengthened in June. Confidence about the outlook reached the highest level since the series began in July 2012, as hopes of an end to the pandemic gathered pace. This is broadly in line with the IHS Markit forecast for industrial production to grow 8.8% in 2021, though this does not fully recoup losses from the pandemic.”

                        Full release here.

                        Australia monthly CPI slowed to 6.8% yoy in Aug on fuel costs

                          In its first monthly release, Australia CPI rose 6.8% yoy in June, accelerated to 7.0% yoy in July, and slowed to 6.8% yoy in August

                          Monthly CPI excluding fruit, vegetables and fuel rose 5.5% yoy in June, accelerated to 6.1% yoy in July, then 6.2% yoy in August.

                          David Gruen, Australian Statistician, said: ” The slight fall in the annual inflation rate from July to August was mainly due to a decrease in prices for Automotive fuel. This saw the annual movement for Automotive fuel fall from 43.3 per cent in June to 15.0 per cent in August.”

                          Full release here.

                          Trump: We’re missing once in a lifetime opportunity before of Fed’s boneheads

                            In a pair of tweets, US President Donald Trump urged Fed to cut interest rates down to zero or less. And the US government could then start to refinance its debt. He complained again that it’s only “naivete” of Fed chair Jerome Powell” for not allowing the US to pay lowest interest rate.

                            He said The Federal Reserve should get our interest rates down to ZERO, or less, and we should then start to refinance our debt. INTEREST COST COULD BE BROUGHT WAY DOWN, while at the same time substantially lengthening the term. We have the great currency, power, and balance sheet. The USA should always be paying the the lowest rate. No Inflation! It is only the naïveté of Jay Powell and the Federal Reserve that doesn’t allow us to do what other countries are already doing. A once in a lifetime opportunity that we are missing because of “Boneheads.”

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                            China PMI manufacturing rose to 50.2 in Jun, non-manufacturing up to 54.7

                              China official PMI Manufacturing rose from 49.6 to 50.2 in June., above expectation of 49.6. Sub-index for production rose to 52.8, highest since March 2021. PMI Non-Manufacturing rose from 47.8 to 54.7, above expectation of 52.5. That’s also the highest level in 13 months.

                              “Even though the manufacturing sector continued to recover this month, 49.3 percent of the companies reported orders were insufficient,” said Zhu Hong, senior statistician at NBS. “Soft market demand is still the main problem facing the manufacturing industry.”

                              ECB Panetta: PEPP to be used in full unless there are significant upside surprises

                                ECB Executive Board member Fabio Panetta warned in an interview that it’s “too soon to declare victory” on coronavirus pandemic. Recent economic data “certainly indicate that we’re making progress”, he said.

                                “But we need to view these improvements with caution, because they are an effect of the rebound that was to be expected after the earlier disastrous fall in economic activity and reflect the large-scale intervention of economic policies.” “Moreover, they don’t diverge from our forecasts. So they don’t give us sufficient grounds for satisfaction.”

                                He added that “economic activity is still well below pre-crisis levels”. Based on ECB’s projections “we won’t see a return to those levels before the end of 2022”. Outlook is also uncertain for the economy and jobs while growth is uneven.

                                Regarding monetary policy, Panetta expects to use the resources available under the PEPP “in full” unless there are “significant upside surprises”. “The programme is working well, and I don’t see any economic reasons to change our decisions or actions.”

                                Full interview here.

                                US consumer confidence dropped to 125.5, softening business and employment conditions

                                  US Conference Board Consumer Confidence dropped to 125.5. in November, down from 126.1, missed expectation of 126.9. Present Situation Index dropped from 173.5 to 166.9. Expectations Index rose from 94.5 to 97.9.

                                  “Consumer confidence declined for a fourth consecutive month, driven by a softening in consumers’ assessment of current business and employment conditions,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The decline in the Present Situation Index suggests that economic growth in the final quarter of 2019 will remain weak. However, consumers’ short-term expectations improved modestly, and growth in early 2020 is likely to remain at around 2 percent. Overall, confidence levels are still high and should support solid spending during this holiday season.”

                                  Full release here.

                                  ECB Lane: Lot of weight attached to mediocre inflation outcomes

                                    ECB Chief Economist Philip Lane said that inflation is staying well below target, but there is no deflation risk yet. He said, “The most recent financial data says there is a lot of weight attached to mediocre inflation outcomes, inflation outcomes between 0 and 1.5%, below the aim of the ECB.”Also, he noted that scale of slack in the Eurozone remains extensive.

                                    US CPI rose to 8.5% yoy, core CPI rose to 6.5% yoy, highest since early 80s

                                      US CPI rose 1.2% mom in March, above expectation of 1.1% mom. CPI core rose 0.3% mom, below expectation of 0.5% mom.

                                      For the 12-month period, CPI accelerated from 7.9% yoy to 8.5% yoy, above expectation of 8.3% yoy. That’s the highest annual rate since December 1981.

                                      CPI core ticked up from 6.4% yoy to 6.5% yoy, below expectation of 6.6% yoy. That’s the fastest 12-month increase since August 1982.

                                      Energy index rose 32.0% yoy while goods index rose 8.8% yoy, largest 12-month increase since May 1981.

                                      Full release here.

                                      UK Hammond to China: We’re a firm supporter of trade liberalization and your long-term trusted partner

                                        UK Chancellor of Exchequer Philip Hammond wrote in an article in China’s financial magazine Caixin, saying the the globalized UK is China’s long term partner. Hammond is visiting Beijing this week and he pledges to “convey a message to the outside world – as a firm supporter of trade liberalization and a free market, the United Kingdom is China’s long-term trusted partner.”

                                        Also, he wrote “Britain is committed to promoting free and open trade, and as Britain and its European cooperation partners form a new relationship, we will deepen our relations with other regions around the world.” And, there was “enormous development space” with cooperation with Chinese financial services businesses. Hammond also hailed that UK is an “ideal cooperation partner” to the Belt and Road initiative, and they would likely to ” grasp the unlimited opportunities” and “take a lead in its financing work.”

                                        This is Hammond’s article in simplified Chinese (gated). We’ve yet to find the English version.

                                        France PMI composite rose to 52.7, outperformance likely to continue in Q3

                                          France PMI Manufacturing rose to 51.0 in August, up from 49.7 and beat expectation of 49.5, back in expansionary region. PMI Services rose to 53.3, up from 52.6 and beat expectation of 52.5. It’s also a 9-month high. PMI Composite Rose to 52.7, up from 51.9.

                                          Commenting on the Flash PMI data, Eliot Kerr, Economist at IHS Markit said:

                                          “French private sector businesses posted another solid increase in output during August. Service sector expansion continued to surpass manufacturing growth, reflecting the broader trend seen across the eurozone in recent months.

                                          “However, in contrast to its peers, economic growth in France has remained solid and the latest set of PMI figures only add weight to the argument that this outperformance is likely to continue in the third quarter.”

                                          Full release here.