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UK Johnson welcomes the UK/EU Agreement as new starting point

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    UK Prime Minister Boris Johnson spoke to European Council Charles Michel today. He tweeted afterwards, “I welcomed the importance of the UK/EU Agreement as a new starting point for our relationship, between sovereign equals.”

    “We looked forward to the formal ratification of the agreement and to working together on shared priorities, such as tackling climate change,” he added.

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    South Korea Moon revived the Kim-Trump summit. He could join to make it three-way

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      South Korean president Moon Jae-in had a surprised meeting with North Korean leader Kim Jong-un on Saturday, regarding the summit with the US. Moon’s office said after the meeting that the leaders “exchanged views and discussed ways to implement the Panmunjom Declaration and to ensure a successful US-North Korea summit.”

      Moon added in a press conference that “should the North Korea-US summit succeed, I would like to see efforts to formally end the (Korean) war through a three-way summit of the South, the North and the US.” Moon also sought agreement from Kim that the summit must be held.

      A South Korean official said that “the discussions are just getting started, so we are still waiting to see how they come out, but depending on their outcome, the president could join President Trump and Chairman Kim in Singapore.”

      White House spokeswoman Sarah Sanders also said that “the White House pre-advance team for Singapore will leave as scheduled in order to prepare should the summit take place.”

      Also, Trump himself tweeted that the US teams is now in North Korea to discuss the meeting.

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      BoJ Kuroda: Risks to outlook skewed to the downside

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        BoJ Governor Haruhiko Kuroda said today that “for the time being, risks to Japan’s economic outlook are skewed to the downside,” even though, it’s likely to “recover on rising external demand” on the back of fiscal and monetary support.

        He expected the economy to resume a “sustainable growth path as rising income supports spending”. Capex would more rise more clearly ahead as corporate profits improve.

        On inflation, Kuroda said the impact of mobile fees on CPI is likely temporary. He doesn’t expect Japan to return to deflation.

        “Economic activity will remain below post-pandemic levels for the time being,” he added. “The near-term focus would be to respond to the pandemic’s impact.” “Taken into account the impact of the pandemic, we will consider extending further” the measures to ease funding strains.

        Australia retail sales rose 1.6% mom in Oct, strong rebound in Victoria

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          According to preliminary estimate, Australia retail sales rose 1.6% mom or AUD 460.5m in October, a strong rebound from September’s -1.1% decline. Annually, sales rose 7.3% yoy.

          Ben James, Director of Quarterly Economy Wide Surveys, said “The reopening of retail stores in Victoria at the end of October led to a boost to all industries, with the exception of food retailing. Victoria rose 5.2 per cent from September 2020 but remains 5.7 per cent below the levels of October 2019.”

          Full release here.

          Fed’s Goolsbee: Declaring inflation victory now is premature, akin to counting the chickens

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            Appearing in CBS’s Face the Nation on Sunday, Chicago Fed President Austan Goolsbee acknowledged the significant progress made in 2023 but tempered expectations with a note of caution, emphasizing that the fight against inflation is far from over. His stated, “I still caution everyone, it’s not done”. As he also noted, “data is going to drive what’s going to happen to rates,”

            Discussing the scenario of “soft landing” for the economy, Goolsbee expressed caution, deeming it premature to claim victory in this regard. He projected that 2023 would likely witness a significant reduction in inflation, coupled with a stable unemployment rate. Referring to this balance as “the golden path”.

            In his words, Goolsbee conveyed a message of continued vigilance. He cautioned against premature celebration, using the metaphor of “counting the chickens” to emphasize the need for consistent evidence of economic recovery.

            Full transcript of Fed’s Goolsbee’s interview here.

            BoE Haldane: Two roundtables underline very different lived experience facing people

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              BoE chief economist Andy Haldane said the mood at the two virtual roundtables with North east businesses and organizations “could not have been more different, underlining the very different lived experience facing people.”

              On the one hand, he had “surprisingly – and encouragingly – upbeat discussion with representatives from the housing industry, from the private and social sectors and some local mortgage lenders”. But his optimism was “tempered” at the roundtable with charity sector and community leaders. There’s been a “huge hit” to the financial health of charities, and their finances are being “stretched.”

              Full article here.

              Euro resilient as ECB comments on its strength awaited

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                ECB meeting is a major focus today and no policy change is expected. ECB should maintain the deposit rate at -0.5%. The main refi rate and the marginal lending rate will also stay unchanged at 0% and 0.25% respectively. The PEPP program will continue to run with a total envelope of 1.35 trillion euro. We expect the central bank will reiterate the guidance that the purchases “will” continue “until at least the end of June 2021 and, in any case, until the Governing Council judges that the coronavirus crisis phase is over”.

                Attention will main be on ECB’s view on recent Euro strength, against Dollar mainly. Chief Economist Philip Lane’s speech at Jackson Hole. Lane raised concerns that rising EURUSD could prolong weak inflation and inflation expectations. As he suggested, “we have an inflation mandate and we care about the overall performance of the European economy”. He added that there has been “a repricing in recent weeks” in EURUSD “to some degree”.

                EUR/USD has been resiliently holing on to 1.1762 near term structure support recently. But traders might only be waiting for ECB Governor Christine Lagarde’s nod on selling it through the support to correct the strong rally since March.

                Some suggested readings on ECB:

                US stocks staged strongest come back since 2009, but currency markets shrug

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                  US stocks staged the strongest come back since 2009 overnight. DOW closed up 4.98% or 1086.25 pts at 22878.45. S&P 500 rose 4.96% to 2467.70. NASDAQ jumped even more by 5.84% to 6554.36. Positive sentiments somewhat carry forward to Asia. Nikkei is currently trading up 4.15% or 802 pts at 20129.59, back above 20000 handle. Singapore Strait Times is also up 1.95%. But Hong Kong HSI is only up 0.62% while China Shanghai SSE is up 0.56%. Not all Asian markets are convinced.

                  Movements in the currency markets are also relatively muted. For the week, Dollar is the weakest one so far, not Yen. And Canadian is the second weakest. Australian Dollar, Swiss Franc and New Zealand Dollar are indeed the strongest ones but all are held below last week’s highs. It seems forex traders are not buying too much into the return of risk appetite yet.

                  There are two things to note. Firstly, in S&P 500, price action from 2940.91 is seen as a long term correction, no chance in that view despite yesterday’s rebound. The question for all correction is the form, in particular whether it’s a deep pattern or a sideway pattern. The test for SPX is on 38.2% retracement of 2940.91 to 2346.58 at 2573.61. As long as this fibonacci resistance holds, fall fro 2940.91 is still expected to develope into a deep correction, targeting 2000 handle at least. Though, break of 2573.61 will open up the chances for sideway consolidation instead.

                  Secondly, US treasury yields staged strong rebound overnight. 5-year yield rose 0.056 to 2.637. 10-year yield rose 0.048 to 2.797. 30-year yield rose 0.045 to 3.048. The rebound was slightly weaker towards the long end. Also the yield curve remains inverted from 1-year (2.631) to 2-year (2.628) and 3-year (2.606).

                  Germany Gfk consumer sentiment rose slightly to -40.2, but situation remains tense

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                    Germany Gfk Consumer Sentiment for December rose slightly from -41.9 to -40.2, better than expectation of -45.3. In November, economic expectations rose from -22.2 to -17.9. Income expectations rose from -60.5 to -54.3. Propensity to buy dropped from -17.5 to -18.6.

                    “Consumers’ long-standing fear of skyrocketing energy prices has currently eased somewhat, which is having a slightly positive impact on consumer sentiment. On the one hand, some energy prices have recently recovered a bit, and on the other hand, consumers apparently assume that the measures adopted to cap energy prices can help curb inflation, even if this may turn out to be rather modest,” explains Rolf Bürkl, GfK consumer expert. “Despite the slight improvements, however, the situation remains tense.”

                    Full release here.

                    AUD/JPY dips as consolidation from 86.24 extends with another leg

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                      Aussie drops notably after even though RBA abandoned yield curve control, and signaled that interest rate could be raised earlier than previously expected. Yet, it’s clear that RBA would hold their hands, probably after well into 2023, before making a decision, if inflation is not out of control. That is, it will still lag behind some other major central banks in stimulus removal.

                      AUD/JPY is now extending the consolidation pattern from 86.24 short term top with another falling leg. 84.59 support would provide the first defense. As long as this level holds, the consolidation should be relatively brief, and we’d expect a break of 86.24 high to come sooner rather than later. In that case, the medium term up trend would continue to 61.8% projection of 59.85 to 85.78 from 77.88 at 93.90 next.

                      However, break of 84.59 will bring deeper correction to 38.2% retracement of 78.82 to 86.24 at 83.40 first, or even to 55 day EMA (now at 82.80), before up trend resumption.

                      EU’s official response on possible US tariffs for steel and aluminum

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                        Here is the official statement published today.

                        European Commission outlines EU plan to counter US trade restrictions on steel and aluminium

                        The College of Commissioners discussed today the EU’s response to the possible US import restrictions for steel and aluminium announced on 1 March. The EU stands ready to react proportionately and fully in line with the World Trade Organisation (WTO) rules in case the US measures are formalised and affect EU’s economic interests. The College gave its political endorsement to the proposal presented by President Jean-Claude Juncker, Vice-President Jyrki Katainen and Commissioner for Trade Cecilia Malmström. Speaking after the College meeting, Commissioner Malmström said: “We still hope, as a USA security partner, that the EU would be excluded. We also hope to convince the US administration that this is not the right move. As no decision has been taken yet, no formal action has been taken by the European Union. But we have made clear that if a move like this is taken, it will hurt the European Union. It will put thousands of European jobs in jeopardy and it has to be met by firm and proportionate response. Unlike these proposed US duties, our three tracks of work are in line with our obligations in the WTO. They will be carried out by the book. The root cause of the problem in the steel and aluminium sector is global overcapacity. It is rooted in the fact that a lot of steel and aluminium production takes place under massive state subsidies, and under non-market conditions. This can only be addressed by cooperation, getting to the source of the problem and working together. What is clear is that turning inward is not the answer. Protectionism cannot be the answer, it never is.”The EU remains available to continue working on this together with the United States.The EU has been and remains a strong supporter of an open and rules-based global trade system. (For more information: Daniel Rosario – Tel.: +32 229 56185; Kinga Malinowska – Tel: +32 229 51383)

                        Australia retail sales down -0.2% mom in Oct, strategic delay for Black Friday

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                          ActionForex.com
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                          Australia’s retail sales turnover in October displayed an unexpected downturn, falling by -0.2% mom, contrary to the anticipated rise of 0.1% mom. This decline follows a period of growth, with 0.9% mom increase in September and 0.2% mom rise in August.

                          Ben Dorber, head of retail statistics at ABS, noted “Retail turnover fell in October after a short-lived boost in spending in September.” This downturn was seen across all retail categories except food retailing.

                          Dorber attributed this pause in consumer spending to a strategic delay by consumers, who are likely waiting to capitalize on Black Friday sales events in November. He observed that this has become a recurring pattern in recent years, with Black Friday sales gaining increasing popularity among consumers.

                          Full Australia retail sales release here.

                          US ISM manufacturing rose to 49.0, highest since last Nov

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                            US ISM Manufacturing PMI exhibited an encouraging uptick in September, climbing to 49.0 from 47.6, surpassing the anticipated 47.9. Although the manufacturing sector is still in the grip of contraction, the pace has slackened, marking the sector’s finest performance since November 2022. September’s reading marks the 11th consecutive month of contraction, but also the third month showcasing an improvement.

                            Diving into the particulars, several key indices within the PMI reported positive shifts. New orders swelled to 49.2 from 46.8, and production amplified its reach, moving from 50.0 to 52.5. Furthermore, the employment index turned the corner, ascending from 48.5 to 51.2, signalling an uplift in hiring within the sector. However, not all indices saw a rise. The prices index experienced a substantial dip, plummeting from 48.4 to 43.8, reflecting a significant reduction in input costs.

                            When examining the historical correlation between the Manufacturing PMI and the broader economy, September’s 49.0 reading translates to a 0.1% increase in real gross domestic product on an annualized basis. It implies that, despite the continued contraction, the manufacturing sector’s decline is moderating, potentially heralding a turning point in upcoming months.

                            Full ISM Manufacturing release here.

                            IMF warned of US fiscal and trade policies

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                              IMF saw a positive picture of the US economy in a report released yesterday, but warned of fiscal and trade policy. IMF said that near-term outlook for the U.S. economy is one of strong growth and job creation. And, a slow but steady rise in wage and price inflation is expected as labor and product markets tighten. It projects US economy to grow 2.9% In 2018 and 2.7% in 2019 but slow sharply to 1.9% in 2020. Core PCE is projected to hit 2.0% in 2018 and accelerate to 2.3% in 2019 before slowing back to 2.2% in 2020.

                              Regarding fiscal policy, IMF warned that the combined effect of the administration’s tax and spending policies will cause the federal government deficit to exceed 4.5% of GDP by 2019. And, such a procyclical fiscal policy will elevate the risks to the U.S. and global economy. The risks include higher public debt, a inflation surprise, international spillover, future recession and increased global imbalances. IMF said Fed will need to raise policy rates at a faster pace to achieve its dual mandate. And policymakers should be ready to accept some modest, temporary overshooting of its medium-term inflation goal

                              On trade, IMF warned that the measures to impose new tariffs or otherwise restrict import “are likely to move the globe further away from an open, fair and rules-based trade system, with adverse effects for both the U.S. economy and for trading partners”. Risks include:

                              • Catalyzing a cycle of retaliatory responses from others, creating important uncertainties that are likely to discourage investment at home and abroad.
                              • Expanding the circumstances where countries choose to cite national security motivations to justify broad-based import restrictions. As such, this has the potential to undermine the rules-based global trading system.
                              • Interrupting global and regional supply chains in ways that are likely to be damaging to a range of countries, and to U.S. multinational companies, that are reliant on these supply chains.
                              • Impacting a range of countries, particularly some of the more vulnerable emerging and developing economies, through increased financial market or commodity price volatility associated with these trade actions.

                              Full report here.

                              Canada employment grew 104k in Dec, unemployment rate down to 5%

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                                Canada employment grew strongly by 104k in December, well above expectation of 5.5k. Total employment also surpassed prior peak in May.

                                Unemployment rate dropped from 5.1% to 5.0%, below expectation of 5.2%, just above record low of 4.9% reached in June and July. Participation rate rose 0.2% to 65.0%.

                                Full release here.

                                BoE to stand pat, quarterly Inflation Report eyed

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                                  BoE rate decision will be the major focus today. Bank rate is widely expected to stay unchanged at 0.75%. Asset purchase target will be held at GBP 435B. There is practically no chance for a change in monetary policy given that it’s the last BoE meeting before December 12 general election. Brexit deadline was also delayed to January 31, 2020.

                                  Attentions will mainly be on the new economic projections to be published with the quarterly Inflation Report. Known BoE hawk Michael Saunders recently warned that a rate cut was plausible if Brexit uncertainty continued to act as a “slow puncture” for the economy. Even if smooth Brexit is the eventual end-result, some monetary accommodation might be needed given that the damages of uncertainties were done. Such views might be reflected in the projections.

                                  Suggested reading: BOE Preview – Maintaining Dovish Stance although No-Deal Brexit Less Likely.

                                  Sterling turned into consolidation in general after mid-October. GBP/CHF is still staying in sideway consolidation from 1.2892 and corrective trading would extend. In case of another fall, downside should be contained by 1.2473 resistance turned support to bring rise resumption.

                                  Recent development suggests that corrective fall from 1.3854 (2018 high) has completed with three waves down to 1.1674, after hitting 1.1701 key support (2016 low). Break of 1.2892 will target 1.3399/3854 resistance zone.

                                  CBI expects BoE hikes in Q3 2018, Q1 2019 and Q4 2019

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                                    The Confederation of British Industry projects UK growth to lag well behind peers in 2018 and 2019. UK real GDP growth is forecast to be at 1.4% in 2018 and 1.3% in 2019 only. Eurozone growth is forecast to be at 2.2% in 2019 and 1.7% in 2019. US growth is forecast to be at 2.% in 2018 and 2.3% in 2019.

                                    Though, UK would still be better than Japan at 1.1% growth in both 2018 and 2019. India is projected to stay strong with 7.3% growth in 2018 and 7.1% in 2019. China’s growth is expected to slow notably to 6.3% in 2018 and 5.8% in 2019.

                                    On monetary policy, CBI expects 25bps BoE hike in Q3 2018, Q1 2019 and Q4 2019. Inflation is projected to slow to 2.1% at the end of 2019.

                                    CBI Chief Economist Rain Newton-Smith said that there is no disguising that UK is in “slow lane” for growth. And, “productivity weakness is a structural challenge for the UK economy and a drag on living standards.” She also urged firms to work with the Government to “nurture a pro-enterprise environment to drive growth and create wealth.” Also, “business and government must work together to drive competitiveness at home so firms can make the most of opportunities overseas” after Brexit.

                                    Full release here.

                                    EU expects Brexit transition deal to be provisional

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                                      An unnamed EU official quoted saying that there will be a transition Brexit deal next week. But that would be provisional. He’s quoted:

                                      • “There could be an agreement on transition, but it would in any case only be a provisional agreement,”
                                      • “It would be completely dependant on what will be the fate of the withdrawal agreement. Of course, if there is no withdrawal agreement, there will be no transition.”

                                      It’s reported earlier that UK Brexit Secretary David Davis is targeting to complete the legal text of the transition deal at the two-day summit from March 22.

                                      However, it’s unlikely for a resolution on soft Irish border to be reached.
                                      Intensive talk is now planned between March 26 and April 18 on the issue.

                                      So, yes, the best transition deal will be provisional.

                                      IMF recommends gradual approach for future BoJ rate hikes

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                                        IMF projects Japan’s economic growth to continue, with a noticeable increase in consumption anticipated later this year. According to a report, Japan’s growth rate is expected to decelerate to 0.9% in 2024, largely due to the fading impact of one-off factors that boosted growth in 2023.

                                        The report highlights that consumption will pick up in the latter half of 2024 and into 2025, driven by rising nominal wages following a strong Shunto settlement in 2024 and a decrease in headline inflation that will boost real wages.

                                        IMF foresees core inflation gradually declining as the impact of higher import prices diminishes. However, core inflation is expected to remain above BoJ’s 2% target until the second half of 2025.

                                        In light of these developments, IMF suggests that further increases in BoJ’s short-term policy rate should “proceed at a gradual pace” and be “data­dependent”, considering the balanced risks to inflation and the mixed signals from recent economic data.

                                        IMF emphasizes the importance of Japan’s adherence to a “flexible exchange rate regime”, which will play a crucial role in absorbing economic shocks and supporting the central bank’s focus on maintaining price stability.

                                        Full IMF report on Japan here.

                                        Fed’s Daly on CPI: Not a Victory Yet

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                                          San Francisco Fed President, Mary Daly, offered a measured response to yesterday’s US CPI release, stating that while the figures “came in largely as expected, and that is good news,” it does not signify a comprehensive victory over the ongoing inflation challenges. “It is not a data point that says victory is ours,” Daly warned.

                                          Highlighting the nuanced nature of the current inflation landscape, Daly noted the decrease in goods inflation and indicated promising trends in housing. However, her main concern lies with core services inflation that excludes housing.

                                          Despite the general trend of receding inflation, core services inflation remains stubborn. Daly emphasized, “We do need to see that come back to prepandemic levels if we’re going to be confident that we can get to 2% on a sustainable basis.”

                                          Offering insight into Fed’s future strategy, Daly was cautious: “Whether we raise another time, or hold rates steady for a longer period — those things are yet to be determined.”

                                          She stressed the importance of upcoming data before Fed’s next meeting, suggesting it would play a critical role in shaping decisions. “It would be premature to project what I think would happen because there’s a lot of information coming in between now and our next meeting” in September, she added.

                                           

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