Japanese officials weigh in on Yen’s slide as it approaches 149 against Dollar

    This week’s decline of Yen against Dollar, which seems poised to breach 149 mark, has brought remarks from Japanese officials into sharp focus. Market participants are keen to decipher indications of when Japan might transition from verbal caution to active intervention, even though it’s clear that Japan wouldn’t pre-announce such a move.

    Finance Minister Shunichi Suzuki, reiterating his consistent position, stated today, “Foreign exchange rates should be determined by market forces, reflecting fundamentals.”

    Suzuki emphasized that “Excessive volatility is undesirable,” and assured that the government is monitoring the currency fluctuations with a “high sense of urgency”. “We will respond as appropriate to excessive volatility without ruling out any options,” he added.

    Echoing Suzuki’s sentiments, the newly appointed Economy Minister, Yoshitaka Shindo, stressed the significance of stable currency movements that mirror economic realities.

    Pointing out the multifaceted impact of the Yen’s position, Shindo elaborated, “Weak Yen has various effects on economy such as raising import costs for consumers, improving competitiveness of exporters.”

    With these comments, the stage is set for a heightened scrutiny of Japan’s potential interventions in the currency market. Market participants will no doubt remain vigilant to further remarks and actions by Japanese officials in the coming days.

     

    BoJ Ueda: Sustainably achieving 2% inflation remains distant

      BoJ Governor Kazuo Ueda, following a G20 finance leaders’ meeting in India, has restated the central bank’s stance on maintaining their ultra-loose monetary policy under yield curve control as sustainably and stably achieving 2% inflation target remains a distant objective.

      He stated, “Based on this understanding, we have patiently continued our ultra-loose monetary policy under yield curve control.”

      Ueda highlighted BOJ’s intent to thoroughly assess the pace of Japan’s progress towards sustainably achieving its 2% target during every policy meeting.

      He added, “If our assumption (that sustained achievement of 2% inflation remains distant) is unchanged, our overall narrative on monetary policy remains unchanged,” indicating that any alteration to YCC policy will depend on the evidence of significant progress towards the central bank’s inflation target.

      Japan PMI manufacturing finalized 48.9, seventh month of contraction

        Japan PMI Manufacturing was finalized at 48.9 in November, up from 48.4 in October. That’s the seven straight month of sub-50 reading, signalling a continuation of the downturn in the manufacturing sector. Jibun Bank noted that solid decline in new orders led to further output cutbacks. Economic weakness across Asia hit exports. Selling charges also decreased for the sixth month running.

        Commenting on the latest survey results, Joe Hayes, Economist at IHS Markit, said:

        “Japan’s manufacturing sector remains firmly stuck in contraction, with the same issues which have plagued the industrial world once again hitting firms where it hurts. In particular, export orders dropped at the fastest rate since mid-year amid reports of demand weakness at key trade destinations, namely China.

        “At the sub-sectors, it was intermediate and investment goods which were the primary sources of economic decline, whereas consumer goods makers observed improvements in business conditions.

        “Signs of how deeply-rooted this manufacturing downturn in Japan has become were seen in other survey data. Price discounting has been a trend in each of the past six months, highlighting that firms are now actively trying to tackle the sluggish demand conditions. Inventories of inputs also fell at a sharp rate, suggesting that firms are not expecting output requirements to rise anytime soon.”

        Full release here.

        UK PMI services finalized at 47.6, composite at 49.0

          UK PMI Services was finalized at 47.6 in November, down from October’s 51.4. It’s the first contraction reading in five months. PMI Composite was finalized at 49.0, down from October’s 52.1, first contraction since June amid national lockdowns. Markit also noted the fastest drop in employment for three months. Though, year-ahead business optimism hit nine-month high.

          Tim Moore, Economics Director at IHS Markit: “New lockdown measures and tighter pandemic restrictions unsurprisingly tipped UK private sector output back into decline during November…. Hopes that the pandemic will be brought under control from an effective vaccine resulted in a sharp improvement in business optimism during November. Across the UK private sector as a whole, confidence about the year ahead outlook reached its highest since March 2015. That said, survey respondents also cited rising business uncertainty in the short-term, largely due to ongoing restrictions on trade, which contributed to another round of job cuts and efforts to rein in discretionary spending during November.”

          Full release here.

          China: Some region will face relatively big budgetary pressure this year

            China plans to cut around CNY 2T in taxes and fees for companies in 2019 as growth could slow to the lowest pace in three decades at 6.0-6.5%. Yet, its Finance Minister Liu Kun warned that “considering the downward pressure on the economy and the upcoming policy of larger tax and fee cuts, some regions will still face relatively big budgetary pressure this year.”

            Budget deficit is targeted to be at 2.8% of GDP, up from 2.6% in 2018. Liu said “the arrangement on the budget deficit ratio has fully considered factors including fiscal revenue and local government special bonds and leaves more policy room for future macro adjustments.” To offset the reduction in tax and fee revenue, Liu noted the government will collect more profits from some state-owned financial institutions and companies. The government is also trying to secure funding via other channels “which allows us not to raise the deficit ratio too high.”

            BoC Macklem: We’re getting closer on rates, but not there yet

              BoC Governor Tiff Macklem told a parliamentary committee yesterday that the central bank is “still far from its goal” of ensuring “low, stable, predictable” inflation.

              “Inflation has come down in recent months, but we have yet to see a generalized decline in price pressures,” Macklem said. “This tightening phase will draw to a close. We are getting closer, but we are not there yet.”

              “We anticipate that (inflation) will stay quite high for the rest of this year. It will start to decline next year,” he noted.

              Eurozone PMI dropped to 25-month low, GDP growth waning to 0.3% in Q4

                Eurozone PMI manufacturing dropped to 52.1 in October, down from 53.2 and missed expectation of 53.1. That’s a 26-month low. PMI services dropped to 53.3, down from 54.7 and missed expectation of 54.5. That’s a 24- month low. PMI composite dropped to 52.7, down from 54.1, hit a 25-month low.

                Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

                “The pace of Eurozone economic growth slipped markedly lower in October, with the PMI setting the scene for a disappointing end to the year. The survey is indicative of GDP growth waning to 0.3% in the fourth quarter, and forward-looking indicators, such as measures of future expectations and new business inflows, suggest further momentum could be lost in coming months.

                “The slowdown is being led by a drop in exports, linked in turn by many survey respondents to trade wars and tariffs, which appears to have darkened the global economic environment and led to increased risk aversion. It is therefore not surprising to see the slowdown broadening out across the economy, hitting the service sector.

                “The survey will make for uncomfortable reading at the ECB. Although the survey’s price gauges remain elevated and close to seven-year highs, the headline PMI has fallen to a level that would historically be consistent with a bias towards loosening monetary policy in order to prevent any further deterioration of economic growth.”

                Full release here.

                RBNZ Orr views level of house prices as unsustainable

                  In a speech, RBNZ Governor Adrian Orr warned, “it will come as no surprise to you that in our forthcoming Financial Stability Report we will again elaborate on why we view the level of house prices as unsustainable, and why this matters.”

                  “At the source of the financial stability risk is the inability of housing supply to respond in a timely fashion to changes in demand, and the drivers that lead to a bias towards housing as an investment choice beyond simply a place to reside,” he said.

                  “There is no one agency or silver bullet. House prices and housing affordability are affected by both supply and demand factors, ranging across immigration, tax policy, government benefits or transfers, land availability, building standards, infrastructure, and training programmes,” he added”

                  “Ultimately, it is access to land and space that has recently proved to be the biggest challenge to enabling a smooth functioning housing market”

                  Full speech here.

                  Dollar spikes higher on stellar 313k NFP, back down on sluggish wage growth

                    Dollar spikes higher after stellar 313k NFP growth in Feb. But traders quickly realize that wage growth disappoints. Dollar then reverses the gains. On the other hand, strong buying is seen in CAD as unemployment rate unexpectedly fell.

                    US job data:-

                    • NFP Feb: 313k vs exp 205k vs prior 239k (revised up from 200k)
                    • Unemployment rate Feb: 4.1% vs exp 4.0% vs prior 4.1%
                    • Average hourly earnings Feb: 0.1% mom vs exp 0.2% mom vs prior 0.3% mom

                    Canada job data:-

                    • Employment change: 15.4k vs exp 21.0k vs prior -88.0k
                    • Unemployment rate Feb: 5.9% vs exp 5.9% vs prior 5.9%

                    UK Truss: We very clearly wants a Canada style deal with EU

                      UK Trade Secretary Liz Truss told LBC that the UK was “very clear” about the deal they want with the EU. That is a “Canada style deal where we control our own rules and regulations, we are not subject to the European court and we get a good deal on fisheries.”

                      “There’s a deal there to be done and I think it makes sense for the EU and the UK to sign that deal. But what I’m doing as trade secretary is making sure we’ve got options,” she added. “So we are working on a deal with the United States, we’re working on a deal with the trans-pacific partnership, because what I want is for British exporters to have lots of markets where they can send our fantastic products.”

                      NZ unemployment rate unchanged at 3.3%, record hourly earning growth

                        New Zealand employment grew 1.3% in Q3, above expectation of 0.5%. Unemployment rate was unchanged at 3.3%, above expectation of 3.2%. Labor force participation rate rose 0.8% to 71.7%. Underutilization rate dropped -0.2 to 9.0%.

                        Average ordinary time hourly earnings rose 2.4% qoq, 7.4% yoy. The annual rise was the highest since the series began in 1989. All salary and wage rates (including overtime) index rose 3.7% yoy, second highest annual rate since record began in 1993.

                        Full release here.

                        AUD/JPY weakens after RBA minutes noted a case to ease further

                          Australian Dollar stays generally pressured today as RBA’s November meeting minutes struck a more dovish than expected tone. Board members noted that “a case could be made to ease monetary policy”. They refrained from easing further this month because of the concerns about “the negative effects of lower interest rates on savers and confidence”. They, however, retained the view that lower interest rates could support economic growth via traditional channels, such as “a lower exchange rate, higher asset prices and higher cash flows for borrowers.

                          Suggested readings on RBA:

                          AUD/JPY’s recovery from 73.35 was weak, and held below 4 hour 55 EMA and 74.56 minor resistance. Overall outlook is unchanged that corrective rise form 69.95 has completed with three waves up to 75.67, ahead of 76.16 structural resistance. Further fall is expected as long as 74.56 holds. Below 73.35 will target 71.73 support first. Break will solidify this bearish case and target a test on 69.95 low. Nevertheless, above 74.56 will dampen this bearish case and turn focus back to 75.67/76.16 resistance zone.

                          Trump said China’s slowest growth in 27 yrs was because of US tariffs

                            Trump claimed that China’s growth slowing to worst in 27 years was a result of his tariffs, that prompted companies to leave China. And, this is why China wants to make a trade deal with him. He hailed his tariffs are bringing in billions of dollar, and they pay by “devaluing & pumping”.

                            In his tweet, Trump said: “China’s 2nd Quarter growth is the slowest it has been in more than 27 years. The United States Tariffs are having a major effect on companies wanting to leave China for non-tariffed countries. Thousands of companies are leaving. This is why China wants to make a deal with the U.S., and wishes it had not broken the original deal in the first place. In the meantime, we are receiving Billions of Dollars in Tariffs from China, with possibly much more to come. These Tariffs are paid for by China devaluing & pumping, not by the U.S. taxpayer!”

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                            US CBO: Labor market to materially improve after Q3

                              US Congressional Budget Office said in a report yesterday the economy is expected to “begin recovery during the second half of 2020”. Labor market is projected to “materially improve after the third quarter”. Though, “the persistence of social distancing will keep economic activity and labor market conditions suppressed for some time.”

                              In the new projections, GDP would contract by an annualized rate of -37.7% in Q2. Though, the economy is expected to pick up during H2 and rebound by averaged annualized rate of 15.8%. For 2020 as a whole, GDP could contract by -5.6% in 2020, followed by 4.2% growth in 2021.

                              Unemployment rate is projected to peak at an average of 15.8% in Q3. At the mean time, participation rate, has already dropped by -3.2% to 60.2% in April. It’s expected to recovery slightly to 61.1% in Q3 only, and edge further higher to 61.5% in 2021.

                              Full report here.

                              US retail sales rose 0.5% mom in Mar, ex-auto sales up 1.1% mom

                                US retail sales rose 0.5% mom to USD 665.7B in March, slightly below expectation of 0.5% mom. Ex-auto sales rose 1.1% mom, above expectation of 0.7% mom. Ex-gasoline sales dropped -0.3% mom. Ex-auto, ex-gasoline sales rose 0.2% mom.

                                Total sales for January through March period were up 12.9% yoy.

                                Full release here.

                                Canada retail sales rose 0.7% mom in Nov, to drop -2.1% mom in Dec

                                  Canada retail sales rose 0.7% mom to CAD 58.1B in November, below expectation of 1.0% mom. The increase was led by higher sales at gasoline stations (+4.9%), building material and garden equipment and supplies dealers (+3.0%) and food and beverage stores (+1.0%).

                                  Sales increased in 6 of 11 subsectors, representing 63.8% of retail trade. Core retail sales—which exclude gasoline stations and motor vehicle and parts dealers—increased 0.5%.

                                  According to advance estimate, sales decreased -2.1% mom in December.

                                  Full release here.

                                  Canada retail sales rose 2.1% mom in Aug, to fall -1.9% mom in Sep

                                    Canada retail sales rose 2.1% mom to CAD 57.2B in August, slightly above expectation of 2.0% mom. The gain was led by higher sales at food and beverage stores (+4.8%), gasoline stations (+3.8%), and clothing and clothing accessories stores (+3.9%). Sales increased in 9 of 11 subsectors. Based on preliminary data, sales has decreased -1.9% mom in September.

                                    Full release here.

                                    Dollar extends decline as Trump blames Fed Chair Powell for rate hikes

                                      Dollar stays generally weak in Asian session and extends Monday’s selloff, on Trump’s attack on Fed. In a Reuters interview, Trump reiterated his comments last month that “I’m not thrilled with his raising of interest rates, no. I’m not thrilled,” referring to Fed Chair Jerome Powell.

                                      He complained the the US is not getting any support from the Fed during his negotiation with other countries. Trump noted, “we’re negotiating very powerfully and strongly with other nations. We’re going to win. But during this period of time I should be given some help by the Fed. The other countries are accommodated.”

                                      Trump also fingered pointed Eurozone and China for currency manipulation to give them an advantage over the US on trade. He said . “I think China’s manipulating their currency, absolutely. And I think the euro is being manipulated also.”

                                      US retail sales rose 1% mom in Jun, ex-auto sales up 1%

                                        US retail sales rose 1.0% mom to USD 680.6B in June, above expectation of 0.8% mom. Ex-auto sales rose 1.0% mom, above expectation of 0.6% mom. Ex-gasoline sales rose 0.7% mom. Ex-auto, ex-gasoline sales rose 0.7% mom. Retail trade rose 1.0% mom. Gasoline sales rose 3.6% mom. Total sales for the three months through June were up 8.1% yoy.

                                        Full release here.

                                        Asian Development Bank lowered China 2019 growth forecast to 6.3%, 2018 unchanged

                                          The Asian Development Bank lowered China’s 2019 growth forecast from 6.4% to 6.3%. For 2018, growth projection was kept unchanged at 6.6%. It cited “slower demand growth and an unfavorable trade environment” as the reasons for the downgrade. On US-China trade conflict, ABD said it could “deflate consumer and investor confidence, severely disrupt supply chains, impede technology transfer and foreign investment, and hit export-oriented industries in the PRC. ”

                                          ADB Chief Economist Mr. Yasuyuki Sawada said, “services and consumption will continue lifting the PRC’s economy for the rest of 2018 although slower growth is expected next year, as ongoing trade tensions with the United States (US) are expected to affect net exports.” He added that “supportive monetary and fiscal policy will help ease the short-run strains” But also urged that “continued reform progress is needed to sustain future growth.”

                                          Looking at the details, net exports are expected to hold back GDP growth for the rest of 2018 and 2019 as ” trade tensions with the US continue to intensify, coupled with a dimmer outlook on global trade and investment activities.” ADB expected current account surplus of China to lower to 0.7% in 2018 and further down to 0.2% in 2019.

                                          For developing Asia as a whole, growth in 2018 is expected meet 6.0% forecast. However, 2019 growth projection was also trimmed by -0.1% to 5.8%. The US-China trade measures implemented by September 24 are expected to lower China GDP by -0.5% and US GDP by -0.1%. And they would have a “negligible effect on the rest of developing Asia”. It also noted that “with the trade conflict escalation, the US trade deficit with the PRC would shrink, but the overall US trade deficit would not change much as US imports would be redirected to other countries while US exports to the PRC declined.”

                                          Also, ADB warned that “prolonged trade conflict can damage confidence and deter investment. This indirect fallout will be large for many economies in the region and globally, especially if automobiles and other parts become embroiled in the trade conflict.”

                                          ADB’s press release on China here.

                                          The Asian Development Outlook 2018 update here.