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German government to revise down growth forecasts to 1.8% in both 2018 and 2019

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    ActionForex.com
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    Reuters reported, according to a document they obtained, German government slashed growth forecast for both 2018 and 2019 in the update to be released tomorrow. Growth is now projected to be at 1.8% in both 2018 and 2019, down from prior projections of 2.3% and 2.1% respectively. For 2020, growth is expected to be unchanged at 1.8%. Weak global trade, lowered state consumption and softer auto sector are the causes for slower than expected growth.

    Inflation is projected to be at 1.9% in 2018 and rise further to 2.0% in 2019. The document also noted that “in view of the strong expansion of disposable income and moderate inflation, private consumption is likely to pick up noticeably.” House hold spending is expected to grow 1.6% in 2018 and 2.0% in 2019. State consumption is projected to grow 1.4% in 2018 and 2.5% in 2019. State investment is project to rise 5.9% in 2018 and 5.2% in 2019.

    According to IMF’s latest forecasts released earlier this week, German growth is projected at 1.9% in 2018 and 1.9% in 2019, revised down from April forecasts of 2.5% and 2.0% respectively.

    Gold resumes correction, 1700 looks vulnerable

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      ActionForex.com
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      Gold’s recovery was rejected by 1760.46 support and resistance and decline resumed quickly by breaking through 1717.01 temporary low. 1700 handle is now looking vulnerable. The corrective pattern from 2075.18 is extending with fall from 1959.16 as the third leg. Current fall might now target 50% retracement of 1160.17 to 2075.18 at 1617.67.

      Break of 1759.72 minor resistance is now needed to be the third sign of short term bottoming. Further break of 1815.83 resistance is needed to confirm. Otherwise, risk will stay on the downside in gold as the correction in favor in extend lower.

      UK PMI manufacturing finalized at 55.6, 35-month high

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        ActionForex.com
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        UK PMI Manufacturing was finalized at 55.6 in November, up from October’s 53.7. It’s also a 35-month high, and an expansion reading for six successive months. Markit noted that “Brexit buying” leads to higher purchasing, stocks and exports.

        Rob Dobson, Director at IHS Markit: “Growth of the UK manufacturing sector picked up in November, temporarily boosted by ‘Brexit-buying’ among clients and the ongoing boost from economies re-opening following lockdowns earlier in the year…. Whether the upturn of manufacturing production can be sustained into the new year is therefore highly uncertain, especially once the temporary boosts from Brexit purchasing and stockbuilding wane.

        “On this front some reassurance is provided by the survey’s gauge of business optimism. Confidence has risen to a level not seen since late-2014, with over three fifths of manufacturers (61%) still expecting to raise output over the coming year. On the other hand, many manufacturers remain very concerned about the outlook and generally reluctant to expand capacity, hence employment fell for the tenth month in a row.”

        Full release here.

        Fed expects inflation to stay below target through 2022, despite upward revisions

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          ActionForex.com
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          In the new economic projections, Fed projected a much shallower contraction in 2020 but revised down 2021 and 2022 growth. Unemployment rate forecasts were also revised lower through the horizon. Core PCE inflation projections were revised up but would stay below Fed’s 2% target through 2022. Logically, with or even without the new average inflation targeting, federal funds rate are expected to stay at current level through 2022.

          Here are the median forecasts:

          GDP:

          • 2020 contraction revised up to -3.7% (from June’s -6.5%).
          • 2021 growth at 4.0% (down from 5.0%).
          • 2020 growth at 3.0% (down from 3.5%).

          Unemployment rate:

          • 2020 at 7.6% (revised down from 9.3).
          • 2021 at 5.5% (down from 6.5%).
          • 2022 at 4.6% (down from 5.5%).

          Core PCE inflation:

          • 2020 at 1.5% (revised up from 1.0%).
          • 2021 at 1.7% (up form 1.5%).
          • 2022 at 1.9% (up from 1.7%).

          China Caixin PMI Services dropped to 52.7, subdued expectations linked to ongoing China-US trade dispute

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            ActionForex.com
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            China Caixin PMI Services dropped to 52.7 in May, down from 54.5 and missed expectation of 54.2. PMI Composite dropped to 5.15, down from 52.7. Markit noted that “overall confidence towards the year ahead weakened to the lowest on record, which was primarily driven by weaker sentiment at manufacturers”. Also, “expectations at goods producers were the least upbeat since the series began in April 2012″, ” services firms registered the lowest degree of confidence since July 2018″.

            And, “subdued expectations were often linked to the ongoing China-US trade dispute and relatively subdued global demand conditions.”

            Commenting on the China General Services PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:

            “The Caixin China General Services Business Activity Index fell to 52.7 in May from the recent high of 54.5 in April, although it remained firmly within expansionary territory. Among the gauges included in the survey:

            1. The gauge for new business fell from the past month’s recent high but remained in expansionary territory, reflecting slowing growth in demand across the services sector.
            2. The measure for employment fell from the past month’s recent high while remaining within expansionary territory, suggesting jobs growth is slowing.
            3. Gauges for input costs and prices charged by services providers both fell slightly while remaining in expansionary territory. Growth in input costs outpaced that of prices charged, indicating that services companies remained under significant pressure.
            4. The measure for business expectations continued to fall, despite staying in positive territory, reflecting services providers’ weakening confidence in their future prospects.

            “The Caixin China Composite Output Index fell to 51.5 in May from 52.7 the month before, mainly due to slower growth in the service sector.

            1. The gauge for new orders edged down while remaining in expansionary territory, while the measure for new export orders returned to growth, pointing to weakening demand at home but improved demand abroad. The negative effects of China-U.S. tensions on exports have yet to emerge, perhaps due to exporters front-loading shipments of products that are in the remaining $300 billion of goods not subject to punitive tariffs.
            2. The employment gauge continued to fall, entering contractionary territory. This suggested the labor market is under pressure. In a move that is likely related, the State Council recently set up a new leading group on employment.
            3. Both gauges for input costs and output charges edged down while remaining in expansionary territory. Growth in input costs outpaced that of output charges, indicating companies continued to be squeezed.
            4. The measure for future output fell markedly, to the lowest reading since the series began in 2012, although it remained in positive territory. This indicates business confidence is in urgent need of a boost.

            “Overall, China’s economic growth showed some signs of slowing in May. Employment and business confidence in particular merit policymakers’ attention.”

            Full release here.

            Germany Ifo dropped to 91.7, businesses skeptical about upcoming summer

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              ActionForex.com
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              Germany Ifo Business Climate dropped from 93.4 to 91.7 in may, below expectation of 93.4. This also marked the first decline in the index after six increases in a row. Current Assessment Index dropped from 95.1 to 94.8, worse than expectation of 95.2. Expectations Index, also dropped from 91.7 to 88.6, below expectation of 91.7.

              By sector, manufacturing dropped sharply from 6.3 to -0.3. That’s the largest decrease since March 2022, after the start of the war in Ukraine. Services ticked down from 6.9 to 6.8. Trade tumbled from -10.7 to -19.1. Construction also dropped from -16.6 to -18.2.

              Ifo said: “Sentiment in the German economy has suffered a setback….. Driving this development are the significantly more pessimistic expectations. Managers are somewhat less satisfied with their current situation. German companies are skeptical about the upcoming summer.”

              Full Germany Ifo release here.

              Fed chair Jerome Powell press conference live stream

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                UK published document on temporary Brexit customs arrangements

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                  ActionForex.com
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                  The UK government released a document titled Technical note: temporary customs arrangement on Brexit today. That’s is the so-called backstop plan to avoid a hard Irish border if the UK cannot come to an agreement with EU on the issue. Here is a summary for the key points.

                  It’s in the document that “the UK expects the future arrangement to be in place by the end of December 2021 at the latest”. In other words, the transition arrangement could last a year longer than previously planned. The current agreed 21-month transition period will start from March 29, 2019 and end on December 31, 2020.

                  During the period, UK will be outside the Common Commercial Policy. That is, “the UK able to negotiate, sign and ratify free trade agreements (FTAs) with rest of world partners and implement those elements that do not affect the functioning of the temporary customs arrangement.”

                  The backstop solution will cover the whole of UK, not just North Ireland. And, there would be an ongoing role for European Court of Justice during the period. The document added that “if as part of the future partnership, parliament passes an identical law to an EU law, it may make sense for UK courts to look at the appropriate ECJ judgments.”

                  Here is the full document.

                  Gold resuming rally for 1380 key fib resistance zone

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                    ActionForex.com
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                    Gold jumps further to as high as 1348.22 today on broad based weakness in Dollar. Much lower than expected US NFP and smaller than expected wage growth added to speculation of Fed’s rate cut. June 19 is probably still a bit too early given that it’s just one month of poor job data. September is more likely if there is no improvement in Trump’s trade war with China and Mexico.

                    Back to Gold, rise from 1160.17 is likely resuming. Sustained trading above 1346.71 will pave the way to 61.8% projection of 1160.17 to 1346.71 from 1266.26 at 1381.54. Break of 1319.98 support, however, will probably extend the consolidation from 1346.71 with another decline.

                    Let’s be reminded that 1381.54 is very close to long term fibonacci resistance of 38.2% retracement of 1920.70 (2011 high) to 1046.37 (2015 low) at 1380.36. As noted before, the strong support from 55 week EMA is taken as a rather bullish signal. That raises the chance that gold would finally overcome this fib resistance after multiple attempt over the last few years. We’ll monitor the momentum of next move to see.

                    Australia CPI dropped -1.9% qoq in Q2, biggest fall in 72 year of history

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                      ActionForex.com
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                      Australia CPI plunged -1.9% qoq in Q2, slightly above expectation of -2.0% qoq. That’s still the largest quarterly fall in the 72 year history of the data. Annually, CPI turned negative to -0.3% yoy, down from Q1’s 2.2% yoy. It’s only the third time annual inflation turned negative since 1949. The previous times were in 1962 and 1997-98.”

                      Nevertheless, the quarterly decline was mainly the result of free child care (-95%), a significant fall in fuel price (-19.3%) and a fall in pre-school and primary education (-16.2%). Excluding these three components, the CPI would have risen 0.1% qoq in Q2.

                      Full release here.

                      BoJ stands pat, continue to closely monitor impacts of pandemic

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                        ActionForex.com
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                        BoJ kept monetary policy unchanged today as widely expected. Under the yield curve control framework, short-term policy interest rate is held at -0.1%. 10-year JGB yield target is kept at around 0%. The central bank will continue to purchase ETFs and J-REITS with upper limits of about JPY 12T and JPY 180B respectively. CP and Corporate bonds purchases will continue with upper limit of JPY 20Y until the end of September 2021.

                        BOJ also pledged to continue with QQE with Yield Curve Control “as long as it is necessary” and “continue expanding the monetary base” until core CPI exceeds 2% target in a “stable manner”. It will also “closely monitor” of the impact of COVID-19 and “will not hesitate to take additional easing measures if necessary”.

                        Full statement here.

                        Mid-US Update: Selloff in emerging market currencies could be back in spotlight

                          By
                          ActionForex.com
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                          Risk aversion seems to be the main theme in the markets today, as Brexit and NAFTA(?) take a back seat. Instead, selloff in Turkish Lira and stocks are what’s driving the forex markets. Yen is trading as the strongest one for today, followed by Dollar and then Swiss Franc. Yen and the Swissy are clearly benefiting from risk aversion. The greenback continues to take advantage of slump in emerging market currencies.

                          Meanwhile, commodity currencies are all weak, including Canadian, Australian and New Zealand Dollar. Sterling also retreats mildly as the lift from Brexit optimism fades. Make no mistake that it’s still likely to have deal when both sides want to, but they have to deliver. And just like Canada-US trade talks, eyes will be on whether there is a conclusion by the end of tomorrow.

                          US stocks and yields are trading generally in red. DOW is down -0.40%, S&P 500 down -0.28%, NASDAQ down -0.07%. But remember that both S&P 500 and NASDAQ are on record runs. So such shallow retreat does nothing to change the trend. In Europe, FTSE closed down -0.62%, DAX down -0.54% and CAC down -0.42%.

                          USD/CNH (offshore Yuan), is trading up more than 0.6% at the time of writing. Break of the near term channel resistance argues that pull back from 6.9586 could completed with three waves down to 6.7776 already. Immediate focus is on 6.8959, for tomorrow and early next week. Break will bring rest of 6.9586 and even resume the down trend in Yuan.

                          And as we mentioned early, USD/TRY’s break of 61.8% retracement of 7.2068 to 5.6919 at 6.6281 could pave the way to retest 7.2069 high.

                          Selloff in emerging market currency could come back into spot light. If that happens, Dollar and Yen would be the main beneficiary.

                           

                          Swiss KOF rose to 100.9, retail sales dropped -0.1%

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                            ActionForex.com
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                            Swiss KOF Economic Barometer rose to 100.9 in February, up from 100.1, above expectation of 97.0. That’s the third rise in a row and it “lingers just above its long-term average”. KOF said “clearly positive growth rates would be expected for the Swiss economy in the near future”. But it also noted that the result is “based on the sentiment before the outbreak of the coronavirus in northern Italy.”

                            Also, the development was “primarily driven by an improvement in sentiment in the manufacturing sector”. Only financial sector had a “slightly negative impact. The other indicator groups considered in the Barometer (demand for exports, construction, hospitality, other services and domestic consumer demand) show a practically unchanged picture compared to the previous month.

                            Also released, retail sales dropped -0.1% yoy in January, below expectation of 0.3% yoy.

                            Fed’s projects to end rate hike after 2020, but long run rate estimate raised

                              By
                              ActionForex.com
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                              The most important parts of the new proections are firstly, median fed funds rate projection is unchanged at 3.4% in 2021. That is, Fed expects to stop after three hikes in 2019 and one more in 2020. However, secondly, the longer run federal funds rate was raised from 2.9% to 3.0%. That is, the neutral rate was somewhat lifted.

                              All in all, Fed’s new projections clearly show that the impact of fiscal stimulus of tax cuts and others would fade rather quickly, with notable fall in GDP growth in 2021 and rise in unemployment rate too. With core inflation holding at 2.1% in 2021, there is no need for further rate hike.

                              GDP projections for 2018 and 2019 are raised to 3.1% and 2.5% respectively. For 2020, GDP projection was kept unchanged at 2.0%. For 2021, it’s forecast to slow further to 1.8%.

                              Unemployment rate projection for 2018 was raised from 3.6% to 3.7%. For 2019 and 2020, it’s kept unchanged at 3.5%. And unemployment rate is expected rise back to 3.7% in 2021.

                              Core PCE projection was unchanged through out, at 2.0% in 2018, 2.1% in 2019, 2020 and 2021.

                               

                              Canadian Dollar surges as BoC talks down Sept CPI fall, interest rate to rise further to neutral

                                By
                                ActionForex.com
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                                Canadian Dollar jumps sharply after BoC rates overnight rate by 25bps to 1.75% as widely expected. Most importantly, BoC tries to talk down the drop in headline CPI in September. And, it maintains tightening bias to move interest rate to a neutral stance.

                                In the statement, BoC noted CPI’s fall to 2.2% in September was “in large part because the summer spike in airfares was reversed”. Also, there were “other temporary factors pushing up inflation, such as past increases in gasoline prices and minimum wages, should fade in early 2019”. BoC expects inflation to remain close to 3% target through then of 2020. Additionally, it noted that “core measures of inflation all remain around 2 per cent, consistent with an economy that is operating at capacity.”

                                On monetary policy, BoC said “policy interest rate will need to rise to a neutral stance to achieve the inflation target.” Nonetheless, the “pace” will depend on how the economy adjusts to higher interest rates. BoC also pledged to pay close attention to global trade policy developments and the implications on inflation outlook.

                                USD/CAD’s sharp fall and break of 1.3027 minor support suggests that rebound from 1.2781 has completed at 1.3132 after rejection by near term channel resistance, on bearish divergence condition in 4 hour MACD. Further decline is expected back to 1.2916 support.

                                More importantly, the development now argues that whole decline from 1.3385 might still be in progress. And break of 1.2916 will bring another low below 1.2781.

                                Bundesbank: Slide into a pronounced recession could not be prevented

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                                  ActionForex.com
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                                  Bundesbank said in its monthly report that the country is “facing previously unknown challenges as a result of the rapidly spreading coronavirus pandemic”. On the economy’s side, the “slide into a pronounced recession could not be prevented”. And, “economy recovery would only start when than pandemic risk was effectively contained”.

                                  The coronavirus pandemic would affect the economy through various channels. Firstly, domestic service sectors will be most affected. Hospitality and entertainment sectors, trade fair and aviation companies are likely to “suffer particularly sharply from falling demand and precautionary closings”.

                                  Other companies will also be affected by “potential loss of work and sales as a result of protective and precautionary measures”. Contagion effect from abroad would affect export and industry. Supply bottlenecks for important primary products threatened production bottlenecks. “All of these impairments listed can trigger negative confidence and second-round effects in Germany,” said the Bundesbank.

                                  Full release here.

                                  Germany PMIs: Solid start to the second quarter.

                                    By
                                    ActionForex.com
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                                    Germany PMI manufacturing dropped to 58.1, down from 58.2 and beat expectation of 57.5. GErmany PMI services rose to 54.1, up from 53.9 and beat expectation of 53.7. PMI compositive rose to 55.3, up from 55.1.

                                    Comments from Phil Smith, Principal Economist at IHS Markit:

                                    “Growth of Germany’s private sector steadied in April, to arrest the loss of momentum seen in February and March. With both manufacturing and services seeing slightly quicker increases in output, the data show the economy making a solid start to the second quarter.

                                    “There was also a welcome pick-up in the rate of private sector job creation in April. Employment levels rose strongly on a broad-based basis by sector, albeit with the rate of hiring among manufacturers easing from the recent elevated levels.

                                    “However, a further slowdown in new order growth to its weakest for over a year-and-a-half does raise some concerns. This seemed to be reflected in the survey’s measure of business confidence, which slipped further from the highs seen in 2017.”

                                    Yen dominates December as best performer on BoJ expectations

                                      By
                                      ActionForex.com
                                      -

                                      Japanese Yen is poised to be December’s best performer in the currency markets. Its strength is primarily driven by growing expectations that BoJ will eventually exit its long-standing negative interest rate policy in 2024. Yen’s performance is particularly noteworthy against Dollar (USD/JPY) and Sterling (GBP/JPY), both of which are top movers for the month, with the possibility of ending down more than 700 pips.

                                      The strengthening of Yen comes amidst a broader context where other major global central banks, such as Fed, ECB, and BoE, are expected to start loosening their monetary policies or, in some cases like SNB, BoC and RBNZ, maintain unchanged rates.

                                      BoJ Governor Kazuo Ueda has recently softened his typically dovish tone, acknowledging that the likelihood of a rate hike in 2024 is “not zero.” He also emphasized the importance of the Spring wage negotiations and the need for wage hikes to “broaden” from large companies to small businesses. This change in stance has contributed further to Yen’s rally, with April being viewed as a probable timing for rate hike. Yen could see further gains if incoming information in Q1 solidifies this expectation.

                                      Technically, USD/JPY’s fall from 151.89 is seen as the third leg of the consolidation pattern from 151.93. Further decline is expected as long as 144.94 resistance holds. Next target is 61.8% retracement of 127.20 to 151.89 at 136.63, sustained break there will pave the way to 127.20 support (2022 low).

                                      At the same time, USD/CNH is undergoing similar development. The pair is having a second attempt to break through 38.2% retracement of 6.6971 to 7.3679 at 7.1117. Sustained trading below this level will strengthen the case that fall from 7.3679 is the third leg of the consolidation pattern from 7.3745, aligning with the outlook of USD/JPY. In this case, deeper fall would be seen to 61.8% retracement at 6.9533, with prospect of having a take on 6.6971 support.

                                      European Commission Vice Sefcovic: Retaliation duties on US goods will start in July

                                        By
                                        ActionForex.com
                                        -

                                        European Commission Vice President for energy Maros Sefcovic said the commission expects to conclude the “relevant coordination” with member stats regarding the retaliation tariffs to the US in June. The new duties on US imports to EU would start applying in July.

                                        Sefcovic declared earlier this week to make the bid to succeed Jean-Claude Juncker as President in late 2019.

                                        US 10-year yield to settle in 1.4/1.6 range as bond auction cleared investor fears

                                          By
                                          ActionForex.com
                                          -

                                          The closely watched US treasury bond auction overnight was soft, but enough to temporarily ease investors’ worry of an avalanche collapse in demand. USD 38B in 10 year treasuries were sold, with bid-to-cover ratio of 2.38, just slightly below one-year average of 2.42. Focus will now turn to 30-year auction today.

                                          10-year yield closed down -0.026 at 1.520, after hitting as low at 1.506. TNX would likely settle in range of 1.4/1.6, with S&P dividend at around 1.5 in the middle. Such developments should provide a floor for overall market sentiments.

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