Japan PMI Manufacturing rose to 46.6 in August, up from 45.2, above expectation of 45.0. PMI Services edged down to 45.0, down from 45.4. PMI Composite was unchanged at 44.9.
Bernard Aw, Principal Economist at IHS Markit, said: “The prospect of a solid recovery remains highly uncertain as Japanese firms were pessimistic about the business outlook on balance during August. Rising unemployment may also hit domestic household income and spending in the months ahead.”
Dollar is currently trading as the second strongest one for the week, as markets await job data from the US. Non-farm payroll report is expected to show 156k job growth in January. Unemployment rate is expected to be unchanged at 3.50%. Average hourly earnings are expected to grew 0.3% mom.
Looking at other job data, ADP private jobs posted a strong upside surprise with 291k growth. That’s the highest figure in nearly five years. ISM manufacturing employment improved to 46.6 but stayed in contraction region. ISM non-manufacturing employment dropped from 54.8 to 53.1. Four-week moving average of initial jobless claims dropped from 224k to 214.5k.
Overall, other job data suggested that it could be easy to beat the 156k NFP expectation. Yet, there is no hints of an overwhelming surprise. Meanwhile, wage growth could disappoint again.
Here are some previews:
In an interview with SRF, SNB Chairman Thomas Jordan stressed the critical issues of sluggish growth and the need for structural reforms. He underscored the importance of enhancing productivity to bolster economic growth across nations. Additionally, e highlighted the troubling high levels of debt and substantial deficits many countries are grappling with, which he deemed unsustainable in the long run.
Jordan emphasized that correcting these fiscal imbalances is imperative for future economic stability. He warned against the misuse of monetary policy as a tool for financing state debts, asserting that such practices could lead to dire consequences.
“It is very important that at the same time monetary policy remains geared towards price stability, rather than monetary policy being needed to finance debt, otherwise it will not end well,” Jordan cautioned.
US ISM manufacturing index dropped to 41.5 in April, down from 49.1, but beat expectation of 36.7. That’s, nonetheless, the lowest reading since April 2009. Also, the 7.6 pts decline is the largest one-month fall since October 2008.
Looking at some details, new orders dropped -15.1 to 27.1. Production dropped -20.2 to 27.5. Employment dropped -16.3 to 27.5. Supplier deliveries rose again by 11.0 to 76.0. New export orders dropped -11.3 to 35.3. Of the 18 manufacturing industries, only two reported growth in April (Paper Products; and Food, Beverage & Tobacco Products). 15 reported contractions.
“Comments from the panel were strongly negative (three negative comments for every one positive comment) regarding the near-term outlook, with sentiment clearly impacted by the coronavirus (COVID-19) pandemic and continuing energy market recession”.
Oil prices took a significant dip overnight, with WTI now trading USD 10 beneath last week’s peak of 95.50. This decline is notably perplexing given the absence of a clear triggering event. OPEC+’s resolution to uphold output cuts is conventionally a precursor for a bullish response in the market. However, the rapid and profound dip has spurred conversations around the onset of demand destruction, provoked by the Q3 oil price spike.
In this week’s meeting, the OPEC+ ministerial panel opted for status quo, maintaining its existing oil output policy. Saudi Arabia pledged to persist with its voluntary cut of 1 million barrels per day through the end of 2023, while Russia committed to retaining its voluntary export reduction of 300k bpd until December’s end.
A note from JPMorgan’s commodity analysts titled “Demand destruction has begun (again)” highlighted that the repercussions of surging oil prices are re-emerging in the form of demand restraints in regions including US, Europe, and certain Emerging Markets.
The crux of global oil demand growth, anchored by China and India, is also showing signs of waning. China’s decision to utilize domestic crude inventories following the surge in oil prices is indicative of this trend.
In the US, gasoline consumption has plummeted to a 22-year low. The considerable 30% hike in fuel prices in Q3 has reportedly dampened demand, leading to an atypical decline of 223k barrels per day.
From a technical standpoint, WTI crude oil finds itself at a pivotal support juncture, which comprises the 84.91 resistance-turned-support and the 55 D EMA, currently pegged at 84.90. While a solid rebound from this position remains plausible, it’s expected to be restrained well below 95.50 high.
On the other hand, sustained break of 84.91 would confirm rejection by 50% retracement of 131.82 to 63.67 at 97.74. WTI could then be reversing whole rally from May’s low at 63.67, and risk falling further to 77.95 support.
US ISM Manufacturing PMI rose to 60.8 in February, up from 58.7, above expectation of 58.9. This equals the highest reading since February 2018, which was then the highest since May 2004.
Looking at some details, new orders rose 3.7 to 64.8. Production rose 2.5 to 63.2. Employment rose 1.8 to 54.4. ISM said: “The Manufacturing PMI continued to indicate strong sector expansion and U.S. economic growth in February. Four of the five subindexes that directly factor into the PMI were in growth territory and at a higher level compared to January.”
Prices jumped 3.9 to 86.0, highest since May 2008. ISM said, “Aluminum, copper, chemicals, all varieties of steel, soy, petroleum-based products including plastics, transportation costs, electrical and electronic components, corrugate, and wood and lumber products all continued to record price increases.”
Japan national CPI core (all items ex-fresh food), rose to 0.8% yoy in January, up from 0.7% yoy, matched expectations. But it remains well below BoJ’s 2% target. Headline CPI slowed to 0.7% yoy, down form 0.8% yoy. CPI core-core (all items ex-fresh food, energy slowed to 0.8% yoy, down fro 0.9% yoy.
BoJ Governor Haruhiko Kuroda told the parliament today that he saw the economy to continue with moderate recovery. The central bank won’t hesitate to take additional easing measures if necessary. But he didn’t believe it’s needed now.
Kuroda added that uncertainty regarding China’s coronavirus outbreak is high, because of the impact on exports, production, and tourism. He’d watching the effects with “grave concern.” Also, the coronavirus will be the “biggest topic on the agenda” at this week’s G20 meeting.
Atlanta Fed President Raphael Bostic said on Thursday, “right now, our projections suggest that by the summertime of next year, the number of jobs that we have in the economy will be pretty much where we were pre-pandemic.”
“And at that point, I think it’s appropriate for us to try to normalize our interest rate policy,” he added.
Australia employment rose 88.7k in February, well above expectation of 31.5k. Full-time jobs grew 89.1k while part-time jobs dropped -0.5k. Unemployment rate dropped -0.5% to 5.8%, much lower than expectation of 6.3%. Participation rate rose 0.1% to 66.1%. Monthly hours worked rose 102m hours to 1.665m.
Bjorn Jarvis, head of labour statistics at the ABS, said “The strong employment growth this month saw employment rise above 13 million people, and was 4,000 people higher than March 2020.”
Thomas Barkin delivered his first speech as Richmond Fed President overnight and expressed his support for more rate hikes ahead. But he declined to comment on how many hikes this year he expects.
He noted that “monetary policy is still pretty accommodative”. And, “when unemployment is low and inflation is effectively at our target, we probably ought to go to neutral in that environment.” Also, “the economy’s performance as we sit here today is remarkably strong: above trend growth, low unemployment, inflation at target.”
But Barkin also warned on the risks from the trade tensions between US and other countries. He said it’s “not clear what’s going to be implemented in the end” regarding tariffs. But “there is an issue on business confidence and the business people that I talk to who were almost euphoric in January are now nervous. And they’re nervous about where the macroeconomy is going.”
BoE Governor Andrew Bailey said the central bank is “ready to act, should that be needed”. However, he added that while negative rates are “part of out tool box”, at the moment, “we do not have a plan to use them.
A “conclusion we tend to be drawing from other experiences is that the negative rates and their effectiveness depends on what point in the cycle you use them,” he explained. “If you see what the ECB have done in their analysis that probably they are more effective in an established upswing than they are in a difficult downswing.”
On the economic outlook, he emphasized “forecasts can sometimes look beguilingly straightforward”. But “there’s an awful lot of risk in there ad it’s obviously distributed one way.”
Entering into US session, Swiss Franc and Yen are among the weakest today as global stocks recover. Sterling is also soft as traders turned cautious ahead of crucial Brexit votes this week. UK Prime Minister Theresa May’s just confirmed that the Brexit deal meaningful vote will happen tomorrow. And, talks with EU on a solution to the Irish backstop were continuing. Meanwhile, Euro recovers broadly today but upside is relatively limited.
Released in European session, German industrial production dropped -0.8% mom in January versus expectation of 0.50% mom. Trade surplus narrowed to EUR 18.5B in January. From Asia, Japan machine tools orders dropped -29.3% yoy in February, M2 rose 2.4%. Focus will now turn to January retail sales fro the US. December’s numbers were disastrous and we’ll see if sales rebound this year.
In Europe, currently:
Earlier in Asia:
San Francisco Fed President Mary Daly said in an interview that it’s “absolutely appropriate” to have Fed working with fiscal agents to help small businesses and households to “weather this near term shutdown” due to coronavirus. The fiscal stimulus from Congress and the response moves by Fed this week are “exactly what we need to do to offset some of the near-term disruption”.
She noted that Fed’s tools are “starting the work in the market we care about”. “It’s encouraging to see that there’s more borrowing at the discount window; it’s encouraging to see that some of the volatility in markets has settled down,” Daly said.
German ZEW Economic Sentiment jumped from 42.9 to 47.1 in May, above expectation of 44.9. Current Situation Index also rose from -79.2 to -72.3, above expectation of -75.0.
Eurozone ZEW Economic Sentiment rose from 43.9 to 47.0, above expectation of 46.1. Current Situation Index jumped by 10.2 pts to -38.6.
ZEW President Professor Achim Wambach said: ” Signs of an economic recovery are growing, bolstered by better assessments of the overall eurozone and of China as a key export market. The increased optimism is reflected in particular in the sharp rise in expectations for domestic consumption, followed by the construction and machinery sectors.”
Japan’s Cabinet Office said in the new monthly report that the economy is still in a “severe situation” due to coronavirus. But “it is showing movements of picking up recently. On the positive side, private consumption is picking while exports are bottoming out. However, business investments is “in a weak tone”. Industrial production picked up in “some sectors” but it’s “decreasing as a whole”. Corporate profits are “decreasing sharply” while employment situation is “showing weakness”.
Concerning short-term projects, the government expected the economy to “show movements of picking up”. However, “attention should be given to the risk that domestic and overseas infections would affect economies”.
In seasonally adjusted terms, Australia trade surplus widened to AUD 7.18B in September, up from AUD 6.62B, beat expectation of AUD 5.10B. Exports rose 3% to AUD 43.2B. Imports rose 3% to AUD 36.0B.
Also released, AiG Performance of Construction index rose to 43.9 in October, up from 42.6. The data reflected less pronounced reductions in activity, new orders and employment. However, highlighting the subdued overall state of business conditions, deliveries from suppliers declined at a steeper rate in the month.
Eurozone retail sales volume fell -0.2% mom in July, matched expectations. Volume of retail trade decreased by -1.2% mom for automotive fuels, while it increased by 0.4% mom for food, drinks and tobacco and by 0.5% mom for non-food products.
EU retail sales decreased -0.3% mom. Among Member States for which data are available, the largest monthly decreases in the total retail trade volume were registered in Denmark and Ireland (both -2.3%), the Netherlands (-1.4%) and Luxembourg (-1.3%). The highest increases were observed in Portugal (+1.1%), Sweden (+1.0%) and Cyprus (+0.8%).
Italy is in fresh political turmoil again as the formation of the new eurosceptic government collapsed. Nonetheless, the Euro is lifted mildly higher today as that’s seen as a positive development for the common currency.
President Sergio Mattarella vetoed Paolo Savona as the as economy minister. Savona is an 81-year-old eurosceptic economist who’s a vocal critic of the common currency. Mattarella said in a televised speech that “the uncertainty over our position (on euro) has alarmed investors and savers both in Italy and abroad.” And, he emphasized that “membership of the euro is a fundamental choice. If we want to discuss it, then we should do so in a serious fashion.” Mattarella added that “I asked for that ministry an authoritative political figure from the coalition parties who was not seen as the supporter of a line that could provoke Italy’s exit from the euro.”
Prime Minister-designate Giuseppe Conte promptly abandoned the effort to form a new government. Tthe far-right League and anti-establishment Five Star Movement, accused Mattarella of abusing his authority and working under the orders of European powers. Five Star leader Luigi D Maio even demanded that parliament impeach Mattarella. League chief Matteo Salvini threatened mass protests unless snap elections were called.
Former IMF director of discal affairs Carlo Cottarelli was called in to head a stopgap government. But he’s unlikely to have enough supoort from the parliament. So, that’s only a short-term solution and an election is now likely to be held to solve the political crisis, possibly in September or October.
Australia AiG Performance of Manufacturing Index dropped to 49.3 in August, down from July’s 53.5, back in contraction. The details are mixed as production dropped -3.0 to 53.4. Employment dropped -3.2 to 50.2. New orders dropped -6.1 to 46.6. Exports rose 10.8 to 52.2. Average wages rose 2.0 to 50.
There was large divergence between larger manufacturing states. Victoria’s PMI dropped by -9.3pts and back into contraction at 44.0. New South Wales PMI also dropped -5.2 pts to 51.0. But South Australia PMI Rose 3.3 pts to 65.3. Queensland PMI also rose 9.7 to 47.1.
Also released from Australia, building permits jumped 12.0% mom in July versus expectation of -0.5% mom. Current account surplus widened to AUD 17.7B in Q2 versus expectation of AUD 13.0B. From New Zealand, building permits dropped -4.5% mom in July.
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EU Moscovici: Brexit has to be dealt with in London first
European Commissioner for Economic and Financial Affairs Pierre Moscovici reiterated the EU’s stance that regarding Brexit, the ball is in UK’s court now. He said “Certainly the EU is there, the EU is waiting, the EU is ready but first we need to know clearly what are the British intentions and we need some clarifications from London”.
He added that “Of course the door is always open for discussion but it’s not up to us to tell now the British side where it wants to go. The ball clearly is in the British side again. It’s not a problem that can be solved by Brussels, maybe in Brussels later, but it has to be first dealt with in London.”
Also on the possibility of hard Brexit, Moscovici said “Nobody wants a no-deal (Brexit), that is clear. The British parliament doesn’t want a no-deal, the British government doesn’t want a no-deal, and the EU is not willing a no-deal, so we need to explore all options which are not a no-deal.”