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AUD boosted by surge in Iron Ore futures in China’s DCE

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    AUD surges broadly and the rally started as markets entered into European session.

    Strength in Iron ore price is likely a key factor. Iron Ore futures in China’s Dalian Commodity Exchange soared after lunch and gain 2.76% for the day.

    In the background, there is some optimism on iron ore and steel price as inventory falls. Reuters reported ANZ research note saying that “Chinese steel demand continues to beat expectations. Real estate investment and housing starts are picking up, while infrastructure spending remains elevated.” And, “after some restocking in late March ahead of a key maintenance period, the scene is set for steel mills to re-enter the market.”

    ANZ also noted that the outlook for iron ore also picked up in recent weeks, as seen from recent Chinese data. In addition, prolonged mine outage in Brazil and falling exports from India and Sierra Leone will support prices.

    Chinese stocks and AUD surge as MSCI mulls lifting index weighting 4 times

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      Chinese stocks rise sharply higher today on news that MSCI is considering to increase its A shares in the MSCI indexes.

      MSCI noted that the 5% initial inclusion of China A implemented in May and August 2018 got “overwhelming positive feedback from market participants”. It’s has now launched a consultation on further weight increase. The investment community could provide MSCI with proposals till February 15, 2019 and the decision would be made on or before February 28, 2019.

      The current proposals including adding the weight of China A Large Cap securities from 5% to 7% in two phases, 7.5% each in May and August 2019. Also ChiNext could be added to the list of eligible stock exchange segments in May 2019. China A Mid-Cap securities with 20% included factor in one phase in May 2020.

      MSCI’s full document here.

      At the time of writing, China Shanghai SSE composite is trading up 1.37% at 2819, finally back above 2800 handle.

      The news has apparently lifted Australian Dollar too. With today’s rise and 0.7228 minor support defended, AUD/USD is possibly extending the corrective rebound from 0.7084 through 0.7303 before completing it.

      EUR/AUD’s rebound from 1.6051 could also be finished at 1.6252. And, the correction from 1.6353 would likely have another take on 1.6051 support before completion.

      Japan’s Tokyo CPI core rises to 2.5% yoy, PMI services finalized at 52.9

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        Japan’s Tokyo CPI core (ex-fresh food) rose from upwardly 1.8% yoy to 2.5% yoy in February, matched expectations. CPI core-core (ex-food and energy) slowed from 3.3% yoy to 3.1% yoy. Headline CPI in the capital city rose from 1.8% yoy to 2.6% yoy.

        Also released, PMI Services was finalized at 52.9 in February, down from January’s 53.1, but stays in expansion for the 18th month in a row. PMI Composite was finalized at 50.6, down from prior month’s 51.5.

        According to Usamah Bhatti, Economist at S&P Global Market Intelligence,services business activity growth was sustained into February while the rate of growth in new business accelerated to a six-month high. However, steeper reduction in manufacturing output levels contributed to a slowdown in overall private sector activity growth.

        Full Japan PMI services release here.

        US Chamber of Commerce to campaign against Trump’s trade tariffs policies

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          Reuters reported that the US Chamber of Commerce is launching a campaign today to attack Trump’s protectionist trade policy. It’s believed that state-by-state analysis would be used for the campaign and it will warn that Americans that Trump is risking a global trade war that will eventually hit their pockets.

          Chamber President Tom Donohue was quoted saying that “the administration is threatening to undermine the economic progress it worked so hard to achieve.” And he added that “we should seek free and fair trade, but this is just not the way to do it.”

          Being the largest business group in the US with 3 million members, the Chamber also have long history of being friendly with Republicans. Their stance carries some political significance.

          Brexit crisis deepens as Leadsom resigns on second referendum

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            Brexit crisis in UK deepened further after a key Cabinet Minister resigned in opposition to Prime Minister Theresa May’s inclusion of a second referendum in the new Brexit plan.

            Andrea Leadsom Leader of the House of Commons, said “I no longer believe that our approach will deliver on the referendum result”. And, “I do not believe that we will be a truly sovereign United Kingdom through the deal that is now proposed”.

            Leadsom went further and said “I have always maintained that a second referendum would be dangerously divisive and I do not support the government willingly facilitating such a concession.”

            May’s spokesman just praised Leadsom and expressed disappointment at her decision, but added: “The prime minister remains focused on delivering the Brexit people voted for.”

            There is practically no chance for May to get her Brexit deal through the Commons. The question now is who will take her place and lead Brexit after she steps down as promised. Sterling remains the weakest one for the week as markets are pricing in the chance of a pro-Brexit hardliner leading UK to a no-deal Brexit.

            ECB Centeno: Many conditions in place for less than 75bps hike

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              ECB Governing Council member Mario Centeno was asked yesterday about whether the central bank should hike by less that 75bps in December. He said, “I think there are conditions in place — many conditions — for the increase to be less than that number”.

              Centeno also noted that “rates in Europe continue to be roughly half those in the United States”, and that’s a good indicator of the difference between the economic fundamentals of the two regions. He also urged restraint in wage growth and company margins as that “could help the ECB a lot in combating inflation”.

              US-Mexico bilateral NAFTA talks postponed to Wednesday

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                Mexico and the US postponed a high level NAFTA meeting to Wednesday (originally scheduled for Tuesday yesterday). Politico quoted unnamed sources saying that the two sides are targeting to formally announce an agreement on Thursday. And after that Canada would be allowed to rejoin the negotiations.

                However, as of now, there is not clear message that a deal is reached between Mexico an the US. A US Trade Representative spokesman said “there is no deal on NAFTA. There are major issues outstanding.” Mexico also denied the “handshake” deal with the US. Meanwhile, Canadian government also said it received no notification of an imminent NAFTA deal.

                Eyes will stay on the postponed meeting between Mexican Economy Minister Ildefonso Guajardo and US Trade Representative Robert Lighthizer today.

                ECB Visco: If we need to be more restrictive, we’ll be more restrictive

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                  ECB Governing Council member Ignazio Visco told Bloomberg TV on Saturday, “I don’t think that we can indicate now what the terminal rate will be, not even if it’ll be 3.5%, 3.25% or 3.75%, because really it is data-dependent.

                  “Our objective is to go back to an inflation rate of 2% in the medium term. If we need to be more restrictive, we’ll be more restrictive,” he said.

                  Visco said “determined” steps are needed in Q2. “We have to be sure that core inflation isn’t remaining at this high level… This may induce wage increases beyond what is compatible with a medium-term 2% inflation rate, which is our target. So that is why we are observing this with a lot of care — but I’m not worried.”

                  Eurozone PMI composite rose to 10-month high on strong services

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                    Eurozone PMI Manufacturing dropped from 48.5 to 47.1 in March, hitting a 4-month low. However, PMI Services rose sharply from 52.7 to 55.6. PMI Composite rose from 52.0 to 54.1. Both PMI Services and Composite were the highest levels in 10 months.

                    According to Chris Williamson, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, the eurozone economy is experiencing a resurgence, with business activity in March growing at the fastest rate in ten months. The data indicates a 0.3% GDP growth in Q1, accelerating to a 0.5% rate in March. This growth is attributed to fading recession fears, easing inflation pressures, and significant improvements in supplier delivery times.

                    Despite these positive signs, inflationary pressures continue to be a concern, particularly in the service sector and rising wage costs. The growth remains unbalanced, with the service sector driving growth while manufacturing struggles to maintain production amid falling demand.

                    Full Eurozone PMI release here.

                    Also released, Germany PMI Manufacturing dropped further from 46.3 to 44.3 March, a 34-month low. But PMI Services rose from 50.9 to 53.9, a 10-month high. PMI Composite rose from 50.7 to 52.6, also a 10-month high.

                    France PMI Manufacturing ticked up from 47.4 to 47.7 in March. PMI Services rose from 53.1 to 55.5, a 10-month high. PMI Composite rose from 51.7 to 54.0, also a 10-month high.

                    New Zealand retail sales volume down -2.3% qoq in Q2, sales value relatively unchanged

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                      New Zealand retail sales volume declined -2.3% qoq in Q2 to NZD 26B, worse than expectation of 1.7% qoq rise. 10 of 15 industries had lower seasonally adjusted sales volumes comparing with Q1.

                      Retail sales value was relatively unchanged, up slightly by NZD 1.1m to NZD 29B. 8 of 15 industries had lower seasonally adjusted sales values.

                      Full release here.

                      ECB Lagarde: Conditions for rate hike very unlikely to be satisfied next year

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                        In a European Parliament committee hearing, ECB President Christine Lagarde said, “growth momentum is moderating to some extent owing to supply bottlenecks and the rise in energy prices.” Consumer spending is “solid”, but shortages of materials, equipment and labour are “weighing on manufacturing production, weakening the near-term outlook.” “Although the duration of supply constraints is uncertain, they are likely to persist for several months and gradually ease only during 2022,” she added.

                        Lagarde also reiterated that the upswing in inflation is driven by three primary forces, energy prices, demand outpacing constrained supply, and reversal effect of German VAT cut. “The latter factor will fall out of the inflation calculation from January 2022 but the other two may last longer.” “As a result, we still see inflation moderating in the next year, but it will take longer to decline than originally expected,” she said.

                        On monetary policy, she said the conditions for rate hike are “very unlikely to be satisfied next year”. Intentions on further calibration of bond purchases will be announced in December. But “even after the expected end of the pandemic emergency, it will still be important that monetary policy – including the appropriate calibration of asset purchases – supports the recovery throughout the euro area and the sustainable return of inflation to our target of two per cent.”

                        Full introductory statement here.

                        Iran FM Zarif had “very good and constructive” meeting with EU Mogherini

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                          ActionForex.com
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                          Iranian Foreign Minister Mohammad Javad Zarif said the meeting with European Union’s foreign policy chief, Federica Mogherini in Brussels was “very good and constructive”. Zarif also said that both sides were on the “right track” to ensure that the interests of the JCPOA’s “remaining participants, particularly Iran, will be preserved and guaranteed.” Zarif’s comments came before meeting with foreign ministers of Germany, France and the UK, on continuing the JCPOA nuclear agreement after US withdrawal.

                          Separately, IRNA news agency quoted Iranian President Hassan Rouhani asking EU to stand against the US’ “illegal and illogical” actions of pulling out from JCPOA.

                          German ZEW rose to 28.1, but current situation still unfavorable

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                            ActionForex.com
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                            Germany ZEW Economic Sentiment rose form 16.9 to 28.1 in February, above expectation of 22.8. Current Situation index rose from -58.6 to -45.1, above expectation of -50.0.

                            Eurozone ZEW Economic sentiment rose form 16.7 to 29.7, above expectation of 22.3. Current Situation Index rose 13.2 pts to -41.6.

                            ZEW President Professor Achim Wambach said: “Meanwhile a large fraction of the survey participants expects the economic situation to improve in six months’ time. However, the current situation is still assessed as relatively unfavourable.

                            “As in the previous month, the increase in expectations can be traced back to higher profit expectations in the energy- and export-oriented sectors as well as the consumer-related parts of the economy. Expectations for long-term interest rates are also rising and the banking sector indicator has reached its highest level since 2004.”

                            Full release here.

                            Eurozone PMI Composite finalized at 51.8, suggests 0.2% Q2 GDP growth only

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                              Eurozone PMI services was finalized at 52.9, up from flash reading at 52.5 and April’s final at 52.9. PMI Composite was revised up to 51.8, up from flash reading of 51.6 and April’s final at 51.5. Among the countries, Italy PMI Composite improved to 49.9, 2-month high. France PMI Composite rose to 51.2, 6-month high. German PMI Composite rose to 52.6, 3-month high. But Spain PMI Composite dropped to 52.1, 66-month low.

                              Chris Williamson, Chief Business Economist at IHS Markit said:

                              “The final eurozone PMI for May came in higher than the flash estimate, indicating the fastest growth for three months, but the overall picture remains one of weak current growth and gloomier prospects for the year ahead. While the service sector has seen business conditions improve compared to late last year, growth remains only modest, in part reflecting a spill-over from the trade-led downturn in the manufacturing sector.

                              “Despite output at goods and service providers collectively rising at a slightly faster rate in May, the survey data are merely indicating a modest 0.2% rise in GDP in the second quarter.

                              “Furthermore, there seems little prospect of any immediate improvement: new orders barely rose in May, painting one of the gloomiest pictures of demand seen over the past six years, and companies’ expectations of growth over the coming year likewise fell to one of the lowest in six years.

                              “The survey also brought further signs that companies are having to increasingly compete on price to sustain sales growth, dampening inflationary pressures to the lowest for two-and-a-half years.

                              “Although Germany and France saw stronger growth in May, rates of increase remained subdued. Spain meanwhile saw growth slip to the lowest since late-2013 but Italy once again reported the toughest conditions, stuck in a mild downturn.”

                              Full released here.

                              IMF lowers 2019 global growth forecast to 3.5%, risks rising

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                                IMF revised down global growth forecasts and warned that “the global expansion is weakening and at a rate that is somewhat faster than expected.” Also, ” risks to more significant downward corrections are rising.”

                                And, “while financial markets in advanced economies appeared to be decoupled from trade tensions for much of 2018, the two have become intertwined more recently, tightening financial conditions and escalating the risks to global growth.”

                                In particular, IMF warned that “an escalation of trade tensions and a worsening of financial conditions are key sources of risk to the outlook.” Meanwhile, China’s slowdown could be worsened by trade tensions and trigger “abrupt sell-offs in financial and commodity markets”. “Brexit cliffhanger”, “financial risk in Italy ” and “protracted US federal government shutdown” are other risks.

                                To summarize, for 2019:

                                • Global growth is projected at 3.5%, down from prior 3.7% (October forecast).
                                • US growth is projected at 2.5%, unrevised.
                                • Eurozone growth is projected at 1.6%, down from prior 1.9%.
                                • Japan growth is projected at 1.1%, up from prior 0.9%
                                • China growth is projected at 6.2%, unrevised.
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                                Full release here.

                                ECB de Guindos: Risks stem from increased protectionism, oil prices and debt

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                                  ECB Vice President Luis de Guindos said Eurozone is on track for solid and broad-based growth. And there is increasing confidence for on inflation. But he also warned that “downside risks to the outlook stem from the threat of increased protectionism, rising oil prices and its impact on inflation and global growth, as well as very elevated levels of global debt.”

                                  Meanwhile, the relatively muted reactions on ECB’s June policy meeting suggested that the policy stance is appropriate. He also emphasized that “monetary policy will be firmly guided by the outlook for price stability and our stance will evolve in a data-dependent and time-consistent manner.”

                                  Australia AiG services dropped to 47.7, second month of contraction

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                                    ActionForex.com
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                                    Australia AiG Performance of Services Index dropped slightly from 48.0 to 47.7 in October, staying in contraction for a second month. Looking at some details, sales dropped -0.5 to 41.3. Employment rose 1.3 to 53.9. New orders rose 4.3 to 54.5. Input prices rose 4.2 to 77.6. Selling prices rose 3.9 to 62.2. Average wages dropped -1.1 to 64.8.

                                    Innes Willox, Chief Executive of Ai Group, said: “Australia’s service sector faces weakening conditions. Chronic labour shortages have dragged on the supply-side of the sector for most of this year. And now the effects of cumulative interest rate rises are weakening demand conditions as well. Conditions particularly deteriorated for retail & hospitality and business & property, which are most exposed to consumer sentiment.”

                                    Full release here.

                                    Eurozone unemployment rate ticks down to 6.4%, EU down to 5.9%

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                                      Unemployment rate in Eurozone has seen a drop from 6.5% to 6.4% in August, aligning with market expectations. Similarly, the broader EU reported a decrease in its unemployment rate, ticking down from 6.0% to 5.9%.

                                      Eurostat, provided further details on this development. As of August 2023, an estimated 12.837m individuals in EU were unemployed. Out of these, Eurozone accounted for 10.856m jobless persons. When juxtaposed with the data from July, there’s a marked decrease of -112k unemployed persons in EU, with Eurozone contributing a decline of -107k to this number.

                                      An even more pronounced positive trend emerges when the data is analyzed year-on-year. From August 2022 to August 2023, EU saw a reduction in unemployment by -335k individuals, while Eurozone alone experienced a decline of -407k unemployed persons.

                                      Full Eurozone unemployment release here.

                                      Canadian Dollar ignores CPI and retail sales, tumbles as WTI crude oil diving to 50

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                                        Canada headline CPI accelerated to 2.4% yoy in October, up from 2.2% yoy and beat expectations of 2.2% yoy. CPI core was unchanged at 1.9% yoy. CPI core median was unchanged at 2.0% yoy. CPI core trim was also unchanged at 2.1% yoy. Looking at the details, prices rose in all major components.

                                        Headline retail sales rose 0.2% mom in September, above expectation of 0.0% mom. But ex-auto sales rose 0.1% mom only, below expectation of 0.30%.

                                        Canadian Dollar drops sharply after the release, mainly as delayed reaction to the free fall in oil prices. WTI is now heading to 50 psychological level.

                                        HK HSI dives as Yellen visit China amid rising US-China tensions

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                                          Hong Kong HSI is taking a hit today as it gapped down at open and further sell-offs materialized during the initial part of Asian trading session. This market movement mirrors intensifying investor concerns as US Treasury Secretary Janet Yellen starts a four-day visit to China. While the intention behind Yellen’s visit is to de-escalate potential conflicts between these two economic behemoths, atmosphere has notably soured this week.

                                          Earlier in the week, China struck a discordant note by announcing fresh restrictions on export of several critical minerals used in manufacture of semiconductors and solar panels. This move appears to be a tit-for-tat response to the tech export limitations that the US has imposed on China, limiting the sale of advanced computer chips. Further adding to the apprehension, US government is reported to be contemplating additional measures to restrict China’s access to US-based cloud computing services.

                                          On a separate front, China delivered another blow to international diplomatic relations when it abruptly canceled a visit by European Union foreign policy chief Josep Borrell, scheduled for next week, according to an EU spokesperson. The Chinese authorities have not yet disclosed the reasons behind this unexpected cancellation.

                                          From a technical perspective, today’s market turbulence in Hong Kong, marked by a gap down followed by a sharp drop, appears to validate rejection by 55 D EMA (now at 19428.57). Fall from 20155.92 is likely to be another chapter in the overall descent from 22700.85. As decline progresses, a drop below 18044.85 low is expected. However, substantial support is still expected from 61.8% retracement of 14597.31 to 22700.85 at 17692.86, and this could potentially spur a reversal. Let’s see how it goes.

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