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ECB monthly bulletin: Eurozone risk broadly balanced, but global downside risks intensified

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    ActionForex.com
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    Some highlights of ECB monthly bulletin

    External environment:

    • Global survey indicators continue to signal a steady growth momentum for the second quarter of 2018.
    • At the same time downside risks to the global economy have intensified, amid actions and threats regarding trade tariff increases by the United States and possible retaliation by the affected countries.
    • Global financial conditions remain supportive overall, but have tightened somewhat for emerging market economies.
    • Global trade indicators recorded a loss in momentum.
    • The outlook for economic activity in the United States remains solid, but concerns about tariffs have arisen among firms.
    • In Japan, the economy is expected to recover from a mild contraction in the first quarter of 2018, but the outlook is surrounded by growing uncertainty.
    • In the United Kingdom, the weakening in GDP growth over the first quarter of 2018 is considered to be temporary.
    • In China, GDP growth moderated slightly in the second quarter of 2018 while financial markets recorded downward pressures.

    Economic activity

    • Although incoming data point to a loss in momentum following the very strong growth seen in 2017, the solid and broad-based growth pattern in the euro area is expected to continue.
    • Employment growth remained robust in the first quarter of the year.
    • Looking ahead, short-term indicators point to continued strength in the labour market in the coming quarters.
    • Rising household incomes supported growth in private consumption.
    • Gains in employment are expected to continue to support robust growth in private consumption.
    • While investment growth eased in the first quarter of 2018, short-term indicators continue to point to robust growth.
    • Investment is expected to continue to grow at a robust pace. Euro area trade growth remained moderate at the beginning of the second quarter of 2018.
    • Overall, the latest economic indicators suggest ongoing solid growth.
    • This easing reflects a pull-back from the high pace of growth observed last year and is related mainly to a weakening of external trade, compounded by an increase in uncertainty and some temporary and supply-side factors at both the domestic and the global level.
    • The risks surrounding the euro area growth outlook can still be assessed as broadly balanced.

    Prices and costs

    • Euro area annual HICP inflation rose to 2.0% in June, up from 1.9% in May
    • Measures of underlying inflation have remained generally muted but stand above earlier lows.
    • Price pressures for HICP non-energy industrial goods remained robust, with signs of more upward pressure visible in the early stages of the pricing chain.
    • Recent wage growth data points to a continued upward shift from a trough in the second quarter of 2016.
    • Both market and survey-based measures of longer-term inflation expectations have remained broadly unchanged
    • Residential property prices in the euro area continued to accelerate further in the first quarter of 2018.

    Full report here.

    New Zealand ANZ business confidence dropped to 7, overshoot in demand dissipating

      By
      ActionForex.com
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      New Zealand ANZ Business Confidence dropped to 7.0 in February, down from December’s 9.4, and preliminary reading of 11.8. Confidence was highest in retails at at 15.6, followed by construction at 12.9, services at 10.8 and manufacturing at 3.6. Agriculture confidence was at -38.1.

      Own Activity Outlook rose to 21.3, up from 21.7, vs prelim. 22.3. Activity was highest in construction at 41.9, followed by services at 24.7, retail at 13.3, manufacturing at 10.7 and agriculture at 0.

      ANZ said, “overshoot in demand resulting from the disruptions of 2020 is beginning to dissipate, and we expect the economy to go broadly sideways for a while as it digests the national income hit from the decimated tourism industry and as the housing market cools to something more sustainable.”

      Full release here.

      Japan industrial production dropped -3.2% mom in Aug, auto production shrank

        By
        ActionForex.com
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        Japan industrial production dropped -3.2% mom in August, worse than expectation of -0.5% mom. Production in auto dropped -15.2% mom as affected by global semiconductor shortage and factory shutdowns in Southeast Asia. Output of electrical machinery and information and communication electronics equipment also dropped -10.6% mom.

        The Ministry of Economy, Trade and Industry downgraded the assessment of industrial production, and said recovery “has paused. Nevertheless, based on a poll of manufacturers, production is expected to rise 0.2% mom in September and then 6.8% mom in October.

        Also released, retail sales dropped -3.2% yoy in August, versus expectation of -1.3% yoy. That’s the first decline in six months.

        AUD/CAD extending near term rally, to target 0.96 next

          By
          ActionForex.com
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          While risk on-sentiment is supporting commodity currencies in general, Aussie has been outperforming others recently. Reacceleration in Australian consumer inflation as shown in last week’s November monthly CPI data suggests little room for RBA to pause for now. Additionally, there is optimism over China’s reopening, as well as resumption of coal purchases.

          AUD/CAD opened the week with solid buying. the development should confirm resumption of whole rise from 0.8596 low. Near term outlook will stay bullish as long as 0.9142 support holds, even in case of retreat. Next target is 61.8% projection of 0.8596 to 0.9328 from 0.9142 at 0.9594.

          During the move, AUD/CAD should also take out 0.9514 resistance to confirm completion of the three-wave corrective decline from 0.9991 (2021 high). That would set the stage for further rally through 0.9991 to resume the rise from 0.8058 (2020 low) in the medium term.

          Japan unemployment rate dropped to 2.6% in Mar, lowest in 2 years

            By
            ActionForex.com
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            Japan unemployment rate dropped from 2.7% to 2.6% in March, better than expectation of 2.7%. That;s also the lowest rate since April 2020. Number of workers rose 180k while unemployed dropped -90k. Job-to-applicant ratio rose 0.01 pts to 1.22.

            “The drop in unemployment rate indicates signs of recovery” in the labour market, a government official told a media briefing. “But the impact of the pandemic appears to be lingering and requires close attention.”

            Bank of Spain: Economy to contract -12.4% this year in worst case scenario

              By
              ActionForex.com
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              In a latest report by Bank of Spain, it’s estimated that the country’s GDP could contract from -6.8% to -12.4% this year due to coronavirus pandemic. But vigorous rebound is expected in 2021. Unemployment could also surge to 18.3% to 21.7%.

              In the best scenario, lockdown that started in mid-March would only last eight weeks. GDP would contract -6.8% in 2020 before growing 5.5% in 2021. Unemployment would still hit 18.3% in 2020, before falling back to 17.5% in 2021.

              In the central scenario where companies’ liquidity shortages turn into solvency problems in the eight-week lockdown, GDP would contract -9.5% in 2020 before rebounding by 6.1% in 2021. Unemployment rate will surge to 20.6% this year then dropped back to 19.1% next.

              In the worst case scenario which lockdown lasts 12 weeks, GDP would contract -12.4% in 2021 then rebound 8.5% in 2021. Unemployment rate could hit 21.7% before easing to 19.9% next year.

              Full report here.

              US oil inventories rose 1.3m barrels, WTI dives following broad based risk selloff

                By
                ActionForex.com
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                US commercial crude oil inventories rose 1.3m barrels in the week ending May 14, below expectation of 1.5m barrels. At 486m barrels, oil inventories are about 1% below the five year average for this time of year. Gasoline inventories dropped -2.0m barrels. Distillate dropped -2.3m barrels. Propane/propylene rose 0.4m barrels. Commercial petroleum inventories dropped -0.2m barrels.

                WTI crude oil drops sharply today, following broad based risk selloff. The current development suggest rejection by 67.83 high as expected. Rise from 57.31, the second leg of the consolidation pattern from 67.83, should have completed at 66.98. Deeper fall would now be seen to 60.62 support first. Break would target 57.31 support and possibly below. Tentatively, we’re looking for support from 38.2% retracement of 33.80 to 67.83 at 54.83 to complete the consolidation pattern.

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

                  By
                  ActionForex.com
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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.

                  ECB Lagarde will keep raising rates for as long as necessary

                    By
                    ActionForex.com
                    -

                    In a blog post, ECB President Christine Lagarde said that last week 50bps rate hike, the first rate increase in 11 years, was “only the latest step in our journey to unwind the special measures we had to take to fight a series of crises”, following the end of the net asset purchase programs.

                    “With these actions, we are sending a clear message to companies, workers and investors: inflation will return to our 2% target over the medium term,” she added. “We will keep raising rates for as long as necessary to bring inflation down to our target over the medium term.”

                    While Europe is facing great uncertainty, “not least over the war and energy prices… the Governing Council will review the situation and decide on the right pace for our next steps depending on the incoming data.”

                    Full blog post here.

                    Bullard: Fed is on the precipice of a policy mistake

                      By
                      ActionForex.com
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                      St. Louis Fed President James Bullard said bluntly that Fed has come to the “end of the road” on the current rate hike cycle. He warned that “I am concerned we are on the precipice of a policy mistake”. And, “what I don’t want to do is project that further increases are needed, that we are somehow short of our goal.”

                      Bullard also urged that Fed should listen to the markets more carefully and seriously. He added “the market’s almost always right in that situation, and it’s the Fed that’s been wrong.” He criticized the December rate hike as a “overreach” which he argued against. But back then, he didn’t have a vote on the FOMC. Bullard is a voter this year.

                      Eurozone PMIs: Eurozone to grow 0.1% in Q2, Germany 0.2%, France to stagnate

                        By
                        ActionForex.com
                        -

                        Eurozone PMI manufacturing dropped to 49.2 in February, down from 50.5 and missed expectation of 50.3. That’s the lowest level in 69-month. PMI services, however, rose to 52.3, up from 51.2 and beat expectation of 51.3. PMI composite improved to 51.4, up from 51.0.

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

                        “The Eurozone economy remained close to stagnation in February. The flash PMI lifted only slightly higher during the month, continuing to indicate one of the weakest rates of expansion since 2014. The survey data suggest that GDP may struggle to rise by much more than 0.1% in the first quarter.

                        “Germany is on course to grow by 0.2%, buoyed by its service sector, but France looks set to stagnate or even contract very slightly. The rest of the region is meanwhile suffering its worst spell since late- 2013, with growth having slipped closer to stalling in February.

                        “Some uplift was also seen as companies stepped up preparations ahead of Brexit and disruptions from the ‘yellow vest’ protests in France eased. However, the general picture remained one of a more subdued business environment than seen throughout much of last year.

                        “Weaker order books were linked to a combination of intensifying headwinds and concerns, including global trade protectionism worries, Brexit, the downturn of the auto sector, increased political uncertainty and anxieties regarding the broader economic outlook. Rising risk aversion has consequently dampened demand, investment and spending.

                        “The weakness is being led by manufacturing, which has now entered its first downturn since mid- 2013. With factory order books deteriorating at an increased rate, the rate of contraction in the goodsproducing sector will likely worsen in coming months.

                        “Solid domestic demand in many countries, notably Germany, continued to help support service sector growth and offset the downturn of the manufacturing sector. However, the overall rate of service sector growth remained relatively moribund compared to that seen throughout much of last year.

                        “Price pressures have meanwhile continued to ease alongside the more subdued demand environment.”

                        Full release here.

                        AUD/NZD rebound gains traction ahead of RBA minutes

                          By
                          ActionForex.com
                          -

                          AUD/NZD continues to extend its rebound from 1.0585 short-term bottom, prompting traders to further close their short positions as the previous selloff failed to push the cross through 1.0469 low. Market participants are awaiting the release of RBA minutes in the upcoming Asian session, along with Australian PMIs and New Zealand CPI data this week.

                          Expectations on New Zealand’s CPI remain divided, with some anticipating a slowdown from 7.2% yoy level. If realized, this would fall below RBNZ’s forecast of 7.3%, potentially sparking speculation of a less aggressive rate hike path. Conversely, improvements in Australia’s PMI could bolster RBA’s confidence in resuming tightening with another rate hike in May.

                          Technically, break of 1.0789 resistance now argues that fall from 1.1085 has completed at 1.0585. Rise from there could be seen as the third leg of the pattern from 1.0469. Further rally could be seen back to 1.1085 resistance next. However, on the downside, break of 1.0732 support will bring retest of 1.0585 low instead.

                          Ifo: Germany business think they will most likely return to normal in nine months

                            By
                            ActionForex.com
                            -

                            Ifo updated their German economic forecasts and now expects GDP to shrink by -6.6% this year. A strong rebound of 10.2% GDP growth is expected in 2021.  “This is based on our evaluation of the ifo survey conducted among companies in May. On average, participants consider it most likely that their own business situation will return to normal in nine months,” says Timo Wollmershaeuser, Head of Forecasts at ifo.

                            The forecast depends heavily on how quickly companies’ business situation returns to normal. In the best case, companies indicate that this might take an average of only five months. GDP could shrink only -3.9% this year and grow 7.4% next.

                            In the worst case, with an average normalization period of 16 months, economic output would shrink by -9.3% this year and grow by 9.5% next year. The recovery would then be drawn out well into 2022.

                            Also, the new forecast was prepared based on the assumption not that the coronavirus is defeated in the coming months, but that its spread can be contained and a second wave of infection avoided.

                            Full release here.

                            RBA Lowe: Further tightening possible, look into new forecasts in Aug

                              By
                              ActionForex.com
                              -

                              RBA Governor Philip Lowe noted the current economic outlook is a “complex picture” with significant uncertainties”. He said in a speech today, “the Board decided that, having already increased rates substantially, it was appropriate to hold interest rates steady this month and re-examine the situation next month.”

                              Looking ahead, Lowe noted, “It is possible that some further tightening will be required to return inflation to target within a reasonable timeframe,” adding that requirement for further action will largely depend on evolution of the economy and inflation.

                              He highlighted that the Board will be provided with an updated set of economic forecasts, a revised risk assessment, and fresh data on inflation, the global economy, labour market, and household spending at the next meeting in August to inform its decision-making process.

                              He pointed to recent forecasts in May which saw inflation returning to top of target band in “mid-2025:. But he acknowledge, Data received since then had suggested that the inflation risks had shifted somewhat to the upside.”

                              Full speech of RBA Lowe here.

                              Australia employment rose 11.47 in July, participation rate jumped

                                By
                                ActionForex.com
                                -

                                Australia employment rose 114.7k to 12.46m in July, better than expectation of 40k. It’s also a positive for full-time job to rise 43.5k to 8.55m. Part-time jobs rose 71.2k to 3.91m. Unemployment rate rose less than 0.1% to 7.5%, better than expectation of 7.8%, even though that’s a 22-year high. Participation rate also rose 0.6% to 64.7%.

                                Still, Bjorn Jarvis, head of Labour Statistics at the ABS, said: “The July figures indicate that employment had recovered by 343,000 people and hours worked had also recovered 5.5 per cent since May. Employment remained over half a million people lower than seen in March, while hours worked remained 5.5 per cent lower. ”

                                “The July data provides insight into the Australian labour market during Stage 3 restrictions in Victoria. The August Labour Force data will provide the first indication of the impact of Stage 4 restrictions.” Jarvis said.

                                Full release here.

                                Australia NAB business condition rose to 20 in Q2, but confidence dropped to 5

                                  By
                                  ActionForex.com
                                  -

                                  Australia NAB quarterly business confidence dropped from 15 to 5 in Q2. Current business conditions rose from 11 to 20. Next 3 months business conditions was unchanged at 26. next 12 months business conditions dropped from 34 to 29. Capex plan for next 12 months dropped from 33 to 31.

                                  Alan Oster, NAB Group Chief Economist, “Conditions strengthened in Q2 as the disruptions related to the virus receded. Trading, profitability, and employment were all higher with conditions approaching the high levels seen in early 2021.”

                                  “Confidence eased in Q2, down to around long-run average levels,” said Oster. “That likely reflects the waning of some of the pandemic-recovery optimism, as well as the mounting challenges of rising inflation and also rising interest rates that businesses are confronting.”

                                  Full release here.

                                  Maeda: BoJ ready to use combinations of measures to ease further if needed

                                    By
                                    ActionForex.com
                                    -

                                    Eiji Maeda, BoJ Executive Director of International Affairs, reiterated the central bank stands ready to ease monetary policy further if needed.

                                    He said in the Diet that “if the economy’s momentum for achieving our price target is threatened, we are ready to ease monetary policy as necessary”. And, “we’ll continue to take steps as needed, including a combination of them, with an eye on their effects and side-effects” on the financial system.

                                    Separately Finance Minister Taro Aso said there is no plan for the government to test a heterodox modern monetary theory. That is, countries issuing their own currencies can never run out of money”.

                                    No solution on Irish backstop after difficult discussion with robust, strong views

                                      By
                                      ActionForex.com
                                      -

                                      UK Attorney General Geoffrey Cox talked about his meeting with EU in Brussels yesterday. He told Sky News that “we’ve put forward some proposals, they’re very reasonable proposals, and we’re now really into the detail of the discussions,” regarding the changes needed on Irish backstop. Cox added that “both sides have exchanged robust, strong views and we’re now facing the real discussions, talks will be resuming soon.”

                                      European Commission spokesman Margaritis Schinas said chief Brexit negotiator Michel Barnier has informed the Commission that “while the talks take place in a constructive atmosphere, discussions have been difficult.” Also, “no solution has been identified at this point that is consistent with the Withdrawal Agreement, including the protocol on Ireland and Northern Ireland, which will not be reopened,”

                                      Separately, UK Trade Minister Liam Fox said the government will laid out the tariffs it plans to levy if the parliament chooses a no-deal Brexit. Fox personally prefer to present the tariff plan to MPs before no-deal vote next week. But he said it was not his decision to make.

                                      France PMI manufacturing finalized at 57.2, six-month high

                                        By
                                        ActionForex.com
                                        -

                                        France PMI Manufacturing was finalized at six-month high of 57.2 in February, up from January’s 55.5. Markit said manufacturing output increased at fastest rate since last July. Demand for goods improved despite steep output price inflation. Capacity pressures intensified as supply issues persisted.

                                        Joe Hayes, Senior Economist at IHS Markit, said:

                                        “Against the immense supply chain struggles that manufacturers have had to contend with over the last few months, the latest survey data show some promising signs of resilience as goods production increased at the fastest rate since last July. What is also encouraging to read is the anecdotes from our survey members which suggest that the trend in demand for goods is gaining momentum and many expect this trend to continue. Additional workers were recruited in February (some on a short-term basis to cover staff isolating with COVID-19), and business confidence strengthened.

                                        “There were also some cautious signs of optimism in supply chain data, with input lead times lengthening to the weakest extent for almost a year. According to panel members, the availability for certain raw materials had improved. It’s important not to get too carried away though as there still needs to be a considerable catch-up here.

                                        “Less positive remains the inflation story and the persistence of rising costs and output prices. Suppliers continue to raise their fees as demand for inputs remains strong, but it appears that many businesses are simply paying these prices and passing the burden onto their clients. Given the causes of inflation seem sticky, policymaker intervention may well be required to bring inflation under control.”

                                        Full release here.

                                        USTR Lighthizer: Trade talks with China not going beyond March

                                          By
                                          ActionForex.com
                                          -

                                          US Trade Representative Robert Lighthizer commented on trade negotiation with China for the first time since taking the leading role. He noted that 90 days talk has a “hard deadline” and Trump is “not talking about going beyond March. And, “the way this is set up is that at the end of 90 days, these tariffs will be raised”. US has postponed raising of tariffs on USD 200B in Chinese imports from 10% to 25% after Trump-Xi meeting.

                                          Lighthizer also said the US need “agricultural sales” and “manufacturing sales”. But at the same time “we need structural changes on this fundamental issue of non-economic technology transfer.” And, Americans “can be reassured that if there is a deal that can be made that will assure the protection of U.S. technology…and get additional market access…the president wants us to do it.” But he also echoed Trump’s rhetorics that “if not we will have tariffs.”

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