Canada GDP dropped -0.1% mom in July, better than expectation of -0.2% mom. Total activity remains -2% below pre-pandemic level in February 2020. Overall, 13 of 20 industrial sectors were up. Preliminary information indicates approximate 0.7% rise in real GDP for August.
Silver’s rebound from 21.39 resumed by breaking through 23.42 and hitting as high as 23.63 so far. Further rise is now in favor as long as 22.79 support holds. Next target is 100% projection of 21.39 to 23.42 from 21.93 at 23.90.
The main question is still on whether corrective pattern from 30.07 has completed as a five-wave descending triangle at 21.39. Break of 23.90 projection level will affirm the bullish case. Upside acceleration could then follow to 161.8% projection at 25.21, which is close to 25.39.
However, rejection by 21.39 will keep the rebound from 21.39 corrective and maintain medium term bearishness.
Ahead of a broad review on monetary policy framework, Boston Fed President Eric Rosengren said he’d prefer a range targeting approach on inflation. That is, Fed could be forced to accept inflation below 2% during recessions. On the other hand, Fed should commit to achieve above 2% inflation in good times. For example a range of 1.5-2.5%.
Rosengren echoed other platemakers’ comment that the current 2% target is “symmetric”. But in practice, people saw that figure as a “ceiling”. He added, “even though we’re only missing by a little bit it actually does matter if you miss by a little bit on a regular basis.”
US initial jobless claims rose 12k to 1434k in the week ending July 25, slightly below expectation of 1450k. But that’s still the second straight week of increase in the figure. Four-week moving average of initial claims rose 6.5k to 1369k.
Continuing claims rose 867k to 17018k in the week ending July 18. Four-week moving average of continuing claims rose 436k to 17058k.
German Finance Minister Olaf Scholz said the additional coronavirus relief measures agreed by the ruling coalition could be worth up to EUR 10B. He emphasized, “the goal now is to stabilize the economy”.
“The fact that we acted fast and big has resulted in Germany weathering the crisis much better than other,.” Scholz added. He maintained that the economy would reach pre-crisis levels at the end of 2021, early 2022.
White House top economic advisor Larry Kudlow said yesterday that communications with Beijing had “picked up a notch”. He also confirmed that Treasury Secretary Steven Mnuchin had sent an invitation letter to senior Chinese officials to restart trade talks. Also, “there’s some discussions and information that we’ve received that the top of the Chinese government wishes to pursue talks.”
Kudlow also added that “most of us think it’s better to talk than not to talk, and I think the Chinese government is willing to talk.” And, if they come to the table in a serious way to generate some positive results, yes, of course. That’s what we’ve been asking for months and months.”
But he also cautioned that “I guarantee nothing.”
New Zealand ANZ Business Confidence dropped to -38.1 in June, down from -32.0. Agriculture scored worse at -54.5, followed by construction at -42.3 and manufacturing at -41.4. Activity Outlook also dropped from 8.5 to 8.0.
ANZ noted: “The outlook for the economy is murky. As things stand, there is no reason for the economy to fall into a deep hole. Commodity prices are good, interest rates are at record lows, and the labour market is tight. But the economy is facing credit and cost headwinds and the global outlook is deteriorating. On the latter, for all that our commodity prices have been resilient, the risks are looking decidedly one-sided. Upside risks to growth appear few and far between and with the inflation outlook not consistent with the target midpoint we expect two more OCR cuts this year.”
Japan is seeing limited impact as US ends the Iranian oil sanction waiver for the country. Trade and Industry Minister Hiroshige Seko said in a regular press conference that Japan has been lowering its reliance on Iranian oil import, which only accounts for 3%. And, there is no need to tap the national oil reserve with decision of the US.
Though, he noted, “we will closely watch international oil markets and exchange views with Japanese companies involved in crude imports and may consider taking necessary measures.”
The US decision to end the waiver will force eight countries, including China, Greece, India, Italy, Japan, South Korea, Taiwan and Turkey, to switch their oil supplies from Iran to other countries, starting May 2.
BBC reported that the Commons will vote on Prime Minister Theresa May’s Brexit deal on Tuesday January 15. And May will give her last efforts to give further assurances that the controversial Irish backstop solution is only temporary. MPs are invited to meet with May tomorrow.
Over 200 MPs had signed a letter to May urging her to rule out a no-deal Brexit. However, former foreign minister Boris Johnson wrote in Daily Telegraph arguing that no-deal Brexit, “otherwise known as coming out on World Trade terms” is “closest to what people actually voted for” in the 2016 EU referendum.
Separately, a YouGov poll published on Sunday should that if a referendum were held immediately, 46% of Britons would vote to remain in the EU, 39% would vote to leave. Removing those undecided or refused to answer, the split was 54-46 in favor of remaining.
Australia CBA PMI manufacturing surged to 56.1 in November, up from 54.2, hitting a 35-month high. PMI Services rose to 54.9, up from 53.7, a 4-month high. PMI Composite rose to 54.7, up from 53.5, also a 4-month high.
Bernard Aw, Principal Economist at IHS Markit, said: “Latest PMI data showed the recovery in the Australian private sector economy gained pace during November, setting the scene for a stronger GDP performance during the final quarter of 2020… That said, the subdued rise in new business remains a concern. Renewed lockdown measures in parts of the world due to second waves of infections may keep border controls and travel restrictions in place for a longer period, thereby dampening external demand. If Australian sales growth continues to lag behind the rise in business activity in the months ahead, the current economic recovery could risk losing momentum.”
In a speech, ECB President Christine Lagarde said the central bank’s commitment to preserve favorable financing condition to support all sectors of the economy implies “looking at indicators along the whole transmission chain of our monetary policy – from risk-free rates to government borrowing costs to capital markets to bank lending for firms and households.”
“Within the broad-based set of indicators that we monitor to assess whether financing conditions are still favourable, risk-free overnight indexed swap (OIS) rates and sovereign yields are particularly important”. Accordingly, she added, “the ECB is closely monitoring the evolution of longer-term nominal bond yields.”
Dollar is suffering more selling pressure after weaker than expected April ISM manufacturing report. The headline index dropped to 52.8, down from 55.3 and missed expectation of 55.0. Price paid index dropped sharply to 50.0, down from 54.3 and missed expectation of 55.7. Employment index dropped to 52.4, down from 57.5. New orders tumbled to 51.7, down from 57.4.
ISM noted that:
Germany ZEW Economic Sentiment rose slightly from -61.9 to -59.2 in October, above expectation of -66.0. Current Situation Index dropped sharply from -60.5 to -72.2, below expectation of -69.0.
Eurozone ZEW Economic Sentiment improved slightly from -60.7 to -59.7, above expectation of -60.6. Current situation dropped very sharply by -11.7 pts to -70.6. Inflation expectations for Eurozone declined from -23.7 to -35.8.
“The ZEW Indicator of Economic Sentiment rises slightly in October. However, the current economic situation is once again assessed as significantly worse than in the previous month. The probability that real gross domestic product will decline in the course of the next six months has also increased considerably. Overall, the economic outlook has deteriorated again,” said ZEW President Professor Achim Wambach on current expectations.
In the monthly Economic Bulletin, ECB said, “evidence from surveys and markets shows that forecasters continue to expect inflation to peak soon, with longer-term expectations remaining at around the ECB 2.0% target.” Still, “close monitoring is warranted given the further above-target revisions of some indicators”.
In the December Eurosystem staff macroeconomic projections, headline inflation in Eurozone ill fall from average 8.4% in 2022 to 6.3% in 2023, 3.4% in 2024, and then 2.3% in 2025. Headline inflation is expected to remain above the ECB’s target of 2.0% until mid-2025
BoJ is sometimes described as doing “stealth tapering” in slowing down its asset purchases. But Governor Haruhiko Kuroda told the parliament that the slowdown in purchases is different from Fed’s tapering.
He said “the Fed’s tapering is conducted intentionally and in several stages, as part of a normalization of monetary policy.” However, “the slowdown in our government bond buying is different from the Fed’s tapering”.
Also Kuroda reiterated the message that there is no need to take additional easing. Instead, BoJ would maintain the current program patiently as it takes time to lift inflation to target.
Australia’s economic outlook has taken a concerning turn as the trade surplus for September contracted significantly, recording its lowest monthly surplus since March 2021. The data released indicates a shrinkage from prior month’s AUD 10.16B to AUD 6.79B, falling short of the anticipated AUD 9.58B surplus. This sharp decline in trade surplus is fueling concerns that the Australian economy may have slipped into recession in the third quarter.
The primary factor contributing to the reduced surplus is a noticeable -1.4% yoy drop in goods exports, which totaled AUD 45.62B. This decline was primarily driven by a substantial -39.2% reduction in the shipment of metals and non-monetary gold, a critical export commodity for the Australian economy.
On the import side, there was a 7.5% yoy increase to AUD 38.84B. This surge in imports is attributed to a 23.3% jump in import of capital goods. Additionally, there was a noticeable spike in the demand for recreational items.
Bloomberg reported that China is going to lower levy on import passenger cars from the current 25% to 15%. That’s seen as Chinese President Xi Jinping putting his word into actions. Xi has already reiterated the initiative at the Boao Forum back in April.
As in 2017, the total sales of automobiles in China added up to 28.9m. Only 1.22m, or 4.2%, are imported. The lowering of tariff is seen as a strong boost to European vehicle makers and less so the US ones.
For domestic car makers, the levy cut to 15% is the better case scenario in the rumored range of 10-15%.
German Foreign Minister Heiko Maas has urged the UK to come back with concrete proposal on solving the Brexit deadlock in its parliament. He tweeted that “So far, unfortunately, the British Parliament has only said what it does not want. What we need now are concrete proposals from the British. The ball is in London, there is not a lot of time left. We #Brexit will also be talking about this in Brussels today. ”
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Separately, German Economy Minister Peter Altmaier said “Personally I’m optimistic that we can avoid a hard Brexit but the German government is of course prepared for all possible scenarios.”
Ireland’s European Affairs Minister Helen McEntee said today Ireland wont’ engage in bilateral negotiation with the UK on the Irish border backstop issue. She said, “What we can’t do and what we won’t do, because we have not throughout this entire process, is engage in any kind of bilateral negotiations with the DUP or any other political party in Northern Ireland or the UK. This is a negotiation between the EU and the UK.”
In the Statement on Monetary Policy, RBA reiterated that “further increases in interest rates will be needed to ensure that the current period of high inflation is only temporary.”
“In assessing how much further interest rates need to increase, the Board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market.”
The economy is not forecast to contract within the projection horizon. Meanwhile, trimmed mean inflation is projected to stay higher and longer till mid 2024.
Year-average GDP growth forecast to be (from 3.75% in 2022):
Headline CPI (7.8% in December 2022) is projected to slow to:
Trimmed mean CPI (6.9% in December 22) is projected to slow to:
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UK announces modest liberalization of tariffs in case of no-deal Brexit
The UK government announce its temporary tariff regime for no-deal Brexit, designed to minimise costs to business and consumers while protecting vulnerable industries. The temporary regime would apply for up to 12 months as a full consultation and review on a permanent approach to tariffs is undertaken. Under the regime, 87% of imports to the UK by value would be eligible for tariff free access, up from current 80%. Tariffs would still apply to 13% of imports including some agricultural, dairy, auto and some other products.
Trade Policy Minister George Hollingbery said in the release that
In addition, in case of no-deal Brexit, a temporary approach will be taken to “avoid new checks and controls on goods at the Northern Ireland land border”. The temporary tariffs will also not apply to goods crossing from Ireland to Northern Ireland.
The tariffs will also apply equally to all other trading partners expect those who were in free trade agreement with the UK. And around 70 developing countries will benefit from preferential access to the UK markets.
Full statement here.