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Eurozone CPI dropped further to -0.3% yoy in Sep, missed expectations

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    Eurozone CPI dropped further to -0.3% yoy in September, down from August’s -0.2% yoy, missed expectation of -0.1% yoy. Looking at the main components of euro area inflation, food, alcohol & tobacco is expected to have the highest annual rate in September (1.8%, compared with 1.7% in August), followed by services (0.5%, compared with 0.7% in August), non-energy industrial goods (-0.3%, compared with -0.1% in August) and energy (-8.2%, compared with -7.8% in August).

    Full release here.

    Fed Harker: No immediate need to move interest rate in either direction

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      Philadelphia Fed President Patrick Harker told WSJ that “there’s no immediate need to move rates in either direction at this point in my view”. He noted that the economy “continues to be strong” with “very strong labor market”. If the economy was “weakening substantially”, he would support a rate cut. But “at this point, I do not see that”.

      Harker acknowledged that inflation below 2% target is a concern. But he added, “it’s one that I don’t see as an imminent crisis”. Also, he believed “we can give it some time to move back up to 2%.

      Additional, he didn’t se December rate hike as a “particularly bad move” as it was not significant at that point. For now he thought the “prudent path” was to “hold steady and see how the economy evolves”.

      IMF sees Eurozone facing prolonged period of anemic growth and inflation

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        IMF forecasts Eurozone growth to slow to 1.3% in 2019, then rebound to 1.6% in 2020. Inflation is forecast to be at 1.3% in 201 and remain far off ECB’s 2% target at least until 2022. it urged that ECB’s monetary policy stimulus was “vital” as Eurozone was facing “a prolonged period of anemic growth and inflation”. And, “the undershooting of the inflation objective calls for prolonged monetary accommodation.”

        IMF expected more monetary easing could be necessary if inflation expectations worsen. However, it also raised doubt on the idea of tiered deposit rate in case of more monetary easing. It said “a regime of tiering… would have a very small impact on aggregate bank profitability and a questionable impact on credit conditions.”

        ECB Muller: 75bps hike should be an option for Sep meeting

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          ECB Governing Council member Madis Muller said, “I think 75 basis points should be among the options for September given that the inflation outlook has not improved.”

          “Still, I’m going into the meeting with an open mind and I want to both see the new projections and hear my colleague’s arguments,” he added.

          “We should not be too timid with policy moves as inflation has been too high for too long and we are still far below the neutral rate,” he said.

          German ZEW jumped to 26.7, highest since July 2015

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            ActionForex.com
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            German ZEW Economic Sentiment rose sharply to 26.7 in January, up from 10.7, beat expectation of 15.2. That’s also the highest reading since July 2015. Current Situation Index rose to -9.5, up from -19.9, beat expectation of -12.4. Eurozone ZEW Economic Sentiment rose to 25.6, up from 11.2, beat expectation of 16.3. Current Situation Index rose 4.8 pts to -9.9.

            “The continued strong increase of the ZEW Indicator of Economic Sentiment is mainly due to the recent settlement of the trade dispute between the USA and China. This gives rise to the hope that the trade dispute’s negative effects on the German economy will be less pronounced than previously thought. In addition, the German economy developed slightly better than expected in the previous year. Although the outlook has improved, growth is still expected to remain below average.,” comments ZEW President Achim Wambach.

            Full release here.

            Euro staying in range as Draghi tones down language change

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              Euro fails to extend gain as Draghi tried to tone down the change in language. While the decision was unanimous, Draghi emphasized that it’s just removing “explicit reference” to the chance of increasing the size of the APP again. However, firstly, ECB will keep interest rate at the current level for an extended period after the APP ends. And ECB is still keeping the option to “extend” the APP beyond September.

              Here are the updated economic projections:

              GDP

              • 2018 at 2.4% vs 2.3% prior
              • 2019 at 1.9% vs 1.9% prior
              • 2020 at 1.7% vs 1.7% prior

              Inflation

              • 2018 at 1.4% vs 1.4%
              • 2019 at 1.4% vs 1.5%
              • 2020 at 1.7% vs 1.7%

              US Treasury denies rumors that Mnuchin mulls China tariff rollback

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                ActionForex.com
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                WSJ reported yesterday that US Treasury Secretary Steven Mnuchin was considering the idea of lifting some of even all of extra tariffs on Chinese imports to facilitate trade negotiation with China. But a Treasury spokesman quickly denied.

                The spokesman said “neither Secretary Mnuchin nor Ambassador Lighthizer have made any recommendations to anyone with respect to tariffs or other parts of the negotiation with China.” And, “this an ongoing process with the Chinese that is nowhere near completion.”

                Mnuchin is widely considered a dove in the trade war with China, and he has rather good relationship with Chinese Vice Premier Liu. So we won’t be surprised if Mnuchin has considered or even brought out such idea. But he is often seen as isolated by others in the team on the issue. So, it doesn’t really mean a thing even if he did make that suggestion.

                Liu has confirmed his scheduled to visit Washington on January 30-31. The result of the meeting with USTR Robert Lighthizer then is the real key and the whole negotiation.

                Asian stocks as Chinese Yuan rise on US-China ceasefire

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                  ActionForex.com
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                  While it’s merely a cease-fire for 90 days agreement between the US and China, Asian markets’ responses are overwhelmingly positive. At this point, China SSE is up 2.91%. Hong Kong HSI is up 2.68%. Nikkei is up 1.46% and Singapore Strait Times is up 2.12.%.

                  The HK HSI gaps up sharply and is now rising 2.68% at 27217.25. The development is rather positive as rebound from 24540.63 medium term bottom should extend to 27957 fibonacci level next, which is close to 28000 handle.

                  USD/CNH also dips to 6.892 as the off shore Yuan rebounds. Though, it’s quickly back above 6.91 as there is no follow through buying. And. Technically, sustained break of 55 day EMA is needed to indicate that Yuan has bottomed in medium term (or USD/CNH topped in medium term).

                  ECB Rehn: New PEPP envelop is a ceiling, not a target

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                    ECB Governing Council member Olli Rehn said that the new EUR 1.86T “envelop” of the central bank’s Pandemic Emergency Purchase Programme is not a target but a ceiling for now”. He added, “we will implement the programme so that we can ensure favorable financing conditions and that means we are taking market conditions, market developments into implementation.”

                    He also said ECB will monitor FX “very closely”, and will take market conditions into implementation”. Though, he reiterated that exchange rate is not a policy target.

                    China Caixin PMI composite rose to 47.6, March rebound not sustainable

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                      ActionForex.com
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                      China’s Caixin PMI Services rose to 44.4 in April, up from March’s 43.0. PMI Composite rose to 47.6, up from 46.7. Both stayed in contraction region.

                      Zhengsheng Zhong, Chairman and Chief Economist at CEBM Group said, “domestic services activity remained under notable pressure amid the coronavirus pandemic”. New export orders shrank at a steeper rate in April than in February, “indicating that the March rebound in exports was not sustainable”. “The second shockwave for China’s economy brought about by shrinking overseas demand should not be underestimated in the second quarter”

                      Also from China, in April, in USD terms, exports rose 3.5% yoy while imports dropped -14.2% yoy. Trade surplus widened to USD 45.3B.

                      China orders closure of US Chengdu consulate as Pompeo called for free world against CCP, HSI down

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                        ActionForex.com
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                        Additionally, Sentiments in Asia were weighed down by intensifying US-China tensions. In a furious speech titled “Communist China and the Free World’s Future“, US Secretary of State Michael Pompeo warned “if the free world doesn’t change Communist China, Communist China will change us,” He called for American’s allies to “triumph over this new tyranny” of the Chinese Communist Party. Separately, President Donald Trump also said the trade deal with China “means less to me now than when I made it”.

                        On the China’s side, it ordered the US to close the consulate general in city of Chengdu. It said in a statement, “the Ministry of Foreign Affairs of China informed the U.S. Embassy in China of its decision to withdraw its consent for the establishment and operation of the U.S. Consulate General in Chengdu. This is the long awaited response to US’s order to close China’s consulate general in Houston earlier this week.

                        Hong Kong HSI is down -461.31 pts, or -1.83% at noon. It’s now reversed all of the earlier gains this week and breaks the 55 day EMA. This EMA would be the focus for next week’s trading. Sustaining below there would be the first sign of completion of whole corrective rebound from 21139.26. Deeper fall would then be seen back towards 22519.73 support. Selling could spread to other Asian markets if that happens.

                        China Caixin PMI services dropped to 36.2 in Apr, PMI composite down to 37.2

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                          ActionForex.com
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                          China Caixin PMI Services dropped from 42.0 to 36.2 in April, below expectation of 40.9. That’s the second straight month of steep decline, and the worst reading since February 2020. Caixin said decline in new business gathered pace but employment fell only slightly. PMI Composite dropped from 43.9 to 37.2, also the worst since the onset of the pandemic.

                          Wang Zhe, Senior Economist at Caixin Insight Group said: “Overall, in April, local Covid outbreaks continued and activity in the manufacturing and service sectors continued to contract, with services shrinking more. Demand was under pressure, external demand deteriorated, supply shrank, supply chains were disrupted, delivery times were prolonged, backlogs of work grew, workers found it difficult to return to their jobs, inflationary pressures lingered, and market confidence remained below the long-term average.”

                          Full release here.

                          US PPI picked up to -0.4% yoy, core PPI at 0.3% yoy

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                            ActionForex.com
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                            US PPI rose 0.6% mom in July, above expectation of 0.3% mom. PPI core rose 0.5% mom, also above expectation of 0.1%. Annually, PPI climbed back to -0.4% yoy, up from -0.8% yoy, above expectation of-0.6% yoy. PPI core picked up to 0.3% yoy, up from 0.1% yoy, matched expectations.

                            Full release here.

                            Germany PMI composite output dropped to 25-mth low, outlook turning increasingly negative

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                              ActionForex.com
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                              Germany PMI Manufacturing dropped from 52.0 to 49.2 in July, below expectation of 50.6. That’s the lowest level in 25 months. PMI Services dropped from 52.4 to 49.2, below expectation of 50.6. That’s the lowest level in 7 months. PMI Composite output dropped from 51.3 to 48.0, a 25- month low.

                              Paul Smith, Economics Director at S&P Global Market Intelligence said:

                              “Having enjoyed a growth boost from the previous easing of virus-related restrictions, a collision of various headwinds in July served to push the German economy into contraction territory for the first time in 2022 so far.

                              “Ongoing supply-delays and the uncertainty caused by the war in Ukraine continued to be reported as factors weighing on company performance, but based on a reading of anecdotal evidence, inflation and the pressures these are having on budgets was a noticeable feature behind the worst performance of private sector activity since the height of the first pandemic wave in the spring of 2020. With this in mind, whilst we are seeing a downward trend in our price indices, inflation rates remain stubbornly elevated according to the July survey.

                              “The decline in output was broad-based, with the downturn in manufacturing deepening, and service sector activity dropping into contraction territory for the first time since December. Moreover, given the noticeable falls in new business across both sectors, activity was somewhat prevented from experiencing a sharper fall thanks to the availability of previously secured contracts. With signs that this supportive prop is coming to an end, and warehouse inventories rising at a near-record rate in manufacturing, the outlook for output is turning increasingly negative. No wonder then company expectations have subsequently dropped into negative territory for the first time in over two years.”

                              Full release here.

                              BoJ Kuroda: Premature to exit from massive stimulus program

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                                ActionForex.com
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                                BoJ Governor Haruhiko Kuroda, said “the economy likely hit bottom around April-June and is expected to continue improving as a trend. That will help price growth turn positive and gradually accelerate toward our 2% inflation target.”

                                “If inflation hits our 2% target and an exit from our massive stimulus program comes into sight, there will certainly be debate on how to end our ETF buying. But it’s premature to do so at this stage,” he added.

                                Into US session: Aussie and Yen strongest in mixed markets

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                                  ActionForex.com
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                                  Entering US session, the forex markets are kind of mixed today. Australian Dollar is so far the strongest one, followed by Yen. Stock market rallies are starting to lose momentum but Aussie is paying little attention. Dollar is a close third as it’s trying to recover some of yesterday’s losses. The main driver of Dollar selling is Fed officials comment that patience is needed before making another rate move. Fed Powell, Bullard and Evans will speak again today and will likely reinforce the same message.

                                  Sterling is the weakest ones over Brexit uncertainties. Prime Minister Theresa May’s Brexit deal will have a meaningful vote next Tuesday. But as the day approaches, it looks increasingly unlikely to get the deal through the parliament. Both Brexiteers and Pro-EU camps look determined to vote it down no matter what. Swiss Franc is the second weakest, followed by Euro.

                                  In Europe, at the time of writing:

                                  • FTSE is down -0.03%
                                  • DAX is down -0.27%
                                  • CAC is down -0.69%
                                  • German 10 year yield is down -0.024 at 0.198, back below 0.2 handle

                                  Earlier in Asia:

                                  • Nikkei dropped -1.29%
                                  • Singapore Strait Times rose 0.81%
                                  • Hong Kong HSI rose 0.22%
                                  • China Shanghai SSE dropped 0.36%
                                  • Japan 10 year JGB yield dropped -0.0061 to 0.025 but stays positive

                                  BoC expected to hold steady: Loonie’s fate lies in oil prices and US data

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                                    ActionForex.com
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                                    Bank of Canada (BoC) is widely anticipated to maintain its pause this week, leaving interest rates unchanged at a 15-year high of 4.50%. Governor Macklem has emphasized that there’s no need for additional rate hikes if the economy unfolds according to central bank’s projections, which forecast stalling growth for the rest of the year, subsequently cooling inflation. Macklem also stated that an “accumulation of evidence” would be required before considering resuming tightening.

                                    Consequently, it’s unlikely that BoC’s announcement on Wednesday or Macklem’s speech on Thursday will trigger significant volatility in Canadian Dollar. Instead, Loonie is expected to be more reactive to developments in oil prices, as WTI crude remains stuck around 80 mark. Additionally, the currency could be influenced by US CPI data and the release of FOMC minutes when paired against the greenback.

                                    From a technical perspective, USD/CAD appears to be in the third leg of the corrective pattern from 1.3967. Deeper decline is expected as long as 1.3563 minor resistance holds. However, robust support is anticipated around 1.3224, which should contain the downside and complete the pattern. On the other hand, a sustained break of 1.3563 and 55-day EMA (now at 1.3562) would likely result in a stronger rally back towards 1.3860 resistance level. Ultimately, the larger uptrend is envisaged to resume through 1.3976 at a later stage.

                                    Trump confirms intention to escalate trade war with EU

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                                      Trump confirmed his intention to escalate tariff war with EU. In a tweet, he echoed the USTR statement that WTO found EU subsidies to Airbus has “adversely impacted” the US.

                                      He also blamed that “EU has taken advantage of the U.S. on trade for many years.” And the US will “now put tariffs on $11 billions of EU products”.

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                                      Fed chair Jerome Powell press conference live stream

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                                        US NFP employment dropped -140k, unemployment rate unchanged at 6.7%

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                                          US non-farm payroll employment contracted -140k in December, well below expectation. That’s the first decline in jobs since April. Though, prior month’s figure was revised up from 245k to 336k.

                                          Unemployment rate was unchanged at 6.7%, below expectation of 6.8%, with 10.7m people unemployed. Labor force participation rate was unchanged at 61.5%. Average hourly earnings rose 0.8% mom, above expectation of 0.2% mom.

                                          Full release here.

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