Eurozone Sentix investor confidence rose to -8, inflation risks on the rise

    Eurozone Sentix Investor Confidence rose to -8 in September, up from -13.4, better than expectation of -10.8. That’s the fifth increase in a row, and the highest level since February. Current Situation Index rose to -33.0, up from -41.3, highest since March and fourth increase in a row. Expectations Index recovery to 20.8, up from 19.3.

    Sentix said that overall, “the current recovery phase is similar to that of 2009, when we also saw a continuous improvement, which, as today, had little impact on stock market expectations.” Though, there are “clear signs of change on the bond markets”. “For our theme barometers show that the risks of inflation are on the rise again from the investors’ perspective. The corresponding sub-index for institutional investors fell to -15.5 points in September. This is the worst value since November 2018.

    Full release here.

    UK Johnson to set Oct 15 deadline for deal with EU, or accept and move on

      It’s reported that UK Prime Minister Boris Johnson is prepared to set an October 15 deadline for a deal with EU after the Brexit transition. Or, the UK and EU should both accept that there won’t be a free trade agreement and “move on”. A no-deal would means “having a trading agreement with the EU like Australia’s” using WTO protocols, and “that would be a good outcome” for the country.

      Foreign Minister Dominic Raab warned that this week is “a wake-up call for the EU”, adding “the EU’s best moment to strike a deal is now.” Fisheries and state aid rules are “the only two points holding us back”. “All the UK is asking for it to be treated like any other country in free trade negotiations,” he said. “No other country would accept being bound by or controlled by the EU’s rules.”

      UK’s chief negotiator David Frost told The Mail on Sunday: “We are not going to accept level playing field provisions that lock us in to the way the EU do things; we are not going to accept provisions that give them control over our money or the way we can organise things here in the UK and that should not be controversial – that’s what being an independent country is about, that’s what the British people voted for and that’s what will happen at the end of the year, come what may”.

      Separately, the Financial Times also reported that the UK government is planning legislation that would override key parts of the Withdrawal Agreement. The sections of internal market bill to be published on Wednesday would “eliminate the legal force of parts of the withdrawal agreement” in areas including state aid and Northern Ireland customs.

      China exports rose 9.5% in Aug, but imports contracted -2.1%

        In USD terms, in August, China’s total international trade rose 4.2% yoy to USD 411.6B. Exports rose 9.5% yoy to USD 235.3B, above expectation of 7.1% yoy. Imports, however, dropped -2.1% yoy to USD 176.3B, well below expectation of 0.1% yoy. Trade surplus narrowed to USD 58.9B, but still above expectation of USD 49.8B.

        Year-to-August, total trade dropped -3.6% yoy to USD 2854B. Exports dropped -2.3% yoy to USD 1572B. Imports dropped -5.2% to USD 1283B. Trade balance recorded USD 289B surplus.

        With EU, year-to-August, total trade dropped -1.5% yoy to USD 401B. Exports rose 2.1% yoy to USD 245B. Imports dropped -6.8% yoy to USD 156B.

        With US, year-to-August, total trade dropped -3.5% yoy to USD 344B. Exports dropped -3.6% to USD 266B. Imports dropped -2.9% yoy to USD 78B.China t

        Australia AiG services dropped to 42.5, all sectors in contraction, employment decreased significantly

          Australia AiG Performance of Services Index dropped to 42.5 in August, down from 44.0. Looking at some details, employment plunged -7.9 pts to 39.4. But sales were steady, down -0.1 to 43.3. New orders also dropped -1.7 to 45.2. Average wages dropped -2.4 to 43.4.

          All sectors remained in contraction in trend terms. AiG added, “the introduction of stage 4 restrictions in the greater Melbourne area following some optimism in July weighed heavily on business activity in Victoria and the impact was felt across other states. All indicators were firmly negative for August and employment decreased significantly from the previous month.”

          Full release here.

          Canada employment rose 246k, unemployment rate dropped to 10.2%

            Canada employment rose 246k in August, below expectation of 400k. Most of the growth were found in full-time jobs, which increase 206k. However, full time employment still just stood at 93.9% of pre-pandemic levels, compared with 96.1% for part-time work. Unemployment rate dropped slightly to 10.2%, down from 10.9%, better than expectation of 11.0%.

            Full release here.

            US non-farm payrolls rose 1371k, unemployment rate dropped to 8.4%

              US Non-Farm payrolls employment grew 1371k in August, slightly below expectation of 1550k. Unemployment rate dropped sharply to 8.4%, down from 10.2%, beat expectation of 9.9%. Labor force participation rate also rose 0.3% to 61.7%. Average hourly earnings rose 0.4% mom, above expectation of 0.0% mom.

              BLS said: “These improvements in the labor market reflect the continued resumption of economic activity that had been curtailed due to the coronavirus (COVID-19) pandemic and efforts to contain it. In August, an increase in government employment largely reflected temporary hiring for the 2020 Census. Notable job gains also occurred in retail trade, in professional and business services, in leisure and hospitality, and in education and health services.”

              Full release here.

              BoE Saunders: Quite likely additional easing will be appropriate

                BoE MPC member Michael Saunders said it’s “quite likely that additional monetary easing will be appropriate in order to achieve a sustained return of inflation to the 2% target”. “My hunch is that risks lie on the side of weaker growth and a longer period of excess supply than forecast,” he added.

                Regarding post-Brexit outlook, he said, “risks probably lie on the side of a thinner trade deal, a less-smooth transition, or more persistent Brexit-related uncertainty. More generally, global trade policy uncertainty remains high.”

                 

                UK PMI construction dropped to 54.6, speed of recovery lost momentum

                  UK PMI Construction dropped to 54.6 in August, down from July’s 58.1. Markit said subdued order books held back output growth. House building remained the best performing category. Business expectations reached six-month high on hopes of a boost from infrastructure work.

                  Tim Moore, Economics Director at IHS Markit: “The latest PMI data signalled a setback for the UK construction sector as the speed of recovery lost momentum for the first time since the reopening phase began in May…. Another month of widespread job shedding highlighted the ongoing difficulties faced by UK construction companies, with order books often depleted due to a slump in demand from sectors of the economy that have experienced the greatest impact from the pandemic.”

                  Full release here.

                  NFP in focus as Dollar index capped below 93.47 resistance

                    US Non-Farm Payrolls employment data will be the main event for today. Markets are expecting 1550k job growth in August, slightly down from July’s 1763k. Unemployment rate is expected to drop to 9.9%, down from 10.2%. Looking at other employment related data, ADP private employment was a big disappointment with just 428k growth. ISM Manufacturing employment edged higher by 2.1 pts to 46.4, but stayed in contraction. ISM Non-Manufacturing employment rose notably by 5.8 pts to 47.9, but also stayed in contraction. Jobless claims was a positive development though, with four-week moving average down from 1.34m to 992k.

                    Dollar’s reaction to NFP data is relatively uncertain. Dollar index’s down trend since March’s spike looks overstretched, with clear bullish convergence condition in daily MACD and RSI. Yet there has been no follow-through buying in the multiple rebound attempts in recent weeks. Break of 93.47 resistance is needed to be first sign of short term bottoming. In that case, we’d likely see a test on 44 day EMA (now at 94.43) at least.

                    Hong Kong HSI breaks near term channel with sharp decline

                      Asia markets open sharply lower, following the selloff in US overnight. The -1.8% decline in Hong Kong HSI (at the time of writing) looks tiny comparing to the near -5% decline in NASDAQ. But the technical development is much more bearish.

                      The index survived all the political turmoils in the past few months, including the forceful implementation of national security law by the Chinese government. But the channel that started back in March is finally broken with today’s decline. Daily MACD is also trending down.

                      It now looks like corrective rebound from 2139.26 has completed with three waves up to 26782.61. Immediate focus is now on 24167.78 support, which might be tested next week if the decline continues. Firm break there will confirm this bearish case and target 21139.26 low again. That could be accompanied by selloff in Asia markets elsewhere, which in turn might drag down Australian and New Zealand Dollars.

                      NASDAQ’s up trend not in threat despite -5% pull back

                        NASDAQ tumbled sharply by -598.34 pts or -4.96% overnight. While such decline was sharp and deep, there is no immediate threat the the up trend yet. NASDAQ is holding well inside the channel that started back in May. We’d continue to expect further rise as long as 11121.19 resistance turned support holds. Next target would be 161.8% projection of 6190.17 to 9838.37 from 6631.42 at 12534.20. Nevertheless, firm break of 11121.19 would indicate that a correction has likely started to correct the whole rise from 6631.42.

                        Australia retail sales rose 3.2% in Jul, Victoria reported the only fall

                          Australia retail sales rose 3.2% mom in July, slightly below expectation of 3.3% mom. All state and territories reported growth in sales, except Victoria which was down -2.1% mom due to stage four lockdown.

                          “Turnover in clothing, footwear and personal accessory retailing (7.1 per cent) and cafes, restaurants, and takeaway food services (4.9 per cent) rose across the country, with the exception of Victoria, where the reintroduction of Stage 3 stay-at-home restrictions in July partially offset these rises. As was the case in April, restrictions led to significant falls in these industries in Victoria” said Director of Quarterly Economy Wide Surveys Ben James.

                          Full release here.

                          Suga leads the race to LDP leader as popularity surges

                            Popularity Japanese Chief Cabinet Secretary Yoshihide Suga surged sharply, making him the favorite to win the leadership of the ruling Liberal Democratic Party. As a close aide of outgoing Prime Minister Shinzo Abe, he pledged to continue the Abenomics reform if he takes the position.

                            According to a survey by Asahi Shimbun, Suga has 38% of public support, well ahead of 25% for former Defence Minister Shigeru Ishiba and LDP policy chief Fumio Kishida. Public debates will be held on September 9, 12. The leadership election will take place on September 14. The Winner is virtually assured of becoming prime minister because of the LDP’s parliamentary majority.

                            Fed Evans comfortable with inflation at 2.5% for averaging

                              Chicago Fed President Charles Evans said the new average inflation targeting was “consistent with the type of outcome-based forward guidance that I advocated and that the Committee used to speed the recovery after the Great Financial Crisis.”

                              “I expect that articulating outcome-based forward guidance for the rate path and asset purchases could be beneficial in the not-too-distant future” he added. He’d be “comfortable” with inflation going up to 2.5% “as long as we were trying to average off very low inflation rates”.

                              Evans also said, “even with steady progress in controlling the virus and additional fiscal support, I expect it will be some time before the economy recovers from the hit it took”. He expects the unemployment rate would still be somewhere in the range of 5% to 5.5% at the end of 2022.

                              Separately, Atlanta Fed President Raphael Bostic said, “as long as we see the trajectory moving in ways that suggest that we are not spiraling too far away from our target, I’m comfortable just letting the economy run and letting it play out”.

                              US ISM non-manufacturing dropped to 56.9, respondents mostly optimistic

                                US ISM Non-Manufacturing index dropped to 56.9 in August, down from July’s 58.1, slightly below expectation of 57.1. Looking at some details, production dropped -4.8 to 62.4. New orders dropped -10.9 to 56.8. Prices rose 6.6 to 64.2. Employment rose 5.8 to 47.9, but stayed in contraction.

                                “Respondents’ comments are mostly optimistic and industry specific about business conditions and the economy as businesses are starting to reopen. Industries that have not reopened remain concerned about the ongoing uncertainty. There is a challenge with capacity and logistics due to the pandemic and the impact on deliveries and order fulfillment,” says Anthony Nieves, Chair of ISM Services Business Survey Committee.

                                US initial jobless claims dropped to 881k, continuing claims down to 13.3m

                                  US initial jobless claims dropped -130k to 881k in the week ending August 29, below expectation of 965k. Four-week moving average of initial claims dropped -77.5k to 991.8k. Continuing claims dropped -1238k to 13254k in the week ending August 22. Four-week moving average of continuing claims dropped -709k to 14496k.

                                  Exports of goods and services rose 8.1% mom to USD 168.1B in July. Imports rose 10.9% mom to USD 231.7B. Trade deficit widened by 18.9% mom to USD -63.6B, larger than expectation of USD -52.2B.

                                  WTI breaks near term support, correction could target 34.46 eventually

                                    WTI crude oil’s decline today and break of 41.13 support should confirm short term topping at 43.50. That came after rejection by 55 week EMA (now at 43.78). Bearish divergence condition is also seen in daily MACD. Considering these two factors, the current corrective fall should be relatively sizeable. Sustained trading below 55 day EMA (now at 40.45) should affirm this view. WTI should have a test on 34.46 support before completing the pull back.

                                    Eurozone retail sales dropped -1.3% mom in Jul, non-food products dived

                                      Eurozone retail sales dropped -1.3% mom in July, much worse than expectation of 1.3% mom. Volume of retail trade decreased by -2.9% mom for non-food products, remained unchanged for food, drinks and tobacco and increased by 4.3% mom for automotive fuels.

                                      EU retail sales dropped -0.8% mom. Among Member States for which data are available, the largest decreases in the total retail trade volume were registered in Belgium (-5.1% mom), Finland (-2.0% mom) and Estonia (-1.5% mom). The highest increases were observed in Portugal and Romania (both +3.9% mom) as well as Malta (+3.2% mom).

                                      Full release here.

                                      UK PMI composite finalized at 59.1, mini boom on false reality

                                        UK PMI Services was finalized at 58.8 in August, up from July’s 56.5, signaling fastest expansion since April 2015. PMI Composite was finalized at 59.1, up from July’s 57.0, strongest expansion since August 2014.

                                        Chris Williamson, Chief Business Economist at IHS Markit:

                                        “A further surge in service sector business activity in August adds to signs that the economy is enjoying a mini boom as business re-opens after the lockdowns, but the concern is that the rebound will fade as quickly as it appeared. The current expansion is built on something of a false reality, with the economy temporarily supported by measures including the furlough and Eat Out to Help Out schemes. These props are being removed.

                                        “The burning question is how the economy will cope as these supports are withdrawn. Worryingly, many companies are already preparing for tougher times ahead, notably via further fierce job cutting, the rate of which re-accelerated in the service sector in August to a pace exceeding that seen at the height of the global financial crisis. Policymakers face a huge challenge in sustaining this recovery and avoiding a ‘bounce and fade’ scenario, especially if virus numbers escalate further, in which case we may be looking at a ‘bounce and slump’.”

                                        Full release here.

                                        Eurozone PMI composite finalized at 51.9, policymakers need to focus firmly on sustaining recovery

                                          Eurozone PMI Services was finalized at 50.5 in August, down from July’s 54.7. PMI Composite was finalized at 51.9, down from July’s 54.9. Among the states where data are available, Germany PMI composite dropped to 2-month low of 54.4. Ireland dropped to 54.0. France dropped to 51.6. Italy and Spain stayed in contraction at 49.5 and 48.4 respectively.

                                          Chris Williamson, Chief Business Economist at IHS Markit said: “Service sector companies across the eurozone saw growth of business activity grind almost to a halt in August, fueling worries that the post-lockdown rebound has started to fade amid ongoing social distancing restrictions linked to COVID-19… Although the relative strength of the PMI data in July and August mean the autumn is likely to still see the economy rebound strongly from the collapse witnessed in the spring, the survey highlights how policymakers will need to remain focused firmly on sustaining the recovery as we head further into the year.”

                                          Full release hrere.