South Korea GDP dropped -3.3% qoq in Q2, worst since 1998

    South Korea’s GDP contracted -3.3% qoq in Q2, as shown in data released by Bank of Korea. The decline was the worst since Q1 1998, and steeper than analysts’ expectations of around -2.3% qoq. Also, with Q1’s -1.3% fall, South Korean’s economy has formally entered a technical recession this year, joining other major Asian countries like Japan and Singapore. Annually, GDP shrank -2.9% yoy in Q2.

    “It’s possible for us to see China-style rebound in the third quarter as the pandemic slows and activity in overseas production, schools and hospitals resume,” South Korean finance minister finance minister Hong Nam-ki said after the data was released.

    Australia budget deficit widened to 4.3% of GDP in fiscal 2020, sets to balloon further

      Australia Treasurer Josh Frydenberg said the country’s budget balance had turned into a massive deficit of AUD 85.8B, or 4.3% of GDP, in the fiscal year ended June 2020. The deficit is expected to widen further to AUD 184.5B in fiscal 2020-21. Gross debt is projected to rise from AUD 684.3B in 2019-20 to AUD 851.9B in 2020-21.

      He added that GDP could have falling by -7% in June quarter. GDP is expected to drop -0.25% in fiscal 2019-20 and -2.25% in fiscal 2020-21. Unemployment rate is expected to climb from 7.0% to 8.75% in 2020-21, and would probably hit 9.25% by Christmas this year.

      S&P Global Ratings said Australia’s AAA credit rating could withstand the large widening in budget deficit as projected. The rating reflects the expectation that the economy will begin to recover from recessing during fiscal 2021. Nevertheless, “risks to our rating remain tilted toward the downside as the effects of the COVID-19 pandemic and government responses on the economy, budget, and financial markets evolve.”

      Australia NAB business confidence dropped to -15 in Q2, forward looking conditions deteriorated

        Australia NAB Quarterly Business Confidence dropped to -15 in Q2, down from Q1’s -12. Current Business Conditions dropped to -26, down from -3. That’s also the lowest reading since early 1990s. Conditions for next three months dropped to -22, down from -4. Conditions for the next 12 months dropped to -18, down form 7. Next 12 months capex plan also dropped to -8, down from 17.

        Full release here.

        US crude oil inventories rose 4.9m barrels, WTI pressing 42 key resistance

          US commercial crude oil inventories rose 4.9m barrels in the week ending July 17, versus expectation of -2.1m barrels decline. At 536.6m barrels, oil inventories are about 19% above the five year average for this time of the year. Total motor gasoline inventories dropped -1.8m barrels. Distillate fuel inventories rose 1.1m barrels. Propane/propylene inventories rose 2.0m barrels. Total commercial petroleum inventories rose 8.8m barrels.

          WTI gyrated higher to 42.29 this week with rather weak upside momentum. 42.05 key resistance level was breached but WTI couldn’t sustain above it yet. We’d maintain that 42.05 should eventually hold. Break of 38.45 support would confirm short term topping and bring long-overdue pull back. However, sustained break of 42.05 would carry some larger bullish implications.

          Canada CPI turned positive to 0.7% yoy in June

            Canada CPI rose 0.8% mom in June, well above expectation of 0.4% mom. Annually, CPI turned positive to 0.7% yoy, up from May’s -0.4% yoy, and beat expectation of 0.3% yoy. That’s also the largest jump year-over-year CPI rate since March 2011. Prices rose in five of the eight major components on a year-over-year basis. Food and shelter prices contributed the most to the increase in the CPI. Prices for goods declined by less than the previous month on a year-over-year basis, including energy prices.

            CPI common rose to 1.5% yoy, up from 1.4% yoy, above expectation of 1.4% yoy. CPI median rose was unchanged at 1.9% yoy, above expectation of 1.8% yoy. CPI trimmed accelerated to 1.8% yoy, up from 1.7% yoy, above expectation of 1.6% yoy.

            Full release here.

            USD/CNH defending 7 handle as US-China tension escalates

              Some volatility is seen in USD/CNH today after the pair dips to as low as 6.9633 on broad based Dollar weakness, but recovers back above 7 handle quickly. Escalating US-China political tension is seen as a major factor driving the moves.

              China’s foreign Ministry spokesman Wang Wenbin revealed that the US government gave China three days to close its consulate in Houston. Wang criticized that as “unprecedented escalation” and pledged to “react with firm counter measures if the US doesn’t “revoke this erroneous decision”.

              Japan: Economy showing movements of picking up recently

                Japan’s Cabinet Office said in the new monthly report that the economy is still in a “severe situation” due to coronavirus. But “it is showing movements of picking up recently. On the positive side, private consumption is picking while exports are bottoming out. However, business investments is “in a weak tone”. Industrial production picked up in “some sectors” but it’s “decreasing as a whole”. Corporate profits are “decreasing sharply” while employment situation is “showing weakness”.

                Concerning short-term projects, the government expected the economy to “show movements of picking up”. However, “attention should be given to the risk that domestic and overseas infections would affect economies”.

                Summary report here.

                Japan PMI manufacturing rose to 42.6, any hopes of robust recovery need to be tempered

                  Japan PMI Manufacturing rose to 42.6 in July, up from 40.1. PMI Services improved slightly to 45.2, up from 45.0. PMI Composite rose to 43.9, up from 40.8.

                  Bernard Aw, Principal Economist at IHS Markit, said: “The Japanese economy continued to struggle at the start of the third quarter, with latest flash PMI data indicating a further sharp contraction in business activity during July… Any hopes of a robust recovery need to be tempered as business sentiment about the year-ahead outlook remained pessimistic on balance”.

                  Full release here.

                  Australia leading index improved modestly to -4.44

                    Australia Westpac Leading Index rose from -5.29 to -4.44 in June. Despite the modest improvement, the index growth rate remains in deep negative territory, “consistent with recession”. Westpac added, “overall, the component mix points to downside risks near term with the drivers behind the weak July readings on sentiment likely to impact on other, less timely, components that track real activity in coming months.”

                    Also, after yesterday’s announcement of extension to JobKeeper and JobSeeker packages, Westpac expected the government to inject around AUD 13.5B in December quarter. The stimulus was estimated to be at AUD 65B in June quarter and AUD 95B in September quarter. Thus, “the challenge for the economy…. is to adjust to such a sudden reduction in the size of government support”.

                    Full release here.

                     

                    Australia retail sales rose 2.4% in June

                      Preliminary data from Australia showed retail sales rose 2.4% mom in June, slowed from May’s 16.9% mom rise. Rises in Cafes, restaurants and takeaway food services exceeded 20% mom for the second consecutive month, but will remain -17% below the levels of June 2019, while Clothing, footwear and personal accessory retailing rose around 19% mom, remaining -6% below June 2019 levels.

                      There was also some evidence of stockpiling at the end of June too, most evident in Victoria, which is now back in lockdown as coronavirus cases rose to new high.

                      Full release here.

                      ECB de Guindos: New wave of coronavirus in US a drag to global trade

                        ECB Vice President Luis de Guindos warn the news about second wave of coronavirus infections form the US is “not good”, as well as from Latin American and parts of Asia. “This is going to have a negative impact on the evolution of world trade,” he added.

                        De Guindos also noted that ECB expected global trade to drop by more than -10% in 202. For Eurozone countries that relay on external demand, the decline in trade would be a drag to them.

                        Canada retail sales rose 18.7% in May, expected to rise further 24.5% in June

                          Canada retail sales rose 18.7% mom to CAD 41.8B in May, below expectation of 21.0% mom rise. It’s also insufficient to recover April’s -26.4% mom decline. Additionally, sales were also -20% below February’s pre-pandemic level. Sales were up in 10 out of 11 sub sectors, Motor vehicle and parts dealers, general merchandise stores, as well as clothing and clothing accessories stores were the main contributors to the rebound.

                          Statistics Canada also said that in advance estimate of June, retail sales would increase 24.5% mom. But owing to its preliminary nature, the figure should be expected to be revised.

                          Also from Canada, new housing price index rose 0.1% mom in June, below expectation of 0.2% mom.

                          Gold resumes up trend for 1864 projection level next

                            Gold’s rise finally resumes this week by taking out 1817.91 short term top. Current rally is part of the long term up trend from from 1046.73. Near term outlook will remain bullish as long as 1794.87 support holds. Next target is 61.8% projection of 1451.16 to 1765.25 from 1670.66 at 1864.76.

                            In the bigger picture, based on current strong upside momentum as seen in weekly MACD, we’d likely see a test on 1920.70 record (made in 2011 high), as the up trend extends.

                            EU clinches pivotal recovery fund after marathon talks

                              EU leaders finally agreed on the landmark EUR 750B stimulus package after four days of marathon negotiations in Brussels. The package, funded by joint debt, would give out EUR 390B of grants and EUR 360B of low-interest loans to member states for post pandemic recovery.

                              “This agreement sends a concrete signal that Europe is a force for action,” Charles Michel, president of the EU leaders’ council, said at a press conference afterward. “It is about a lot more than money. It is about workers and families, their jobs, their health and their well-being. I believe this agreement will be seen as a pivotal moment in Europe’s journey, but it will also launch us into the future.”

                              RBA Lowe: Negative rates and FX intervention are not directions to head in

                                RBA Governor Philip Lowe reiterated in a speech that “there has been no change to the Board’s view that negative interest rates in Australia are extraordinarily unlikely”. Negative interest rates would come with costs and causes “stresses in the financial system”. They would also “encourage people to save more rather than spend more”. It’s “not a direction we need to head in”.

                                Meanwhile, there is evidence that Australian Dollar’s exchange rate is “broadly in line with its economic fundamentals”. Foreign exchange market intervention would have “limited effectiveness” and involve “substantial financial risks to the public balance sheet and complicate international relationships. Hence, “this too is not a direction we need to head in”.

                                On the economy, he said “fortunately, we have now turned the corner” in the labor market. Many firms heavily affected by the coronavirus shutdowns are now “rehiring and lifting hours” as restrictions are eased in most of Australia. However, in some sectors like construction and professional services, the pipeline of work is “drying up” as new orders have declined. Hours worked in these businesses will decline further ahead.

                                Lowe expected unemployment is likely to “increase further, even with the recovery underway”. Many people who lost they job will “start looking for jobs” and thus be classified as rejoining the labor force. That will push up the measured unemployment rate, like what happened with June’s figures. One of the keys to returning to a strong labor market is “restoring confidence”.

                                Lowe’s full speech here.

                                Japan CPI core rose to 0% in Jun, out of negative region

                                  Japan all item CPI rose 0.1% mom in June, CPI core (less fresh food) rose 0.1% mom, CPI core core (less fresh food and energy) rose 0.1% mom too. Annually, CPI was unchanged at 0.1% yoy. CPI core climbed back to 0.0% yoy, up from -0.2% yoy, above expectation of -0.1% yoy. CPI core-core was unchanged at 0.4% yoy.

                                  The pickup in CPI core out of negative territory suggests that impact of free fall in energy prices earlier this year started to fade. There could also be some stabilization effect as the nationwide state of emergency was lifted in late May. Yet, there is little chance of a strong rebound in inflation, nor the economy, as external and domestic demand remain weak with coronavirus pandemic dragging on.

                                  ECB Schnabel: Asset purchase envelope likely be used in full

                                    ECB Executive Board member Isabel Schnabel told Spanish newspaper Expansión that there is “typically less activity in both the primary and secondary markets during summertime. That’s one reason why the monthly volume of ECB’s asset purchases may drop. She suggested investors not to read too much into the lower bond purchases in recent weeks.

                                    She also noted that “as long as we remain in the baseline scenario of our projections, it’s likely that the envelope (of asset purchases) will be used in full.”

                                    BoE Haldane: Roughly half of the pandemic slump recovered

                                      BoE Chief Economic Andy Haldane said there was a bounce back in the economy, and it has been a “V”. “Roughly half of the roughly 25% fall in activity during March and April has been clawed back over the period since. Nevertheless, “that of course doesn’t tell us about where we might go next”. Looking ahead, he added, “we could do more QE, could purchase other assets” and “we are reviewing negative rates”.

                                      As for the challenges ahead in the next three years, Haldane said “overwhelmingly, the main challenge….. is likely to continue to be assessing the on-going effects of the Covid crisis on output, jobs and inflation and to set monetary policy in the light of this”.

                                      UK to engage constructively with the EU on Brexit talks

                                        Brexit negotiation will resume on Tuesday. UK’s chief negotiation David Frost will host his EU counterpart Michel Barnier for dinner later today. Prime Minister Boris Johnson’s spokes said ahead of the meeting, “our position on our sovereignty, laws and fisheries is clear, we will not give up our rights as an independent state.”

                                        “We will continue to engage constructively with the EU on these key issues and will work hard to reach the broad outline of an agreement, but as we have been clear all along we are not asking for a special, bespoke or unique deal,” the spokesman added.

                                        Spain expects EU recovery fund deal without hours, Italy cautiously optimistic

                                          Spanish Prime Minister Pedro Sanchez said he’s hopeful the agreement on EU’s recovery fund would be reached soon. He said, “it’s clear we need an agreement, I hope in the next hours.” Italian Prime Minister Giuseppe Conte also said “We still have to be cautious but I would say I am cautiously optimistic” regarding the negotiations.