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BoC stands pat, expects Q3 to recover 40% of H1 economic collapse

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    ActionForex.com
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    BoC kept monetary policy unchanged as widely expected. Overnight Rate is held at the effective lower bound of 0.25%. Bank Rate is kept at 0.25% correspondingly, deposit rate at 0.25%. BoC will also continue the QE program with large-scale asset purchases of at least CAD 5B per week of government bonds. BoC also pledge to “provide further monetary stimulus as needed.”

    In the accompanying statement, BoC said global and Canadian outlook is “extremely uncertain, given the unpredictability of the course of the COVID-19 pandemic”. It expects global economy to contract by -5% in 2020, then grow by 5% on average in 2021 and 2022. But the timing and pace of recovery varies among regions.

    Canadian economic activity in Q2 is estimated to be 15% lower than the level at the end of 2019. But there are “early signs” that reopening and pent-up demand are leading to an “initial bounce-back” in employment and out put. In BoC’s central scenario, roughly 40% of H1’s contraction is made up in Q3. Real GDP would still decline -7.8% in 2020, with 5.1% growth in 2021 and 3.7% in 2022.

    US Empire State manufacturing rose to 17.2, but 6-month outlook dropped to 38.4

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      ActionForex.com
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      US Empire State Manufacturing index rose to 17.2 in July, up from -0.2, above expectation of 7.85. It’s also the first positive reading since February. However, six-months ahead business conditions dropped -18.1 pts to 38.4, down from 56.5.

      The indexes for future new orders and future shipments fell somewhat, but remained near 40. The index for future employment rose to 21.1, suggesting firms expect to increase employment in the months ahead. The capital expenditures index rose to 9.1, a sign that firms, on net, planned to increase capital spending.

      Full release here.

      BoE Tenreyro: GDP to follow an interrupted or incomplete V-shaped trajectory

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        ActionForex.com
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        Bank of England policymaker Silvana Tenreyro said the UK economic outlook will “continue to depend on the global and domestic spread of COVID-19.” “Assuming prevalence gradually falls, my central case forecast is for GDP to follow an interrupted or incomplete ‘V-shaped’ trajectory, with the first quarterly step-up in Q3,” she added.

        She also noted, “we are already seeing indications of a sharp recovery in purchases that were restricted only because of mandated business closures.” “But I think that this will be interrupted by continued risk aversion and voluntary social distancing in some sectors, remaining restrictions on activities in others, and in general, by higher unemployment.”

        On monetary policy, she said “I remain ready to vote for further action as necessary to support the economy.”

        UK CPI accelerated to 0.6% in June, core CPI up to 1.4%

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          ActionForex.com
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          UK CPI accelerated to 0.6% yoy in June, up from 0.5% yoy, beat expectation of 0.6% yoy. That’s also the first in 12-month CPI rate since January. Core CPI also accelerated to 1.4% yoy, up from 1.2% yoy, beat expectation of 1.2% yoy. RPI also climbed to 1.1% yoy, up from 1.0% yoy, matched expectations.

          Also released, PPI input came in at 2.4% mom, -5.4% yoy, versus expectation of 2.5% mom, -6.0% yoy. PPI output was at 0.3% mom, -0.8% yoy, versus expectation of 0.2% mom, -0.9% yoy. PPI core output came in at 0.0% mom, 0.5% yoy.

          BoJ stands pat, forecasts deeper contraction in 2020

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            ActionForex.com
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            BoJ left monetary policy unchanged as widely expected. Under the Yield Curve Control framework, short term policy interest rate is held at -0.1%. BoJ will also continue to purchase unlimited JGBs to keep 10-year yield at around 0%. It maintained the pledge to continue with QQE “as long as it is necessary” for achieving 2% price target in a stable manner. The decision was made by 8-1 vote, as Kataoka Goushi dissented again, pushing for more stimulus by lowering short and long term interest rates. He also pushed for revising the forward guidance to relate it to price stability target.

            In the Outlook for Economic Activity and Prices, BoJ said the economy is “likely to improve gradually from the second half of this year” But the pace is expected to be “only moderate while the impact of the novel coronavirus remains worldwide”. Year-on-year CPI less fresh food is “likely to be negative for the time being”. The projected growth rates and projected CPI in the report are “broadly within the range” or prior forecasts. Nevertheless, outlook is “extremely unclear” with risks “skewed to the downside”.

            In the new forecasts:

            • GDP to contract -5.7% to -4.5% in fiscal 2020 (versus prior -5.0% to -3.0%).
            • GDP to grow 3.0% to 4.0% in fiscal 2021 (vs prior 2.8% to 3.9%).
            • GDP to growth to grow 1.3% to 1.6% in fiscal 2022 (vs prior 0.8% to 1.6%).
            • Core CPI at -0.6% to 0.4% in fiscal 2020 (vs prior -0.7% to -0.3%).
            • Core CPI at 0.2% to 0.5% in fiscal 2021 (vs prior 0.0% to 0.7%).
            • Core CPI at 0.5% to 0.8% in fiscal 2022 (vs prior 0.4% to 1.0%).

            Australia Westpac consumer sentiment dropped -6.1% on coronavirus resurgence

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              ActionForex.com
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              Australia Westpac Consumer Sentiment Index dropped -6.1% to 87.9 in July, down from June’s 93.7. The decline reversed all of June’s impressive gain and took the index back to the weak levels seen in May. Nevertheless, it’s still 16% above April’s extreme low of 75. Westpac said “sentiment has been rocked by the resurgence in Coronavirus cases over the last month.” The survey cover the week Melbourne returned to lockdown. And it’s of “some concern” that it pre-dates the news of a significant cluster of coronavirus cases in Sydney.

              Westpac expects RBA to “maintain its current highly stimulatory stance and continue to commit to steady policy for the foreseeable future” at the upcoming meeting on August 4. More immediately, the government would likely release revised economic forecasts on July 23 fiscal update, with further fiscal stimulus.

              Full release here.

              Fed Bullard: Granular risk-based health policy needed to avoid depression

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                ActionForex.com
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                St. Louis Fed President James Bullard said the US is “certainty past the initial phase of the crisis”. But “the crisis is persistent”. He added that “we need better execution of a granular risk-based health policy, that will be critical to keep the economy out of depression.” His base case was that “we will be able to accomplish this in next six months and come back to a more normal looking U.S. economy,” even though downside risks “remain substantial.”

                Bullard also noted that the stock markets were ” optimistic in the May-June time frame”. And “indeed the data came in and validated the market thinking.” “Equity markets are something we don’t usually talk about at the Fed. I think they have been optimistic and they have been right, I think, up to now anyway,” he added.

                Fed Kaplan: We would see a rebound from the deep hole dug in Q2

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                  ActionForex.com
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                  Dallas Fed President Robert Kaplan said when US get to a “normalized economy” would depend on “the path of the virus” and “how well we manage it, and the timing of the vaccine”. Fed would not need to do as much “if we do an outstanding job and a better job managing the virus”.

                  He’s optimistic that in 2021, “we will see an above-trend growth and we will continue to grind down the unemployment rate”. And if Americans follow the protocols of handling the coronavirus, “we would see a rebound from the deep hole we dug in the second quarter”.

                  Separately, Philadephia Fed President Patrick Harker said the effects of the coronavirus pandemic are “proving not to be just a brief setback”. The US economy is in a “downturn that is both exceptionally painful and stubbornly long-lasting.” “There’s both the direct economic impact of businesses having to close down,” he added. “But I also worry about the psychological impact on consumer confidence.”

                  Fed Brainard: Thick fog of uncertainty calls for sustained commitment to monetary accommodation

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                    ActionForex.com
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                    Fed Governor Lael Brainard said in a speech that while employment and activity “rebounded faster and more sharply than anticipated”, ” recent resurgence in COVID cases is a sober reminder that the pandemic remains the key driver of the economy’s course”.

                    A “thick fog of uncertainty” is still surrounding the US and “downside risks predominate. She added, “the recovery is likely to face headwinds even if the downside risks do not materialize, and a second wave would magnify that challenge.”

                    The uncertainty is “calling for a sustained commitment to accommodation, along with additional fiscal support.”

                    NIESR: UK economy to grow 8-10% in Q3, V-shaped recovery doubtful

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                      ActionForex.com
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                      NIESR said the UK economy remains on course to decline by -20% to -25% in Q2. The initial outlook for Q3 is for growth of about 8% to 10%.

                      Kemar Whyte Senior Economist – Macroeconomic Modelling and Forecasting: “The latest ONS estimates suggest that GDP grew by 1.8 per cent in May as the economy started to reopen. However, GDP in May was 25 per cent smaller than in February before lockdown measures were implemented, and we are doubtful about a V-shaped recovery.

                      ” The loosening of Covid-19 restrictions has provided an impetus to kickstart the UK economy. However, the measures unveiled by the Chancellor at the Summer Statement are a poorly timed change of tack and could trigger a sharp rise in unemployment, and possibly lead to permanent long-term damage to the economy.”

                      Full release here.

                      US CPI picked up to 0.6% in June, core CPI unchanged at 1.2%

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                        ActionForex.com
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                        US CPI rose 0.6% mom in June, above expectation of 0.5% mom. Core CPI rose 0.2% mom, also above expectation of 0.1% mom. Annually, CPI accelerated back to 0.6% yoy, up from 0.1% yoy, above expectation of 0.3% yoy. Core CPI was unchanged at 1.2% yoy, above expectation of 1.1% yoy.

                        Full release here.

                        German ZEW dipped back to 59.3, gradual GDP growth expected in H2

                          By
                          ActionForex.com
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                          Germany ZEW Economic Sentiment dropped to 59.3 in July, down from 63.4, missed expectation of 60.0. Current Situation index rose to -80.9, up form -83.1, missed expectation of -64.0. Eurozone ZEW Economic Sentiment rose to 59.6, up from 58.6, beat expectation of 55.8. Eurozone Current Situation rose 0.9 pts to -88.7.

                          “The outlook for the German economy largely remains unchanged compared to the previous month. After a very poor second quarter, the experts expect to see a gradual increase in gross domestic product in the second half of the year and in early 2021,” comments ZEW President Professor Achim Wambach.

                          Full release here.

                          Eurozone industrial production rose 12.4% mom in may, below expectations

                            By
                            ActionForex.com
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                            Eurozone industrial production rose 12.4% mom in May, below expectation of 12.4% mom. That’s also insufficient to recovery April’s -18.2% mom decline. Looking at some details, production of durable consumer goods rose by 54.2% mom, capital goods by 25.4% mom, intermediate goods by 10.0% mom, non-durable consumer goods by 2.8% mom and energy by 2.3% mom.

                            EU industrial production rose 11.4% mom in May, versus April’s -18.2% mom decline. The highest increases were registered in Italy (+42.1%), France (+20.0%) and Slovakia (+19.6%). The largest decreases were observed in Ireland (-9.8%), Croatia (-3.5%) and Finland (-1.3%).

                            Full release here.

                            UK GDP grew just 1.8% mom in May, economy still a quarter below Feb level

                              By
                              ActionForex.com
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                              UK GDP grew notably by 1.8% mom in May but the rebound was somewhat disappointing and missed expectation of 5.0% mom. Production jumped sharply by 6.0% mom, with manufacturing up 8.4%. Services rose 0.9% mom while construction rose 8.2% mom. But all were insufficient to recover the contraction in April (production -20.2% mom, manufacturing -24.4% mom, services -18.9% mom, construction -40.2% mom. Agriculture continued contraction by -6.2% mom.

                              For the three months to May, GDP dropped by -19.1% 3mo3m. Production dropped -15.5% 3mo3m. Manufacturing dropped -18.0% 3mo3m. Service dropped -18.9% 3mo3m. Construction dropped -29.8% 3mo3m. Agriculture dropped -6.3% 3mo3m.

                              Jonathan Athow, Deputy National Statistician for Economic Statistics, said: “Manufacturing and house building showed signs of recovery as some businesses saw staff return to work. Despite this, the economy was still a quarter smaller in May than in February, before the full effects of the pandemic struck. In the important services sector, we saw some pickup in retail, which saw record online sales. However, with lockdown restrictions remaining in place, many other services remained in the doldrums, with a number of areas seeing further declines.”

                              Full release here.

                              China trade surplus narrowed to USD 46.4B in June as imports jumped more than exports

                                By
                                ActionForex.com
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                                In June, in USD term, China’s total trade rose 1.5% yoy to USD 380.7B. Exports rose 0.5% yoy to USD 213.6B. Imports rose 2.7% yoy to USD 167.2B. Trade surplus narrowed to USD 46.4B, down from May’s USD 62.9B.

                                From January to June, total trade dropped -6.6% ytd yoy to USD 2029.7B. Exports dropped -6.2% ytd yoy to USD 1098.8B. Imports dropped -7.1% ytd yoy to USD 931.0B. Trade surplus came in at USD 167.8B year-to-June.

                                From January to June, with EU, total trade dropped -4.9% ytd yoy to USD 284.2B. Exports dropped -1.5% ytd yoy to USD 172.3B. Imports dropped -9.6% ytd yoy to USD 111.9B.

                                From January to June, with US, total trade dropped -9.7% ytd yoy to USD 234.0B. Exports dropped -11.1% ytd yoy to USD 177.6B. Imports dropped -4.8% ytd yoy to USD 56.4B.

                                Australia NAB business confidence turned positive, turnaround faster than expected

                                  By
                                  ActionForex.com
                                  -

                                  Australia NAB Business Confidence rose to 1 in June, up from May’s -20, turned positive after rebounding sharply from the record lows over the past three months. Business Conditions also improved notably to -7, up from -24. Looking at some details, trading conditions rose to -7, up from -19. Profitability conditions rose from -8, up from -19. Employment conditions also rose to -11, up from -31.

                                  Alan Oster, NAB Group Chief Economist, said: “Overall, there has been a very large and fast rebound in the business survey over the past two months, but keeping perspective over just how large the hit to both activity and confidence is very important. While the turnaround has possibly occurred faster than expected, things have certainly not fully recovered. Conditions and capacity utilisation remain very weak and will take some time to recover”.

                                  Full release here.

                                  AUD/NZD is a pair to watch with key Aussie and Kiwi data featured

                                    By
                                    ActionForex.com
                                    -

                                    AUD/NZD would be a pair to watch this week with lots of key events featured. In the background, eyes will remain on whether the coronavirus cases in Victoria of Australia continue to worsen. On data front, Australia will release NAB business confidence and employment. New Zealand will release CPI inflation.

                                    AUD/NZD is so far still engaging in consolidation pattern from 1.0880, as a short term top was formed after hitting 1.0865 resistance. At this point, we’d continue to expect strong support from 38.2% retracement of 0.9994 to 1.0880 at 1.0542 to contain downside and bring rebound. Break of 1.0669 minor resistance will turn bias back to the upside to bring stronger rebound back towards 1.0880. However, sustained break of 1.0542 will bring deeper decline to 61.8% retracement at 1.0332.

                                    Gold in near term consolidation, upside breakout expected as a later stage

                                      By
                                      ActionForex.com
                                      -

                                      Gold turned into sideway consolidation last week after hitting 1817.91. While it’s recovering today, the weak upside momentum doesn’t warrant a break out yet. Instead, the consolidation will likely extend further for a while. Nevertheless, we’d expect downside to be contained by 1773.42 support even in case of deeper pull back. Break of 1817.91 will resume larger up trend to 61.8% projection of 1451.16 to 1765.25 from 1670.66 at 1864.76.

                                      Germany economy still at beginning stage of recovery

                                        By
                                        ActionForex.com
                                        -

                                        Germany’s economy ministry said the economy has already passed its lowest point. However, recovery is “still at the beginning”. “Capacities are still clearly under-used.”

                                        The ministry expected negative growth in Q2. And, .”only in the third quarter will gross domestic product register positive rates again.”

                                        Half of American business in HK extremely concerned with the national security law

                                          By
                                          ActionForex.com
                                          -

                                          The American Chamber of Commerce said a majority of US companies in Hong Kong are concerned about the new national security law. 36.6% of the respondents surveyed were “somewhat concerned” and 51% were “extremely concerned” about the legislation. 65% said they’re concerned with the “ambiguity in its scope and enforcement” and roughly 61% were concerned Hong Kong’s judicial independence. 49% said the law would have a negative impact on their businesses and about half said they would personally consider leaving the city.

                                          Separately, WSJ reported that the US President Donald Trump’s team would discuss the options on sanctioning China and Hong Kong again early this week. Sanctions and other measures could be announced. But at this point, the options seemed to be limited. Targeted sanctions against Chinese officials and trade measures against Hong Kong would likely have little impact. Yet, more drastic economic measures could hurt the interests of both Americans businesses and Hong Kong people.

                                           

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