Swiss KOF dropped to 101.1, still slightly above long term average of 100

    Swiss KOF Economic Barometer dropped -0.2 to 101.1 in July, below expectation of 101.5. The reading still sit slightly above the long-term average of 100, indicating a slightly above-average economic development in Switzerland in the coming months.

    KOF noted in the release that “negative indicators for manufacturing, the export industry and the accommodation and food service activities sector were mainly responsible for the slight decrease.” On the other hand, “positive signals come from the banking and the construction sectors.”.

    US Treasurer Mnuchin warns China on competitive Yuan devaluation

      US Treasury Secretary Steven Mnuchin warned China in a Financial Times interview on currency manipulation. He said that “as we look at trade issues, there is no question that we want to make sure China is not doing competitive devaluations.” Nonetheless, Mnuchin also acknowledged that Chinese Yuan “depreciated significantly” due to “various factors”. He added “one of those factors has to do with their own economic issues and what has gone on in the Chinese economy.”

      Earlier this week, Bloomberg reported that Mnuchin faced pressure from within the White House to formally designate China as currency manipulator. The Treasury Department is expected to release its semiannual currency report later this month. And we’ll see Mnuchin’s eventual stance then.

      There are clear rules for the Treasury to decide whether a country is manipulating its currency. Rules aside, as we argued in our report, China has been clearly intervening in the markets to “halt” or “slow” the sharp decline of the Yuan exchange rate. It’s clearly seen by almost everyone sensible in Asia that the Yuan and Chinese stocks are in deep trouble facing the risks of trade war escalations.

      And it’s unknown why part of the US administration continued to lie about intention devaluation by China on the Yuan. Though, we wouldn’t mind the US just face the facts by naming China as currency manipulator and requests it stopping to support the Yuan exchange rate.

      BoJ Kuroda: We will watch exchange rate moves carefully

        BoJ Governor Haruhiko Kuroda said, “When the yen is moving 2 to 3 yen per day, that’s a rapid move. We will watch exchange rate moves carefully.” The comment came after Kuroda met Prime Minister Fumio Kishida, where currency matters were discussed.

        Separately, Finance Minister Shunichi Suzuki said the the government would not rule out any options on foreign exchange moves.

        Oil and safe havens rally amid new Middle East conflict

          Oil prices surges sharply in Asian session and there was a significant influx into safe-haven assets such as Gold, Dollar, Swiss Franc, and Japanese Yen.

          This market reaction was triggered by escalating tensions in the Middle East, following a report by ABC News on a retaliatory missile strike by Israel against Iran. Meanwhile, Iran’s Fars news agency also reported that explosions were heard near the Isfahan airport,m even though the causes were unknown.

          The missile launches are continuation of hostilities following last Saturday when Iran targeted Israel with over 300 drones and missiles, a majority of which were intercepted by Israel and its allies.

          WTI oil’s strong rebound today suggests that corrective pullback from 87.84 has completed at 81.62 already. Further rise would be seen to retest 87.84 resistance first. Decisive break there will resume whole rally from 67.79 and target 61.8% projection of 71.32 to 87.84 from 81.62 at 91.82 next.

          Also, note that rise from 67.79 is seen as the third leg of the pattern from 63.67 (2023 low). Hence, break of 95.50 is possible in the medium term, depending on whether WTI could sustain its upside momentum.

          BoE Tenreyro expects rate to be steady at 3% over 2023

            BoE MPC member Silvana Tenreyro said, “I would expect that Bank Rate held at 3% over 2023 would reduce output further below potential, given the effects of lower real incomes and the lagged impact of the tightening to date.”

            “Policy would then have to loosen, perhaps in 2024, to try to prevent inflation falling below target,” she added.

            “Monetary policy has tightened significantly this year, but most of its effects on demand have yet to occur,” she said. “Too high a path for Bank Rate therefore risks over-steering inflation below target in the medium term.”

            Tenreyro is a known dove, who voted for just a 25bps hike at last meeting, while the majority voted for a 75bps hike.

            US consumer inflation in focus as investors gauge Fed’s next move

              Today’s spotlight is on US consumer inflation data, which is expected to show that headline CPI remained unchanged at 5.0% yoy in April, after falling for nine straight months. Core CPI, which excludes volatile food and energy prices, is predicted to slightly drop from 5.6% yoy to 5.5% yoy. Both the trajectory of inflation and unfolding regional bank issues in the US will play a critical role in Fed decision-making about the peak interest rate in the current cycle (if it hasn’t been reached yet) and the timing of the first rate cut.

              Current fed funds futures data suggests a 78.8% probability that Fed will maintain interest rate at 5.00-5.25% following FOMC meeting on June 14. There’s a 21.2% chance of an additional 25bps hike to 5.25-5.50%. Notably, there’s a 63.8% likelihood of a rate cut beginning in September, marking the start of a potential loosening cycle.

              Despite these uncertainties, investor sentiment remains relatively resilient, with major stock indexes preserving their near-term bullish trajectories. NASDAQ, for instance, is expected to continue rallying as long as 11798.77 support level holds. The key test, however, will be 8.2% retracement of 16212.22 to 10088.82 at 12436.48. Decisive break above this level could trigger further rallies towards 13181.08 cluster resistance level (50% retracement at 13157.41) and possibly beyond.

              Conversely, if NASDAQ breaks below 11798.77 support level, it would suggest a rejection by 12436.48 Fibonacci resistance level, possibly triggering a deeper decline towards 10982.80 and potentially retesting 10088.82 low.

              As always, these movements in risk sentiment will likely have a correlated impact on currency market trends.

              Australia NAB business confidence rose to 7, conditions rose to 20

                Australia NAB Business Confidence rose from 2 to 7 in July. Business Conditions rose from 14 to 20. Trading conditions rose from 19 to 27. Profitability conditions rose from 13 to 17. Employment conditions rose from 11 to 17.

                “Businesses are continuing to report that conditions are really strong,” said NAB Group Chief Economist Alan Oster. “While some of the real time data we look at is showing signs of softening, there are no signs of that in the survey with demand at a really high level. Importantly, the strength is showing up across the board in terms of industries and across the country.”

                “Confidence bounced back in July, which was something of a surprise,” said Oster. “Inflation and rising interest rates are clouding the outlook, and there are growing concerns about the global economy, but businesses seem to have a fairly positive outlook at the moment. Forward orders are also fairly strong at +10 index points which also supports the outlook.”

                Full release here.

                China Caixin PMI manufacturing dropped to 51.5, room for recovery with trade deal

                  China Caixin PMI Manufacturing dropped to 51.5 in December, down from 51.8, missed expectation of 51.7.

                  Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said: “China’s manufacturing economy continued to stabilize in December, although the expansion in demand was not as strong as the previous two months. Positive changes included improved business confidence, and strengthened willingness to increase production and inventories, which are beneficial to the job market. Subdued business confidence was a major factor behind the economic slowdown this year. As the phase one trade deal between China and the U.S. has sent out positive signals, there is room for a recovery in business confidence, which should be able to help stabilize the economy.”

                  Full release here.

                  EU announced mandate to negotiate ambitious, wide-ranging and balanced partnership with UK

                    European Council announced the mandate for chief Brexit negotiator Michel Barnier to open the negotiations for a new partnership with the UK after the Brexit transition period. Andreja Metelko-Zgombić, Croatian State Secretary for European Affairs, said, “This confirms our readiness to offer an ambitious, wide-ranging and balanced partnership to the UK for the benefit of both sides. The EU is now ready to start negotiations.”

                    In the announcement, EU said the future partnership “should be underpinned by robust commitments to ensure a level playing field for open and fair competition, given the EU and the UK’s geographic proximity and economic interdependence.” EU also intends to establish a free trade agreement which “ensures that zero tariffs and quotas apply to trade in goods.” The agreement should provide for “cooperation on customs and regulatory aspects”, and “include effective management and supervision, dispute settlement and enforcement arrangements.”

                    Full release here.

                    Market anxiety drives US 10-year yield under 4%, eyes on crucial NFP

                      US benchmark 10-year yield plummeted overnight, breaking below 4% mark for the first time since February, signaling heightened investor anxiety. This sharp decline came amidst a broad market sell-off, with DOW dropping nearly -500 points, or -1.21%, and even the small-cap Russell 2000 index plunging -3%.

                      The rise in initial jobless claims to their highest level since August last year contributed to the risk-off sentiment. However, the more pressing concern for investors was the dismal ISM manufacturing report, with PMI falling deeper into contraction, and production and employment falling to their lowest levels since mid-2020.

                      The market’s reaction to these reports has shifted expectations towards more aggressive monetary easing. Investors are now starting to bet on a 50bps rate cut by Fed in September, with the probability of such a cut now around 30%. However, rather than cheering the potential for fast monetary easing, investors seem more concerned about a looming recession.

                      This development heightens the importance of today’s non-farm payroll report. Headline jobs are expected to grow by 176k in July, with the unemployment rate remaining unchanged at 4.1%. Meanwhile, average hourly earnings are anticipated to grow by 0.3% month-over-month.

                      Given the current sentiment, markets may react more strongly to any significant miss in the headline job growth number, which could signal a worse-than-expected slowdown in the employment market. In comparison, the unemployment rate and wage growth, which are more indicative of inflationary pressure, might take a back seat.

                      Technically, 10-year yield’s (TNX) strong break of near term falling channel indicates downside acceleration. More importantly, the bearish case is strengthening that fall from 4.737 is the third leg of the pattern from 4.997 top. Near term outlook will stay bearish as long as 4.292 resistance holds. Next target is 3.785 low. Break there will target 100% projection of 4.997 to 3.785 from 4.737 at 3.525.

                      As for Russell 2000, yesterday’s steep fall and breach of 2176.47 support suggests that a short term top is already in place at 2299.99. This came after just missing 61.8% projection of 1633.66 to 2135.45 from 1993.22 at 2303.32. Sustained break of 2176.47 would set the stage for deeper correction to 55 D EMA (now at 2116.13) and possibly further to 38.2% retracement of 1633.66 to 2299.99 at 2045.45.

                      Attorney General Cox said risk of indefinite Irish backstop reduced, not eliminated, Pound dives

                        Sterling is knocked down sharply after UK Attorney General Geoffrey Cox published is updated legal advice up the new Brexit deal agreed by UK Prime Minister Theresa May and European Commission President Jean-Claude Juncker late Monday. In short, Cox said that he new documents “reduce the risk” the UK is trapped indefinitely in the Northern Ireland backstop. But such risk is not eliminated.

                        And most importantly, as Cox’s letter concluded: “the legal risk remains unchanged that if through no such demonstrable failure to either party, but simply because of intractable differences, that situation does arise, the United Kingdom would have, at least while the fundamental circumstances remained the same, no internationally lawful means of exiting the Protocol’s arrangements, save by agreement”.

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                        US initial jobless claims unchanged at 205k, matched expectations

                          US initial jobless claims was unchanged at 205k in the week ending December 17, matched expectations. Four-week moving average of initial claims rose 3k to 206k.

                          Continuing claims dropped -8k to 1859k in the week ending December 11. Four-week moving average of continuing claims dropped -49k to 1920k. Both are the lowest since March 14, 2020.

                          Full release here.

                          Japan bank lending grew 0.4% yoy in Feb, slowest since 2012

                            Japan bank lending grew 0.4% yoy in February, below expectation of 0.6% yoy. That’s the slowest rate since May 2012. Lending by major banks dropped -1.3% yoy, biggest decline since August 2021. Regional banks’ lending rose 1.7% yoy, smallest increase in more than a decade.

                            “We must keep an eye out on how developments in Ukraine could affect corporate funding through rising crude oil prices,” a BOJ official told a briefing.

                            Also released, labor cash earnings rose 0.9% yoy in January, above expectation of 0.2% yoy. Current account surplus narrowed to JPY 0.19T in January, below expectation of JPY 0.33T.

                            Swiss CPI rose 0.4% mom, 0.6% yoy. No market reaction

                              Swiss CPI:

                              • 0.4% mom vs exp 0.3% mom vs prior -0.1% mom
                              • 0.6% yoy vs exp 0.6% yoy vs prior 0.7% yoy

                              Quote from release

                              “The 0.4% increase compared with the previous month can be explained by several factors including rising prices for air transport. Foreign package holidays also recorded an increase, as did clothing and footwear due to the end of the seasonal sales. In contrast, prices for heating oil, coffee and overnight stays in hotels decreased.”

                              Full release: Consumer prices increased by 0.4% in February

                              Comments: No impact on the markets, nor would it change SNB’s neutral stance

                              Chinese Yuan nosedives to year low amid deepening property sector concerns

                                The Chinese Yuan nosedived to its lowest mark this year, echoing growing anxieties that spread from the real estate domain to the financial sector. Fueling this downturn, JPMorgan Chase & Co. rang alarm bells today, highlighting heightened liquidity strains for debt-ridden developers and their non-bank stakeholders. This follows a notable hiccup by a subsidiary of Zhongzhi Enterprise Group Co., which stands among China’s premier private wealth management entities. The said unit stumbled in ensuring timely payments across multiple products.

                                These defaults in the trust sector could potentially trigger a detrimental cycle impacting the onshore debt of privately-owned enterprise developers. The escalating apprehensions regarding potential developer defaults have soured the investment climate. Consequently, trust entities may either find it challenging or may express reluctance in rolling over existing products tied to real estate.

                                USD/CNH’s break of 7.2853 resistance confirms resumption of whole rally from 6.6971 (Jan low). Purely technically speaking, current rise should target 7.3745 resistance first (2022 high), and then 61.8% projection of 6.8100 to 7.2853 from 7.1154 at 7.4091. However, market watchers are most intrigued by a looming question: When will China’s authoritative bodies intervene to arrest the Yuan’s descent?

                                ECB’s Kazimir: Cannot rule out further hike, premature to bet on cut

                                  ECB Governing Council member and head of Slovakia’s central bank, Peter Kazimir, indicated in an opinion piece that the possibility of further rate hikes remains on the table. Also, it’s premature to bet on the timing of the first rate cut.

                                  Kazimir emphasized that the forthcoming March forecast will be a decisive factor in ascertaining whether the inflation target is within reachable limits, stating, “Only the March forecast can confirm that we are heading unequivocally and steadily towards our inflation goal.”

                                  “That is why I cannot rule out the possibility of further rate increases today,: he added.

                                  Elaborating on the current stance of the policy rates, Kazimir metaphorically commented, “Assume we’re at the top. If so, we may have to stay camping here for quite some time and spend the winter, spring, and summer here.”

                                  Hence, it would be “premature to place market bets on when the first interest rate cuts will occur.”

                                  Meanwhile, he did leave the door open for potential adjustments in the bank’s quantitative tightening measures, contingent on economic data. He noted, “As soon as incoming economic data and analyses confirm that further tightening is unnecessary, I see room for a debate about adjusting the pace of our quantitative tightening.”

                                   

                                   

                                  SNB Zurbruegg: Exchange rate situation still very fragile, current monetary policy has to continue

                                    SNB Vice Chairman Fritz Zurbruegg said in a Schaffhauser Nachrichten newspaper interview that when EUR/CHF was at 1.2, there came the ” the impression that everything is solved and the pressure is gone – the franc is no longer a safe haven”. However, then, “you can see that the franc reacts very quickly as long as there are uncertainties.” That showed the “exchange rate situation is still very fragile”. Therefore, SNB policymakers are “convinced we have to continue with our current monetary policy.”

                                    Also, he noted the central bank is not considering to reduce its balance sheet yet. He said “there are risks that we have accepted to fight against the over-valuation of the franc, and we can live with that. And, “the size of our balance sheet doesn’t limit our ability to act and we have shown that we are still ready to intervene in the currency markets if necessary.” He added “that’s why there is no talk at present about reducing this portfolio.”

                                    Fed Bullard: Policy rate not yet sufficiently restrictive

                                      St. Louis Fed President James Bullard said, “even under these generous assumptions, the policy rate is not yet in a zone that may be considered sufficiently restrictive”. And, “to attain a sufficiently restrictive level, the policy rate will need to be increased further.”

                                      “Thus far, the change in the monetary-policy stance appears to have had only limited effects on observed inflation, but market pricing suggests disinflation is expected in 2023,” Bullard said.

                                      UK retail sales volumes rises 1.3% mom in Nov, sales value up 1.0% mom

                                        UK retail sales volumes (quantity bought) rose 1.3% mom in November, well above expectation of 0.4% mom. Ex-automotive fuel sales values rose 1.3% mom. Over the year, sales volumes rose 0.1% yoy while ex-fuel sales volume rose 0.3% yoy.

                                        Sales value (amount spent) rose 1.0% mom, 3.8% yoy. Ex-fuel sales value rose 1.2% mom, 5.7% yoy.

                                        Full UK retail sales release here.

                                        Eurozone PMI composite dropped to 16-mth low, just 0.2% GDP growth and worse to come

                                          Eurozone PMI Manufacturing dropped from 54.6 to 52.0 in June, below expectation of 53.0. That’s the lowest level in 22 months. PMI Services dropped from 56.1 to 52.8, below expectation of 55.5, a 5-month low. PMI Composite dropped from 54.8 to 51.9, lowest in 16-months.

                                          Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: “Eurozone economic growth is showing signs of faltering … Excluding pandemic lockdown months, June’s slowdown was the most abrupt recorded by the survey since the height of the global financial crisis in November 2008…. The slowdown means the latest data signal a rate of GDP growth of just 0.2% at the end of the second quarter, down sharply from 0.6% at the end of the first quarter, with worse likely to come in the second half of the year.”

                                          Full release here.