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China PMI manufacturing dropped to 51.2, short term downward pressure emerged

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    ActionForex.com
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    The official China PMI manufacturing dropped -0.3 to 51.2 in July, below expectation of 51.3. Official PMI services dropped -1.0 to 54.0, missed expectation of 55.0. Analyst Zhang Liqun noted in the release that despite the slight decline in the PMI index, “steady growth of the economy remained unchanged”. However, “short term downward pressure has emerged”.

    Looking at the details, eight of the sub-indices declined in the month. They include production, new order, purchase volume, import, purchase price, ex-factory price, suppliers delivery, production and operation expectation, New export orders, was unchanged but in contraction region at 49.8. The data set is seen by some as the first sign of impact from increasing trade tension with the US.

    Full release here in simplified Chinese.

    Villeroy: ECB ready to accept inflation above 2% for some time

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      ActionForex.com
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      ECB Governing Council member Francois Villeroy de Galhau emphasized that the central bank “has frequently re-affirmed its commitment to symmetry” of its inflation target. As a result, “we might be ready to accept inflation higher than 2% for some time.” Still, “we should examine whether the current formulation casts doubt on this.”

      Villeroy also dismissed chatter that it’s running out of ammunition. “If needed, the ECB has ample room for maneuver,” he said. “Have no doubt about our determination to act as much as needed, and about our capacity to act.”

      NSW lockdown relaxation pushes Aussie higher, but key resistance in sight

        By
        ActionForex.com
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        Australian Dollar has been the strongest one for the week so far, as the country is heading towards relaxation of lockdown rules. New South Wales Premier Glady Berejiklian announced today that, starting Friday, groups of two adults and their children are allowed to visit other households for social gatherings. Bondi Beach and two neighboring beaches in Sydney were reopened to local residents on Tuesday after being closed a month ago.

        While Aussie’s strength has been impressive, it’s partly skewed upward by the strong rebound in AUD/NZD. Meanwhile, some Aussie pairs are already close to key resistance levels. Hence, we’d be very alerted on topping signals for the near term. For example, AUD/JPY is now relatively close to near term cluster resistance at 69.95, 61.8% retracement of 76.54 to 59.89 at 70.17.

        AUD/CAD is close to an even more important cluster resistance at 0.9105 (38.2% retracement of 1.0784 to 0.8066 at 0.9104. A near term set back should at least be due.

        Today’s top mover: GBP/NZD medium term bearishness plays out as expected

          By
          ActionForex.com
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          Sterling is under broadly based selling pressure today as UK Prime Minister Theresa May called off tomorrow’s Brexit parliamentary vote. She conceded that her Brexit deal would be defeated by a wide margin and pledged to go back to EU for changes on the Irish border backstop. Kiwi is so far very resilient and seems not even bothered with US stocks selloff. For now, GBP/NZD is the top mover of today.

          GBP/NZD’s development is inline with our bearish view as discussed here. The decline from 2.0469 resumed today and reached as low as 1.8183. Based on current downside acceleration, 61.8% retracement of 1.6684 to 2.0469 at 1.8130 will likely be taken out. And in any case, break of 1.8634 resistance is needed to confirm short term bottoming. Otherwise, outlook will remain bearish even in case of recovery.

          Also, in our view, the medium term corrective rise from 1.6684 (2016 low) should have completed at 2.0469. Based on current downside momentum, fall from 2.0469 is likely resuming the down trend from 2.5647 (2015 high). Reaction to above mentioned 1.8130 fibonacci level will reveal the chance of this bearish case. Decisive, firm break of 1.8130 will at least bring retest of 1.6684 low.

          UK published document on temporary Brexit customs arrangements

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            ActionForex.com
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            The UK government released a document titled Technical note: temporary customs arrangement on Brexit today. That’s is the so-called backstop plan to avoid a hard Irish border if the UK cannot come to an agreement with EU on the issue. Here is a summary for the key points.

            It’s in the document that “the UK expects the future arrangement to be in place by the end of December 2021 at the latest”. In other words, the transition arrangement could last a year longer than previously planned. The current agreed 21-month transition period will start from March 29, 2019 and end on December 31, 2020.

            During the period, UK will be outside the Common Commercial Policy. That is, “the UK able to negotiate, sign and ratify free trade agreements (FTAs) with rest of world partners and implement those elements that do not affect the functioning of the temporary customs arrangement.”

            The backstop solution will cover the whole of UK, not just North Ireland. And, there would be an ongoing role for European Court of Justice during the period. The document added that “if as part of the future partnership, parliament passes an identical law to an EU law, it may make sense for UK courts to look at the appropriate ECJ judgments.”

            Here is the full document.

            ECB: Favorable financing conditions can be maintained with moderate lower pace of PEPP

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              ActionForex.com
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              ECB kept the envelope of the Pandemic Emergency Purchase Programme (PEPP) unchanged at EUR 1850B, and will continue purchases until at least the end of March 2022. Nevertheless, the Governing Council now “judges that favourable financing conditions can be maintained with a moderately lower pace of net asset purchases under the PEPP than in the previous two quarters.” ECB will now “purchase flexibly” according to market conditions, over time, across assets classes and among jurisdictions.

              Also, ECB kept main refinancing rate, marginal lending rate and deposit rate unchanged at 0.00%, 0.25%, and -0.50% respectively. Forward guidance is maintained, which imply a transitory period of overshoot. The regular asset purchase program will also continue at a monthly pace of EUR 20B.

              Full statement here.

              Eurozone CPI rose to 2% in May, unemployment rate dropped to 8% in Apr

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                ActionForex.com
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                Eurozone CPI jumped further to 2.0% yoy in May, up from 1.6% yoy, above expectation of 1.9% yoy. Core CPI rose to 0.9% yoy, up from 0.7% yoy, matched expectations. Looking at the main components, energy is expected to have the highest annual rate (13.1%, compared with 10.4% in April), followed by services (1.1%, compared with 0.9% in April), non-energy industrial goods (0.7%, compared with 0.4% in April) and food, alcohol & tobacco (0.6%, stable compared with April).

                Unemployment rate dropped to 8.0% in April, down from 8.1%, below expectation of 8.1%. EU unemployment rate was unchanged at 7.3%.

                Muller: Inflation is far from target, ECB needs to further boost the economy

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                  ActionForex.com
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                  ECB Governing Council member Madis Muller warned today that “inflation is far from our target of almost 2%”. Thus, “that the central bank has to further boost the economy.” He added that the Governing Council will “discuss this at its mid-September meeting”.

                  His comments were in-line with another Governing Council member Olli Rehn’s. Rehn noted last week that “there is a certain weakening of the economic outlook for Europe in the last couple of months”. And, the backdrop “justifies taking further action in monetary policy, as we intend to do in September.”

                  Eurozone CPI was finalized at 1.0% yoy in July, core CPI at 0.9%. Headline CPI was just half of ECB’s 2% target. Also, recently ECB has twisted its languages to reflect the symmetric nature of the inflation target. That is, slight overshoot would be allowed to balance out the misses. From this perspective, inflation is really way off target.

                  Germany PPI up 1.4% mom, 25.9% yoy in Feb, Russia invasion impact not yet included

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                    ActionForex.com
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                    Germany PPI rose 1.4% mom, 25.9% yoy in February, below expectation of 1.7% mom, 26.1% yoy, comparing to January’s 2.2% mom, 25.0% yoy.

                    Destatis said, “the recent price development in the context of Russia’s attack on Ukraine are not yet included in the results… Mainly responsible for the increase of producer prices compared to February 2021 still was the price increase of energy.”

                    Energy prices as a whole rose 68.0% yoy. Price of intermediate goods rose 21.0% yoy. Prices of non-durable consumer goods rose 7.4% yoy. Prices of durable consumer goods rose 6.7% yoy. Capital goods prices rose 5.5% yoy.

                    Full release here.

                    Swiss KOF rose to 113.8, economy taking a V-shaped course

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                      ActionForex.com
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                      Swiss KOF Economic Barometer rose to 113.8 in September, up from 110.2, beat expectation of 106. That’s the four rise in a row after a historic drop earlier this year. KOF said, “at present, the economy is taking a V-​shaped course, so that a recovery of the Swiss economy can be expected for the time being. However, a second wave of COVID-​19 cases could lead to a sharp revision of this assessment.”

                      Also released, Credit Suisse Economic Expectations dropped to 26.2 in September, down form 45.6.

                      WTI crude trends downward amid revised EIA supply and demand forecasts

                        By
                        ActionForex.com
                        -

                        WTI crude oil is extending its near term decline today on expectation of higher production and lower demand ahead. If WTI cannot reclaim 80 mark in short term, there is prospect of downside acceleration through 70 next.

                        In its latest report, the US Energy Information Administration revised its expectations for this year’s global oil and liquid fuels output upwards while reducing its demand forecasts.

                        Notably, it now anticipates that global oil and liquid fuels consumption will increase by 920k bpd to 102.84m bpd, a slight reduction from the previously forecasted growth of 950k bpd.

                        On the production side, total world crude oil and liquid fuels production is expected to rise by 970k bpd to 102.76m bpd, up from the earlier estimate of 850k bpd increase.

                        Technically, the break of 100% projection of 87.84 to 81.20 from 84.88 at 78.24 suggests WTI is probably ready for downside acceleration. Near term outlook will stay bearish as long as 80.20 resistance holds. Next target is 161.8% projection at 74.13.

                        More importantly, the fall from 87.84 is seen as the third leg of the pattern from 95.50. There is prospects of deeper decline through 67.79 towards 63.67 (2023 low) in the medium term.

                        BoC Macklem: High inflation is transitory but not short-lived

                          By
                          ActionForex.com
                          -

                          BoC Governor Tiff Macklem said in in TV interview over the weekend that current high inflation will be “transitory but not short-lived”.

                          I think transitory, to economists, means sort of not permanent,” he said. “I think to a lot of people, transitory means it’s going to be over quickly. … I don’t know exactly what the right word is, but it’s probably something like, ‘transitory but not short-lived.'”

                          Macklem pointed to the latest economic projections, which indicated that inflation would rise further from current 18-year high of 4.4% to 5%, then gradually drop back to 2% by the end of next year. And that’s what he meant by “transitory but not short-lived”.

                          UK PMI construction dropped to 45.3, retrenchment could soon spillover to other parts of economy

                            By
                            ActionForex.com
                            -

                            UK PMI Construction recovered to 45.3 in July, up from 43.1 (10 year low) but missed expectation of 46.0. And, it’s still the fifth straight month of sub-50 contraction reading. Markit noted that construction activity fell for the third month in a row. There was sharp drop in new work and purchasing activity during July. Business optimism also slid to its lowest since November 2012.

                            Tim Moore, Economics Associate Director at IHS Markit, which compiles the survey:

                            “UK construction output remains on a downward trajectory and another sharp drop in new orders has reduced the likelihood of a turnaround in the coming months.

                            “Total business activity declined at a softer pace than the ten-year record seen in June, but this should not detract attention from the challenges ahead for the construction sector. Customer demand has been squeezed on all sides in recent months, which has pushed down business expectations to the lowest since the second half of 2012.

                            “July data revealed declines in house building, commercial work and civil engineering, with all three areas suffering to some degree from domestic political uncertainty and delayed decision-making.

                            “Construction companies have started to respond to lower workloads by cutting back on input buying, staffing numbers and sub-contractor usage. If the current speed of construction sector retrenchment is sustained, it will soon ripple through the supply chain and spillovers to other parts of the UK economy will quickly become apparent.”

                            Full release here.

                            EU Tusk: November Brexit summit still on the card if decisive progress is made

                              By
                              ActionForex.com
                              -

                              European Council President Donald Tusk said EU is ready to extend the transition period after Brexit in March, if UK requests for it. For now, “it was made clear by the UK that more time is needed to find a precise solution”. Hence, “there is no other way but to continue the talks” with UK.

                              Nonetheless Tusk also said “I stand ready to convene a European Council, if and when the Union negotiator reports that decisive progress has been made”, referring to the possibility of an extra summit on November 17-18.

                              Mid-US update: Euro and Sterling Strongest, Yen and Dollar weakest after a long day

                                By
                                ActionForex.com
                                -

                                Yen and Dollar are trading as the weakest two today. On the other hand, Sterling and Euro are the strongest ones, with Australian Dollar trailing behind. There are a couple of underlying themes today which triggered much volatility.

                                Firstly, the story of restarting US-China trade negotiation continued to develop. White House economic advisor confirmed yesterday after the bell that there was an invitation to China for trade talks. China also confirmed they received that invitation and both sides are already in discussion on details of the meeting. China SSE ended up 1.15% at 2686.58 today even though it failed to reclaim 2700 handle. Australian was originally the biggest gainer as also helped by strong employment data. However, later in the US session Trump tweeted that China is the one who’s under pressure to make a deal. And “we will soon be taking in Billions in Tariffs & making products at home.” Apparently, he’s trying to re-escalate the tension. That’s a main factor knocking Aussie down against Euro and Sterling.

                                Secondly, Turkish central bank CBRT delivered a massive rate hike, by lifting the policy rate from 17.75% to 24%. That triggered a strong rebound in the Lira, with USD/JPY now trading down around -4%. It also eased worries of re-emergence of Lira crisis and contagion to Europe. That’s a strong factor supporting Euro and to a certain extent Sterling.

                                Thirdly, US core CPI came in weaker than expected, slowed to 2.2% yoy in August, down from 2.4% yoy. While that shouldn’t stop the Fed from raising interest rate to neutral, it could start casting doubts on whether Fed should continue beyond neutral. The data helped supported US equities and pushed USD/JPY through 111.82 resistance.

                                BoE and ECB rate decisions are indeed shrugged off by the markets. Here are some readings on ECB and BoE:

                                In other markets, DOW is currently up 0.48%, S&P 500 up 0.54%, NASDAQ up 0.96%. FTSE closed down -0.43%, DAX up 0.19% and CAC down -0.08%. Gold hit as high as 1212.64 earlier today but is now down back at 1204 after failing to take out 1214.3 resistance.

                                Fed’s Bostic eyes first rate cut in Q4, citing sluggish inflation decline

                                  By
                                  ActionForex.com
                                  -

                                  In a CNBC interview today, Atlanta Fed President suggested that rate cuts could be on the horizon by the end of 2024, contingent on the economy’s performance. Bostic outlined a scenario where “continued robustness in GDP, unemployment, and a slow decline of inflation through the course of the year” could warrant a policy adjustment in the fourth quarter.

                                  He also acknowledged the persistence of inflationary pressure into the current year, “hasn’t moved very much relative to” levels observed at the end of 2023. “There are some secondary measures in the inflation numbers that have gotten me a bit concerned that things may move even slower,” he warned.

                                  “Those are much higher now than they were before and they’re starting to trend back to what we saw in the high inflation period,” Bostic added. “They’re moving away from what we’d like to see. So I’ve got to make sure that those aren’t hiding some extra upward pressure and pricing pressure before I’m going to want to move our policy rate.”

                                  HK HSI surges with global stocks, targeting 32255 next

                                    By
                                    ActionForex.com
                                    -

                                    Hong Kong HSI follows global stocks higher as it’s back from lunar new year holiday. It’s up 1.8% or 543 pts at the time of writing. For the near term outlook will stay bullish as long as the lower side of the gap at 29828.61 holds. Current up trend from 21139.26 should target 161.8% projection of 21139.26 to 26782.61 from 23124.25 at 32255.19 next.

                                    As for the medium term, outlook will stay bullish as long as 28259.73 support holds. Corrective pattern from 33484.07 should have completed with three waves down to 21139.26. Considering the strong up side momentum as seen in weekly MACD, current rise is likely be resuming the long term up trend. We’re tentatively putting 100% projection of 18278.80 to 33484.07 from 21139.26 at 36344.53 as next medium term target.

                                    BoE Haldane: The risks are still with us and the risks are still real

                                      By
                                      ActionForex.com
                                      -

                                      BoE Chief Economist Andy Haldane said in a Guardian interview, the central bank would continue to provide monetary policy support to the economy, as “the risks are still with us and the risks are still real.” The right time “to signal and to execute” the reduction of insurance provided by policies is “when you actually see the risks being reduced for people in terms of their jobs and for businesses in terms of their viability.”

                                      “We are still in a hole and the hole is still deep. We need to keep climbing out that hole through policy measures and the vaccine. But once we have climbed out – and we will – we mustn’t forget about long-term structural issues: what will give us good work at good pay,” he added.

                                      UK retail sales volume contracted in fastest pace since 2009

                                        By
                                        ActionForex.com
                                        -

                                        UK CBI reported sales dropped sharply to -42 in June, down from -27 and way off expectation of -3. That is, 16% of retailers said sales volumes were up in June of a year ago. 58% said they were down. It also indicates that retail sales volumes fell at their fastest pace since March 2009 in the year to June

                                        CBI said: “Recent data suggests UK economic growth has slowed noticeably in the second quarter of 2019, as the boost from stockpiling activities in Q1 fades. We expect the UK to return to a subdued growth path further ahead, although risks from Brexit uncertainty and global trade tensions remain heightened.”

                                        Full release here.

                                        New Zealand ANZ business confidence dropped to -14.2 on Delta lockdown

                                          By
                                          ActionForex.com
                                          -

                                          New Zealand ANZ Business Confidence dropped sharply from -3.8 to -14.2 in August. Own Activity Outlook dropped from 26.3 to 19.2. Looking at some more details, export intentions ticked down from 7.6 to 7.4. Investment intentions dropped from 17.4 to 14.4. Employment intentions dropped from 21.4 to 17.0. Profit expectations dropped from 0.0 to -5.5. Inflation expectations, however, rose further from 2.70 to 3.05, above RBNZ’s target band. ANZ said that the “initial responses after level 4 lockdown look encouragingly robust”.

                                          ANZ also noted while Delta is a “formidable opponent”, there are some reasons to the “glass-half-full about the situation”. The economy had “significant momentum” going into the lockdown. People will be a lot more confidence than last time regarding their job. Also evidence there and overseas suggests that the bounce out of lockdowns tends to be vigorous. But it’s still too soon to be sure when the level 4 restrictions will stamp out Delta.

                                          Full release here.

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