China’s coronavirus cases rose to 24k, outbreak may delay fulfillment of trade deal

    According to China’s National Health Commission, on January 4, total number of confirmed coronavirus cases rose 3887 to 24324. Death tolls rose 65 to 490. Serious cases rose 431 to 3219. Suspected cases rose 46 to 23260. Number of people tracked rose from 31139 to 252154.

    US White House economic adviser Larry Kudlow admitted in a Fox Business interview that Chinese purchase of American goods would be delayed due to the corona virus outbreak. He said, “it is true the trade deal, the Phase 1 trade deal, the export boom from that trade deal will take longer because of the Chinese virus.”

    The US-China Economic and Security Review commission also noted, “the ongoing spread of the coronavirus is taking a toll on China’s public health and economy, and may impact its ability and willingness to meet the commitments in the Phase 1 deal.”

    Gold finished recovery at 1593.39?

      Gold’s choppy recovery from 1535.91 is losing upside momentum as seen in bearish divergence condition in 4 hour MACD. Focus is back on 1563.36 minor support. Break will argue that such recovery has completed. Corrective pattern from 1611.37 should then have started the third leg for 1535.91 and below. In case of another rise, upside is expected to be limited by 1611.37.

      In the bigger picture, we don’t rule out that case that 1611.37 is a medium term top. It could be formed after rise from 1160.17 completed a five-wave sequence on bearish divergence condition in daily MACD. Hence, correction from 1611.37 should extend lower through 55 day EMA (now at 1528.45), before completion.

      Eurozone PPI at 0.0% mom, -0.7% yoy

        Eurozone PPI came in at 0.0% mom, -0.7 yoy in December, matched expectations. Non-durable consumer goods rose 0.5% mom, capital goods rose 0.1%. Intermediate goods and durable consumers goods dropped -0.1% mom. Energy dropped -0.5% mom. Total industry exclude energy rose 0.1% mom.

        EU27 PPI was at 0.2% mom, -0.4% yoy. The highest increases in industrial producer prices were recorded in the Netherlands and Romania (both +0.5% mom), and Greece (+0.4% mom), while the largest decreases were observed in Estonia (-1.3% mom), Portugal (-1.0% mom) and Finland (-0.7% mom).

        Full release here.

        UK construction PMI rose to 48.4, downturn lost intensity

          UK PMI Construction rose to 48.4 in January, up from 44.4, beat expectation of 44.9. While that still suggests contraction, it’s the best reading since May 2019. New orders were close to stabilization. There was a boost from receding political uncertainty. Business optimism also rebounded to its highest since April 2018.

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

          “The construction sector downturn lost intensity in January amid slower reductions in house building, commercial work and civil engineering activity. Measured overall, the latest dip in construction output was much shallower than in December, with survey respondents often commenting on improved willingness to spend among clients since the general election.

          “Commercial work dropped at the slowest pace since the start of 2019 and was the main beneficiary of receding political uncertainty. UK construction companies also commented on signs of a turnaround in demand conditions across the residential development category during January. Civil engineering remained the weakest performing area of construction work as firms across the supply chain cited a lack of opportunities to replace completed contracts.

          “Despite concerns about prospects for work on infrastructure projects, latest data revealed a strong rebound in business optimism across the construction sector as a whole in January. The degree of positivity reached its highest level since April 2018, driven by hopes that improving confidence among clients will continue to translate into new contract awards over the course of 2020.”

          Full release here.

          BoJ paying maximum attention on China’s coronavirus outbreak

            BoJ Governor Haruhiko Kuroda pledge to “pay maximum attention” to China’s coronavirus outbreak and the impact on Japan’s economy, prices and financial markets. He added that BoJ has been gathering information and exchanging views with global counterparts. And, “we will make sure to take necessary measures when needed.”

            But for now, “it is too early to adopt further easing steps at the moment,” he said.

            RBA keeps cash rate at 0.75%, no indication of rate cut

              RBA left cash rate unchanged at 0.75% as widely expected. Australian Dollar recovers as there is no clear sign of imminent rate cut. The central just said “due to both global and domestic factors, it is reasonable to expect that an extended period of low interest rates will be required.” The board “remains prepared to ease monetary policy further if needed”.

              RBA expects the economy have a “step up” and grow around 2.75% in 2020 and 3.00% in 2021. Bushfires and coronavirus will “temporarily weigh on domestic growth”. But overall outlook is “supported by the low level of interest rates, recent tax refunds, ongoing spending on infrastructure, a brighter outlook for the resources sector and, later this year, an expected recovery in residential construction.”

              Unemployment rate is expected to “remain around” 5.1% for some time, before “gradually declining” to a little below 5% in 2021. Wage growth is “subdued” and is expected to “remain” at current rate for some time. Inflation remains “low and stable”. CPI is expected to be around 2% in the near term and “fluctuate around that rate over the next couple of years”.

              Full statement here.

              Bundesbank Weidmann, policy objection should be understandable, forward-looking and realistic

                Bundesbank President Jens Weidmann said ECB should formulate the monetary policy objective in a way that is “understandable, forward-looking and realistic”. At the same time “we should counteract any impressions and claims that we can fine-tune inflation to the decimal place — we can’t do that!”

                He explained, “a realistic and forward-looking definition of our goal allows monetary policy to wait if there are good reasons, in order not to react hectically to every change in incoming data. It allows the incorporation of the longer-term risks to price stability.”

                Currently, ECB’s price stability means inflation is “below but close to 2%.” Weidmann is against the argument that raising the inflation target would give policymakers more room. He said “the gain in the capacity to act could be smaller than hoped. A strong increase in the goal could raise risks that inflation expectations become deanchored,” he said, adding that “higher inflation comes with costs for people.”

                Fed Bostic: Coronavirus hasn’t change outlook or rate path yet

                  Atlanta Fed President Raphael Bostic warned that if China’s coronavirus becomes a “world issue, with ripples through many countries and many economies, then that’s different type of event than as I understand it to be today”. But for now, given our past recent experience with these sorts of things, I don’t think it should; it hasn’t changed my outlook or my expectation about our rates path.”

                  On monetary policy, Bostic said Fed’s three rate cuts last year are “working their way through the economy”. Policymakers “just have to wait and see”. There was “a lot of stimulus” for where the economy was. That should “make it more resilient to these sorts of things.”

                  China’s coronavirus cases top 20k, death toll reaches 425

                    From China’s National Health Commission, as of February 3, number of confirmed coronavirus cases rose to 20438 in China, up 3235 from a day ago. Death toll rose 64 to 425. Serious cases rose 492 to 2788. Suspected cases rose 5072 to 23214. Number of people tracked rose 31432 to 221015.

                    An op-ed published today in state-backed Securities Times tried to tone down the impact of the coronavirus to the markets. It said, “such events are usually only a short-term interruption … and do not have a lasting economic impact.” Another article, in the China Securities Journal said “the impact of the current epidemic … is necessarily short-term. After release of pessimism, the stock market is expected to gradually stabilise.”

                    US ISM manufacturing rose to 50.9, corresponds to 2.4% annualized GDP growth

                      US ISM Manufacturing index rose to 50.9 in January, up from 47.2, beat expectation of 48.5. That’s the first expansionary reading after five straight months of contraction. Looking at some details, new orders jumped 4.4 to 52.0. Production rose 9.5 to 54.3. Employment rose 1.4 to 46.6, but stayed in contraction. Prices rose 1.6 to 53.3.

                      ISM note din the release: “Global trade remains a cross-industry issue, but many respondents were positive for the first time in several months…. The past relationship between the PMI® and the overall economy indicates that the PMI® for January (50.9 percent) corresponds to a 2.4-percent increase in real gross domestic product (GDP) on an annualized basis.”

                      Full release here.

                      EU and UK express tough stance on trade negotiations

                        Both Euro and Sterling are under pressure today as EU and UK lay down the tone for negotiations with tough words. UK Prime Minister Boris Johnson said in London that the “beneficial magic” of free trade is “fading”. “Free trade is being choked, and that is no fault of the people, that is no fault of individual consumers.” It’s “he politicians who are failing to lead, the mercantilists are everywhere, the protectionists are gaining ground.” He added, “from Brussels to China to Washington, tariffs are being waved around.”

                        On trade negotiations with EU, Johnson said UK should not be obliged to accept EU rules in key areas. Meanwhile, UK is not going to insist that the EU follows all its rules. He added that UK does not intend to lower its own standards after Brexit. In major other ares, UK is ahead of EU in standards. And, if EU has worries about state aid, it should focus on France and Germany instead.

                        Separately, EU chief Brexit negotiator Michel Barnier said the EU will be “very demanding” for a level playing field with the UK during the negotiations. It’s the key to open the EU markets for zero tariffs and zero quotas. EU issued draft guidelines for negotiations covering economic partnership, the security partnership, and the institutional governance framework. Negotiations can begin immediately once the mandate is approved by the European Council at a special summit on February 20.

                        ECB de Guindos: Signs of global stabilization, but lots of uncertainties from coronavirus

                          ECB Vice President Luis de Guindos expected inflation to hover at current low levels over the six months. He also “started to see some signs of stabilization on a global level”. Risks are also less tilted to the downside. However, he still sees “a lot of uncertainties” surrounding China’s coronavirus outbreak.

                          He also urged that “completing the banking union is pivotal” for the performance of the Eurozone. Fiscal must play a role as side effects of monetary policy are becoming more tangible.

                          UK PMI manufacturing finalized at 50.0, but full revival in capital spending some way off

                            UK PMI Manufacturing was finalized at 50.0 in January, up from December’s 47.5. New orders, employment and business confidence rose. But new export orders declined for the third consecutive month.

                            Rob Dobson, Director at IHS Markit, which compiles the survey:

                            “The start of 2020 saw the performance of the UK manufacturing sector stabilise, as receding levels of political uncertainty following the general election aided mild recoveries in new order intakes, employment and business confidence.

                            “A strengthened domestic market was the main source of new business. Overseas demand remained disappointing, however, as new export business fell for the third straight month in response to weak economic growth in key markets, notably European.

                            “Improvements were mostly seen via rising consumer demand and renewed input buying by businesses, suggesting that the reduction in uncertainty following the election has encouraged households and businesses to step up spending. In contrast, an ongoing downturn at investment goods producers suggests that the economic certainty required to achieve a full revival in capital spending may still be some way off, likely reflecting lingering uncertainty about the Brexit road-map in the coming year.”

                            Full release here.

                            Eurozone PMI manufacturing finalized at 47.9, green shoots of recovery in sight

                              Eurozone PMI Manufacturing was finalized at 47.9, up from December’s final reading of 46.3. Markit noted there were slower falls in output, new orders and purchasing recorded. Nevertheless, business confidence improved to the highest level in 16 months.

                              Looking at some member states, Germany, Spain, Italy, Austria and the Netherlands stayed in contraction. But improvements were noted across all. Germany’s reading was at 11-month high of 45.3, Italy at 8-month high at 48.9, France at 2-month high of 51.1.

                              Commenting on the final Manufacturing PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

                              “Eurozone manufacturing started 2020 with green shoots of recovery in sight. Most encouragingly, order books moved closer towards stabilisation, falling to the smallest extent since late 2018. With the survey indicating the steepest fall in warehouse stocks since September 2016, the new orders-to-inventory ratio, a key forward-looking indicator for factory production, surged to its highest for nearly one-and-a-half years.

                              “Expectations for output growth also leaped to the highest since August 2018 amid a broad-based improvement of sentiment across the region, with an especially important upturn in confidence seen in Germany.

                              “The improvement adds to our view that the eurozone economy could see growth strengthen in the coming months, meaning the ECB will hold off with any policy changes and instead focus on its strategic review. However, key risks which could alter the brightening outlook include the threat of US tariffs and trade war escalation, Brexit-related disruptions to trade as well as uncertainty surrounding the impact of the Wuhan coronavirus.”

                              Full release here.

                              China Caixin PMI manufacturing dropped to 51.1, economy needs proper countercyclical policies

                                China Caixin PMI Manufacturing dropped to 51.1 in January, down form 51.5, missed expectation of 51.3. Production and new work both expanded at softer rates. Employment fell for the first time in three months. Though, business confidence improved as trade tensions eased.

                                Commenting on the China General Manufacturing PMI data, Dr. Zhengsheng Zhong, Chairman and Chief Economist at CEBM Group said:

                                “The Caixin China General Manufacturing PMI stood at 51.1 in January, down from 51.5 in the previous month. The manufacturing sector expanded at the slowest pace since August, despite growing for six consecutive months, indicating a mild economic recovery.

                                1) Manufacturing demand continued to grow at a slower rate, while overseas demand was subdued. The subindex for total new orders continued to weaken and dropped to a level not seen since last September. The gauge for new export orders fell into contractionary territory, ending three straight months of expansion.

                                2) Production growth slowed, with the output subindex posting its lowest reading since last August. The employment subindex returned to negative territory.

                                3) As slowing demand growth impacted production, suppliers’ delivery times lengthened, both stocks of purchased items and finished goods declined, and the gauge for backlogs of work dipped to a level just marginally above the dividing line between expansion and contraction, while staying in positive territory for nearly four years. These phenomena suggested that not every manufacturer replenished inventories despite an earlier recovery in production.

                                4) That said, business confidence continued to improve, with the gauge for future output expectations on the rise and tending to recover after two years of depression, due chiefly to the phase one trade deal between China and the U.S.

                                5) Industrial product prices continued to rise. As input costs grew at a faster pace than output prices, we need to pay attention to pressure on costs of raw materials.

                                “China’s manufacturing economy recovered at a slower pace at the start of the year. Although corporate confidence was boosted by the trade deal, some manufacturers did not replenish stocks despite the pickup in production, due to limited improvement in domestic and foreign demand. Pressure from rising raw material costs is worth attention. In the near term, China’s economy will also be impacted by the new pneumonia epidemic, and therefore need to gain support from proper countercyclical policies.”

                                Full release here.

                                Japan PMI manufacturing finalized at 48.8, still portraying a struggling industry

                                  Japan PMI Manufacturing was finalized at 48.8 in January, a slight increase from December’s 48.4. But contracted has continued since last May. Output and new orders recorded further declines. Export demand dipped, but downturn shows signs of easing. On the positive side, business confidence hits highest level since August 2018.

                                  Commenting on the latest survey results, Joe Hayes, Economist at IHS Markit, said:

                                  “Manufacturing PMI data for Japan are still portraying a struggling industry, causing firms to cut back production for another month due to subdued demand and global uncertainties.

                                  “Scratching beneath the surface and we find that the capital goods sector was a particular straggler, with data here showing sharp and accelerated reductions in production and new orders. Falling demand for capital goods does not bode well for the global economic outlook, nor for Japanese exports.

                                  “That said, business optimism showed real signs of promise for 2020, with new product launches and expectations of greater global demand helping to lift sentiment to a near one-and-a-half year high. Manufacturers of intermediate goods, which include electronic components, reported a particularly sharp rise in optimism, serving as an early signal of the positive impact receding global trade frictions will have on the industrial economy.”

                                  Full release here.

                                  Australia AiG manufacturing dropped to 45.4, lowest since 2015

                                    Australia AiG Performance of Manufacturing Index dropped to 45.4 in January, down from 48.3. That’s the lowest reading since 2015 and suggested faster contraction in the sector. AiG said, “January is traditionally the slowest month for Australian manufacturing, but the start to 2020 was even slower than usual. All manufacturing sectors reported weaker conditions in January compared to December and only the food & beverage sector reported expanding conditions.”

                                    Also from Australia, building permits dropped -0.2% mom in December, better than expectation of -3.0% mom. TD securities inflation gauge rose 0.3% mom in January.

                                    China coronavirus cases surge to 17205, PBoC cuts interest rates

                                      According to China’s National Health Commission, as of end of February 2, total number of confirmed coronavirus case rose to 17205, with 2296 serious cases. Death tolls rose to 361. Suspected cases rose to 21558. Number of tracked people rose to 189583.

                                      Globally, at least 171 cases were reported in Australia, Britain, France, Germany, Hong Kong, Japan, Russia, Spain, Thailand, Taiwan the United States and 13 other countries. Person-toperson transmission was reported in the US, Germany, Japan, Thailand, Vietnam and South Korea. The Philippines reported the first death outside of China on Sunday.

                                      PBoC unexpectedly lowered interest rates today in response to the crisis in the country. Seven-day reverse repo rate was cut from 2.50% to 2.40%. 14 day tenor was cut from 2.65% to 2.55%. The central bank also injected CNY 1.2T case into the money markets through reverse bond repurchase agreements.

                                      China Shanghai SSE is back from prolonged holiday and is trading down -7.5% at the time of writing. Yuan’s selloff resume today, albeit lower momentum. Further rise is expected in USD/CNH as long as 6.9526 support holds. Sustained trading above the near term channel resistance will confirm completion of the corrective fall from 1.1953 at 6.8452. Further rise should then be seen to 7.0867 resistance next.

                                      China’s coronavirus cases hit 11791, US and Australia deny entry of foreigners entering from China

                                        According to China’s National Health Commission, as of end of January 31, there were a total of 11791 confirmed cases of corona virus in the country. There were 2102 new confirmed cases, comparing with 1982 new confirmed cases a day ago. Death tolls rose 46 to 259, comparing with 43 new deaths on Jan 30. Serious cases rose from 1527 to 1795. Suspected cases rose from 15238 to 17988. Number of people tracked increased from 113579 to 136987.

                                        The World Health Organization insisted that trade and travel restriction on Chins is not needed. Gauden Galea, WHO representative for China argued that “we would want countries to focus on the mitigation efforts of identifying the possible importation of cases and responding to any domestic outbreak.” Director-General Tedros Adhanom Ghebreyesus said earlier in the week that the organization “doesn’t recommend – and actually opposes” restrictions on travel or trade with China. Tens of thousands of people have signed a petition calling for Ghebreyesus’s resignation, for failing to be politically neutral.

                                        US announced yesterday to foreign nationals who have recently visited China, to enter its own territory. Americans who have traveled to China’s Hubei province in the past week weeks are now subject to a mandatory quarantine of 14 days. On Thursday, US State Department warned its citizens not to travel to China.

                                        Separately, Australia announced today to deny entry of all foreign nationals traveling from mainland China. Prime Minister Scott Morrison said “we’re in fact operating with an abundance of caution in these circumstances, so Australians can go about their daily lives with confidence.”

                                        US PCE rose to 1.6%, core PCE rose to 1.6%

                                          US personal income rose 0.2% in December, below expectation of 0.3%. Personal spending rose 0.3%, matched expectations. Headline PCE accelerated to 1.6% yoy, up from 1.4% yoy, missed expectation of 1.7% yoy. Core PCE rose to 1.6% yoy, matched expectations.

                                          Full release here.