Canadian Prime Minister Justin Trudeau said that the exemptions on Trump’s steel and aluminum tariffs were not a “magical favor being done”. He pointed out that “millions of jobs on both sides of the border depend on continued smooth flow of trades.” And the tariffs would hurt both sides. He also expressed the willingness to work with the on NAFTA. But, he also emphasized that “we don’t link together the tariffs and the negotiations for NAFTA.”
IMF Lagarde: China’s Belt and Road should only go where it’s needed and sustainable
IMF Managing Director Christine Lagarde called for greater balance in the next phase of China’s Belt and Road Initiative. She borrowed from a Chinese proverb “It is easy to start a venture — the more difficult challenge is what comes next.”
Lagarde warned that “history has taught us that, if not managed carefully, infrastructure investments can lead to a problematic increase in debt”. And, “to be fully successful, the Belt and Road should only go where it is needed. I would add today that it should only go where it is sustainable, in all aspects.”
Also she emphasized, BRI 2.0 can also benefit from “increased transparency, open procurement with competitive bidding, and better risk assessment in project selection.”
UK payrolled employees dropped -136k in Apr, unemployment rate rose to 3.9% in Mar
UK payrolled employees dropped -0.5% mom, or -136k in April, comparing with March. That is the first decline in total payrolled employees since the COVID pandemic. Comparing with April 2022, payrolled employees rose 1.0% yoy or 297k. Claimant counts rose 46.7k, above expectation of 31.2k. Median monthly pay rose 7.4% yoy.
In the three months to March, unemployment rate rose 0.1% to 3.9%, comparing to the previous quarter. Employment rate rose 0.2% to 75.9%. Average earnings including bonus rose 5.8% 3moy. Average earnings excluding bonus rose 6.7% 3moy.
Australia PMI composite dropped to 51.2, still early to call an end to RBA tightening
Australia’s PMI Manufacturing index stayed put at 48.0 in May, marking the joint-lowest reading since May 2020. On the other hand, PMI Services fell from 53.7 to 51.8, causing Composite PMI to decrease from 53.0 to 51.2.
Warren Hogan, Chief Economic Advisor at Judo Bank, said, “The May Flash result shows a small retracement from the strong April outcome reinforcing the view that overall economic activity in Australia is holding up well as we enter the winter months.”
Despite the manufacturing sector’s continuous slowdown, Hogan emphasized that this does not signal a recession. In contrast to manufacturing, the services sector has shown recent strength, and was “far from the risk of recession:.
However, he warned of the implications of better economic conditions in terms of inflation. “The RBA is trying to engineer a soft landing to rid the economy of inflation. But if they don’t lean hard enough on monetary policy, we could see a more stubborn inflation emerge which will ultimately require a bigger lift in interest rates,” Hogan cautioned.
Highlighting the strong correlation between the pick-up in the services PMI, housing market, rising population growth, and job advertising, he concluded, “Last week’s labour market data on employment and wages have bought the RBA some time, but the Flash PMIs highlight that it is still too early to call an end to the monetary policy tightening cycle.”
US PMI manufacturing dropped to 18-month low, downside risks prevail for coming months
US PMI manufacturing dropped to 53.0 in February, lowest level in 18 months. Markit noted that “operating conditions improve at slowest pace since August 2017 “, “rates of output and new order growth soften”, and “inflationary pressures ease”.
Chris Williamson, Chief Business Economist at IHS Markit said:
“The PMI indicates the US manufacturing sector is growing at its weakest rate for one and a half years, with firms reporting a marked easing in production growth in February, linked to a similar slowdown in order book growth.
“The survey exhibits a strong advance correlation with comparable official data, and suggests that factory production and orders growth rates are close to stalling mid-way through the first quarter, albeit in part representing some pay-back after a strong January. Export markets remained the principal drag on order books.
“Having seen demand grow faster than production through much of 2018, order book and output trends have come back into line in recent months, hinting at an alleviation of capacity constraints as demand cools. Backlogs of works barely rose as a result, and price pressures have likewise moderated, though tariffs were again reported to have pushed costs higher. Hiring has consequently also slowed.
“Worries regarding the impact of tariffs and trade wars, alongside wider political uncertainty, undermined business confidence, with expectations of future growth running at one of the most subdued levels seen for over two years and suggesting downside risks prevail for coming months.”
Gold in pull back after hitting 55 D EMA, another rise still in favor
Gold was in deep pull back overnight after failing to sustain above 55 day EMA. At this point, with 1821.96 minor support intact, further rise is still expected. Break of 1875.27 temporary top should reaffirm the case that corrective fall from 2075.18 has completed at 1764.31. Further rally should then be seen back to 1965.50 resistance next.
However, firm break of 1821.96 will indicate rejection by 55 day EMA (now at 1868.84). Such development will revive near term bearishness. Another decline attempt should then be seen for a test on 1764.31 low at least. In this case, we’d likely see the Dollar Index rebound further away from 90 handle.
RBNZ Orr: We don’t feel a rush to be changing rates anytime soon
In a Bloomberg TV interview, RBNZ Governor Adrian Orr indicated that a forthcoming mild recession is the “bare minium” for New Zealand, as “demand has been well outstripping the pace of the supply capacity.”
“We need to see subdued consumer spending, business investment and government constraints on spending, these are a critical part of the inflation process,” he added.
Orr also reiterated that interest rate will need to stay high for a period of time, as “we don’t feel a rush to be changing rates anytime soon.”
“We believe if we stay where we are for long enough, inflation will be back inside the target band mid-next year and, and stay there,” he added.
RBNZ projects OCR to peak at 5.59% in mid-2024, then retract slightly to 5.36% by early 2025. This suggests rate cuts might be off the table for about 18 months. Orr clarified that these figures are projections and “signal or constraint.”
Fed Logan: Skipping in Sep does not imply stopping
Dallas Fed President Lorie Logan remains unconvinced that the central bank has fully “extinguished excess inflation”, and “there is work left to do.”
With the upcoming FOMC meeting slated for September 19-20, Logan noted “another skip could be appropriate.” However, she was quick to add that “skipping does not imply stopping,” suggesting that further policy actions might still be on the table.
Logan expressed a consciousness of the dual risks presented at this junction: the peril of sustained high inflation and the danger of dampening the economy too much.
With this in mind, she emphasized, “In coming months, further evaluation of the data and outlook could confirm that we need to do more to extinguish inflation.”
BoE Governor Carney extends his term till Jan 2020
The UK Treasury announced today that BoE Governor Mark Carney will extend his term until January 2020. Carney has originally planned to step down in June 2019. Chancellor of Exchequer Philip Hammond said in the release that I’m delighted that the Governor has agreed to stay in his role for a further seven months to support a smooth exit from the European Union and provide vital stability for our economy.
In the same release, Jon Cunliffe was re-appointed as Deputy Governor till October 2023.
Carney said in a letter to Hammond saying “I recognize that during this critical period, it is important that everyone does everything they can to support a smooth and successful Brexit.” And, “accordingly, I am willing to do whatever I can in order to promote both a successful Brexit and an effective transition at the Bank of England and I can confirm that I would be honored to extend my term to January 2020.”
UK retail sales dropped -1.4% mom in May, missed expectations
UK retail sales dropped -1.4% mom in volume term in May, below expectation of 1.5% mom rise. Sales on volume was still 9.1% higher than in February 2020 before the pandemic. Excluding automotive fuel, sales was down -2.1% mom, below expectation of 4.2% mom rise. Sales excluding automotive fuel was 10.6% above pre-pandemic level.
US PPI at -0.5% mom, 2.7% yoy in Mar
US PPI for final demand dropped -0.5% mom in March, well below expectation of 0.1% mom. Two-thirds of the decline in the PPI for final demand can be attributed to a -1.0% mom decrease in prices for final demand goods. The PPI for final demand services also moved down -0.3% mom. Prices for final demand less foods, energy, and trade services edged up 0.1% mom.
For the 12 months period, PPI dropped from 4.6% yoy to 2.7% yoy, below expectation of 2.7% yoy. PPI less foods, energy, and trade services was up 3.6% yoy.
UK Hammond: We will have the numbers
Former UK Chancellor of Exchequer Philip Hammond said there should be enough rebel Conservative and opposition MPs to block no-deal Brexit in the vote today. The told BBC Radio that “I think we will have the numbers. I think there will be enough people to get this over the line.” “Many colleagues have been incensed by some of the actions over the last week or so,” he said. “I think there’s a group of Conservatives who feel very strongly that now is a time where we have to put the national interest ahead of any threats to us personally or to our careers.”
Labour’s top legal policy chief Shami Chakrabarti also said “we’ve got to get a locked-in guarantee that Britain would not crash out of the EU in an election campaign period.” “We’ve also got to try as best as possible to ensure that it wouldn’t be possible for the sitting squatting prime minister in this period to set a general election and then change the date. The priority this morning is preventing this no-deal crash out.”
BoE Carney: Brexit is the first test of a new global order
BoE Governor Mark Carney noted in a speech today that global growth momentum is now “weakening in all major regions” and “downside risks have intensifed”. Also, the proportion of the global economy growing above trend has fallen from four-fifths to one-third.
Tighter financial conditions could be part of the reaons for the deceleration. But he warned, “potentially more seriously, the slowing in global momentum may also be the product of rising trade tensions and growing policy uncertainty.” And, “risks from China and from de-globalisation are significant and growing.” Carney also emphasized “contrary to what you might have heard, it isn’t easy to win a trade war.”
He added that Brexit is the “first test of a new global order”. It could be the “acid test” of “whether a way can be found to broaden the benefits of openness while enhancing democratic accountability.” And, Brexit can also lead to “new form of international cooperation and cross-border commerce built on a better balance of local and supranational authorities.”
Fed Daly: Need to keep committed until actually seeing inflation down in data
San Francisco Fed President Mary Daly said Fed is “nowhere near almost done”, with inflation. “We have made a good start and I feel really pleased with where we’ve gotten to at this point.”
“It really would be premature to unwind all of that and say the job is done,” she said. “I also think that we’ve been with this high inflation for a while, and really getting too confident that we’ve already solved the problem,” Daly said, adding that the Fed needs to “keep committed until we actually see it in the data.”
Chinese ambassador to EU: Without a Brexit deal, there’s nothing to talk about with UK
Chinese ambassador to EU Zhang Ming told UK that a Brexit deal with EU is a prerequisite to trade talk with China. He said “if the EU and the U.K. fail to reach agreement in the first place, the U.K.’s agreements with other parties may have to face great uncertainties.” He added that “only with an EU-U.K. deal can the U.K. be in a better position to have more detailed discussions with other players of the international community.”
Zhang noted that is a “solid basis” in place for trade engagement and “not everything will start from zero after Brexit.” And, “if Brexit goes well, I believe there will not be a big impact on U.K.’s cooperation with other members of the international community.”
New Zealand ANZ business confidence rose to -28.5, AUD/NZD staying in down channel
New Zealand ANZ Business Confidence rose to -28.5 in September, up from August’s -41.8, but revised down from preliminary reading of -26.0. All sectors stayed negative with Agriculture at -72.2 and services at -31.7. Own Activity Outlook improved to -5.4, up from August’s -17.5, revised up from preliminary reading of -9.9. Agriculture activity was positive at 13.6 and contraction at 10.8. Services activity was worse at -12.1.
ANZ said business “appear relatively optimism”. But “as a reality check, though, the levels of most activity indicators remain very subdued relative to pre-COVID days, and are still at levels regrettably reminiscent of 2009.”
Also released from down under, New Zealand building permits rose 0.3% mom in August, versus expectation of -1.4% mom. Australia building permits dropped -1.6% mom, versus expectation of 0.1% mom in August. Australia private sector credit rose 0.0% mom in August, versus expectation of 0.2% mom.
AUD/NZD is still channelling well downwards. Fall from is seen as a corrective move for now, as also suggested by the structure. Deeper decline is expected as long as 1.0850 resistance holds, to 38.2% retracement of 0.9994 to 1.1043 at 1.0642. We’d expect strong support from there to contain downside to complete the pull back.
Fed Mester: Not at a point to dial back policy tools on financial stability risks
Cleveland Fed President Loretta Mester said, “I would like to see financial stability considerations explicitly incorporated into the monetary policy framework, with an acknowledgment that nonconventional monetary policy has the potential to increase the risks to financial stability.”
“Monetary policymakers need to be clear-eyed that the actions they take to achieve monetary policy goals, while most often complementary to fostering financial stability, can at times contribute to financial stability risks that could jeopardize the achievement of monetary policy goals over time,” she warned.
Nevertheless, she added, “I don’t think we’re at that level where we’re facing that tradeoff between, you know, macro policy tools needing to be dialed back because of financial stability risks.”
New Zealand filled jobs rose for second month in June
In New Zealand, filled jobs in all industries rose 0.8% mom, or 17.9k, in June. Filled jobs rose 1.4% or 1.5k in primary industries, 0.5% mom or 2.1k in goods-producing industries, and 0.8% mom or 13.8k in services industries.
“We have seen rises in the last two months following the sharp drop of over 35,000 jobs that occurred in April, when the full COVID-19 lockdown was in place,” economic statistics manager Sue Chapman said. “While job numbers have recovered somewhat in May and June, they are still below pre-COVID levels. Filled job numbers in March and June are usually quite similar, but for this year June is nearly 20,000 jobs lower than March.”
Australia AiG manufacturing rose to 53.5, but headwinds lie ahead
Australia AiG Performance of Manufacturing Index rose 2.0 pts to 53.5 in July, indicating a “more convincing expansion”. Manufacturing has now “landed in positive territory” for two straight months for the first time since October 2019. Six of the seven activity indices but exports deteriorated by -5.8 to 41.4, staying gin contraction. Also, four of six sectors stayed in contraction in trend terms, except food & beverages and machinery & equipment.
AiG Group Chief Executive Innes Willox said: “Against the positive signs from the manufacturing sector, the winding down of stimulus from September, the impact of the Melbourne lockdown and the severity of the outbreak, as well as tougher border restrictions are likely to weigh on the sector in coming months”.
Australian employment grew 28.4k driven by part-time jobs, unemployment rate rose to 5.2%
In April, Australia employment rose 28.4k, more than expectation of 15.2k. However, the growth was mainly driven by 34.7k growth in part-time jobs. Full-time employment contracted -6.3k. Unemployment rate rose to 5.2%, up from 5.1% and above expectation of 5.0%. That’s also an eight-month high. But participation rate also rose 0.2% to record high of 65.8%.
Looking at some details, in seasonally adjusted terms, the largest increase in employment was in New South Wales (up 25.1k), followed by Western Australia (up 6.4k) and Queensland (up 5.4k). The only decrease was in Victoria (down 7.6k).
The seasonally adjusted unemployment rate increased in New South Wales (up 0.2 pts to 4.5%), Victoria (up 0.2 pts to 4.9%), South Australia (up 0.2 pts to 6.1%), Western Australia (up 0.1 pts to 6.1%) and Tasmania (up 0.1 pts to 6.8%). The only decrease was observed in Queensland (down 0.2 pts to 5.9%).
Full release here.
AUD/USD dipped notably after the release but quickly recovered. While the set of job data isn’t stellar, it’s actually not too bad.