Australia GDP grew 0.5% in Q2, strengthen the case for RBA rate cut

    Australia GDP grew 0.5% qoq in Q2, matched expectations. Annual growth slowed to 1.4%, way slower than 3.1% a year ago and was the worst since 2009. ABS Chief Economist for Bruce Hockman, noted “the external sector drove GDP growth this quarter, while growth in the domestic economy remains steady”. Net exports added 0.6% to Q2’s growth, reflecting strong exports of mining commodities. He added, “strength in mining related activity was seen across a number of measures in the economy”.

    Full release here.

    According to Westpac, today’s data strengthened the case for further RBA rate cut in the very near term. To achieve RBA’s growth forecasts of 2.5% for 2019, the economy needs to register 1.6% growth in the second half. That’s seen as out of reach while recent retail and housing data were also disappointing. Westpac expects another RBA cut in October.

    UK lawmakers overcome first hurdle to stop no-deal Brexit

      In a motion put forward by oppositions and Conservative rebels to take control of parliamentary schedules, the UK government was defeated by 328 to 301 votes. On Wednesday, those lawmakers will proceed to pass a law to force Prime Minister Boris Johnson to seek another Brexit delay, from October 31 to January 31, to stop no-deal Brexit.

      After the vote, Johnson warned, “I don’t want an election, but if MPs vote tomorrow to stop negotiations and compel another pointless delay to Brexit, potentially for years, then that would be the only way to resolve this.” He reiterated ” if I am Prime Minister, I will go to Brussels, I will go for a deal and get a deal but if they won’t do a deal we will leave anyway on 31 October.”

      It’s reported that all 21 Conservative rebels could face expulsion from the party as a result of the vote. The group include Nicholas Soames, the grandson of Britain’s World War Two leader Winston Churchill, and two former finance ministers – Philip Hammond and Kenneth Clarke.

      Separately, Irish Finance Minister Paschal Donohoe insisted that “a very significant political rationale” is needed for any further Brexit delay. He told national broadcaster RTE, “the European Council and the European Commission have said that were another extension to be looked for, there would have to be a very significant political rationale for it and it is yet to be seen what that rationale would be.”

      Fed Bullard urges 50bps rate cut to realign with markets

        St. Louis Fed President James Bullard said Fed’s interest rates are “too high” and a -50bps cut this month is needed to realign with financial markets. Bond yields dropped to record lows on expectation of Fed cut and intensifying risk of global trade war. Bullard said “in this situation I would respect the market signal,”

        He added, “we should have a robust debate about moving 50 basis points at this meeting…It’d be better in my mind to go ahead and get realigned right now”.

        Fed Rosengren: Don’t use up valuable space, no immediate policy action required

          Boston Fed President Eric Rosengren said in a speech that the US economy remained “relatively strong”. And he saw not pressing need to cut interest rate s at the upcoming meeting. He said, “If the consumer continues to spend, and global conditions do not deteriorate further, the economy is likely to continue to grow around 2%”.

          Also, “with continued gradual increases in wages and prices, then in my view, no immediate policy action would be required.” “I don’t want to use up that valuable space at a time where we actually think prices are pretty stable and the labor markets are pretty tight,” he added.

          Nevertheless, Rosengren also admitted that risks are on the rise. “Clearly, there is a downside risk that trade or geopolitical problems could escalate, resulting in a much weaker situation than is currently anticipated in economic forecasts” However, “to date, these elevated risks have not become reality.” “This is a particularly good time to carefully watch incoming data to determine whether any additional policy adjustments are necessary to achieve” the dual mandate.

          Rosengren’s full speech here.

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          US ISM manufacturing dropped to 49.1, ended 34-month expansion

            US ISM Manufacturing dropped to 49.1 in August, down from 51.2, below expectation of 51.3. The contractionary reading indicated the end of expansion that spanned 34 months. Looking at the details, new orders dropped to 47.2, down from 50.8. Production dropped to 49.5, down from 50.8. Employment also dropped to 47.4, down from 51.7.

            ISM also noted: “Respondents expressed slightly more concern about U.S.-China trade turbulence, but trade remains the most significant issue, indicated by the strong contraction in new export orders. Respondents continued to note supply chain adjustments as a result of moving manufacturing from China. Overall, sentiment this month declined and reached its lowest level in 2019.”

            Full release here.

            Trump to China: 16 months PLUS is a long time to be hemorrhaging jobs and companies

              In his tweets, US President Donald Trump suggested that China love to deal with new administration after next year’s election. However, he warned that “16 months PLUS is a long time to be hemorrhaging jobs and companies on a long-shot….”

              Trump further warned that if he wins, “Deal would get MUCH TOUGHER! In the meantime, China’s Supply Chain will crumble and businesses, jobs and money will be gone!”

              At the same time, he also repeated that “EU & all treat us VERY unfairly on Trade also.” And, Germany, and so many other countries, have negative interest rates, “they get paid for loaning money,” and our Federal Reserve fails to act! Remember, these are also our weak currency competitors!

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              Canada PMI Manufacturign dropped to 49.1, slide in growth projections across the sector

                Canada RBC Manufacturing PMI dropped to 49.1 in August, down from 50.2. Markit noted that production fell amid a sustained drop in new work to lowest since December 2015. Also, business optimism eased to a three-and-a-half year low.

                Commenting on the PMI data, Tim Moore, Economics Associate Director at IHS Markit said:

                “Canadian manufacturers reported a setback for business conditions in August, following the slight improvement seen during the previous month. New orders declined at the fastest pace for more than three-and-a-half years amid lower export sales, weakness in the automotive sector and reports citing softer demand from energy sector clients.

                “August data also signalled a slide in growth projections across the manufacturing sector, with business optimism falling to its lowest level since early-2016. Concerns about the US-China trade war and rising global economic uncertainty were often cited by survey respondents.”

                Full release here.

                UK Johnson: Election have to conclude before Oct EU summit

                  UK Prime Minister Boris Johnson’s spokesman said he would hold election before EU summit on October 17, if decided to do so. And he denied that Johnson would push election beyond October 31 Brexit date.

                  The spokesman said, “the idea that polling day could be moved after the event and parliament has been dissolved is simply wrong, it’s not possible.” “We were clear that the election would have to be concluded before the European Council.”

                  Separately, European Commission spokeswoman Mina Andreeva said “Our working assumption is that there will be Brexit on Oct. 31”. And, “the best outcome would be a Brexit on the basis of the negotiated withdrawal agreement.” However, no-deal Brexit is a “very distinct possibility”.

                  Italy 5-Star/PD coalition calls for flexibility on excessive rigidity of EU budgets rules

                    Italy’s Five-Star Movement and Democratic Party have agreed to form new coalition. A 26-point program was published underpinning the government. And, supporters of Five-Star are now holding an online ballot for the proposed coalition.

                    Five-Star said that “this is a very delicate moment for the country. It must be tackled by focusing on the interests and needs of citizens, of the community that we all form together.”

                    One of the commitments of the program is to use the upcoming budget to boost the stalled without endangering public finance. Though, the coalition called for greater flexibility from EU regarding the “excessive rigidity” of existing budget rules.

                    Eurozone PPI rose 0.2% mom, 0.2% yoy in July

                      Eurozone PPI rose 0.2% mom, 0.2% yoy in July, matched expectations. Looking at industrial grouping, PPI rose 1.0% mom in the energy sector and by 0.1% mom for capital goods, while prices remained stable for durable consumer goods and non-durable consumer goods, and fell by -0.3% mom for intermediate goods. Prices in total industry excluding energy fell by -0.1% mom.

                      For EU28, PPI rose 0.3% mom, 0.6% yoy. The highest increases were recorded in Cyprus (+1.7%), Bulgaria (+1.5%) and Finland (+1.4%), while the largest decreases were observed in Belgium (-1.0%), the Netherlands (-0.4%) and Latvia (-0.3%).

                      Full release here.

                      UK Farage: Johnson is just reheating May’s Brexit agreement

                        Brexit Party Nigel Farage criticized that UK Prime Minister Boris Johnson is not opting for no-deal Brexit, but just reheating the old Withdrawal Agreement.

                        He said, “of course if Boris Johnson says we’re leaving, we’re going to have a clean break… then we, the Brexit Party, would put country before party and tell Mr Johnson that we want to help you in any way we can.”

                        “But I’m afraid that’s not what the prime minister wants to do and that was made very clear by his statement outside Downing Street last night. He is intent on reheating Mrs May’s Withdrawal Agreement.”

                        UK PMI construction dropped to 45.0, sector braced for a protracted slowdown

                          UK PMI Construction PMI dropped to 45.0 in August, down from 45.3 and missed expectation of 46.7. It’s the fourth consecutive month of sub-50 contractionary reading. Additionally, new orders fell as fastest pace for over 10 years since March 2009. Construction output dropped for the fourth month in a row. And business optimism sank to its lowest level since December 2008.

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

                          “Domestic political uncertainty continued to hold back the UK construction sector in August, with survey respondents indicating that delays to spending decisions had contributed to the sharpest fall new work for over 10 years.

                          “Construction companies noted that rising risk aversion and tighter budget setting by clients in response to Brexit uncertainty had held back activity, particularly in the commercial sub-sector. Commercial construction activity fell at a steep and accelerated pace during August, which more than offset the softer rates of decline in house building and civil engineering work.

                          “Concerns about softening demand for new projects resulted in a fall in business optimism across the construction sector to its weakest since December 2008. This provides an early signal that UK construction companies are braced for a protracted slowdown as a lack of new work to replace completed contracts begins to bite over the next 12 months.”

                          Full release here.

                          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.”

                            UK lawmakers to block no-deal Brexit, Johnson might call elections

                              A group of UK lawmakers are expected to put forward a vote on Tuesday to seize control of the parliamentary business. The target was to pass legislation to force a three month delay to October 31 Brexit date. If such case is pushed through, Prime Minister Boris Johnson is expected seek a vote to hold a general election the next day, on October 14.

                              Without giving any details on his plan, Johnson said outside his office that “I want everybody to know there are no circumstances in which I will ask Brussels to delay: we are leaving on 31st October, no ifs or buts.” And, “we will not accept any attempt to go back on our promises,” he added. “I don’t want an election. You don’t want an election. Let’s get on with the people’s agenda.”

                              Separately, Brexit Minister Stephen Barclay said in an interview yesterday that EU should be open to “creative and flexible” solutions to the Irish border backstop. He also reiterated that “we will leave the EU on October 31, whether with or without a deal.”

                              RBA stands pat, Aussie pares losses as there is no further dovish turn

                                RBA left cash rate unchanged at 1.00% as widely expected. Australian Dollar pares back some of earlier loss as the central bank doesn’t turn more dovish in the accompanying statement, even though easing bias is maintained. Instead, RBA just noted that “it is reasonable to expect that an extended period of low interest rates will be required”. And the board will continue to “monitor developments, including in the labour market, and ease monetary policy further if needed”.

                                RBA expected growth to “strengthen gradually to be around trend over the next couple of years”. Main domestic uncertainty continues to be consumption outlook. However, wages growth remains “subdued” with “little upward pressure”. And the Australian economy can “sustain lower rates of unemployment and underemployment”. Inflation pressures also remain “subdued”. On the positive side, there are “further signs of a turnaround” in housing markets, especially in Sydney and Melbourne. Such stabilization is expected to support spending.

                                RBA statement here.

                                Released earlier, Australia retail sales dropped -0.1% mom in July, below expectation of 0.2% mom. Current account surplus widened to AUD 5.9B in Q2, above expectation of AUD 1.5B.

                                China launched WTO complaint against US tariffs

                                  China’s Commerce Ministry said that it has launched a complaint at the WTO against the US over tariffs. No details were released regarding the case, but MOFCOM just said the tariffs affected USD 300B of Chinese exports. It also said the latest tariff actions violated the consensus reached by presidents of both countries at G20 in Osaka.

                                  Under WTO rules, the US will have 60 days to try to settle the dispute. Afterwards, China could WTO to adjudicate. If US is found to have broken rules, China would get approvals for trade sanctions. But even so, the process could take several years.

                                  UK PMI manufacturing dropped to 47.4, 7-year low

                                    UK PMI Manufacturing dropped to 47.4 in August, down from 48.0 and missed expectation of 49.5. That’s also the lowest level in more than 7 years. Markit also noted that new orders contracted as fastest pace in over seven years too. Business confidence dropped to series-record low.

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

                                    “High levels of economic and political uncertainty alongside ongoing global trade tensions stifled the performance of UK manufacturers in August. Business conditions deteriorated to the greatest extent in seven years, as companies scaled back production in response to the steepest drop in new order intakes since mid- 2012. Based on its historical relationship against official ONS data, the latest PMI Output Index is consistent with a quarterly pace of contraction close to 2%. The outlook also weakened as the multiple headwinds buffeting the sector saw business optimism slump to a series-record low.

                                    “Demand from domestic and export markets both weakened in August, with new export business suffering the sharpest fall in seven years. The global economic slowdown was the main factor weighing on new work received from Europe, the USA and Asia. There was also a further impact from some EU-based clients routing supply chains away from the UK due to Brexit.

                                    “The further downturn in export orders occurred despite a weakening in the sterling exchange at the start of the month. This was felt on the costs front though, with 80% of companies providing a reason for higher purchase prices making at least some reference to the exchange rate. The current high degree of market uncertainty, both at home and abroad, and currency volatility will need to reduce significantly if UK manufacturing is to make any positive strides towards recovery in the coming months.”

                                    Full release here.

                                    Eurozone PMI manufacturing finalized at 47.0, Germany in steepest decline, Franc bucks the trend

                                      Eurozone PMI Manufacturing was finalized at 47.0 in August, unrevised. That was slightly higher than July’s final reading of 46.5. Markit noted that production and new orders continued to fall as confidence hits lowest since November 2012. Also, employment declined for the fourth month running during August.

                                      Among the states, improvement were generally seen but readings stayed dismal. Germany was revised slightly lower to 43.5, well below 50. Australia was at 48.6. Italy was at 48.7. Spain was at 48.8. Ireland even fell to 76-month low at 48.6. France (51.1), the Netherlands (51.6) and Greece (54.9) were the brighter spots.

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

                                      “Eurozone producers are suffering as the summer slump in factory production persisted into August. Although up on July, August’s manufacturing PMI was the second-lowest since early 2013, and a marked deterioration in optimism about the year ahead suggests companies are expecting worse to come.

                                      “The deteriorating manufacturing conditions mean the goods-producing sector is likely to act as an increased drag on eurozone economic growth in the third quarter. At current levels, the survey is consistent with goods production declining at a quarterly rate of 1%.

                                      “Prices are falling as companies offer discounts in the face of disappointingly weak demand, and payroll numbers are being culled at one of the steepest rates seen over the past six years as companies increasingly seek to cut costs in the uncertain trading environment.

                                      “Trade wars and tariffs remain the biggest concerns among producers, and the escalation of global trade war tensions in August encouraged further risk aversion.

                                      “Germany is suffering the steepest decline, in part reflecting slumping global demand for autos and business machinery. While France bucked a wider downturn trend, even here growth was only very modest.”

                                      Full release here.

                                      China Caixin PMI Manufacturing rose to 50.4, but overall demand didn’t improve

                                        China Caixin PMI Manufacturing rose to 50.4 in August, up from 49.9 and beat expectation of 49.8. Caixin note marginal expansion of output. New orders were broadly stable despite further decline in export sales. However, output charges fell at quickest rate since December 2015.

                                        Commenting on the China General Manufacturing PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:

                                        “The Caixin China General Manufacturing PMI stood at 50.4 in August, up from 49.9 in the previous month, showing an improvement in the manufacturing sector.

                                        “The subindex for new orders stayed in expansionary territory, but it inched down, suggesting flat demand for manufactured products. The gauge for new export orders remained in contractionary territory and fell to the lowest level this year in August, reflecting declining foreign demand amid an intensifying trade dispute between China and the U.S. The output subindex stayed in positive territory and rose further, pointing to increased production activity.

                                        “The employment subindex jumped to a level only marginally lower than the 50-point mark that divides expansion from contraction, showing a relative improvement in labor market conditions.

                                        “The subindex for stocks of purchased items fell further into negative territory, reflecting manufacturers’ growing reluctance to replenish inventories. The subindex for suppliers’ delivery times dropped further into decline, indicating that they have delayed deliveries even longer. The measure for stocks of finished goods rebounded into positive territory, suggesting growing inventories amid the improved production environment. However, it remains to be seen whether production will continue to improve.

                                        “Although it remained in positive territory, the gauge for future output dropped, reflecting subdued confidence among manufacturers. We don’t expect they will soon become more willing to invest. Both the measures for input costs and output charges dropped, implying that industrial prices were on a downward trend.

                                        “China’s manufacturing sector showed a recovery in August, mainly due to improved production activity. However, overall demand didn’t improve, and foreign demand declined notably, leading product inventories to grow. There was no sign of an improvement in companies’ willingness to replenish inventories of inputs or in their confidence. Industrial prices trended down. China’s economy showed signs of a short-term recovery, but downward pressure remains a long-term problem. Amid unstable Sino-American relations, China needs to step up countercyclical policies.”

                                        Full release here.

                                        Japan PMI manufacturing finalized at 49.3, difficult to envisage any near-term improvements

                                          Japan PMI Manufacturing was finalized at 49.3 in August, revised down from 49.5, slightly down from July’s 49.3. Markit noted sluggish demand conditions persisted in August. Output continued to decline while business confidence was subdued. Also, firmed reduced output charges to stimulate sales.

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

                                          “Japanese goods producers continued to signal difficult conditions during August, reflecting the broader regional tone within the APAC manufacturing economy. The headline index was among the lowest seen across the past three years.

                                          The sector was plagued by production cutbacks and flagging demand, which have been the trends so far in 2019. Softer growth across Asia, particularly in China, was reported to have dented export opportunities.

                                          “Meanwhile, the escalation of tensions with Korea merely adds extra downside risk to an already fragile environment. August data showed a ninth straight month-on-month fall in export sales, while the domestic market was similarly weak. As such, firms were wary towards the manufacturing sector outlook, cautious of the role the consumption tax hike will play, in addition to the drop-off of Olympic Games-related demand ahead of Tokyo 2020.

                                          “With external and domestic headwinds aplenty, it is difficult to envisage any near-term improvements in Japan’s manufacturing sector.”

                                          Also from Japan, capital spending rose 1.9% in Q2, above expectation of 1.9%.