US durable goods orders rose 2.1% in July well above expectations of 1.0%. total new orders for manufactured durable goods rose USD 5B to USD 250.4B. However, ex-transport orders dropped -0.4%, below expectation of 0.0%. Ex-defense orders, though, rose 1.4%. Transport equipment rose 7.0%.
US President Donald Trump indicated that he and German Chancellor Angela Merkel discussed a trade deal with the EU. Also at G7, Merkel said she wants EU to reach a trade agreement with US as quickly as possible,
Merkel said, “we want to talk now about the EU and the United States having deeper talks as quickly as possible… We have a great interest in our trade being intensified. I think we can find solutions… Germany, within the framework of the EU, is working hard on this.”
Market sentiments stablized after US President Donald Trump toned down his rhetoric on trade war with China. He reiterated that “China called last night our top trade people and said ‘Let’s get back to the table'”. Hence, we’ll be getting back to the table, and I think they want to do something. Trump also said: “They want calm, and that’s a great thing, frankly. And one of the reasons that he’s a great leader, President Xi, and one of the reasons that China’s a great country is they understand how life works.”
However, Chinese tabloid Global Times Hu Xijin denied there was phone call between the two sides. He tweeed that “Based on what I know, Chinese and U.S. top negotiators didn’t hold phone talks in recent days. The two sides have been keeping contact at technical level, it doesn’t have significance that President Trump suggested. China didn’t change its position. China won’t cave to US pressure”.
German ifo Business Climate dropped to 94.3 in August, down from 95.7 and missed expectation of 95.0. That’s also the lowest level since November 2012. Expectations Index dropped to 91.3, down from 92.2 and missed expectation of 91.8. Current Assessment Index dropped to 97.3, down from 99.4 and missed expectation of 98.8.
Clemens Fuest, President of the ifo Institute, said: “Companies were once again much less satisfied with their current business situation. Pessimism regarding the coming months also increased. There are ever more indications of a recession in Germany.”
Looking at some details, Manufacturing Index dropped from -4.3 to -6.1. And “the last time that industrial companies demonstrated such pessimism was in the crisis year of 2009. Not a single ray of light was to be seen in any of Germany’s key industries.” Service Sector Index dropped from 18.0 to 13.0. Trade Index dropped from 1.4 to -2.4. Construction Index dropped from 23.1 to 21.4.
US President Donald Trump said on the sidelines of G7 in France, “China called last night our top trade people and said, ‘let’s get back to the table’, so we’ll be getting back to the table, and I think they want to do something”. He added, “they’ve been hurt very badly but they understand this is the right thing to do.”
Trump also noted “they have supply chains that are unbelievably intricate and people are all leaving and they are going to other countries, including the United States by the way, we are going to get a lot of them too”
However, China’s Foreign Ministry said they’re not aware of the weekend phone calls Trump mentioned. But the spokesman said China hopes the United States can come back to the path of rationality, adding that “decoupling” won’t resolve current problems.
US President Donald Trump and Japan Prime Minister Shinzo Abe announced to have agreed in principle on trade deal, at a joint press conference at G7 in France. The teams are now working on finalizing the agreement for signing next month.
Trump said “It’s a very big transaction, and we’ve agreed in principle. It’s billions and billions of dollars. Tremendous for the farmers”. US Trade representative Robert Lighthizer said the agreement “will lead to substantial reductions in tariffs and non-tariff barriers across the board.”
Abe also noted “we still have some remaining work that has to be done at the working level, namely finalizing the wording of the trade agreement and also finalizing the content of the agreement itself… But we would like to make sure that our teams … accelerate the remaining work for us to achieve this goal of realizing the signing of the agreement on the margins of the U.N. General Assembly at the end of September.”
In response to trade war escalation, Chinese Yuan and stocks tumble sharply at open today. USD/CNH (offshore Yuan) hit new high at 7.1832 before retreating mildly. China Shanghai SSE hit as low as 2849.24 and is currently down -0.95%. Hong Kong HSI suffers steep selloff and hit as low as 25249.51, and it’s currently down -2.79%. Some recoveries are seen on news that the National Reform and Development Commission (NDRC) will “reasonably expand effective investment” by lowering the requirement of the minimum capital ratio for some infrastructure projects.
USD/CNH’s up trend from 6.2359 is in progress. As long as 6.9909 support holds, further rise should be seen to 100% projection of 6.2359 to 6.9804 from 6.6704 at 7.4149 in medium term next.
Chinese Vice Premier Liu He tried to tone down recent abrupt escalation of trade tensions with the US. He said “we are willing to resolve the issue through consultations and cooperation in a calm attitude and resolutely oppose the escalation of the trade war.” He added that such escalation is “not beneficial for China, the United States, nor to the interests of the people of the world”.
Liu also emphasized that China “welcome enterprises from all over the world, including the United States, to invest and operate in China”. “We will continue to create a good investment environment, protect intellectual property rights, promote the development of smart intelligent industries with our market open, resolutely oppose technological blockades and protectionism, and strive to protect the completeness of the supply chain,” he added.
However, state media is singing another tune. The official China Daily warned that US President Donald Trump’s tariff war was unquestionably “politically motivated”. And, “what Washington wants from its largest trade partner is for it to be content to play second fiddle and meekly do as it demands”. It added “Beijing regards the trade war as an unavoidable trial by fire, from which the country will emerge stronger.”
In a second series of furious tweet yesterday, US President Donald Trump announced to raise tariffs on China, in response the latter’s retaliation announced earlier in the day. Starting on October 1, tariffs on USD 250B in China imports will be raised from current 25% to 30%. The rate of the planned tariffs, to take effect on September 1, on USD 300B of Chinese products, will be raised from 10% to 15%.
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US President Donald Trump responded to China’s retaliation tariffs serious of strongly worded tweets. He said “we don’t need China and, frankly, would be far better off without them.” And, “our great American companies are hereby ordered to immediately start looking for an alternative to China”.
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DOW drops sharply in response to Trump’s tweet and is currently down -440 pts. The rejection by 55 day EMA again keeps near term outlook bearish. Focus should be back on 25440.39 support next week. Break will resume the fall from 27398.68 to 24680.57.
In the highly anticipated Jackson Hole speech, Fed Chair Jerome Powell noted that the three weeks since July FOMC meeting “have been eventful”. There were new tariffs on Chinese imports, further evidence in global slowdown notably in Germany and China. Also, there were geopolitical events including “growing possibility of a hard Brexit, rising tensions in Hong Kong, and the dissolution of the Italian government.”
Though, US economy has “continued to perform well overall, driven by consumer spending”. Job creation slowed but is “still above overall labor force growth”. Inflation seems to be “moving up closer to 2%. Powell pledged, “based on our assessment of the implications of these developments, we will act as appropriate.
Dollar dips mildly after the release but overall, downside is limited for the moment.
St. Louis Fed President James Bullard, a known dove, told CNBC that “we should get lower here,” on interest rates. He added “The yield curve is inverted. We’ve got one of the higher rates on the whole yield curve. That is not a good place to be”.
Bullard also asked “How much risk are we facing from the fact that we’ve got a global manufacturing contraction going on and possibly more to come?”. And, “I’d like to take out more insurance against that downside risk.”
Cleveland Fed President Loretta Mester said she’s approach next month’s FOMC meeting with an open mind. She added if the economy continues where it is, I would probably say we should keep things the way they are.” Though, she is “very attuned to the downside risks to this economy and I want to make sure we’re always focused on our dual-mandate goals.”
China’s Ministry of Commerce announced retaliation tariffs on USD 75B US imports. Additional tariffs of 5% or 10% will be imposed on a total of 5078 products lines originating from US. Goods include agricultural products, crude oil, small aircraft and cars.
The first batch will take effect on September 1. Others will take effect on December 15.
Canada retail sales rose 0.0% mom in Jun, above expectation of -0.3% mom. Ex-auto sales jumped 0.9% mom, well above expectation of 0.0% mom. Sales were down in 4 of 11 subsectors, representing 48% of retail trade. Retail sales decreased in four provinces and more than offset gains across the rest of the country. Full release here.
Some volatility is seen in USD/CAD after the release. But it’s on track to take on 1.3345 resistance after the moves. The pair is now awaiting Fed chair Jerome Powell’s Jackson Hole speech.
It’s reported that China is ready to unveil the retaliation to new US tariffs that will take effect in September.
Editor in chief of Global Times, Hu Xijin, said in a tweet that “Based on what I know, China will take further countermeasures in response to U.S. tariffs on $300 billion Chinese goods. Beijing will soon unveil a plan of imposing retaliatory tariffs on certain U.S. products”.
Global Times is a state owned media of China, that’s known for it hawkish stance.
German government spokesman Steffen Seibert said that it’s up to the UK to come up with proposals to solve the issue of Irish backstop. He added that the European Commission is ready to discuss any proposal by UK Prime Minister Boris Johnson.
On the other hand, European Commission spokesperson reiterated that “the Commission’s position when it comes to Brexit matters is well known and this remains a united, singular, EU position”. And, “we stand ready to engage constructively with the UK on any concrete proposals that are compatible with the Withdrawal Agreement.”
German Chancellor Angela Merkel said yesterday that a solution for UK to find a solution to remove the Irish backstop from the withdrawal agreement can be achieved by October 31 Brexit date.
Dallas Fed President Robert Kaplan said he’d like to “avoid having to take further action” on interest rates. Though, he’s going to “have an open mind about taking action over the next number of months if we need to.”
He added “even though the consumer is very strong and a key underpinning to the economy, manufacturing sector is weak and probably weakening and global growth decelerating is probably finding its way to seep into the U.S. economy.” There are “downside” risks to Fed’s GDP growth forecast of 2% this year.
Regarding yield curve inversion, Kaplan said “I’m more focused on the fact that the whole curve has moved down over the last three and a half months and the Fed funds rate at two to two and a quarter is now above every rate along the curve which to me is a bit of a reality check that says it’s possible our monetary policy stays a little tighter than I would have thought three or four months ago.”
Japan all-item CPI slowed to 0.5% yoy in July, down from 0.7% yoy and missed expectation of 0.6% yoy. Core CPI (ex-fresh food) was unchanged at 0.6% yoy, matched expectations. Core-core CPI (ex-fresh food, energy) rose to 0.6% yoy, up from 0.5% yoy and beat expectation of 0.5% yoy.
The core CPI reading remained well below BoJ’s 2% target and was stuck at the lowest level since July 2017. The data clearly showed that BoJ remains well behind is its efforts to boost inflation. While Japan is in no sense in deflation for now, it’s just a matter of time when BoJ would finally admits that momentum in price is gone.
Japanese Economy Minister Toshimitsu Motegi held marathon four-hour talks with US Trade Representative Robert Ligthizer in Washington yesterday. After that, Motegi said the two countries were “getting closer to reach a conclusion” on trade agreement. He added that “we’re spending quite a long time” because the discussions involved details covering a wide range of areas.
Talks will continue on Friday and Motegi said “we’ll see what we can do (in talks) tomorrow”, regarding the chance of reaching a conclusion on trade.
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Japan Aso to watch current market move with sense of urgency
At a regular press conference, Japanese Finance Minister Taro Aso emphasized that “currency stability is important”. He added that “we must closely watch the currency market move with a sense of urgency. Though, he didn’t give any comment of specific exchange rate levels. The comments came after Yen spiked higher yesterday in response to abrupt escalation of US-China trade war.
Aso also noted that recent market volatility won’t change the government stance on the planned sale tax hike. The government will still proceed with October’s sale take hike from 8% to 10%, unless there is serious shocks in the economy.