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Fed chair Powell’s testimony, live stream

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    Introductory statement.

    BoC keeps rate at 1.75%, growth returning to around potential

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      ActionForex.com
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      BoC left overnight rate target unchanged at 1.75% as widely expected. In the accompany statement, BoC said the economy is “returning to growth around potential”. Q2 growth “appears to be stronger than expected” due to some “temporary factors”. But ongoing trade conflicts and competitiveness challenges are dampening the outlook for trade and investment.

      BoC upgraded 2019 growth forecast slightly from 1.2% to 1.3%. For 2020 and 2021, growth is projected to be at 2%, unchanged. On inflation, BoC noted “some recent upward pressure from higher food and automobile prices.” Inflation is expected to “return sustainably to 2 percent by mid-2020.” That is similar to April’s forecasts.

      Going forward, BoC noted that “outlook is clouded by persistent trade tensions”. Current degree of monetary accommodation “remains appropriate”. But the Governing Council will “continues to monitor incoming data, it will pay particular attention to developments in the energy sector and the impact of trade conflicts on the prospects for Canadian growth and inflation.”

      Full statement here.

      Canadian Dollar dips mildly after the release as BoC continued to sound rather “cautious regarding risks, in particular trade tensions. CAD/JPY dips but loss is very limited. As long as 82.03 minor support holds, rebound from 79.97 is resume sooner or later.

      Dollar drops as Fed Powell indicates uncertainties continue weigh on outlook since June meeting

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        ActionForex.com
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        Dollar drops notably in response to Fed chair Jerome Powell’s prepared speech for the semi annual Congressional testimony. Most importantly, Powell said since June meeting, “based on incoming data and other developments, it appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook. Inflation pressures remain muted.”

        Powell, also reiterated Fed’s stance that “in light of increased uncertainties about the economic outlook and muted inflation pressures, we would closely monitor the implications of incoming information for the economic outlook and would act as appropriate to sustain the expansion.”

        However, just based on the prepared remarks, there is no clear nod to a July rate cut. Thus, selloff in Dollar is relatively limited so far. Powell will need to be really straightforward in the Q&A of the testimony.

        Full speech here.

         

        NIESR: UK economy to contract -0.1% in Q2, but no recession

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          ActionForex.com
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          The National Institute of Economic Social Research (NIESR) said UK economy is on course to contract by -0.1% in Q2. However, initial outlook for Q3 is for growth of 0.2%. Thus, UK would likely avoid a technical recession, two consecutive quarters of contraction.

          Janine Boshoff, Economist in the Macroeconomic Modelling and Forecasting team, said “Our latest estimate implies that the economy will narrowly avoid a technical recession in the middle quarters of this year. That said, the latest ONS data and recent surveys suggest that the economy has lost considerable momentum since the first quarter. This reflects the impact of Brexit-related uncertainty and slower growth in the global economy outside of the United States. The near-term outlook for the UK economy continues to depend on the outcome of the Brexit negotiations.”.

          Full release here.

          EU kept 2019 growth forecasts unchanged, downgraded 2020 slightly

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            ActionForex.com
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            Comparing to Spring projections, European Commission kept 2019 Eurozone growth forecast unchanged at 1.2%. But for 2020, growth projection was lowered slightly from 1.5% to 1.4%. For EU28, 2019 and 2020 growth forecasts were kept unchanged at 1.4% and 1.6% respectively.

            On prices, Eurozone 2019 inflation forecast was lowered from 1.4% to 1.3%. Similarly, 2020 inflation projection was lowered from 1.4% to 1.3% too. For EU28, 2019 and 2020 inflation forecasts were lowered to 1.5% and 1.6%, down from 1.6% and 1.7%.

            Looking at some major countries, Germany forecast was kept unchanged at 0.5% in 2019, downgraded from 1.5% to 1.4% in 2020. France growth forecast was kept unchanged at 1.3% in 2019, downgraded from 1.5% to 1.4% in 2020. Italy growth forecasts were held unchanged at 0.1% in 2019 and 0.7% in 2020.

            European Commission Vice President Valdis Dombrovskis said: “The resilience of our economies is being tested by persisting manufacturing weakness stemming from trade tensions and policy uncertainty. On the domestic side, a “no deal” Brexit remains a major source of risk.”

            Commissioner Pierre Moscovici urged: “Given the numerous risks to the outlook, we must intensify efforts to further strengthen the resilience of our economies and of the euro area as a whole.”

            Full release here.

            Euro lifted as German 10-year yield rebounds, back above -0.3%

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              Euro is lifted broadly today as following rebound in German yields. 10-year bund yield is currently back above -0.3 handle, comparing to historical low at -0.407 made earlier this month.

              Though, for now, EUR/USD is kept well below 1.1268 minor resistance. Fall from 1.1412 is still in progress. More importantly, another decline and break of 1.1181 support should pave the way to retest 1.1107 low.

              UK GDP grew 0.3% mom in May, on partial recovery in car production

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                ActionForex.com
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                UK GDP grew 0.3% mom in May, matched expectations. Index of services rose 0.0% mom. Index of production rose 1.4% mom while manufacturing rose 1.4% mom. Construction rose 0.6% mom. Agriculture rose 0.0% mom.

                Rolling three month growth from March to May slowed to 0.3%, down from 0.4% from February to April. It’s also notably below 0.5% qoq in Q1. Services grew 0.3% in the three-month period, production grew 0.3%, while construction was flat.

                Commenting on today’s GDP figures, Head of GDP Rob Kent-Smith said: “GDP grew moderately in the latest three months, with IT, communications and retail showing strength. Despite this, there has been a longer-term slowdown in the often-dominant services sector since summer 2018. The economy returned to growth in the month of May, following the fall seen in April. This was mainly due to the partial recovery in car production.”

                Full release here.

                Also released, manufacturing production came in at 1.4% mom, 0.0% yoy versus expectation of 2.2% mom, 1.1% yoy. Industrial production came in at 1.4% mom, 0.9% yoy, versus expectation of 1.5% mom, 0.9% yoy.

                Fed George: Inflation expectations can move quickly

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                  ActionForex.com
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                  Kansas City Fed Esther George said in Helsinki today that inflation expectations “can move quickly”. “It doesn’t look like it will happen in the near term,” but she also emphasized “I never say never… because you don’t know how those expectations might shift.”

                  Meanwhile, George also noted the median forecast for long-term interest rates has fallen. And, demographic trends have forced a reassessment of the economy.

                  Australia consumer confidence dropped sharply despite RBA rate cuts

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                    ActionForex.com
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                    Australia Westpac Consumer Confidence dropped sharply by -4.1% to 96.5 in July, hitting a two year low. The deterioration came as a surprise as confidence was not supported by recent positive developments, including RBA’s rate cuts and easing US-China trade tensions.

                    Deepening concerns over Australian economic outlook were the main drivers in decreasing confidence. Expectations in economic conditions for the next 12 months dropped -12.3 to 87.1. That’s the lowest level in four years. For the next 5 years, expectations index dropped -6.7 to 91.6.

                    After two rate cuts in June and July, Westpac expects RBA to stand pat at next meeting on August 6. Updated economic projections to be released then would give the best guide to how the RBA sees the case for further policy action. Westpac expects a further 25bps cut most likely coinciding with a downgrade to the Bank’s growth and inflation forecasts in November. Though, it said “the timing of this next move remains highly uncertain”.

                    Full release here.

                    US & China trade teams held constructive call, but no miracles yet

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                      Leaders of both US and China trade teams held “constructive” telephone conversations yesterday, as negotiations continued. US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin joined the talks. On the Chinese side, there were Vice Premier Liu He and Minister of Commerce Zhong Shan. The call was also confirmed by Chinese Commerce Minister in a brief statement today.

                      White House economic adviser Larry Kudlow said the talks “went well” and were constructive, but “there are no miracles here”. He added, “there was headway last winter and spring, then it stopped. Hopefully we can pick up where we left off, but I don’t know that yet.”

                      Kudlow also said yesterday that “President Xi is expected, we hope in return for our accommodations, to move immediately, quickly, while the talks are going on, on the agriculture (purchases).” However, it’s also reported by Hong Kong South China Morning Post that Xi had made no specific commitment regarding the purchases during the meeting with Trump at G20 in Osaka. So far, no significant increase in purchase is noted yet.

                      Fed Harker: No immediate need to move interest rate in either direction

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                        ActionForex.com
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                        Philadelphia Fed President Patrick Harker told WSJ that “there’s no immediate need to move rates in either direction at this point in my view”. He noted that the economy “continues to be strong” with “very strong labor market”. If the economy was “weakening substantially”, he would support a rate cut. But “at this point, I do not see that”.

                        Harker acknowledged that inflation below 2% target is a concern. But he added, “it’s one that I don’t see as an imminent crisis”. Also, he believed “we can give it some time to move back up to 2%.

                        Additional, he didn’t se December rate hike as a “particularly bad move” as it was not significant at that point. For now he thought the “prudent path” was to “hold steady and see how the economy evolves”.

                        WH Kudlow: Powell is safe at the present time

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                          ActionForex.com
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                          White House National Economic Council Director Larry Kudlow reiterated his view that Fed can “take back” its December rate hike. Also, he urged Fed to look at low inflation data, rather than strong job data in deciding the rate cut.

                          Meanwhile, Kudlow also noted Trump is making “no effort” to remove Fed Chair Jerome Powell. And, “at the present time, yes he is safe”.

                          Separately, Powell delivered opening remarks at “Stress Testing: A Discussion and Review,” a Boston Fed research conference. But he didn’t talk about monetary policy. Focus will turn to his two-day semiannual Congressional Testimony, which starts tomorrow.

                          Canada building permits dropped -13%, housing starts jumped to 246k

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                            ActionForex.com
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                            Canada building permits dropped -13.0% mom to CAD 8.2B in May, worse than expectation of -10.0% mom. Permits increased in six provinces and all territories. But they’re not enough to offset the decreased in British Columbia.

                            Housing starts rose to 246k in June, up fro 197k and beta expectation of 209k. The national trend in housing starts increased primarily due to higher trending row and apartment starts, in urban areas.

                            EU Dombrovskis: All member economies are set to growth this year and next

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                              ActionForex.com
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                              European Commission is scheduled to announce new economic forecasts tomorrow. Ahead of that Vice-President Valdis Dombrovskis said “all EU economies are set to grow this year and next,” citing the forecast results.

                              However, he also warned that “we see risks, especially external risks, on the rise”. And resilience of EU economies could be tested if the risks materialized.

                              He also emphasized “it’s high time to do reform while keeping public finances sound.”

                              European update: Dollar powers up as markets await Fed Powell’s comments

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                                ActionForex.com
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                                Dollar jumps broadly today as markets continue to re-adjust their expectations on a Fed July cut. After last week’s string of data, in particular solid NFP, 50bps cut is basically priced out. But many, like us, are very skeptical on the need for delivering the insurance cut now. To us, US-China trade war just “halted” escalations. Thing could turn bad again any time and it’s better for Fed to save that bullet for now.

                                Fed chair Jerome Powell will deliver opening remarks on the topic of “stress testing” at the Federal Reserve Board Conference today. It’s unsure if he will save the comments on monetary policy for tomorrow’s Congressional testimony. In any case, traders are already fastening their seat belts. Staying in the currency markets, Swiss Franc, Euro and Yen are the strongest ones. In particular, risk aversion is helping both Yen and Swiss Franc. Australian Dollar is the weakest so far, followed by Sterling.

                                Technically, AUD/USD’s break of 0.6956 minor support should have confirmed completion of rebound from 0.6831. Deeper decline should be seen to retest this low.

                                AUD/JPY’s decline today also put focus back to 75.13 minor support. Firm break will indicate completion of corrective rise from 73.94 and bring retest of this low too.

                                Australia NAB Business confidence unwound post election spike

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                                  ActionForex.com
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                                  Australia NAB Business Conditions improved from 1 to 3 in June, but remain below average. Business Confidence dropped from 7 to 2, largely unwound the bounce from 0 to 7 in May. NAB said “the recent run of results also suggest that the economy is unlikely to record a significant pickup in growth in Q2.” Further, “forward orders also remain below average (and are negative), suggesting a near-term turn around in business activity is unlikely.”

                                  According to Alan Oster, NAB Group Chief Economist, “Business confidence appears to have unwound its spike in May, which we think was driven by a short-term election bounce and increased optimism around a renewed interest rate easing cycle by the RBA. While business conditions increased slightly in the month, they remain well below average after trending lower for over a year now. The decrease in conditions has been relatively broad-based across states and industries – suggesting that there has been sector wide loss of momentum over the past year”.

                                  Full release here.

                                  UK retail sales picture bleak on Brexit uncertainty

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                                    ActionForex.com
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                                    UK BRC like-for-like sales dropped -1.6% yoy in June, below expectation of -1.5% yoy. Total sales dropped -1.3% yoy. The data were worst in record for June since 1995. Helen Dickinson, Chief Executive of BRC, noted, “overall, the picture is bleak: rising real wages have failed to translate into higher spending as ongoing Brexit uncertainty led consumers to put off non-essential purchases.”

                                    She added: “Businesses and the public desperately need clarity on Britain’s future relationship with the EU. The continued risk of a No Deal Brexit is harming consumer confidence and forcing retailers to spend hundreds of millions of pounds putting in place mitigations – this represents time and resources that would be better spent improving customer experience and prices. It is vital that the next Prime Minister can find a solution that avoids a No Deal Brexit on 31st October, just before the busy Black Friday and Christmas periods.”

                                    Full release here.

                                    CAD strong ahead of BoC, a look at EUR/CAD & CAD/JPY

                                      By
                                      ActionForex.com
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                                      Canadian Dollar strengthens broadly today, partly helped by rebound in oil price. And probably more importantly, BoC is widely expected to keep interest rate unchanged at 1.75% this week. Recent data showed much resilience in the economy, offering the central bank more room to take a wait and see mode and assess the economic developments. While the upcoming statement could be similar to prior meeting, there is also room for BoC to turn more “neutral”. Suggested reading: BOC Preview – Not Following Fed’s Footstep

                                      CAD/JPY’s rise from 79.97 extended further to as high as 83.21 so far today. The strong support from 55 day EMA affirmed near term bullishness. Corrective fall from 85.23 should have completed at 79.97, just ahead of 61.8% retracement of 76.61 to 85.23 at 79.90. Near term outlook will stay bullish as long as 82.03 support holds. CAD/JPY have a test on 85.23 resistance next.

                                      EUR/CAD is also extending the medium term down trend from 1.6151 as hits as low as 1.4636 so far today. As long as 1.4862 support turned resistance holds. The cross should target medium term projection level at 100% projection of 1.6151 to 1.4759 from 1.5645 at 1.4253.

                                      Eurozone Sentix investor confidence dropped to -5.8, lowest since 2014, Germany even worse

                                        By
                                        ActionForex.com
                                        -

                                        Eurozone Sentix Economic Index dropped to -5.8 in June, down from -3.3 and missed expectation of 0.2. It’s also the lowest level since November 2014. Current Situation Index dropped from 6.0 to 1.8, lowest since February 2015. Expectations Index also dropped from -12.3 to -13.0, lowest since February 2019.

                                        Sentix noted that after the supposed de-escalation signals in US-China trade war at G20, there was “great hope that the downward trend in the economy could be stopped”. But, investors are “not blinded by the rising share prices” as expectations show no upward reaction to the news. It warned, “without resilient negotiation results, it will be difficult for investors worldwide to develop a different perspective.”

                                        For Germany, Overall Economic Index dropped from -0.7 to -4.8, lowest since November 2009. Current Situation Index dropped from 13.5 to 7.0, lowest since April 2010. Expectations Index dropped from -14.0 to -16.0, lowest since February 2019.

                                        Sentix said “things are even worse for the German economy”. “The high dependence on exports and the Chinese sales market is increasingly becoming a burden and the customs dispute hovers like a sword of Damocles over the former model boy of the Euro region.” Also, the automotive industry is “simply not emerging from the crisis”.

                                        Full release here.

                                        German trade surplus widened to EUR 20.6B, industrial production rose 0.3%

                                          By
                                          ActionForex.com
                                          -

                                          German foreign trade surplus widened to EUR 20.6B in May. On calendar and seasonally adjusted terms, trade surplus widened to EUR 18.7B. Exports rose 1.1% mom, 4.5% yoy to EUR 113.9B. Imports dropped -0.5% mom, 4.9% yoy to EUR 93.4B.

                                          Industrial production rose 0.3% mom in May, matched expectations. Production in industry excluding energy and construction was up by 0.9%. Outside industry, energy production was down by -.2% in May 2019 and the production in construction decreased by -2.4%.

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