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RBNZ Hawkesby: Next rate move depends on global environment

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    ActionForex.com
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    RBNZ Assistant Governor Christian Hawkesby said in an interview that, after yesterday’s 50bps rate cut, “we’ve got a more balanced outlook for the OCR now”. However, he added, “even within those projections there’s some probability in there that we will need to reduce the OCR from where it is at the moment.”

    Hawkesby explained that markets have already priced in a smaller 25bps before yesterday’s announce. And the New Zealand Dollar faced downward pressure after the decision, which could give an extra boost to exports. He added “it’s all part of the story of us getting back to our targets.” He hoped that the larger cut could help avoid further policy easing. But RBNA is “complete” open to use negative interest rates and other unconventional tools if necessary.

    The main consideration for any next move is on global outlook. He said, “the obvious one is the global environment where we feel like the risks are tilted to the downside, and that was one of the factors that prompted us to ease with the 50 basis points this time around.”

    Japan GDP grew 5% qoq in Q3, but still JPY 30T in output gap

      By
      ActionForex.com
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      Japan GDP grew 5.0% qoq in Q3, above expectation of 4.4% qoq, a turn around from Q2’s -7.9% qoq contraction. In annualized term, GDP grew 21.4%, above expectation of 18.9%, the first increase in four quarters. It’s also the largest rise since comparable data become available in 1980, following the -28.8% annualized contraction in Q2. The data, while strong, was just seen as a rebound from an extraordinary pandemic contraction only.

      Economy Minister Yasutoshi Nishimura also sounded cautious as he reminded people of the JPY 30T spare capacity. “We can’t make up for all of the output gap just with public works spending. We also need to spur private investment. But the size (of the output gap) is something we’ll look at” in compiling the new spending package, he said.

      An update on GBP/USD short, lower the stop slightly

        By
        ActionForex.com
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        Here’s an update on our GBP/USD short position (entered at 1.3150) as last updated in the weekly report. Yesterday’s rebound and breach of 1.3089 minor resistance did prompt us to consider exiting. But such rebound was triggered by ungrounded rumor that Theresa May is going to give a new proposal on Irish border to the EU. We had very very little trust on the news.

        Firstly, it’s Bloomberg citing unnamed source. More importantly, it just didn’t make sense for May to make any concession to the EU while she’s at Conservative Party meeting fighting her own Brexit rebels. Instead, the hardline rhetoric of Hammond and Raab made much more sense.

        Therefore, we gave the position a few more hours to develop. Admittedly, we’re a bit late in this update, which should be done two hours ago. Now that, with 1.2999 taken out as fall from 1.3297 resumes, it sounds like after the fact.

        But anyway, our view is unchanged that fall from 1.3297 is “possibly” resuming larger down trend from 1.4376. We’ll hold on to the short position entered at 1.3150. Stop is lowered to 1.3115 to lock in some profits. We still have not decided whether to get out at 1.2661/2784 support zone yet. Will keep monitoring.

        RBA Lowe: We need to strike the right balance between doing too much and too little

          By
          ActionForex.com
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          RBA Governor Philip Lowe said in a speech that the earlier large 50bps rate hikes wereto “move interest rates quickly away from their pandemic levels to address the rapidly emerging inflation problem.”

          As interest rates moved back to “more normal levels”, the board judged that it’s “appropriate to move at a slower pace”, with 25bps hike today, and at last meeting.

          “We are conscious that interest rates have been increased by a large amount in a very short period of time and that higher interest rates affect the economy with a lag,” he added. “If we are to stay on that narrow path, we need to strike the right balance between doing too much and too little.”

          Lowe also noted that RBA is “not on a pre-set path”. “If we need to step up to larger increases again to secure the return of inflation to target, we will do that,” he added. “Similarly, if the situation requires us to hold steady for a while, we will do that.

          Full speech here.

          IMF supports Fed’s pause in rate hikes

            By
            ActionForex.com
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            The IMF expresses its support for Fed to halt it rate hike cycle.

            IMS spokesman Gerry Rice said: “Given the range of global uncertainties facing the U.S. economy, we support the Fed’s decision to be patient in determining future changes to the Federal Funds rate”.

            Also, “the Federal Reserve’s continued adherence to the principles of data dependence and clear communication, we believe, will help to minimize any market disruptions and spillovers from its policy decisions.”

            US 10-year yield breaks key near term fibonacci resistance

              By
              ActionForex.com
              -

              10-year yield rose 0.144 overnight to close at 4.316, breaking above 38.2% retracement of 4.997 to 3.785 at 4.247. A more important perspective is that strong support was seen from 55 W EMA and long term channel, as seen in the weekly chart. Combined, the development suggests that fall from 4.997 has completed at 3.785 already. Further rally is now expected as long as 55 D EMA (now at 4.143 holds), to 61.8% retracement at 4.534 and possibly above.

              Nevertheless, there is no change in the view that price actions from 4.997 are developing into a medium term corrective pattern. Rise from 3.785 could be seen as the second leg. Upside should be capped by the 4.997 to bring the third leg down to 3.785 and below.

              This technical scenario aligns with the prevailing expectation that Fed’s next move will be a rate cut. The duration and extent of the current rebound in 10-year yield will depend on when Fed decides to initiate policy relaxation. In essence, the more Fed postpones its initial rate reduction, the more prolonged and substantial the climb in 10-year yield could be. Still, this scenario would not push yield beyond 5% handle. However, decisive break of 5% would signal a significant shift in the underlying economic and monetary policy outlook and necessitate reevaluation of these expectations.

               

               

               

              Japan industrial production rose 1.7% mom, retail sales dropped -1.9% yoy

                By
                ActionForex.com
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                Japan industrial production rose 1.7% mom in August, above expectation of 1.5% mom. That’s also the third straight month of growth, as boosted by automobiles and car parts, as well ass iron, steel and non-ferrous metals. Shipments rose 2.1% mom. Inventories dropped -1.4%. Inventory ratio dropped -2.5%. Over the year, production was down -13.3% yoy.

                On the other hand, retail sales dropped -1.9% yoy in August, better than expectation of -3.5% yoy. But that’s still the sixth consecutive month of decline, highlighting the weak recovery in consumer demand.

                UK Johnson’s internal market bill draws criticism from EU, Scotland and Wales

                  By
                  ActionForex.com
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                  Sterling’s selloff continues today after UK Prime Minister Boris Johnson’s government published the so called internal market bill, which negates some key aspects of the Brexit withdrawal agreement. European Commission President Ursula von der Leyen wrote in quick response. “Very concerned about announcements from the British government on its intentions to breach the withdrawal Agreement,” she said. “This would break international law and undermines trust. Pacta sunt servanda = the foundation of prosperous future relations.”

                  Scottish First Minister Nicola Sturgeon also criticized, “the internal market bill that the UK government will publish today is a full frontal assault on devolution…. , this is a bill that, by the government’s own admission, breaks international law. This UK gov is the most reckless (& to make it worse, incompetently so) and unprincipled in my lifetime.

                  The Welsh counsel general and minister for European transition, Jeremy Miles, also said bluntly. “Let me be clear – the UK government plans to sacrifice the future of the union by stealing powers from devolved administrations,” he said. “This bill is an attack on democracy.”

                  US initial jobless claims dropped to 202k, lowest since 1969

                    By
                    ActionForex.com
                    -

                    US initial jobless claims dropped -10k to 202k in the week ending March 30, below expectation of 215k. It’s also the lowest level since December 6, 1969. Four-week moving average of initial claims dropped -4k to 213.5k.

                    Continuing claims dropped -38k to 1.717M in the week ending March 23. Four-week moving average of continuing claims dropped -8k to 1.743M.

                    Full release here.

                    Nikkei lost -1.33% on Yen’s strength, China SSE gained 1% as government manipulate halted Yuan’s slide

                      By
                      ActionForex.com
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                      In tandem with the strong rally in the Japanese yen today, Stocks were sold off deeply. Nikkei 225 ended the day down -300.89 pts, or -1.33%, at 22396.99. Technically, 23050.39 proves to be too strong a resistance level for Nikkei.

                      But still, for now, we’re favoring the bullish case that rise from 21462.94 is resuming whole rebound from 20347.59. Hence, we’d expect strong support at around 55 day EMA (now at 22345.59) to contain downside and break rally resumption. Firm break of 23050.93 will confirm rise resumption for 100% projection of 20347.49 to 2305039 from 21462.92 at 24165.84. That is close to 24129.34 high.

                      However, sustained break of the 55 day EMA will extend the sideway pattern inside 21462.94/23050.39 in near term.

                      On the other hand, China Shanghai SSE composite gained 30.27 pts also 1.07% to close at 2859.54. the break of 2848.37 resistance confirm resumption of rebound from 2691.02 low. Sentiments have clearly improved on talks that China has intervened last week to halt the Yuan’s recent free fall.

                      Further rise should be seen to 55 day EMA (now at 2946.10) and possibly above. But at this point, we’re seeing no prospect of sustained break of 3000 handle. Hence, we’d expect another fall back to retest key support zone between 2016 low at 2638.30 and 2700 at a later stage.

                      BoE hikes 25bps to 0.50%, but four members want 50bps

                        By
                        ActionForex.com
                        -

                        BoE raises Bank Rate by 0.25% to 0.50% today, by a slight majority of 5-4 vote. Four hawks (Jonathan Haskel, Catherine L Mann, Dave Ramsden, Michael Saunders) voted for a more aggressive 50bps hike to 0.75%. The other five (Andrew Bailey, Ben Broadbent, Jon Cunliffe, Huw Pill, Silvana Tenreyro) won the vote.

                        Meanwhile, the MPC voted unanimously to begin to reduce stock of government bonds by ceasing to reinvest maturing assets. It also decided to start reducing stock of corporate bonds by ceasing to reinvest maturing assets and complete a bond sales program no earlier than towards the end of 2023.

                        Going forward, the extent of any further tightening in monetary policy will “depend on the medium-term prospects for inflation”. If the economy develops broadly in line with the February Report central projections, “some further modest tightening in monetary policy is likely to be appropriate in the coming months.”

                        Sterling surges sharply after the release.

                        Full statement here.

                        In the new four-quarter GDP projections:

                        • 2022 Q1 was revised down from 9.5% to 7.8%.
                        • 2023 Q1 was revised down from 2.1% to 1.8%.
                        • 2024 Q1 was revised up from 1.0% to 1.1%.
                        • 2025 Q1 was at 0.9% (new).

                        CPI inflation projections:

                        • 2022 Q1 raised from 4.6% to 5.7%.
                        • 2023 Q1 raised from 3.3% to 5.2%.
                        • 2024 Q1 unchanged at 2.1%.
                        • 2025 Q1 to slow to 1.6%.

                        Unemployment rate projections:

                        • 2022 Q1 lowered from 4.2% to 3.8%.
                        • 2023Q1 raised from 4.0% to 4.2%.
                        • 2024 Q1 raised from 4.2% to 4.6%.
                        • 2025 Q1 to rise to 5.0%.

                        Implied path for Bank Rate:

                        • 2022 Q1 lowered from 0.5% to 0.4%.
                        • 2023 Q1 raised from 1.0% to 1.3%.
                        • 2024 Q1 raised from 1.0% to 1.4%.
                        • 2025 Q1 at 1.3%.

                        Full Monetary Policy Report here.

                        Into US session: Yen strongest, Aussie weakest. Risk aversion lifts gold

                          By
                          ActionForex.com
                          -

                          Entering into US session, Yen remains the strongest one as global stock market rout deepens. Meanwhile, Australian Dollar is the weakest one, followed by Canadian and then Euro. Gold also rides on risk aversion and hit as high as 1236.7 so far. Economic calendar is light in the US session. So major focus will remain on risk sentiments, currently, DOW futures are dropping more than 300 pts. Euro will also be moved by news on European Commission’s reaction to Italy’s reply on budget.

                          In Europe, at the time of writing:

                          • FTSE is down -0.52% at 7006.14
                          • DAX is down -1.55% at 11345.8
                          • CAC is down -1.02% at 50001.79
                          • German 10 year yield is down -0.0204 at 0.431
                          • Italian 10 year yield is down -0.005 at 3.474. Spread with German remains around 300.

                          Earlier today in Asia:

                          • Nikkei dropped -2.6% to 22010.78
                          • Hong Kong HSI dropped -3.08% to 25346.55
                          • China Shanghai SSE dropped -2.26% to 2594.83
                          • Singapore Strait Times dropped -1.52% to 3031.39

                          Nikkei’s fall from 24448.07 high resumed today and the break of 22172.90 support confirmed completion of rise from 20347.49. Near term outlook is rather bearish with prior rejection by 55 day EMA. Further fall is now likely to be seen towards 20347.59 key support level. At this point, we don’t expect a break there yet.

                          Australia NAB business confidence dropped to -11 in Q1

                            By
                            ActionForex.com
                            -

                            Australia NAB Business Confidence dropped from -2 to -11 in Q1. Current Business Conditions dropped from 6 to -3. Conditions for the next 3 months dropped from 8 to -4. Conditions for the next 12 months dropped from 16 to 7.

                            Alan Oster, NAB Group Chief Economist: “While the bulk of the survey was collected prior to the introduction of the more significant containment measures, the spread of the coronavirus and international developments has clearly impacted confidence. Business conditions were also weaker – and this was before activity saw a significant disruption”.

                            “Unsurprisingly, the forward indicators point to ongoing weakness in the business sector. While there was clearly a large amount of uncertainty at the time of the survey, it was clear that looming lockdowns and an escalation in social distancing measures would materially impact economic activity”.

                            Full release here.

                            US durable goods orders rose 0.2%, ex-transport orders rose 0.5%

                              By
                              ActionForex.com
                              -

                              US durable goods orders rose 0.2% to USD 250.7B in August, way above expectation of -1.2% decline. That’s also the third straight month of increase. Ex-transport orders rose 0.5%, above expectation of 0.3%. Excluding defense, new orders decreased -0.6%.

                              Full release here.

                              Personal income rose 0.4% mom in August, matched expectations. But spending rose only 0.1% mom, below expectation of 0.3% mom. Headline PCE was unchanged at 1.4% yoy, above expectation of 1.3% yoy. Core PCE accelerated to 1.8% yoy, matched expectations.

                              NFP in focus as Dollar index capped below 93.47 resistance

                                By
                                ActionForex.com
                                -

                                US Non-Farm Payrolls employment data will be the main event for today. Markets are expecting 1550k job growth in August, slightly down from July’s 1763k. Unemployment rate is expected to drop to 9.9%, down from 10.2%. Looking at other employment related data, ADP private employment was a big disappointment with just 428k growth. ISM Manufacturing employment edged higher by 2.1 pts to 46.4, but stayed in contraction. ISM Non-Manufacturing employment rose notably by 5.8 pts to 47.9, but also stayed in contraction. Jobless claims was a positive development though, with four-week moving average down from 1.34m to 992k.

                                Dollar’s reaction to NFP data is relatively uncertain. Dollar index’s down trend since March’s spike looks overstretched, with clear bullish convergence condition in daily MACD and RSI. Yet there has been no follow-through buying in the multiple rebound attempts in recent weeks. Break of 93.47 resistance is needed to be first sign of short term bottoming. In that case, we’d likely see a test on 44 day EMA (now at 94.43) at least.

                                UK PMI composite dropped to 37.1, a recession never seen in modern history

                                  By
                                  ActionForex.com
                                  -

                                  UK PMI Manufacturing dropped to 48.0 in March, down from 51.7, hitting a 3-month low. PMI Services dropped from 53.2 to 35.7, a record low. PMI Composite dropped from 53.0 to 37.1, also a record low.

                                  Chris Williamson, Chief Business Economist at IHS Markit, said:

                                  “The surveys highlight how the COVID-19 outbreak has already dealt the UK economy an initial blow even greater than that seen at the height of the global financial crisis. With additional measures to contain the spread of the virus set to further paralyse large parts of the economy in coming months, such as business closures and potential lockdowns, a recession of a scale we have not seen in modern history is looking increasingly likely.

                                  “Historical comparisons indicate that the March survey reading is consistent with GDP falling at a quarterly rate of 1.5-2.0%, a decline which is sufficiently large to push the economy into a contraction in the first quarter. However, this decline will likely be the tip of the iceberg and dwarfed by what we will see in the second quarter as further virus containment measures take their toll and the downturn escalates.

                                  “Any growth was confined to small pockets of the economy such as food manufacturing, pharmaceuticals and healthcare. Demand elsewhere has collapsed, both for goods and services, as increasing numbers of households and businesses at home and abroad close their doors.”

                                  Full release here.

                                  Minneapolis Fed Kashkari: Fed should hike only to neutral policy stance

                                    By
                                    ActionForex.com
                                    -

                                    Minneapolis Fed President Neel Kashkari said in a article that “inflation and wage growth have been surprisingly low” despite tight job market. Now, wages is only growing at 2.7% annually, comparing to 3.5% before the financial crisis.

                                    He pointed out that the headline unemployment rate in the US “captures” only those who are actively looking for jobs. Therefore, the 3.9% unemployment rate may not “capture the true slack” in the market. And “hidden slack” could explain the modest wage growth.

                                    And Kashkari concluded that Fed should hike “only to a neutral policy stance, and not move too quickly”. And that’s until there are more evidence of wage growth and the US is “really” at maximum employment.

                                    Full article here.

                                    France Macron warns: Pass the Brexit deal and get short extension, or no deal

                                      By
                                      ActionForex.com
                                      -

                                      EU officials are generally raising the pressure on UK for passing the Brexit deal. French President Emmanuel Macron said in Brussels that “I am quite open to a technical extension – it should be as short as possible – in the case of a positive vote.” However, “in the case of a negative vote in the British parliament, we will be going to a no-deal. We all know that.”

                                      He emphasized: “It is absolutely essential to be clear in these days and these moments, because it is a matter of the good functioning of the EU. We cannot have what I would call an excessive extension which would harm our capacity to decision and to act.”

                                      South Korean Moon declared era of no war with North Korean Kim

                                        By
                                        ActionForex.com
                                        -

                                        South Korean President Moon Jae-in had a rather successful summit, the third one this year, with North Korean Leader Kim Jong-Un. Speaking at a joint news conference in Pyongyang after the meeting, hey pledged to turn Korean peninsula into “land of peace without nuclear weapons and nuclear threats” and take “prompt steps” toward the goal.

                                        Kim added that “the world is going to see how this divided nation is going to bring about a new future on its own”. Meanwhile, Moon said “the era of no war has started,” and “today the North and South decided to remove all threats that can cause war from the entire Korean peninsula.”

                                        According to Moon, Kim also “expressed its readiness” on permanent dismantlement of its main nuclear facilities in Yongbyon. However, correspondingly measures have to be taken by the US.

                                        Trump, as cheerleader on the sideline, tweeted “Kim Jong Un has agreed to allow Nuclear inspections, subject to final negotiations, and to permanently dismantle a test site and launch pad in the presence of international experts. In the meantime there will be no Rocket or Nuclear testing.” But again, there was no well deserved credit given to Moon.

                                        Fed minutes: All participants viewed near-term outlook as deteriorated sharply

                                          By
                                          ActionForex.com
                                          -

                                          FOMC minutes noted that “all participants viewed the near-term U.S. economic outlook as having deteriorated sharply in recent weeks and as having become profoundly uncertain.” Hence, “almost all members agreed to lower the target range for the federal funds rate to 0 to 1/4 percent.”

                                          “With regard to monetary policy beyond this meeting, these participants judged that it would be appropriate to maintain the target range for the federal funds rate at 0 to ¼ percent until policymakers were confident that the economy had weathered recent events and was on track to achieve the Committee’s maximum employment and price stability goals”, the minutes added.

                                          Separately, Dallas Fed President Robert Kaplan said because of the coronavirus pandemic shock, consumer behavior could be more cautious. “It’s not just the safety concerns… it’s also financial and potentially job insecurity which might cause them to save more and spend less.”

                                          Chicago Fed President Charles Evans warned of a potentially fragile recovery at least until a vaccine is available. Continuing pandemic would risk a “deep and prolonged” downturn. Richmond Fed President Thomas Barkin said “businesses will have to find a way to convince consumers to shop, or eat out, to travel, or go to a concert or a game,” after reopening up.

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