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EU Dombrovskis: EDP on Italy is not just about procedure

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    ActionForex.com
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    European Commission Vice President Valdis Dombrovskis said the Commission concluded that Italy’s debt criterion is not complied with and there fore a “debt-based excessive deficit procedure (EDP) is warranted”. EDP is not opened today yet. And EU member states will give their views on the report on Italy first. Then, economic and financial committee has two weeks to form its opinion. He added “it’s much more than just about the procedure, when we look at the Italian economy we see the damage that recent policy choices are doing.”

    The Commission estimated that Italy used EUR 2.2B more than expected to service its debt in 2018. And it’s paying as much toward its debt servicing as it does toward its entire education system. Dombrovskis added “growth has come to almost a halt … and we now expect the Italian debt (to GDP) ratio to rise in 2019 and 2020 to over 135%.”

    Earlier today, coalition League’s economic chief Claudio Borghi rejects fiscal tightening measures and warned that Economy Minister Giovanni Tria must take a “hard line on EU budget talks”.

    Eurozone retail sales dropped -0.4% mom, PPI slowed to 2.6% yoy

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      ActionForex.com
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      Eurozone retail sales dropped -0.4% mom in April, slightly better than expectation of -0.5% mom. Volume of retail trade decreased by 0.4% for food, drinks and tobacco and for non-food products, while automotive fuel increased by 0.1%. EU28 retail sales dropped -0.3% mom. In EU, volume decreased by 0.4% for non-food products and by 0.2% for food, drinks and tobacco and for automotive fuel.

      Among Member States for which data are available, the largest decreases in the total retail trade volume were registered in Germany (-2.0%), Portugal (-1.0%) and Croatia (-0.9%). The highest increases were observed in Sweden (+2.4%), Slovenia (+2.0%) and Malta (+1.7%).

      Eurozone PPI came in at -0.3% mom, 2.6% yoy in April, below expectation of 0.2% mom, 3.1% yoy. EU 28 PPI was at -0.1% mom, 2.9% yoy.

      The largest monthly decreases in industrial producer prices were recorded in Belgium (-1.7%), Italy (-1.5%) and Sweden (-0.8%), while the highest increases were observed in Denmark and Greece (both +1.2%), and Hungary (+0.9%).

      Annually, the highest increases in industrial producer prices were recorded in Romania (+6.7%), Hungary (+6.5%) and Latvia (+5.6%), while there were no decreases observed.

      IMF lowered China growth forecast on trade tensions, but no additional policy stimulus needed yet

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        ActionForex.com
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        IMF lowered growth forecast for China in 2019 to 6.2% (down from 6.3%). For 2020, growth forecast was cut to 6.0% (down from 6.1%). The IMF’s First Deputy Managing Director, David Lipton, noted that the economy stabilized in early 2019 reflecting a wide range of policy support. However, “renewed trade tensions” is a “significant course of uncertainty” that weighs on sentiment.

        However, IMF noted that “policy stimulus announced so far is sufficient to stabilize growth in 2019/20 despite the recent US tariff hike. ” And “no additional policy easing is needed” for the moment, provided there are no further increases in tariffs or a significant slowdown in growth. However, if trade tensions escalate further, “some additional policy easing would be warranted.

        Full statement here.

        UK PMI services rose to 51.0, but pace of expansion remained disappointingly muted

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          ActionForex.com
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          UK PMI services rose to 51.0 in May, up from 50.4 and beat expectation of 50.6. Markit noted there was modest increase in business activity. New work rises for the first time since December 2018. But there was slowest rise in input costs for 12 months. All Sector PMI Index dropped to 0.7, down from 50.9. A sharp slowdown in manufacturing production growth and lower construction output more than offset an improvement in service sector business activity.

          Chris Williamson, Chief Business Economist at IHS Markit, which compiles the survey:

          “Although service sector business activity gained a little momentum in May, with growth reaching a three-month high, the pace of expansion remained disappointingly muted and failed to offset a marked deterioration in manufacturing performance and a fall in output of the construction industry during the month. As a result, the PMI surveys collectively indicated that the UK economy remained close to stagnation midway through the second quarter as a result, registering one of the weakest performances since 2012.

          “Companies reported that activity, order books and hiring were all subdued by a combination of weak demand – both in domestic and overseas markets – and Brexit-related uncertainty.

          “On a brighter note, optimism about the year ahead picked up to an eight-month high, in part reflecting an easing of near-term concerns due to the extension of the Brexit deadline to 31st October. However, it is clear that many businesses remain cautious in relation to spending and investing in the uncertain political environment, which is exacerbating the impact of a wider global economic slowdown on the UK.”

          Full release here.

          Eurozone PMI Composite finalized at 51.8, suggests 0.2% Q2 GDP growth only

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            ActionForex.com
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            Eurozone PMI services was finalized at 52.9, up from flash reading at 52.5 and April’s final at 52.9. PMI Composite was revised up to 51.8, up from flash reading of 51.6 and April’s final at 51.5. Among the countries, Italy PMI Composite improved to 49.9, 2-month high. France PMI Composite rose to 51.2, 6-month high. German PMI Composite rose to 52.6, 3-month high. But Spain PMI Composite dropped to 52.1, 66-month low.

            Chris Williamson, Chief Business Economist at IHS Markit said:

            “The final eurozone PMI for May came in higher than the flash estimate, indicating the fastest growth for three months, but the overall picture remains one of weak current growth and gloomier prospects for the year ahead. While the service sector has seen business conditions improve compared to late last year, growth remains only modest, in part reflecting a spill-over from the trade-led downturn in the manufacturing sector.

            “Despite output at goods and service providers collectively rising at a slightly faster rate in May, the survey data are merely indicating a modest 0.2% rise in GDP in the second quarter.

            “Furthermore, there seems little prospect of any immediate improvement: new orders barely rose in May, painting one of the gloomiest pictures of demand seen over the past six years, and companies’ expectations of growth over the coming year likewise fell to one of the lowest in six years.

            “The survey also brought further signs that companies are having to increasingly compete on price to sustain sales growth, dampening inflationary pressures to the lowest for two-and-a-half years.

            “Although Germany and France saw stronger growth in May, rates of increase remained subdued. Spain meanwhile saw growth slip to the lowest since late-2013 but Italy once again reported the toughest conditions, stuck in a mild downturn.”

            Full released here.

            China Caixin PMI Services dropped to 52.7, subdued expectations linked to ongoing China-US trade dispute

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              ActionForex.com
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              China Caixin PMI Services dropped to 52.7 in May, down from 54.5 and missed expectation of 54.2. PMI Composite dropped to 5.15, down from 52.7. Markit noted that “overall confidence towards the year ahead weakened to the lowest on record, which was primarily driven by weaker sentiment at manufacturers”. Also, “expectations at goods producers were the least upbeat since the series began in April 2012″, ” services firms registered the lowest degree of confidence since July 2018″.

              And, “subdued expectations were often linked to the ongoing China-US trade dispute and relatively subdued global demand conditions.”

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

              “The Caixin China General Services Business Activity Index fell to 52.7 in May from the recent high of 54.5 in April, although it remained firmly within expansionary territory. Among the gauges included in the survey:

              1. The gauge for new business fell from the past month’s recent high but remained in expansionary territory, reflecting slowing growth in demand across the services sector.
              2. The measure for employment fell from the past month’s recent high while remaining within expansionary territory, suggesting jobs growth is slowing.
              3. Gauges for input costs and prices charged by services providers both fell slightly while remaining in expansionary territory. Growth in input costs outpaced that of prices charged, indicating that services companies remained under significant pressure.
              4. The measure for business expectations continued to fall, despite staying in positive territory, reflecting services providers’ weakening confidence in their future prospects.

              “The Caixin China Composite Output Index fell to 51.5 in May from 52.7 the month before, mainly due to slower growth in the service sector.

              1. The gauge for new orders edged down while remaining in expansionary territory, while the measure for new export orders returned to growth, pointing to weakening demand at home but improved demand abroad. The negative effects of China-U.S. tensions on exports have yet to emerge, perhaps due to exporters front-loading shipments of products that are in the remaining $300 billion of goods not subject to punitive tariffs.
              2. The employment gauge continued to fall, entering contractionary territory. This suggested the labor market is under pressure. In a move that is likely related, the State Council recently set up a new leading group on employment.
              3. Both gauges for input costs and output charges edged down while remaining in expansionary territory. Growth in input costs outpaced that of output charges, indicating companies continued to be squeezed.
              4. The measure for future output fell markedly, to the lowest reading since the series began in 2012, although it remained in positive territory. This indicates business confidence is in urgent need of a boost.

              “Overall, China’s economic growth showed some signs of slowing in May. Employment and business confidence in particular merit policymakers’ attention.”

              Full release here.

              Australia GDP grew 0.4% in Q1, driven mainly by government spending

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                ActionForex.com
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                Australian GDP grew 0.4% qoq in Q1, matched expectations. Annually, growth slowed to 1.8% yoy, down from 2.3% yoy and matched expectations too. But the details are rather weak. Government spending was the main contributor to growth, while rose 0.8%. Household spending slowed to 0.3% and contributed a modest 0.1%. And, dwelling investment contracted by -2.5% while slowing housing market has resulted in significant falls in ownership transfer costs. Non-mining investment rose 2.0% while mining investment dropped -1.8%.

                Gross domestic product, Volume measures: Seasonally adjusted

                Separately, RBA Head of Economic Analysis Alexandra Heath said in a report that ” mining investment is probably around its trough and is likely to pick-up gradually over the next year or so”. And, “resource exports are also expected to contribute to GDP growth before plateauing at a new, higher level.”

                Fed Clarida: Will put in place policies to sustain price stability and maximum employment

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                  ActionForex.com
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                  Fed Vice Chair Richard Clarida emphasized yesterday that policymakers would “put in place policies that not only achieve but sustain price stability and maximum employment, and we’ll do that if we need to.” He added that interest rates are now at the lower end of that range consistent with 2% inflation. While markets are pricing in rate cuts as tariff wars have intensified, he noted Fed shouldn’t be “handcuffed” to fluctuations in markets.

                  On yield curve, Clarida said “historically a flat yield curve doesn’t convey a lot of information”. However, if yield curve inversion “persists for some time”, “that’s obviously something I would definitely take seriously.” But for now, “I would not view this as a strong signal of concern. We are early into it. It’s certainly something we’ll keep looking at.”

                  Separately, in a WSJ interview, Dallas Fed Robert Kaplan sounded calm regarding the trade tensions between US, China and Mexico. He said: “I want to take a little bit more time and be patient here, because some of these recent events could be reversed… Worth being cognizant of the fact that these recent tensions have just elevated in the last five, six weeks… And in the next five, six weeks, a number of them could be alleviated.”

                  DOW rises over 400pts on Fed Powell’s openness to rate cut

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                    ActionForex.com
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                    US stocks stage a very strong rebound today with DOW trading up over 400 pts at the time of writing. Fed Chair Jerome Powell’s short comments on current outlook and policy seemed to be the trigger. Markets believed that Powell signaled his openness to rate cut.

                    This is the exact quote from the remarks: “I’d like first to say a word about recent developments involving trade negotiations and other matters. We do not know how or when these issues will be resolved. We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective. My comments today, like this conference, will focus on longer-run issues that will remain even as the issues of the moment evolve.

                    It’s firstly seen as acknowledgement on risks from “trade negotiations and other markets” And Fed will “act as appropriate” after monitoring the implications on economic outlook. That is, some saw that as a node to cutting rates if the economy worsen due to Trump’s trade wars.

                    Technically, it now looks like DOW has drawn strong support from 38.2% retracement of 21712.53 to 26695.96 at 24792.28. The gap resistance at 25342.28 will likely be taken out this week to confirm short term bottoming at 2480.57. The real test is on 55 day EMA (now at 25736). Before sustained trading above this EMA, we’d still favor another decline to 61.8% retracement at 23616.20 and below.

                    Trump: It’s more likely tariffs on Mexico go on

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                      ActionForex.com
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                      Trump indicates at a news conference that he is likely to go ahead with tariffs on Mexico. And Mexico should “step up” to stop “invasion” to the US. At the same time he blamed Democrats for stalling Congress’ efforts to address the situation at border.

                      He said “We’re going to see if we can do something, but I think it’s more likely that the tariffs go on… Mexico should step up and stop this onslaught, this invasion into our country.”

                      Mexican Foreign Minister Marcelo Ebrard is “going to find common ground” with the US and hoped Wednesday’s meeting in Washington could be a starting point for negotiations.

                      Fed Powell: Policymakers do not know how or when trade war will end

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                        ActionForex.com
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                        In the opening remarks at the “Conference on Monetary Policy Strategy, Tools, and Communications Practices”, Fed Chair Jerome Powell said policy makers “do not know how or when” the issues on trade negotiations and other matters will be resolved. But they are closely monitoring the implications on economic outlook. And, Fed will “act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective.”

                        For the rest of the remarks, Powell focus on the longer-run issues related to the public review on monetary policy strategy, tools and communications. Specifically, the review in focused on three questions:

                        1. Can the Federal Reserve best meet its statutory objectives with its existing monetary policy strategy, or should it consider strategies that aim to reverse past misses of the inflation objective?
                        2. Are the existing monetary policy tools adequate to achieve and maintain maximum employment and price stability, or should the toolkit be expanded?
                        3. How can the FOMC’s communication of its policy framework and implementation be improved?

                        Full remarks here.

                        Fed Evans: Current monetary policy setting has been appropriate

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                          ActionForex.com
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                          Chicago Fed President Charles Evans insisted in a CNBC interview that the economy remains solid and interest rate is at the right place. He said “our current setting has been appropriate, but if we sense that there was some greater uncertainty, some softening, we’d have to take that into account and ask, are we getting in the way of the economy.”

                          While markets are betting on Fed rate cuts this year, Evans said they are “something that I haven’t yet seen in the national data.” In particular, he pointed out that consumption and employment continued to be strong, even though business investment as not as strong as he’d like.

                          Into US session: Dollar refusing to give up despite selloff, stocks recovering

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                            ActionForex.com
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                            The forex markets are rather mixed today. Dollar extended yesterday’s selloff, on free falling treasury yields and after St. Louis Fed James Bullard became the first policymaker calling for a rate cut. But the greenback is not totally giving up yet. EUR/USD is struggling around 1.1263 resistance, AUD/USD around 0.6988 resistance and USD/CAD around 1.3429 support. There is no follow through selling in Dollar yet.

                            Australian Dollar is currently joint strongest with Canadian. RBA cut interest rate to 1.25% and Governor Philip Lowe deliberately noted that more rate cuts are on the table. But Aussie just shrugged them off. Euro is next strongest but upside is capped by mixed economic data. Eurozone CPI slowed more than expected to 1.2% yoy in May but unemployment rate dropped to record low at 7.6% in April. Sterling is also firm even though UK PMI construction dropped back into contraction region. Swiss Franc and Yen are the weakest ones for today, as European indices are trading higher together DOW futures.

                            In Europe, currently:

                            • FTSE is up 0.25%.
                            • DAX is up 1.14%.
                            • CAC is up 0.28%.
                            • German 10-year yield is down -0.0121 at -0.211.

                            Earlier in Asia:

                            • Nikkei dropped -0.01%.
                            • Hong Kong HSI dropped -0.49%.
                            • China Shanghai SSE dropped -0.96%.
                            • Singapore Strait Times rose 0.61%.
                            • Japan 10-year JGB yield dropped -0.074 to -0.10.

                            RBA Lowe: Possibility of lower interest rates remains on the table

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                              ActionForex.com
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                              RBA Governor Philip Lowe used a speech to explain today’s rate cut. He emphasized that the decision “is not in response to a deterioration in our economic outlook”. But its to “support employment growth and to provide greater confidence that inflation will be consistent with the medium-term target.”

                              The timing of today’s cut was due to “accumulation of evidence” of subdued inflation, significant spare capacity in the labor market. And collectively, these factors have contributed to delayed progress in returning inflation to the 2–3 per cent target range.

                              Meanwhile, RBA board “has not yet made a decision” on whether there will be more interest rate reduction. He noted that current set of forecasts were based on assumptions that “cash rate would follow the path implied by market pricing, which was for the cash rate to be around 1 per cent by the end of the year.” But a range of other possible scenarios and much will depend on how the evidence evolves, especially on the labour market.

                              He added: “It is possible that the current policy settings will be enough – that we just need to be patient. But it is also possible that the current policy settings will leave us short. Given this, the possibility of lower interest rates remains on the table”.

                              He full speech here.

                              Eurozone unemployment rate dropped to record low, CPI slowed to 1.2%

                                By
                                ActionForex.com
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                                Eurozone Unemployment rate dropped to 7.6% in April, down from 7.7% and beat expectation of 7.7%. That’s also the lowest rate recorded since August 2008. EU 28 unemployment rate was unchanged at 6.4% in April.

                                Among the Member States, the lowest unemployment rates in April 2019 were recorded in Czechia (2.1%), Germany (3.2%) and the Netherlands (3.3%). The highest unemployment rates were observed in Greece (18.5% in February 2019), Spain (13.8%) and Italy (10.2%).

                                Eurozone CPI slowed to 1.2% yoy in May, down from 1.7% yoy and missed expectation of 0.9% yoy. Core CPI dropped to 0.8% yoy, down from 1.3% yoy and missed expectation of 0.9% yoy. Looking at the components, energy is expected to have the highest annual rate in May (3.8%, compared with 5.3% in April), followed by food, alcohol & tobacco (1.6%, compared with 1.5% in April), services (1.1%, compared with 1.9% in April) and non-energy industrial goods (0.3%, compared with 0.2% in April).

                                UK PMI construction dropped to 48.6, lowest since March 2018

                                  By
                                  ActionForex.com
                                  -

                                  UK PMI construction dropped to 48.6 in May, down fro 50.5 and missed expectation of 50.6. That’s also the lowest reading since the snow-related downturn in construction output during March 2018. Additionally, there was the sharpest drop in workforce numbers since November 2012. And commercial work remains the weakest performing category.

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

                                  “May data reveals another setback for the UK construction sector as output and new orders both declined to the greatest extent since the first quarter of 2018. Survey respondents attributed lower workloads to ongoing political and economic uncertainty, which has led to widespread delays with spending decisions and encouraged risk aversion among clients.

                                  “Commercial building remained hardest-hit by Brexit uncertainty, with construction firms reporting the steepest fall in this category of activity since September 2017. Civil engineering work also dried up in May and a fourth consecutive monthly fall in activity marked the longest period of decline since the first half of 2013. Construction companies often commented that recent tender opportunities for civil engineering work had been insufficient to replace completed projects.

                                  “House building was the only sub-category of construction output to buck the downward trend in May, but growth remained softer than on average in 2018.

                                  “The soft patch for construction work so far this year has started to impact on staff hiring, with some firms cutting back on expansion plans and others opting to delay the replacement of voluntary leavers. May data revealed that the latest fall in employment numbers was the steepest for six-and-a-half years. Survey respondents once again noted concerns that the subdued domestic economic outlook and delays related to Brexit uncertainty had curtailed their near-term growth prospects.”

                                  Full release here.

                                  UK Fox backs Hunt to be PM, dealmaking is part of his DNA

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                                    ActionForex.com
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                                    UK Trade Minister Liam Fox said he’s backing Foreign Minister Jeremy Hunt in the race to be the next Prime Minister. He told BBC radio, “in this contest I’ll be backing my friend Jeremy Hunt who is an impressive foreign secretary, an entrepreneur by background, where dealmaking is part of his DNA,”

                                    Fox added, “he understands that we have to message to Europe that we will leave if we cannot get an appropriate deal, but we’ll try to get a deal.” Meanwhile, Fox also warned of “the prospect of a no deal might well be used by those who seek to break up the UK, to use that as a weapon in that particular battle, both I think in Northern Ireland and potentially in Scotland.”

                                    Fed Bullard: Rate cut could be coming as severe trade uncertainties may bring sharper than expected slowdown

                                      By
                                      ActionForex.com
                                      -

                                      St. Louis Fed President James Bullard warned the current policy rate setting is “inappropriately high” in the remarks presented to the Union League Club of Chicago on Monday. And, a rate cut could be coming soon to help “re-center inflation and inflation expectations” and provided “insurance” in case of “sharper-than-expected slowdown.”

                                      He noted that US GDP growth in 2019 is expected to be a a lot slower than 3.2% over the last year. And more importantly “to the extent global trade uncertainties have become more severe, this slowing may be sharper than previously anticipated”.

                                      Additionally, he noted that yield curve inversion has become more pronounced recently, with 10-year yield below federal funds rate. And, “Financial markets appear to expect less growth and less inflation going forward than the FOMC does, a signal that the policy rate setting may be too restrictive for the current environment.”

                                      So, “a downward adjustment of the policy rate may help re-center inflation and inflation expectations at the 2% target, and simultaneously provide some insurance in case the slowdown is sharper than expected,” Bullard said, adding, “Even if the sharper-than-expected slowdown does not materialize, a rate cut would only mean that inflation and inflation expectations return to target more rapidly.”

                                      Full statement at St. Louis Fed here.

                                      Mexico rejects safe third country proposal, pledges retaliation to US tariffs

                                        By
                                        ActionForex.com
                                        -

                                        As Mexican officials are meeting US counterparts this week to avert sudden increase in tariffs, Foreign Minister Marcelo Ebrard rejected that the so called “safe third country” proposal. Under this option favored by some US officials, Mexico will be forced to handle Central Americans seeking asylum in the US. Ebrard said “an agreement about a safe third country would not be acceptable for Mexico… They have not yet proposed it to me. But it would not be acceptable and they know it.”

                                        Ebrard also hit back at Trump’s claims that Mexico was doing “nothing” to help the US. And he said 250k more immigrants would reach the United States in 2019 without its efforts. He reiterated the country’s commitment to continue to work on curbing migration flows from Central America to US.

                                        Separately, Mexican Economy Minister Graciela Marquez warned in a statement that Trump’s tariffs on Mexican imports would affect all 50 US states, harm value chains, consumers and trade-related jobs in both countries. The proposed tariffs would cause total economic damage to the agriculture sector of $117 million per month in both countries. Marquez also pledged to retaliate if the proposed tariffs were imposed.

                                        Mexico’s ambassador to the United States, Martha Barcena, also warned “Tariffs, along with the decision to cancel aid programs to the northern Central American countries, could have a counterproductive effect and would not reduce migration flows.”

                                        US accused China for blame game and misrepresentation of history on trade war

                                          By
                                          ActionForex.com
                                          -

                                          On Monday, US Trade Representative and Treasury Department issued a joint statement in response to China’s “White Paper” on trade negotiations. The statement criticized China for pursuing a “blame game misrepresenting the nature and history of trade negotiations between the two countries.” And, all started with “unfair trade practices that China has engaged in for decades, which have contributed to persistent and unsustainable trade deficits”

                                          They also hit back on China’s claims and noted “our insistence on detailed and enforceable commitments from the Chinese in no way constitutes a threat to Chinese sovereignty.” They emphasized that “the issues discussed are common to trade agreements and are necessary to address the systemic issues that have contributed to persistent and unsustainable trade deficits.”

                                          Full statement here.

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