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ISM manufacturing dropped to 52.1, price paid jumped, manufacturers concerned with trade war escalation

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    ActionForex.com
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    ISM Manufacturing Index dropped to 52.1 in May, down from 52.8 and missed expectation of 53.0. Looking at some details, new orders rose from 51.7 to 52.7, productions dropped from 52.3 to 51.3. Employment rose from 52.4 to 53.7. Prices rose 3.2 to 53.2.

    “Respondents expressed concern with the escalation in the U.S.-China trade standoff, but overall sentiment remained predominantly positive. The PMI® continues to reflect slowing expansion,” says Timothy Fiore, Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee..

    Here are some comments from respondents:

    • “Ongoing tariffs [issue is] impacting costs and influencing supplier realignment on country of origin. Border issue is causing delays in imports from Mexico.” (Computer & Electronic Products)
    • “The threat of additional tariffs has forced a change in our supply chain strategy; we are shifting business from China to Mexico, which will not increase the number of U.S. jobs.” (Chemical Products)
    • “Sales remain strong. Labor remains tight. Tariffs are having a significant impact on cost of goods. No impact on where we buy our goods.” (Food, Beverage & Tobacco Products)
    • “The threat of a 15-percent increase on Section 301 tariffs is a concern. Although the potential has been around for months, the recent deadline was not expected. We had calculated and communicated the potential cost impact to our leadership.” (Petroleum & Coal Products)
    • “Newly increased tariffs on Chinese imports pose an issue on a number of chemicals and materials that are solely produced in China. We are expecting increases in raw materials starting June 1.” (Plastics & Rubber Products)

    Full release here.

    Into US session: EUR/CHF breaks key support, but overbought Yen consolidates

      By
      ActionForex.com
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      Sentiments hit their bottom during early European session but improved as the session goes. Most notably, German 10-year bund yield dropped to new record low of -0.217 but recovered much ground since then. That was enough to push EUR/CHF through key support at around 1.1150/60 to new two year low. But other than that, the forex markets are running its own course. The overbought Yen is not joining Franc’s run as it’s turning into consolidations. The Pound is weighed down by poor PMI manufacturing which dropped into contraction as impact of pre-Brexit stockpiling reversed. Meanwhile, New Zealand and Australian Dollar decouple from risk aversion. Both are having noticeable recovery, ahead of tomorrow’s RBA rate cut.

      After China’s hard-line white paper on trade relationship with US, it’s confirmed that there is little chance of any progress in trade negotiations for the near term. Not to mention, there is practically no chance for a deal between Trump and Xi at the G20 summit in Japan later this month. Trump’s tweet on the topic is also calm. He noted that “China is subsidizing its product in order that it can continue to be sold in the USA. Many firms are leaving China for other countries, including the United States, in order to avoid paying the Tariffs. No visible increase in costs or inflation, but U.S. is taking Billions!” There’s no point to debate how true Trump’s claims are, much like China’s denial of its own faults. The point is, Trump is also preparing his supports to stand by his trade war with China.

      The bigger issue for the near term will be tariffs on Mexico. Mexico’s Foreign Minister Marcelo Ebrard expressed his confidence to reach an agreement with US to resolve the migration flow dispute. He said today that if Washington imposed tariffs on Mexican imports it could be counterproductive to stopping immigration flows across the southern U.S. border. Meetings will be carried out on the issue this week, starting today. And Mexico looks very willing to do something. However,  Mick Mulvaney, the acting White House chief of staff, indicated that there is no concrete criteria to judge whether Mexico has done enough to avert tariffs. And Mulvaney further said “We intentionally left the declaration sort of ad hoc… So, there’s no specific target, there’s no specific percentage, but things have to get better… They have to get dramatically better and they have to get better quickly.” That is, Trump can move the goalpost for Mexico in anyway he wants. Such uncertainty will keep markets pressured.

      In Europe, currently:

      • FTSE is down -0.13%.
      • DAX is down -0.09%.
      • CAC is down -0.02%.
      • German 10-year yield is down -0.0052 at -0.205.

      Earlier in Asia:

      • Nikkei dropped -0.92%.
      • Hong Kong HSI dropped -0.03%.
      • China Shanghai SSE dropped -0.30%.
      • Singapore Strait Times rose 0.18%.
      • Japan 10-year JGB yield rose 0.0053 to -0.091.

      Gold breaches 1315 as rebound accelerates, heading back to 1346.7 resistance

        By
        ActionForex.com
        -

        Gold’s strong rally since last week firstly suggests resumption of rebound from 1266.26. More importantly, it argues that corrective fall from 1346.71 has completed at 1266.26 already. Further rise is now in favor back to retest 1346.71 first.

        The strong support from 55 week EMA is taken as a rather bullish signal. It’s also raising the change that gold would finally overcome long term fibonacci resistance of 38.2% retracement of 1920.70 (2011 high) to 1046.37 (2015 low) at 1380.36. If that happens, it could also markets bearish reversal in Dollar for medium term term. But of course, gold has to take out above mentioned 1346.71 near term resistance first. Let’s see how it goes.

        Both Johnson and Hunt prepared for no-deal Brexit

          By
          ActionForex.com
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          As the race for UK Prime Minister position continues, former Foreign Minister Boris Johnson pledged to leave EU on time on October 31, with or without a deal. He said “If I get in we’ll come out, deal or no deal, on October the 31st.” On other policies he said “Now is the time to unite our society, and unite our country. To build the infrastructure, to invest in education, to improve our environment, and to support our fantastic NHS (National Health Service) … To lift everyone in our country, and of course, also to make sure that we support our wealth creators and the businesses that make that investment possible.”

          Current Foreign Minister Jeremy Hunt also said he’s prepared for no-deal Brexit in there was no alternative. He told BBC Radio “In the end, if the only way to leave the European Union, to deliver on the result of the referendum, was to leave without a deal, then I would do that… But I would do so very much as a last resort, with a heavy heart because of the risks to businesses and the risks to the union.”

          UK PMI manufacturing dropped to 49.4, first contraction July 2016

            By
            ActionForex.com
            -

            UK PMI manufacturing dropped to 49.4 in May, down from 53.1 and missed expectation of 52.2. That’s also the lowest level in 34 months. Markit noted that manufacturers reported increased difficulties in convincing clients to commit to new contracts during May, due to high level of inventories from pre-Brexit stockpiling. New order inflows also deteriorated from both domestic and overseas sources.

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

            “The UK manufacturing sector was buffeted by ongoing Brexit uncertainty again in May. The headline PMI posted 49.4, moving back into contraction territory for the first time since July 2016, the month directly following the EU referendum result. The trend in output weakened and, based on its relationship with official ONS data, is pointing to a renewed downturn of production

            “New order inflows declined from both domestic and overseas markets, as already high stock levels at manufacturers and their clients led to difficulties in sustaining output levels and getting agreement on new contracts. Demand was also impacted by ongoing global trade tensions, as well as by companies starting to unwind inventories built up in advance of the original Brexit date. Some EU-based clients were also reported to have shifted supply chains away from the UK.

            “Although the consumer goods sector remained a positive growth spot, the intermediate and investment goods industries are still comparatively weak, in part reflecting the reverberation of the recent sharp slowdown the autos sector. With these demand, purchasing and inventory trends likely to stay in play for the foreseeable future, the current manufacturing downturn may have further to run and will have negative ramifications for growth in the broader economy in the months ahead.”

            Full release here.

            Eurozone PMI manufacturing finalized at 47.7, toughest spell since 2013 continued

              By
              ActionForex.com
              -

              Eurozone PMI Manufacturing was finalized at 47.7 in May, unrevised, down from April’s 47.9. That’s also very close to six year low at 47.5 made in March. Looking at the member states, German PMI manufacturing was worst at 44.3. Austria reading dropped to 50-month low at 49.5. Italy reading improved to 8-month high at 49.5 but stayed below 50. Spain reading dropped to 3-month low at 50.2. France reading improved to 3-month high at 50.6, barely expanding.

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

              “Euro area manufacturing remained in contraction during May, suggesting the sector will act as a drag on the wider economy in the second quarter.

              “A fourth successive monthly drop in output and further steep decline in new orders underscored how the sector remains in its toughest spell since 2013. Companies are tightening their belts, cutting back on spending and hiring. Input buying, inventories and employment are all now in decline as manufacturers worry about being exposed to a further downturn in demand.

              “That said, although the headline PMI fell in May, the decline masked slower rates of decline for both output and new orders. The forward-looking orders- to- inventory ratio also picked up for a second month running to reach a six-month high, the improvement of which augurs well for the downturn to moderate in June.

              “However, trade wars, slumping demand in the auto sector, Brexit and wider geopolitical uncertainty all remained commonly cited risks to the outlook, and all have the potential to derail any stabilisation of the manufacturing sector.”

              Full release here.

              Also released, Swiss CPI slowed to 0.6% yoy in May, down from 0.7% yoy and matched expectation. Swiss PMI manufacturing rose 0.2 to 48.6 in May, below expectation of 48.8.

              China Caixin PMI manufacturing unchanged at 50.2, some resilience with weakened confidence

                By
                ActionForex.com
                -

                China Caixin manufacturing PMI was unchanged at 50.2 in May, above expectation of 50.0. Production was broadly stable in May. Total new work and export sales both increase slightly. And, there was renewed rise in purchasing activity.

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

                “The Caixin China General Manufacturing Purchasing Managers’ Index was 50.2 in May, unchanged from the previous month, indicating a mild expansion in the manufacturing sector.

                1) The subindex for new orders edged higher, and the gauge for new export orders moved back above 50 to the same level as in January, which was the best reading since March 2018. The improvements in both indices signals stable domestic and overseas demand.

                2) The output subindex declined for the second straight month, although it remained marginally in expansionary territory. Employment conditions have broadly stabilized, with the employment subindex showing only a marginal drop in staff numbers.

                3) The gauge of stocks of purchased items moved back above the 50 mark that divides expansion from contraction and the measure of stocks of finished goods edged up, albeit remaining in contractionary territory, indicating that while inventories remain low, manufacturers’ willingness to replenish stocks has strengthened. The subindex measuring supplier performance fell further into contractionary territory, to signal that companies are taking longer to ship orders and also a reflection of relatively low inventory levels.

                4) The gauge of input prices showed a marginal increase, while that of output prices edged down to the lowest reading in four months, suggesting that while prices of manufactured goods remained relatively stable, enterprises are facing pressure from rising raw material prices.

                5) The subindex measuring sentiment towards future output plunged to its lowest reading since the gauge began in April 2012, a reflection of the trade conflict between China and the U.S. and weakened business confidence.

                “Overall, China’s economy showed steady growth and resilience in May. The manufacturing sector saw demand rise from both overseas and domestic markets, and prices were stable. However, business confidence weakened, and manufacturers’ inventory levels remained low. The trade tensions between the U.S. and China are having an impact on confidence and the best way to respond to this is to boost the confidence of enterprises, residents and capital markets by carrying out favorable reforms and to undertake timely adjustments to regulations and controls.”

                Full release here.

                Japan PMI manufacturing finalized at 49.8, potential banana skins lie ahead

                  By
                  ActionForex.com
                  -

                  Japan PMI manufacturing was finalized at 49.8 in May, revised up from 49.6, down from 50.2 in April. Markit noted that domestic and external demand conditions deteriorate. Firms slow the rate of hiring amid production cutbacks. And, output expectations turn negative for first time since November 2012.

                  Joe Hayes, Economist at IHS Markit: “There were no signs a let-up in the recent manufacturing downturn during May, as output and new orders both slipped for fifth successive months. Weak demand from Japan’s key trade partner, China, as well as signs of an increasingly sluggish domestic economy, have impacted sales volumes…. Given the importance of capital goods to Japan’s foreign trade, it would suggest further difficulties lie ahead for Japanese exporters.

                  “With the upcoming sales tax hike and upper house elections in July, there lies ahead potential banana skins for Japanese firms to avoid. Re-escalated trade tensions between China and the US merely add to existing concerns for manufacturers. Subsequently, businesses cast a downbeat assessment for the year ahead for the first time in six-and-a-half years.”

                  Also from Japan, capital spending rose 6.1% in Q1, beat expectation of 2.6%.

                  Australia AiG PMI dropped to -2.1, wage index at lowest since Mar 2017

                    By
                    ActionForex.com
                    -

                    Australia AiG Performance of Manufacturing Index dropped -2.1 pts to 52.7 in May, suggesting a slower rate of growth. Looking at the details, production dropped sharply by -6.9 to 51.2. New orders dropped -3.3 to 52.3. exports dropped -3.6 to just 40.3. Employment index staged a strong rebound and rose 4.1 to 55.6. But average wages dropped -2.2 to 55.5. Input prices rose 3.6 to 68.3 but selling prices dropped -2.8 to 52.1.

                    In particular, on wages, 55.5 is the lowest monthly results since March 2017 and is well below historical average of 59.2. This index has been trending lower since its recent peak in September 2018. It indicates that fewer manufacturing businesses are now implementing wage rises, compared to the recent peak in Q3 of 2018.

                    Full release here.

                    Also from Australia, TD Securities inflation rose 0.0% mom in May. Company operating profit rose 1.7% qoq in Q1.

                    China reiterated known pre-conditions for resuming trade talks with US

                      By
                      ActionForex.com
                      -

                      China’s highly anticipated white paper on trade relationship with US was quite anti-climatic. In short, China blamed the US for starting trade conflicts. And, it criticized the US for going back on what’s agreed three times. And it hold US totally responsible for the collapse of trade negotiation.

                      China also reiterated pre-conditions on resuming trade negotiations. First, both sides have to respect “each other’s social system, economic system, development path and rights”. Secondly the negotiations has to be based on integrity. Thirdly, China will not step back on its principles, including sovereignty.

                      The implications are quite clear that China will not do anything to change its own development path along socialist market economy (or some would call that state capitalism). That is, China will not retreat from subsidizing State-Owned Enterprises. Secondly, the implementation of the agreement should be under full control of the sovereign entity. That is, for example, China will decide what new laws to pass to curb IP theft, or it will fulfil the commitment with administrative measures. China will object to US instructions on what are to be done exactly.

                      The overall paper, and the press conference are basically old wine in old bottles.

                      Full paper in Simplified Chinese.

                      Mexico doesn’t want war of tariffs and of taxes with US

                        By
                        ActionForex.com
                        -

                        Mexico’s Economy Minister Graciela Marquez is going to meet US Commerce Secretary Wilbur Ross in Washington on Monday to discuss Trump’s tariff threats. Foreign Minister Marcelo Ebrard will also be in Washington on Wednesday for the issue.

                        Mexican President Andres Manuel Lopez Obrador expected “good results” from the meetings. And he said on Saturday that “the main thing is to inform about what we’re already doing on the migration issue, and if it’s necessary to reinforce these measures without violating human rights, we could be prepared to reach that deal.”

                        Lopez Obrador also insisted that Mexico would not pursue trade war with the US. And, “we’re doing all we can to reach a deal through dialogue… we’re not going to get into a trade war, a war of tariffs and of taxes.”

                        EU Moscovici wants dialogue with Italy on budget, Tria doesn’t want clash

                          By
                          ActionForex.com
                          -

                          European Commissioner for Economic and Financial Affairs Pierre Moscovici said on Sunday that he’d still prefer dialogue with to sanctions on Italy regarding it’s budget. And, “for the past five years I have not punished anyone.” However, he emphasized “If they do not respect the rules at all, it will be necessary for the European Commission and the European states to take their responsibilities”. The Commission will make proposals this week on resolving the dispute with Italy over its budget deficit.

                          Italy’s Economy Minister Giovanni Tria blamed the economic downturn for rising debt. However, he also emphasized “Italy does not want to clash with the European Commission, and I hope the opposite is also true, that is to say that no one in Brussels intends to engage in a fight with us.” He reiterated the pledge to keep budget deficit below government forecast of 2.4% of GDP. And he added “our position is reasonable and I think we will eventually reach a compromise with the Commission.”

                          Trump: Tariff is about stopping drugs as well as illegals!

                            By
                            ActionForex.com
                            -

                            Trump continued his tariff threat on Mexico with his tweets. He blamed Mexico has “advantage of the United States for decades” and “makes a fortune” for decades. And it’s “time for them to finally do what must be done.

                            Further, he said if tariffs start rising, “companies will leave Mexico, which has taken 30% of our Auto Industry, and come back home to the USA”. And “Tariff is about stopping drugs as well as illegals!”

                            Sounds like tariff is the universal cure for everything!

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                            Canada GDP grew 0.5% mom in March, 0.4% annualized in Q1

                              By
                              ActionForex.com
                              -

                              Canada GDP grew 0.5% mom in March, , well above expectation of 0.3% mom. Goods-producing industries were up 0.7%, offsetting most of the decline in February, while services-producing industries (+0.4%) posted their strongest increase since May 2018. There were gains in 16 of the 20 industrial sectors.

                              For Q1, GDP grew an annualized 0.4%, well below expectation of 0.7%. Growth in real GDP was driven by a 0.9% increase in household spending and an 8.7% rise in business investment in machinery and equipment. These increases were moderated by a 1.0% decline in exports, coupled with a 1.9% increase in imports. Additionally, investment in housing continued to decline, down 1.6% in the first quarter.

                              US personal income rose 0.5%, spending rose 0.3%, core PCE at 1.6%

                                By
                                ActionForex.com
                                -

                                In April, US personal income rose 0.5% or USD 92.8B, above expectation of 0.3%. Spending rose 0.3% or USD 42.7B, above above expectation of 0.2%. Headline PCE rose to 1.5% yoy, up from 1.4% and matched expectations. Core PCE inflation rose to 1.6% yoy, up from 1.5% yoy and matched expectations.

                                Little reaction is seen in Dollar after the release. The question remains on whether inflation will “persistently” miss 2% target that eventually force a Fed cut. For now, there is no clear evidence for that yet. The greenback might need to look at ISMs and NFP next week for more inspirations.

                                Full release here.

                                China’s unreliable entities list on the way as countermeasures to US

                                  By
                                  ActionForex.com
                                  -

                                  Just as the Chinese Communist Party run hawkish tabloid Global Times warned that “major retaliative measures’ on US for Huawei are underway, the Commerce Ministry announced to set up a list of “unreliable entities” targets companies that violate market rules, cut off supply to the country.

                                  The ministry noted that for non-commercial purposes, some foreign entities impose blockades, confessions and other discriminatory measures against Chinese enterprises and damage their legitimate rights and interests”. Such entities endanger China’s national security and interests, and also pose a threat to global supply chain. Detailed measures regarding the list will be announced later.

                                  Off shore Chinese Yuan is back under pressure today, with USD/CNH hitting as high as 6.9472 so far. 6.9488 resistance is back in focus. Overall, we’re not expecting a sustainable top in USD/CNH at current level, not even at the psychologically important 7 handle.

                                  There were talks that USD/CNH above 7 would cause serious capital outflow and risks delaying internationalization of the Yuan. But it’s also noted that the government has implement measures already, including tighter compliance requirements. For, we’d believe that all the official would try is only slowing Yuan’s decline, rather than blocking it.

                                  Pound selloff resumes with EUR/GBP upside breakout

                                    By
                                    ActionForex.com
                                    -

                                    Pound’s selloff resumes today and it’s for now the second weakest, just next to Canadian. The decline is rather unrelated to today’s main theme of Trump’s tariff on Mexico. Rather, Sterling is on its own downward trajectory on Brexit uncertainty. Prime Minister Theresa May will step down on June 7. Nominations will start in the week on June 10. That’s the week we’ll finally know who are the real runners.

                                    EUR/GBP breaks out of this week’s sluggish range and hits as high as 0.8866 so far. With 0.8840 resistance now firstly taken out, next stop will be 0.9101 key resistance.

                                    GBP/USD is also on track for 1.2391 low.

                                    GBP/JPY is also targeting 131.51 low even that flash crash low looks a bit far.

                                    German 10-year yield hit record low, EUR/CHF at critical juncture

                                      By
                                      ActionForex.com
                                      -

                                      German 10-year bund yield dives sharply to new record low in the wake of Trump’s action to use tariffs to force Mexico to fix border security problem of the US. 10-year bund yield hits as low as -0.206 and is currently down -0.031 at -0.202.

                                      European stocks are broadly lower, with FTSE currently down -0.95%. DAX down -1.60% and CAC down -1.23%. DOW future is currently down -250 pts and is set to lose 25000 handle again at open.

                                      Yen and Swiss Franc surge on risk aversion naturally. A key focus is weakness in EUR/CHF, which is having its sight back on 1.1162 low. Firm break there will extend the fall from 1.2004. More importantly, it will then argue that such decline is not a correction but part of a long term down trend. And in that case, we might see EUR/CHF heading back to 1.0629 support in medium to long term.

                                      Japan unemployment rate dropped, so was consumer confidence

                                        By
                                        ActionForex.com
                                        -

                                        The batch of economic data released from Japan today is mixed. Unemployment rate dropped to 2.4% in April, down from 2.5%, matched expectations. However, better employment was not reflected in retail sales nor consumer sentiment. Retail sales rose 0.5% yoy, missed expectation of 1.0% yoy. Consumer confidence dropped to 39.4, below expectation of 40.6.

                                        Meanwhile, industrial production rose 0.6% mom in April, above expectation of 0.2% mom. However, the road ahead could be bumpy with trade war escalation in May. Housing starts dropped -5.7% yoy in April, below expectation of -0.8% yoy. Tokyo CPI core slowed to 1.1% yoy in May, down from 1.3% yoy and missed expectation of 1.2% yoy.

                                        Yen is the strongest one for today so far, mainly thanks to Trump’s announcement to use tariff to curb illegal immigration through Mexico. USD/JPY drops through 109.02 support finally. Fall from 112.40 is resuming for 61.8% retracement of 104.69 to 112.40 at 107.63 next.

                                        China PMI manufacturing dropped to 49.4, widening decline, increasing downward pressure

                                          By
                                          ActionForex.com
                                          -

                                          The official China PMI manufacturing dropped to 49.4 in May, down from 50.1 and missed expectation of 49.9. It further confirmed that March’s recovery was a false dawn and the slowdown trajectory in China is ongoing. More importantly, deterioration could quick further with the current round of US-China trade war escalation. Non-manufacturing PMI was unchanged at 54.3.

                                          Analyst Zhang Liqun noted that “the decline was widening, indicating that the downward pressure on the economy has increased.” And, “foundation for economic stabilization has not yet been established.” In particular, new orders index, the export order index decreased significantly, “reflecting the lack of market demand is more prominent, especially the downward pressure on exports”.

                                          Looking at some details:

                                          • Production dropped -0.4 to 51.7;
                                          • New order dropped -1.6 to 49.8;
                                          • New Export order dropped -2.7 to 46.5;
                                          • Import dropped -2.6 to 47.1;
                                          • Employment dropped -0.2 to 47.0.

                                          Full release here.

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