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Australia manufacturing PMI rose to 54, but conditions appear to be diverging

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    ActionForex.com
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    Australia AiG Performance of Manufacturing Index rose 1.5 to 54.0 in February. That’s the best monthly result since Ocotber 2018 and signals a better month of recovery following and “unreasonably slow summer”. While it’s still the 30th month of expansion, the trend has suggested “slowing growth rates since its recent peak in March 2018”.

    Also, AiG noted that “conditions appear to be diverging” acrtoss the larger manufacturing sectors and their main locations. Three of the six sectors expanded, one was stable and two contracted. And, “the downturn in housing construction is already affecting some sectors, as is the uncertainty of impending elections”.

    Full release here.

    Fed Kaplan: Could take a few months to see how much the slowdown is

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      ActionForex.com
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      Dallas Fed President Robert Kaplan said yesterday that it could take a few months to see how much the US economy is slowing. And he added that “I don’t think we should be taking any action on the fed funds rate”. His comments are in line with the expectations that Fed should at least stand pat through the first half of the year.

      Meanwhile, Kaplan also echoed other Fed official’s comments that there will be decision regarding the balance sheet runoff in the “not-too-distant future”. Though, he declined to comment whether the decision will be made by March FOMC meeting.

      He also indicated that the balance is a “critical tool” that Fed need to have as “one of the several tools in the event of a down turn”. And the balance needs to have the capacity to respond to the next downturn.

      US Treasurer Mnuchin working on a 150-page document for “significant”, “structural” commitments from China

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        ActionForex.com
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        US Treasury Secretary Steven Mnuchin said in a CNBC interview that the trade deal with China is “not done yet”. But he added “we have made a lot of process” and “we still have more work to do”. They’re working on a 150-page, very detailed, document for “significant”, “structural” commitments from China. Mnuchin hoped to “make progress this month”. And, “if we do, there will be a summit of the Presidents”.

        At the same time, the White House and cabinet are “completely united” on the positions. Mnuchin went further and said “”Whether it’s myself, or Ambassador Lighthizer, Secretary Ross, Larry Kudlow or Peter Navarro — we’re all working very closely together and we have a common vision in executing and getting a real agreement”.

        Separately, National Economic Council Director Larry Kudlow said the negotiations are making “fantastic” progress last week. And, “We’re making great headway on nontariff barriers and tariffs regarding various commodities such as soybeans and energy and beef. We have mechanisms with regard to enforcement, which is — I think — unparalleled.”

        Kudlow also hailed that “Lighthizer has worked miracles on this Chinese deal,” and “we’ve never come this far on China trade.”

        Fed Clarida: Inflation at lower end of range of price stability

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          ActionForex.com
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          Fed Vice Chair Richard Clarida said in a speech that inflation is estimated to have been “a little bit below 2 percent of late”, largely because of “recent decline in energy prices”. But the better indicator of future inflation, core PCE, is estimated to have been “about 2 percent”. AT the same time, market-base measures of inflation compensation have “moved lower, on net”. Some survey-based measures of longer-term inflation expectations are little changed. Taken together, Clarida said “evidence suggests that measures of expected inflation are at the lower end of a range that I consider to be consistent with our price-stability goal of 2 percent PCE inflation.”

          But he also noted that “a number of crosscurrents that are buffeting the economy bear careful scrutiny”. He echoed Fed Chair Jerome Powell’s comments and pointed to slowing global growth, “in particular in China an Europe”, global policy uncertainty, volatile financial market conditions. And they are “making efforts to extract signal from noise more challenging.”

          Clarida also reiterated Fed’s position that “with employment and inflation now at or close to our dual-mandate objectives, the FOMC in its January statement indicated it can afford to be patient as we assess the need for further adjustments in our policy stance”.

          He added that going forward, Fed needs to be “cognizant of the balance we must strike between (1) being forward looking and (2) maximizing the odds of being right given the reality that the models that we consult are not infallible.”

          Clarida’s full speech here.

          EU Barnier: There could be Brexit extension, but what for?

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            ActionForex.com
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            EU chief Brexit negotiator Michel Barnier said today that the March 29 exit date could be extended. But that should be for a reason. He said “If it is asked, European leaders will say ‘What for?’ and the duration of this potential extension will be linked to ‘What for?'”.

            He added that a “technical” extension could last until European parliament election in May. And, longer than that, there will be issues regarding Britons voting in the European election.

            US GDP grew 2.6% annualized in Q4, initial jobless claims rose to 225k

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              ActionForex.com
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              US GDP growth slowed to 2.6% annualized in Q4, down fro 3.4% but beat expectation of 2.5%. GDP price index rose 1.8%, beat expectation of 1.7%. The increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures (PCE), nonresidential fixed investment, exports, private inventory investment, and federal government spending. Those were partly offset by negative contributions from residential fixed investment, and state and local government spending.

              Full GDP release here.

              Initial jobless claims rose 8k to 225k in the week ending February 23. Four-week moving average of initial claims dropped -7k to 229k. Continuing claims rose 79k to 1.805M in the week ended February 16. Four-week moving average of continuing claims rose 6.75k to 1.762M.

              Full jobless claims here.

              Into US session: CHF rises as Trump-Kim summit collapsed, Euro follows German yield higher

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                ActionForex.com
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                Entering into US session, Swiss Franc and Euro are the strongest ones for today. It’s partly due to extended rally in German yields. But more so, judging that Yen is the third strongest, it likely due to collapse of Trump-Kim summit.

                Sterling is the weakest one for today, paring some of this week’s strongest gains. Canadian Dollar is the second weakest as WTI crude oil retreats.

                For the week, Sterling remains the strongest one, followed by Swiss Franc. Canadian is the weakest one, followed by Yen.

                Looking ahead, US Q4 GDP will takes center stage, with Chicago PMI and jobless claims featured. Canada will release current account, IPPI and RMPI but they’re unlikely to trigger any reaction.

                In Europe, currently:

                • FTSE is down -0.56%.
                • DAX is down -0.21%.
                • CAC is down -0.12%.
                • German 10 year yield is up 0.0142 at 0.163.

                Earlier in Asia:

                • Nikkei dropped -0.79%.
                • Hong Kong HSI dropped -0.43%.
                • China Shanghai SSE dropped -0.44%.
                • Singapore Strait Times dropped -1.15%.
                • Japan 10-year JGB yield dropped -0.0021 to -0.027.

                French GDP grew 0.3% in Q4, positive contribution from foreign trade

                  By
                  ActionForex.com
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                  French GDP grew 0.3% qoq in Q4, matched expectations. Over the year, growth slowed to 1.5% in 2018, down from 2.3% in 2017. Looking at the details, final domestic demand excluding inventory changes decelerated: it contributed 0.2 points to GDP growth, after 0.5 points in the previous quarter. Foreign trade balance contributed positively to GDP growth again: +0.3 points, after +0.2 points in Q3. Conversely, changes in inventories contributed negatively to GDP growth again (−0.2 points after −0.4 points).

                  Full release here.

                  Swiss KOF dropped to 92.4, deteriorating sentiment extended from manufacturing to others

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                    ActionForex.com
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                    KOF economic Barometer dropped to 92.4 in February, down from 96.2 and missed expectation of 96.0. KOF noted that recent downward tendency ” continued unabated”, and the Swiss economy can expect to experience a “weak phase” in the coming months. And, the marked decline is predominantly due to negative impulses from the manufacturing industry; but the deteriorating sentiment has meanwhile also extended to the other components of this barometer.

                    Full release here.

                     

                    Swiss GDP grew 0.2% qoq, confirmed slowdown

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                      ActionForex.com
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                      Swiss GDP grew 0.2% qoq in Q4, rebounded from Q3’s -0.3% qoq contraction, but missed expectation of 0.4% qoq. SECO noted that “as in other European countries, this confirms a slowdown of the economy compared to the first half of the year.”

                      Looking at the details, manufacturing grew 1.5%, benefited from the strong international demand for Swiss products: exports of goods**(+5.6%) grew substantially. Development in the service industry varied and remained below the historical average, curbed by declining exports of services (−2.6 %) and a final domestic demand which remains sluggish (−0.0%). Consumption expenditures of private households (+0.3%) saw a moderate rise.

                      Full GDP release here.

                      Trump-Kim summit collapsed, it’s all about the sanctions

                        By
                        ActionForex.com
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                        Trump in a press conference that he walked away from the summit with North Korean leader Kim Jong-un. But he emphasized that “it was a friendly walk”. The meeting in Vietnam was cut short and ended without an agreement and not even a joint statement.

                        Trump said “it was all about the sanctions”. He added “basically they wanted the sanctions lifted in their entirety, and we couldn’t do that”. On the other hand, Trump said Kim offered to dismantle North Korea’s main nuclear facility at Yongbyon, but “it wasn’t enough” to the US.

                        Trump also added that he could’ve signed an agreement today but it wasn’t the right time. He emphasized he’d “rather do it right”.

                        BoJ Suzuki: Absolutely no need to ramp up monetary easing

                          By
                          ActionForex.com
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                          BoJ board member Hitoshi Suzuki said today that there is “absolutely no need” to ramp up monetary easing. He added, “if the momentum for hitting the price target is lost, the BOJ will consider taking appropriate action. But many board members, including myself, believe the momentum is sustained.”

                          Nevertheless, Suzuki noted it’s the current massive stimulus program is still needed. He said “there’s a risk inflation won’t accelerate much for a prolonged period, as companies remain cautious of raising wages and households are sensitive to price rises.

                          Yen mildly higher as Trump-Kim summit cut short, no agreement reached

                            By
                            ActionForex.com
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                            Yen is given a mild lift on news that Trump-Kim summit in Vietnam is cut short, for unknown reason. Trump will pull ahead his scheduled media conference to 0700 GMT. And, for now, it’s unknown whether the scheduled “join agreement signing ceremony” would still be held.

                            White House spokeswoman Sarah Sanders confirmed that “the two leaders discussed various ways to advance denuclearization and economic driven concepts,”  but  “no agreement was reached at this time, but their respective teams look forward to meeting in the future.”

                            Earlier, both sides indicated progresses in denuclearization of the Korean Peninsula. Kim told reports that “If I’m not willing to do that, I won’t be here right now”. Trump responded by saying “that might be the best answer you’ve ever heard.”

                            Asian update: Forex markets turned quiet, surging treasury yield might drive next move

                              By
                              ActionForex.com
                              -

                              The forex markets turned mixed in Asian session today, awaiting fresh stimulus. Australian Dollar was briefly lifted by stronger than expected Q4 private capital expenditure. But it’s quickly knocked down by poor China PMI manufacturing. USTR Robert Lighthizer’s testimony on China trade talk triggered little reactions in the markets. Similar, Fed Chair Jerome Powell’s testimony and Trump-Kim summit in Vietnam are shrugged off. Sterling is currently the weakest for today while Swiss Franc is strongest. But major pairs and crosses are bounded in tight range. The picture can be easily changed ahead.

                              For the week, Sterling remains on the strongest one on fading no-deal Brexit risks. Euro is following as the second strongest. Yen is the weakest one, partly due to strong rally in global treasury yields at the long end. German 10-year yield is back pressing 0.15. US 30-year yield also had the largest jump in about a month yesterday. Canadian Dollar is the second weakest for the week. Focus will now turn to GDP data from US.

                              In Asia,

                              • Nikkei is down -0.35%.
                              • Hong Kong HSI is up 0.10%.
                              • China Shanghai SSE is down -0.35%.
                              • Singapore Strait Times is down -0.57%.
                              • Japan 10-year JGB yield is up 0.0002 at -0.024.

                              Overnight,

                              • DOW dropped -0.28%.
                              • S&P 500 dropped -0.05%.
                              • NASDAQ rose 0.07%.
                              • 10-year yield rose 0.057 to 2.693.
                              • 30-year yield rose 0.063 to 3.069.

                              The strong rally in 30-year yield is worth a note. TYX might have completed the consolidation from 3.109 and the rise from 2.900 low could be ready to resume. 55 day EMA is the immediate focus. But the real test will be on 38.2% retracement of 3.455 to 2.900 at 3.112. Surging yields could be the next  driver in the forex markets

                              ANZ business confidence dropped to -30.9, RBNZ to cut in November

                                By
                                ActionForex.com
                                -

                                New Zealand ANZ Business Confidence dropped to -30.9 in February, down from -24.1. Activity Outlook dropped to 10.5, down fro 13.6. ANZ noted that recent improvement in business activity stalled. Export intentions fell to the weakest since March 2009. Pricing intentions remain range-bound.

                                ANZ also noted that “Clearly the economy is stretched at the moment, but it does appear that momentum has waned markedly over the last six months.” And it expects RBNZ to become “less certain that core inflation will continue rising towards the midpoint of the target band”. ANZ forecasts a cut in OCR in November.

                                Full release here.

                                Also from down under, Australia private capital expenditure rose 2.0% in Q4 versus expectation of 1.0%. Private sector credit rose 0.2% mom in January versus expectation of 0.3% mom.

                                China PMI manufacturing dropped to 49.2, new export orders hit decade low

                                  By
                                  ActionForex.com
                                  -

                                  The official China PMI manufacturing dropped to 49.2 in February, down from 49.5 and missed expectation of 49.5. That’s the third straight month of sub-50 reading. Looking at the details new export orders index dropped -1.7 to 45.2, its lowest level in 10 years, suggesting trade war with the US continues to have an impact on exports. Production dropped -1.4 to 49.5. Employment dropped -0.3 to 47.5. PMI services dropped to 54.3, down from 54.7, missed expectation of 54.5.

                                  However, analyst Zhang Liqun tried to talk down the deterioration in the statement. He noted that the decline in PMI was mainly due to Lunar New Year factor. He pointed to the significant decline in the production, the purchase volume, and the raw material inventory as indications.

                                  Also from Asia, Japan industrial production dropped -3.7% mom in January versus expectation of -2.5% yoy. Japan retail sales rose 0.6% yoy in January, below expectation of 1.5% yoy.

                                  Fed Powell: Balance runoff likely settles at around 16-17% of GDP

                                    By
                                    ActionForex.com
                                    -

                                    In the second day of Congressional Testimony, Fed Chair Jerome Powell said Fed will stop the balance sheet runoff this year. The balance sheet will then be at around 16-17% of GDP, up from 6% before the financial crisis. Considering that the US GDP is currently at around USD 20T, the balance sheet would eventually be between USD 3.2T and USD 3.4T. The Balance sheet is currently just over USD 4T.

                                    Powell said “we’ve worked out, I think, the framework of a plan that we hope to be able to announce soon that will light the way all the way to the end of balance sheet normalization”. And, “we going to be in a position … to stop runoff later this year.”

                                    He also bluntly noted that Fed is “not looking at a higher inflation target, full stop”, even if Fed is rethinking its policy framework for this year.

                                    USTR Lighthizer: Market outcomes to determine winners, not state-capitalism and technology theft

                                      By
                                      ActionForex.com
                                      -

                                      In his testimony to House Ways and Means Committee on China trade negotiation, US Trade Representative Robert Lighthizer laid down the principle that the US “can compete with anyone in the world”. But he emphasized “we must have rules, enforced rules”. And “market outcomes” rather than “state-capitalism” and “technology theft” determine winners. China’s unfair trade practices are “major threats to our economy”.

                                      Lighthizer said there were “very intense, extremely serious, and very specific negotiation with China on crucial structural issues for several months” and “real progress” were made. US could “turn the corner” in the economic relationship with China “if” they can reach a satisfactory solution to the all-important outstanding issue of enforceability as well as some other concerns. But “much still needs to be done” before an agreement is reached, and “more importantly, after it is reached.”

                                      He also emphasized that the administration is “pressing for significant structural changes” rather than “soybean solution”. The US is “very aware of ” the history with China and the “disappointments that have resulted from promises that were not kept” And, “the reality is this is a challenge that will go on for a long, long time.” He added that “if there is disagreement at my level, the U.S. would expect to act proportionately but unilaterally.”

                                      Meanwhile, as the agreements are settlements of China’s violations of Section 301 of the Trade Act of 1974. So they are executive actions that do not require Congress’ approval. China talks are more in common with a sanctions-monitoring regime than a traditional trade pact.

                                      USTR’s opening statement here.

                                      USTR Robert Lighthizer testimony on China trade negotiations

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                                        Canada CPI slowed to 1.4%, CAD rise as CPI risks cleared

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                                          ActionForex.com
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                                          Canada headline CPI slowed to 1.4% yoy in January, down from 2.0% yoy, matched expectations. CPI core-common was unchanged at 1.9% yoy. CPI core-median was unchanged at 1.8% yoy. CPI core-trim was unchanged at 1.9% yoy. Energy costs declined 6.9%, while the growth in the price of services slowed to 2.7% as transitory pressures from the air transportation, telephone services and travel tours indexes dissipated.

                                          Full release here.

                                          USD/CAD drops again as the CPI risk is now cleared. Rebound in oil price is helping the Loonie. WTI crude is now back above 56.7, comparing to this week’s low at 55.11.

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