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AU FM Cormann: Dalian coal ban unrelated to bilateral relationship between Australia and China

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    ActionForex.com
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    Australian Dollar tumbles broadly yesterday on news that China’s Dalian port banned the countries’ coal import. But Australian offices are quick to talk down the implication. Mathias Cormann, Minister for Finance, said “when decisions like this have been made in the past at local port level, it was related to domestic supply related issues, environmental issues at a local level”. Cormann emphasized “it was unrelated with anything to do with the bilateral relationship between Australia and China.”

    RBA Governor Philip Low said “I wouldn’t jump yet to the conclusion that this is something directed to Australia”. And, “It may well turn out to be that it’s being driven by concerns about the environment in China and the profitability of the coking coal industry in China.”

    RBA Lowe: What’s of concern is accumulation of downside risks

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      ActionForex.com
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      RBA Governor Philip Lowe said today that the central scenario for 2019 is for growth of around 3%, inflation of around 2%and unemployment of around 5. And “this is not a bad set of numbers”. However, what is more of concern is the “accumulation of downside risks”.

      The first major area of risks globally is “political risks” including US-China trade and technology tensions, Brexit, rise of populism and strains in some wester European countries. Second area of international risk is China slowdown. Domestically, RBA board has recently been paying “particularly close attention” to household spending and housing market. Lowe noted that ” underlying trend in consumption is softer than it earlier looked to be”. Decline housing prices could also affect overall spending.

      On monetary policy, Lowe reiterated that “the probability that the next move is up and the probability that it is down are more evenly balanced than they were six months ago.”

      Lowe’s full remarks here.

      UK Barclay, Cox to meet EU Barnier again next week

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        ActionForex.com
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        There appears to be no breakthrough on Brexit for now. Brexit Minister Stephen Barclay and Attorney General Geoffrey Cox met EU chief Brexit negotiator Michel Barnier yesterday. They had “productive meeting” and discussed the “positions of both ides”. And it’s agreed that “talks should now continue urgently at a technical level”. Cox will explore “legal options” with the commission’s team. The trio will discuss again next week.

        UK is seeking legal binding assurance that the Irish border backstop would be temporary if triggered. It’s believed that once this issue is solved, especially with the endorsement of Cox, the Brexit deal would get through the Commons. However, European Commission President Jean-Claude Juncker was “not very optimistic”. He noted that “in the British parliament every time they are voting, there is a majority against something, there is no majority in favor of something.”

        US PMI composite rose to 8-month high, point to 2.5% annualized GDP growth

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          ActionForex.com
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          US PMI manufacturing dropped to 53.7 in February, down from 54.9 and missed expectation of 55.0. That’s the lowest in 17 months. PMI services, on the other hand, rose to 56.2, up from 54.2 and beat expectation of 54.3. That’s also the highest in 8-month. PMI composite rose to 55.8, up from 54.4, 8-month high.

          Commenting on the flash PMI data, Tim Moore, Associate Director at IHS Markit said:

          “February data provides a positive signal for first quarter economic growth, with US businesses reporting the fastest output expansion since the middle of 2018. Service sector firms led the way, supported by solid improvements in business and consumer spending. Private sector payroll numbers increased to the greatest extent for five months, which adds to hopes that robust domestic demand will act as a growth tailwind over the near-term.

          “Historical comparisons suggest the latest survey data are indicative of an underlying economic growth rate of around 2.5% annualized, although the PMI is designed to monitor private sector companies so the impact of the government shutdown may not be fully captured.

          “The main worrying development was the loss of momentum reported by manufacturing companies in February. Businesses that experienced a soft patch for production cited a range of factors holding back growth, including adverse weather, worries about the global economic outlook and ongoing international supply chain uncertainty.

          “Nonetheless, relatively strong domestic business conditions mean that US manufacturers remain on a much more positive trajectory than the recent downbeat production trends signalled by IHS Markit’s Manufacturing PMI surveys across Europe and Asia.”

          Full release here.

          Also from the US, leading indicator dropped -0.1% in January. Existing home sales dropped to 4.94m annualized rate in January.

          US initial claims dropped to 216k, but Dec durable goods missed

            By
            ActionForex.com
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            US headline durable goods orders rose 1.2% in December, below expectation of 1.8%. Ex-transport orders rose 0.1%, below expectation of 0.3% . Philadelphia Fed Business Outlook dropped to -4.1 in February, down from 17 and missed expectation of 14.8.

            Initial jobless claims dropped -23k to 216k in the week ending February 16, between than expectation of 230k. Four-week moving average of initial claims rose 4k to 237.75k, highest since January 20, 2018. Continuing claims dropped -55k to 1.725M. Four-week moving average of continuing claims rose 2.75k to 1.755M.

            Into US session: GBP and EUR strongest, AUD weakest

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              ActionForex.com
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              Entering into US session, Sterling is generally firm in tight range today, consolidating this week’s rally. UK and EU are working on an updated Brexit agreement, most likely with some legally firmer assurances outside of the main agreement. There is prospect of having another vote next week on February 27. Euro follows as the second strongest as PMI composite improved. But it should be noted that manufacturing did deteriorate while that’s offset by domestic strength in services only. ECB accounts provided nothing special.

              On the other hand, Aussie is leading the way down, followed by Kiwi. Australian Dollar was firstly pressured as Westpac forecast two RBA cuts this year. Then, it suffered further selloff news that China’s Dalian port has banned imports of Australian coal. China’s foreign ministry spokesman Geng Shuang said the goals of the ban were to “better safeguard the legal rights and interests of Chinese importers and to protect the environment”.

              A bunch of US data will be released today including Philly Fed survey, jobless claims, durable goods, PMIs, leading index and existing home sales. Traders will also want to know more about the multiple MOUs the US and China trade negotiation teams are working on.

              In Europe, currently:

              • FTSE is down -0.96%.
              • DAX is up 0.12%.
              • CAC is down -0.07%.
              • German 10-year yield is up 0.0376 at 0.138.

              Earlier in Asia:

              • Nikkei rose 0.15%.
              • Hong Kong HSI rose 0.41%.
              • China Shanghai SSE dropped -0.34%.
              • Singapore Strait Times dropped -0.01%.
              • Japan 10-year JGB yield dropped -0.003 to -0.039.

              ECB: Risk largely external but there were pass-through and spillovers

                By
                ActionForex.com
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                In the accounts of January monetary policymeeting, ECB noted that “a stronger case could now be made for assessing the risks as having moved to the downside” In “large measure”, downside risks could be attributed to external environments including heightened protectionism and Brexit. But there were “pass-through and spillovers” to domestic demand.

                ECB also acknowledged that “slowdown in euro area growth appeared to be deeper and more broad-based than previously anticipated”. And, “negative developments had become more widespread across the euro area, and risked affecting several components of demand”. The slowdown has previously be related primarily to trade. But private consumption growth was weaker in Q3, and employment growth decelerated. ECB noted that “if exports and consumption were both weaker, this was likely to be transmitted to investment in the period ahead. ”

                All in all, “members concurred with the view that the risks to the euro area outlook had moved to the downside on account of the persistence of uncertainties related to geopolitical factors and the threat of protectionism, vulnerabilities in emerging markets and financial market volatility.” Outlook for economy would be “reassessed in more depth” in March meeting, when the new ECB staff projections would be available.

                Full ECB accounts here.

                 

                UK Leadsom confirms schedule for next Brexit vote on Feb 27

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                  ActionForex.com
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                  UK Leader of the House of Commons Andrea Leadsom confirmed to hold a vote on Brexit on Wednesday February 27. Prime Minister Theresa May will deliver a statement on Tuesday first. The vote will either be on an updated Brexit agreement, or on the other way ahead.

                  Leadsom said “if the government has not secured a majority in this house in favor of a withdrawal agreement and a political declaration, the government will make a statement on Tuesday Feb. 26, and table an amendable motion relating to the statement and a minister will move that motion on Wednesday Feb. 27, thereby enabling the house to vote on it and any amendments to it on that day.”

                  Fed Bullard: Monetary policy normalization is coming to and end

                    By
                    ActionForex.com
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                    St. Louis Fed President James Bullard said in a CNBC Squawk Box interview that Fed is already near the end of rate hikes and balance sheet rolloff. And, “the message from my point of view is the normalization process in the United States is coming to an end.”

                    To him, interest rates are actually too high now. But this is a minority view in FOMC. He further explained that December rate hike was “a step too far” and he “argued against that Move”.

                    After December’s hike, Bullard noted “a bad reaction in financial markets. I think the market started to think we were too hawkish, might cause a recession.”

                    Eurozone PMIs: Eurozone to grow 0.1% in Q2, Germany 0.2%, France to stagnate

                      By
                      ActionForex.com
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                      Eurozone PMI manufacturing dropped to 49.2 in February, down from 50.5 and missed expectation of 50.3. That’s the lowest level in 69-month. PMI services, however, rose to 52.3, up from 51.2 and beat expectation of 51.3. PMI composite improved to 51.4, up from 51.0.

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

                      “The Eurozone economy remained close to stagnation in February. The flash PMI lifted only slightly higher during the month, continuing to indicate one of the weakest rates of expansion since 2014. The survey data suggest that GDP may struggle to rise by much more than 0.1% in the first quarter.

                      “Germany is on course to grow by 0.2%, buoyed by its service sector, but France looks set to stagnate or even contract very slightly. The rest of the region is meanwhile suffering its worst spell since late- 2013, with growth having slipped closer to stalling in February.

                      “Some uplift was also seen as companies stepped up preparations ahead of Brexit and disruptions from the ‘yellow vest’ protests in France eased. However, the general picture remained one of a more subdued business environment than seen throughout much of last year.

                      “Weaker order books were linked to a combination of intensifying headwinds and concerns, including global trade protectionism worries, Brexit, the downturn of the auto sector, increased political uncertainty and anxieties regarding the broader economic outlook. Rising risk aversion has consequently dampened demand, investment and spending.

                      “The weakness is being led by manufacturing, which has now entered its first downturn since mid- 2013. With factory order books deteriorating at an increased rate, the rate of contraction in the goodsproducing sector will likely worsen in coming months.

                      “Solid domestic demand in many countries, notably Germany, continued to help support service sector growth and offset the downturn of the manufacturing sector. However, the overall rate of service sector growth remained relatively moribund compared to that seen throughout much of last year.

                      “Price pressures have meanwhile continued to ease alongside the more subdued demand environment.”

                      Full release here.

                      Germany PMIs: Manufacturing and services on very different paths

                        By
                        ActionForex.com
                        -

                        Germany PMI manufacturing dropped to 47.6 in February, down from 49.7 and missed expectation of 49.9. That’ the lowest level in 74 months. PMI services, however, rose to 55.1, up from 53.0 and beat expectation of 52.9. PMI composite improved slightly to 52.7, up from 52.1.

                        Commenting on the flash PMI data, Phil Smith, Principal Economist at IHS Markit said:

                        “Germany’s manufacturing and service sectors remain on very different paths, according to February’s flash PMI data. While strong fundamentals in the domestic market are driving growth in services business activity, falling exports continue to weigh on the performance of the manufacturing sector. Measured overall, the data remain indicative of a very modest rate of underlying output growth.

                        “The manufacturing PMI fell further into contractionary territory in February to its lowest in over six years, with sustained robust job creation at factories the only positive takeaway. The strength in employment is perhaps surprising given the order book situation and lack of pressures on capacity, but goods producers are seemingly looking through the current soft patch in demand.

                        “In terms of the factors behind the slowdown in manufacturing order books, many of the usual suspects – the uncertainty relating to US-China trade tensions and weakness in the autos industry – were highlighted, although there were also reports of growing competitive pressures within Europe.”

                        Full release here.

                        Franc PMI composite rose to 49.9, economy stay below potential as long as social unrest continues

                          By
                          ActionForex.com
                          -

                          France PMI manufacturing rose to 51.4 in February, up from 51.2 and beat expectation of 51.0. PMI Services rose to 49.8, up from 47.8 and beat expectation of 48.5. PMI composite also improved to 49.9, up from 48.2.

                          Commenting on the Flash PMI data, Eliot Kerr, Economist at IHS Markit said:

                          “February flash data pointed to a broad-stabilisation in output at private sector firms in France, offering relatively positive news after the weak performances of December and January.

                          “Although the ‘gilets jaunes’ protests are still ongoing and panellists have suggested that these are still causing disruption, the economy showed resilience in the latest survey period. Encouragingly, the rate of job creation accelerated and new orders declined only marginally, arresting the downward momentum seen over the past couple of months.

                          “That said, the economy will continue to post below its potential as long as social unrest continues. And amid the current uncertainty in the global economy, domestic issues weighing on activity are likely to remain detrimental.”

                          Full release here.

                          UK Hammond: There may be an opportunity to bring back Brexit vote next week

                            By
                            ActionForex.com
                            -

                            Sterling appears to be lifted by news that an updated Brexit deal could be ready for voting in the parliament next week. Chancellor of Exchequer Philip Hammond said, regarding next week, “there may be an opportunity to bring a vote back to the House of Commons – there may be an opportunity, but that will depend on the progress that is made in the next few days.”

                            He added that Prime Minister Theresa May’s meeting with European Commission President Jean-Claude Juncker went well. He added “both sides have acknowledged that the political declaration could be expanded, for example, to address concerns that have been expressed in some parts of the House of Commons about workers rights.”

                            Separately, it’s believed that May and Juncker are working on a statement called “appropriate legal assurance to both sides”. Brexit minister Steve Barclay and Attorney General Geoffrey Cox will visit Brussels again today.

                            Into European session: AUD overwhelmingly weakest. USD, JPY, CHF firmer

                              By
                              ActionForex.com
                              -

                              Entering into European session, Australian Dollar is overwhelmingly the weakest one today. Stronger than expected jobless data just gave Aussie a brief lift. It then reversed after Westpac forecasts two RBA cuts this year. The Aussie then tumble further on news that China’s Dalian ports banned the countries’ coal imports. New Zealand Dollar follows as second weakest, then Canadian.

                              On other hand, Yen is trading as the strongest one today as risk sentiments stay mixed, followed by Dollar and then Swiss Franc. Strength of the triple suggests that markets might be turning more cautious. There are news that US and China are hammering out multiple MOUs to address the core issues including forced technology transfer and cyber theft, intellectual property rights, services, currency, agriculture and non-tariff barriers to trade. But that seem to be ignored by stock bulls. Dollar is additionally supported as FOMC minutes suggested that Fed is possibly still on track for one more hike by the end of the year. Looking ahead, Eurozone PMIs and ECB accounts will take center stage in European session.

                              Over the week, Sterling is the strongest one for now. Step by step, the issue on Irish backstop seems to be closer to a resolution with some legal binding language outside of the main withdrawal agreement. Swiss Franc and Canadian are the next strongest. New Zealand and Australian Dollars are now the weakest one, followed by Yen.

                              In Asia,

                              • Nikkei closed up 0.15%.
                              • Hong Kong HSI is up 0.08%.
                              • China Shanghai SSE is down -0.29%.
                              • Singapore Strait Times is down -0.11%.
                              • Japan 10-year JGB yield is down -0.0036 at -0.04.

                              Overnight,

                              • DOW rose 0.24%.
                              • S&P 500 rose 0.18%.
                              • NASDAQ rose 0.03%.
                              • 10-yearyield rose 0.007 to 2.654.
                              • 10-year yield rose 0.009 to 3.000.

                              AUD selloff accelerates as China Dalian harbours ban Australian coal imports

                                By
                                ActionForex.com
                                -

                                Selloff in Australian Dollar accelerates on news that China’s Dalian port has banned imports of the countries’ coal. The ban came effective at the start of February already and it’s indefinite. Under the control of Dalian customers, Dalian, Bayuquan, Panjin, Dandong and Beiliang harbour will not allow Australian coal to clear through customers.

                                That’s part of the measures to cap overall coal imports through the above harbours to 12m tonnes this year. Coal imports from Russia and Indonesia will not be affected. It’s also reported that clearing times for Australian coal at other ports are prolonged to at least 40 days.

                                AUD/USD was initially lifted by stronger than expected employment data earlier today. But it started to reverse after Westpac forecasts RBA to cut interest rates twice this year in August and November. Selloff then accelerates further on the above news.

                                AUD lifted by job data, knocked down as Westpac forecasts two RBA cuts in 2019

                                  By
                                  ActionForex.com
                                  -

                                  Australian job market grew 39.1k in January, more than double of expectation of 15.2k. Full time jobs rose 65.4k to 8.M. Part-time jobs dropped -26.3k to 4.01M. Particular rate also rose 0.1% to 65.7% while unemployment rate was unchanged at 5.0%, a seven-year low. Also from Australian, CBA PMI manufacturing dropped to 53.1 in February, down from 53.9. CBA PMI services dropped into contraction region at 49.3, down from 51.0.

                                  Australian Dollar was initially lifted by the employment data, but was then knocked down as Westpac forecasts RBA to cut interest rate in August and November. Westpac noted that “the forces around a slowing economy, falling house prices, and weak consumer spending are already apparent.” But RBA might take time to recognize this “persistence”.

                                  The central bank’s decision to “accept the possibility that interest rates could fall further, despite the current record low levels, is profoundly important.” Westpac is now “confident” that if their growth profile does evolve, RBA will be “prepared to act”.

                                  Westpac’s report here.

                                  Japan PMI manufacturing dropped to 48.5, chance of recession in 2019 rises

                                    By
                                    ActionForex.com
                                    -

                                    Japan PMI manufacturing PMI dropped to 48.5 in February, down from 50.3. That’s the lowest level in 32 months and the first contraction reading since 2016. Markit noted that “deterioration in manufacturing sector reflects stronger falls in production and new orders.” Also, “future output expectations turn negative for the first time since November 2012.”

                                    Commenting on the Japanese Manufacturing PMI survey data, Joe Hayes, Economist at IHS Markit, which compiles the survey, said:

                                    “Survey data for Japan’s manufacturing sector ebbed into negative territory in February, reflecting sharper reductions in demand and production. Although the initial Q4 estimate revealed a bounce back in economic activity, the PMI suggests underlying business conditions are unfavourable. This was further highlighted by output expectations turning negative for the first time in over six years, which comes as no surprise given the international headwinds Japanese manufacturers are facing such as a China slowdown and the global trade cycle losing further steam. Unless service sector activity can offset manufacturing weakness, the chance of Japan entering a recession in 2019 looks set to rise.”

                                    Full release here.

                                    UK May and EU Juncker held constructive talks on Irish backstop

                                      By
                                      ActionForex.com
                                      -

                                      European Commission President Jean-Claude Juncker and UK Prime Minister Theresa May held “constructive” talks in Brussels yesterday. According to a joint statement, they discussed the guarantees that could be give to underline once again that the Irish backstop’s “temporary nature”. And the “role alternative arrangement” could play in “replacing the backstop” in future. Also, additions or changes to the Political Declaration could be made to “increase confidence in the focus and ambition of both sides in delivering the future partnership envisaged as soon as possible.” EU Chief Negotiator Michel Barnier and UK Secretary of State Stephen Barclay will follow up and progress will be reviewed in the coming days.

                                      May said after meeting with Juncker that “I have underlined the need for us to see legally binding changes to the backstop that ensure that it cannot be indefinite. That’s what is required if a deal is to pass the House of Commons. We have agreed that work to find a solution will continue at pace. Time is of the essence and it is in both our interests that when the UK leaves the EU it does so in an orderly way. So, we have made progress.”

                                      US-China trade talks: Six MOUs on structural issues being drawn up

                                        By
                                        ActionForex.com
                                        -

                                        US-China trade negotiation is going to enter into high-level talks in Washington on Thursday. Reuters reported that the broad outline of the trade agreement is beginning to emerge after all the discussions.

                                        The teams are now drawing up six memorandums of understanding on structural issues: forced technology transfer and cyber theft, intellectual property rights, services, currency, agriculture and non-tariff barriers to trade.

                                        The work on the MOUs was seen by an unnamed source as a significant step in getting China agreeing on broad principles and specific commitments.

                                        Fed Daly: Balance sheet rolloff and interest rate shouldn’t work at cross purposes

                                          By
                                          ActionForex.com
                                          -

                                          San Francisco Fed President Mary Daly said the economy is slowing faster than she expected. And, tighter financial conditions, slower growth abroad, and rising uncertainty are also threatening to slow US growth. Though, she added that “there’s nothing on the radar that says we’re slipping into recession.”

                                          Daly also said interest rates are now within a “hair’s breadth” of neutral. And she support a pause in rate hikes until there are signs of overheating. At the same time, she said Fed should align the balance sheet policy with the “patient” interest rate stance. “Those two are meant to work together and not at cross purposes,” she said.

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