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UK Jan retail sales blew expectations, but store price slowed to lowest since 2016

    By
    ActionForex.com
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    UK January retail sales came in much stronger than expected.

    • Including auto and fuel, sales rose 1.0% mom, 4.2% yoy versus expectation of 0.2% mom, 3.4% yoy.
    • Excluding auto and fuel, sales rose 1.2% mom, 4.1% yoy versus expectation of 0.2% mom, 3.1% yoy.

    However, year-on-year average store prices growth slowed to 0.4%, lowest price increase since November 2016.

    Full release here.

    UK Leadsom: No-deal Brexit is on the table, it’s the legal default position

      By
      ActionForex.com
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      UK government’s leader in the House of Commons Andrea Leadsom said the government does not want no-deal Brexit. But it’s there because that is the “legal default position”. And “essentially that is what will happen if we don’t vote for a deal.” She also noted that “What the government is seeking to do is to sort out the arrangements on the backstop so that parliament can vote for the deal. That is the government’s sole focus.”

      Meanwhile, Leadsom also urged EU to compromise on the Irish border backstop. She said “If the EU were to bring on the one thing that they have said they are determined to avoid, that is the risk of the UK leaving the EU without a deal at the end of March and thereby having to have some kind of hard border between Northern Ireland and Ireland. So it simply would not make sense to precipitate such a conundrum when the option of a negotiated arrangement, where the UK could put in place alternative arrangements for the backstop, would be far preferable from everybody’s point of view including from the perspective of the issue of the border between Northern Ireland and Ireland.”

      US Mnuchin had productive meetings with China

        By
        ActionForex.com
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        There is so far no known progress as US-China trade talks conclude in Beijing. US Treasury Secretary Steven Mnuchin just tweeted “Productive meetings with China’s Vice Premier Liu He and @USTradeRep Amb. Lighthizer”, without any elaboration.

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        On the Chinese side, Foreign Ministry spokesman Geng Shuang said in a regular press briefing that “just wait for a while and the answer will be revealed soon”.

        Mnuchin and Lighthizer will meet Chinese President Xi Jinping later this afternoon.

        RBA Kent: Markets expect next RBA move to be down than up

          By
          ActionForex.com
          -

          RBA Assistance Governor Christopher Kent delivered a speech on “Financial Conditions and the Australian Dollar – Recent Developments” today. There he acknowledged that developments in Australian financial markets have been similar to those offshore, with falling equity prices, rising credit spreads and increased volatility. Such development is “a story of risk premia increasing from low levels and were associated with rising concerns about downside risks, both internationally and domestically.”

          The outlook for domestic economy has “also shifted” with downward revision in both growth and inflation forecasts. And market expectations for the next move in cash rate have “switched signs too”. Kent noted that “markets have assessed that the next move is more likely to be down than up.”. And that’s reflected in lower bond yields.

          Fall in Australian bond yields is “likely to have contributed somewhat to the modest depreciation of the Australian Dollar of late”. On the other hand, “higher commodity prices appear to have worked to limit the extent of Australian dollar depreciation”.

          Full speech here.

          Trump to delcare national emergency and sign the shutdown averting bill

            By
            ActionForex.com
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            White House spokesperson Sarah Sanders confirmed that Trump will sign the bill that avert another government shut down. However, as the bill doesn’t include the full sum of the funding that Trump demands for the border wall, he’s going to declare national emergency.

            Sanders said “President Trump will sign the government funding bill, and as he has stated before, he will also take other executive action – including a national emergency.”

            Top Democrat in the Congress, House of Representatives Speaker Nancy Pelosi said she might file a legal challenge to Trump’s action and “that’s an option”. Senate Democrat leader Chuck Schumer also criticized Trump of a “gross abuse of the power of the presidency.”

            US-China trade talks set to conclude without substantial progress

              By
              ActionForex.com
              -

              Asian equities drop broadly today as the US-China trade talks look set to conclude without substantial progress. US Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer didn’t comment on the discussions as the final day of close-door session starts today. But it’s reported that both sides are still far apart on the core issues, which would need a meeting between Trump and Xi to make the agreement.

              Subsidies on State-Owned Enterprises that create unfair competition is one of the deadlocks as it’s considered fundamental policy of the Chinese government that couldn’t be touched. Reuters reported that China has pledged to adjust the industrial subsidy program to comply with WTO rules. But without any details, the US side, rightfully, is skeptical on enforcement of Chinese government’s promises.

              White House economic adviser Larry Kudlow fold fox news that “the vibe in Beijing is good.” And, “negotiators in Beijing “are soldiering on”. Kudlow also said meeting with Chinese President Xi on Friday is “a very good sign” and the US delegation is “getting the job done”. Kudlow was “cautiously optimistic” on the outcome. Meanwhile, there is no decision on the trade truce by 60-days yet. But as we argued before, extending the period while keeping the current tariffs is just prolonging the damage to the economies.

              US update: Limited loss in Dollar and stocks after terrible retail sales

                By
                ActionForex.com
                -

                While Dollar and stocks suffered some selling after shockingly poor retail sales data, there was no follow through selling. US retail sales contracted by most in 9 years in December. But some economists are quick to come out to express their skepticism on the data (see here).

                Bloomberg also reported that US and China are still far apart on the core issues in trade negotiations. In particular, dialing back subsidies for state-owned enterprises is a non-starter for the Chinese government. But this is actually much of a known in Asia.

                That is, for the Chinese government, buy more American products? Sure. Open up some market access? No problem except some sensitive ones, like internet and media. IP theft and forced technology transfer? Maybe, and they can do something to govern private owned companies. But SOEs? Well, it’s a fundamental government policy that cannot be touched. It’s an area that eventually, the US has to concede. So, this news shouldn’t trigger much pessimism among professional investors.

                Anyways, Dollar is currently the third weakest one for the day, next to Sterling and Canadian Dollar. Kiwi remains the strongest one. But Yen has already taken the second strongest place, followed by Swiss Franc indicating risk aversion.

                But as seen in the 4H heatmap, Dollar is the strongest one, followed by Swiss Franc and Yen. The greenback might be staging a rebound.

                Technically, EUR/USD’s recovery is held well below 1.1341 minor resistance. USD/CHF’s retreated is held above 1.1004 minor support, not to mention 0.9988 structural support. GBP/USD is in near term decline for 1.2391 low. AUD/USD is in consolidation above 0.7054 temporary low. USD/CAD breached 1.3329 resistance to resume the rebound from 1.3068. So all in all, today’s negative news doesn’t trigger much bearishness in Dollar.

                As for stocks, DOW hit as low as 25308.09 earlier today but it’s back above 25370, just down -0.66. That isn’t too serious. Our own view, as mentioned multiple times before, is that we expect further loss of momentum as DOW approaches 78.6% retracement of 26951.81 to 21712.53 at 25830.60. And the rebound from 21712.53 should complete around that level. However, break of 24883.03 support is needed to be the first sign of near term reversal. Otherwise, we cannot declare we’re correct yet.

                For now,

                • DOW is down -0.66%.
                • S&P 500 is down -0.44%
                • NASDAQ is down -0.13% only.
                • 10-year yield is down -0.045 at 2.663, back below 2.7.
                • 30-year yield is down -0.024 at 3.010, still above 3.0.

                In Europe:

                • FTSE closed up 0.28%, thanks to decline in Sterling.
                • DAX closed down -0.51%.
                • CAC closed up 0.04% only, erased nearly all early gains.
                • German 10-year yield is down -0.022 at 0.105. It breached 0.1 handle earlier.

                Fed Brainard: Downside risks have definitely increased and gathering

                  By
                  ActionForex.com
                  -

                  Fed Governor Lael Brainard warned that “downside risks have definitely increased relative to that modal outlook for continued solid growth.” She added that back in December, she “had already noted that crosscurrents were increasing and that tailwinds were dying down, and I think that is even more true today because of those downside risks that are gathering.”

                  Brainard pointed to external risks including China’s economy, US-China trade conflicts and Brexit. And, “We are a very international economy… Our financial system in particular has shown itself to be very responsive to earnings abroad, to financial conditions and volatility abroad. So, yeah, I’m very attentive to the international outlook.”

                  Domestically, she believed that momentum has been “pretty solid”. But today’s retail sales numbers “caught my eye”. Though she “didn’t want to make too much” of one month’s numbers.

                  On monetary policy, she’s “comfortable waiting and learning” and the current policy is “in a good place”. And, she would weigh “what move, if any, later in the year”. Meanwhile, she added that the “balance sheet normalization process should probably come to an end later this year”.

                  Dollar under pressure on shockingly poor retail sales, jobless claims missed too

                    By
                    ActionForex.com
                    -

                    Dollar is sold off sharply in early US session after way worse than expected December retail sales data. Headline sales dropped -1.2% versus expectation of 0.1% mom rise. That’s also the largest decline in nine years since September 2009. Ex-auto sales dropped -1.8% versus expectation of 0.0% mom.

                    Initial jobless claims rose 4k to 239k in the week ending February 9, above expectation of 225k. Four-week moving average of initial claims rose 6.75k to 231.75k, highest since January 27, 2018. Continuing claims rose 37k to 1.773M in the week ending February 2. Four-week moving average of continuing claims rose 9k to 1.750M.

                    Also from the US, headline PPI slowed to 2.0% yoy in January, down from 2.5% yoy and missed expectation of 2.1% yoy. PPI core slowed to 2.6% Yoy, down from 2.7% yoy but beat expectation of 2.5% yoy.

                    From Canada, manufacturing sales dropped -1.3% mom in December versus expectation of 0.7% mom. New housing price index was flat mom in December.

                    Into US session: Sterling weakest as Brexit debate resumes

                      By
                      ActionForex.com
                      -

                      Entering into US session, Sterling is trading as the weakest one for today as Brexit debate resumes in the Commons. Canadian Dollar follows as the second weakest. Though, Yen remains broadly pressured as the third weakest. On the other, New Zealand and Australian Dollar are the strongest ones for today but both lacks follow through buying.

                      There are talks that investors sentiments are boosted by positive development in US-China trade talks. But we’d like to reiterate that such optimism is not really reflected in stocks and bond markets. Both China and Hong Kong stocks closed lower. Japan JGB yield ended with a decline. German 10-year yield is also currently down. Is a 60-days extension in trade truce something good for the economy? Remember that the current tariffs will likely be in place in case of extension. Such an act is only prolonging the damages.

                      Anyway, it’s still positive that Japan and German avoided recessions in H4 even though the later’s GDP was stagnated. At least Germany was not in contraction back then. Eurozone GDP growth also matched expectation. Focus will now turn to US PPI, jobless claims and more importantly retail sales.

                      In Europe, currently:

                      • FTSE is up 0.43%.
                      • DAX is up 0.26%.
                      • CAC is up 0.66%.
                      • German 10-year yield is down -0.014 at 0.112.

                      Earlier in Asia;

                      • Nikkei dropped -0.02%.
                      • Hong Kong HSI dropped -0.23%.
                      • China Shanghai SSE dropped -0.05%.
                      • Singapore Strait Times rose 0.26%.
                      • Japan 10-year JGB yield dropped -0.0039 to -0.01, staying negative.

                      BoE Vlieghe: Monetary easing more likely than tightening in case of no-deal Brexit

                        By
                        ActionForex.com
                        -

                        BoE MPC member Gertjan Vlieghe said in a speech that the net balance of economic news for the UK has been to the “downside”. Thus, the appropriate pace of monetary tightening is “somewhat slower” than he judged a year ago.

                        A quarter point hike per year is a “reasonable central case” if global growth does not slow materially further, path to Brexit is in line with government’s state objective, and pay growth continues at current pace. Though, if a no-deal Brexit is avoided, he expects Sterling to appreciate. And the exact degree of future monetary tightening will depend on appreciation of the Pound.

                        However, a no-deal outcome is “likely to lead to some economic disruption, which could possibly be severe”. There are some paths that are possible, but “not all are equally likely”. In his view, “an easing or an extended pause in monetary policy is more likely to be the appropriate policy response than a tightening.” But he emphasized that BoE will have to “judge in real time” how well inflation expectations remain anchored, and how households and businesses are reacting to the disruptions.

                        Vlieghe’s full speech “The Economic Outlook: Fading global tailwinds, intensifying Brexit headwinds“.

                        Eurozone GDP grew 0.2% qoq in Q4, matched expectations

                          By
                          ActionForex.com
                          -

                          Eurozone GDP grew 0.2% qoq in Q4, unchanged from Q3 and matched expectations. Annually, GDP grew 1.2% yoy. Over the whole year 2018, GDP grew 1.8%. Employment grew 0.3% qoq, above expectation of 0.2% qoq.

                          EU 28 GDP grew 0.3% qoq, 1.4% yoy. Over 2018, EU 28 GDP grew 1.9%.

                          Full release here.

                          German economy stagnated in Q4, but narrowly escaped recession

                            By
                            ActionForex.com
                            -

                            Germany GDP stagnated in Q4 and grew 0.0% qoq. But that was enough to narrow escape a technical recession following -0.2% contraction in Q3. Over the year, GDP grew 0.9% yoy in Q4. For the whole year of 2018, GDP grew 1.5% calendar adjusted.

                            Looking at the details, positive contributions mainly came from domestic demand. Development of foreign trade did not make a positive contribution to growth in the fourth quarter. According to provisional calculations, exports and imports of goods and services increased nearly at the same rate in the quarter-on-quarter comparison.

                            Full release here.

                            China trade balance: Import from US plunged -41%, from EU rose 8.2%

                              By
                              ActionForex.com
                              -

                              January trade data from China showed a better picture. Exports grew 9.1% yoy versus expectation of -3.3% yoy. Import dropped only -1.5% yoy versus expectation of -10.2% yoy. Trade surplus narrowed to USD 39.2B, above expectation of USD 32.0B. However, it should be noted that the trade data for the first two months of the year are generally distorted by Lunar New Year holidays. Thus, while the data are positive, it’s premature to declare that the slow down in China has bottomed. Nevertheless, it’s worth noting that exports to the US since tariff war began were not so much affected. But import from the US plunged, quite notably in Jan by -41%.

                              In USD terms:

                              • Total trade rose 4.0% yoy to USD 396B.
                              • Import dropped -1.5% yoy to USD 178.4B.
                              • Exports rose 9.1% yoy to USD 217.6B.
                              • Trade surplus rose to USD 39.2B.

                              With EU:

                              • Total trade rose 12.4% yoy to USD 64.5B.
                              • Import rose 8.2% yoy to 25.9B.
                              • Export rose 15.3% yoy to USD 38.6B.
                              • Trade surplus was at USD 12.7B.

                              With US

                              • Total trade dropped -13.9% yoy to USD 45.8B.
                              • Import dropped -41% yoy to USD 9.2B.
                              • Exports dropped -2.4% yoy to USD 36.5B.
                              • Trade surplus was at USD 27.3B.

                              With AU

                              • Total trade rose 10.8% yoy to USD 14.4B.
                              • Import rose 7.6% yoy USD 10.1B.
                              • Export rose 19.1% yoy to USD 4.3B.
                              • Trade deficit was at USD 5.8B.

                              Full country breakdown here in simplified Chinese.

                              UK RICS house price balance dropped, resolution of Brexit negotiations critical

                                By
                                ActionForex.com
                                -

                                UK RICS house price balanced dropped to -22 in January, below expectation of -20. RBIC noted that activity measures for both buyers and sellers continue to slip. Also, price balance weakens at the national level, led by London and the South East. And, as sales drop, the lettings market is faring better with demand rising.

                                Simon Rubinsohn, RICS chief economist, warned that “resolution of the Brexit negotiations is widely seen as critical to encouraging potential buyers back into the market, although whether that will be sufficient in London and parts of the South East where affordability remains stretched and the tax changes are most penal remains to be seen.”

                                Full release here.

                                Japan GDP rebounded with weak momentum, but avoided recession

                                  By
                                  ActionForex.com
                                  -

                                  Japan GDP grew 0.3% qoq in Q3, rebounding from Q3’s -0.6% qoq contraction. The good news is that Japan avoided a technical recession of two consecutive quarters of contraction. But growth was disappointing and missed expectation of 0.4% qoq. GDP deflator dropped -0.3% yoy, slightly better than expectation of -0.4% yoy.

                                  Japanese Economy Minister Toshimitsu Motegi said in a statement that “the economy is in gradual recovery as growth is led by private demand”. However, “China-bound exports of information-related materials have weakened as the Chinese economy slowed”. He added that the government needs to “monitor uncertainty over global economic outlook including Chinese economy as well as fluctuations in financial markets.”

                                  Trump considering 60-day extension to trade truce as high level talks start

                                    By
                                    ActionForex.com
                                    -

                                    High level US-China trade negotiations started in the Diaoyutai state guest house in Beijing today, involving US Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer, and Chinese Vice Premier Liu He. Ahead of that, Mnuchin said he’s “looking forward to discussions today”. There was no elaborate and so far, there is no news leaked regarding the talks.

                                    Trump indicated earlier this week that he’s willing to let the March 1 trade truce deadline slide a little bit. Trump further added that the talks are “going along very well” and the Chinese are “showing us tremendous respect.” Bloomberg reported that Trump is indeed considering to extend the deadline by 60 days, after rejecting the initial request by China of 90 days extension. But the rumor is not confirmed.

                                    Yen trades generally lower on the news while Australian Dollar strengthens. But reactions from the stock markets are rather muted. Currently, Hong Kong HSI is down -0.4% and China SSE is down -0.04%.

                                    Position trading update: Entered AUD/JPY short

                                      By
                                      ActionForex.com
                                      -

                                      This is an update to our position trading strategy as mentioned in the weekly report. We’d sold AUD/JPY at 78.40 with today’s strong rebound. The rebound off 77.51 support was as expected even though the strength is a bit surprising, mainly thanks to return of risk appetite.

                                      At this point, there is no overwhelming strength in Aussie elsewhere. AUD/USD is just in corrective recovery. EUR/AUD is held well above 1.5721 support. GBP/AUD also held well above 1.7868 support. AUD/CAD is in very tight range around 0.94. On the other hand, EUR/JPY stays below 125.95 resistance. GBP/JPY is well below 144.84 resistance. CAD/JPY is also below 83.98 high too.

                                      Thus, for now, there is no change in the view AUD/JPY’s rebound from 77.44 is a corrective rise. And we maintain the view that whole rise from 70.27 has completed at 79.84, on bearish divergence condition in 4 hour MACD, after failing to sustain above 55 day EMA.

                                      While current rebound form 77.44 might extend, we don’t expect a break of 79.84 resistance. A break of 78.33 minor support will suggest that the recovery is completed and add some credence to our bearish case.

                                      We’ll hold short in AUD/JPY (sold at 78.40). Stop is kept at 79.84. As we don’t expect a break of 70.27 with the next fall, our target will be put at 61.8% retracement of 70.27 to 79.84 at 73.92.

                                       

                                      Fed Bostic: No need to rush to neutral interest rate

                                        By
                                        ActionForex.com
                                        -

                                        Atlanta Fed President Fed Bostic said that one more rate hike this year remains his model projection, provided that the economy growths by 2.5%.

                                        However, he emphasized “it’s important that we don’t go too fast and act in a non-prudent way that lines up inadvertently restricting the economy and weakening the economy.”

                                        Also he noted nervousness among business has “informed my view of how we should think about it. It’s made me feel I don’t need to rush to get us into neutral, we can take our time to get to that point.”

                                        Dollar rebounds after stronger than expected US CPI

                                          By
                                          ActionForex.com
                                          -

                                          Dollar rebounds in early US session after stronger than expected inflation data. Headline CPI slowed to 1.6% yoy in January, down from 1.9% yoy but beat expectation of 1.5% yoy. CPI core was unchanged at 2.2% yoy, beat expectation of 2.1% yoy.

                                          Full release here.

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