Eurozone industrial production contracted -0.9% mom in December, much worse than expectation of -0.4% mom. Over the year, IP dropped -4.2% yoy. Looking at the industrial groupings, production of both capital goods and non-durable consumer goods fell by -1.5% and energy by -0.4%, while production of intermediate goods remained unchanged and durable consumer goods rose by 0.7%. For EU 28, industrial productions dropped -0.5% mom, -2.7% yoy.
UK CPI slowed to 1.8% yoy in January, down from 2.1% yoy and missed expectation of 2.0% yoy. That’s also the lowest level since January 2017. Core CPI was unchanged at 1.9% yoy, matched expectations. ONS noted that the largest downward contribution to the change in the 12-month rate came from electricity, gas and other fuels. Meanwhile, these downward effects were partially offset by air fares.
Also from UK,
In the UK, ITV news reported that its correspondent overhead lead Brexit negotiator Olly Robbins said the parliament is facing a choice of Prime Minister Theresa May’s deal or a long article 50 extension. And, the issue is whether Brussels is clear on the terms of extension.
On the other hand, Brexit Minister Steve Barclay is quick to clarify that “the prime minister has been very clear that we are committed to leaving on the 29th of March… It’s not in anyone’s interest to have an extension without any clarity.”
And, the Financial Times reported that PM Theresa May told business leaders that extending Article 50 process beyond March 29 serves no purpose.
Asian stocks staged a strong rally today on optimism over US-China trade talks. In particular, Trump hinted that he’s willing to let the March 1 trade truce deadline slip, even though he doesn’t prefer it. Yen and Dollar are trading as the weakest ones for today because of that. Euro follows as third weakest. Australian Dollar rises across the board naturally on risk appetite. But it’s overwhelmed by New Zealand Dollar, which was boosted by less dovish than expected RBNZ statement. For now, at least RBNZ doesn’t hint at a rate cut. Focus will now turn to CPI from UK and then US.
In Asia:
Overnight:
New Zealand Dollar jumps sharply after RBNZ turned out to be less dovish than expected. OCR was kept at 1.75% as widely expected. And, the central bank restored the language that “the direction of our next OCR move could be up or down” in the statement. However, there was no more dovish tweak.
In short, RBNZ expected interest rate to be unchanged at current level “through 2019 and 2020”. It maintained the view that “As capacity pressures build, consumer price inflation is expected to rise to around the mid-point of our target range at 2 percent.”
And, there were upside and downside risks to the outlook. RBNZ noted “there are upside and downside risks to this outlook. A more pronounced global downturn could weigh on domestic demand, but inflation could rise faster if firms pass on cost increases to prices to a greater extent.”
The overall statement was pretty balanced and did nothing to endorse market speculation of a rate cut by year end.
With today’s strong rebound in NZD/USD, focus is back on 0.6941 resistance. Firm break there will complete the corrective pattern from 0.6969 and resume the whole rise from 0.6424. That will be a rather bullish development, but only until it happens.
Kansas City Fed President Esther George expressed her support for pausing rate hikes yesterday. She said inflation pressures did not appear very strong. At the same time, there were concerns on global slowdown. Thus, “let’s step back and see what happens.”
Cleveland Fed President Loretta Mester said at the coming meetings, Fed “will be finalizing our plans for ending the balance-sheet runoff and completing balance-sheet normalization.” And, Fed will “make these plans and the rationale for them known to the public in a timely way because transparency and accountability are basic tenets of appropriate monetary policymaking.”
Fed Chair Jerome Powell delivered a speech on bank consolidations and rural communities. But he didn’t talk about monetary policy. On the economy, he just said “We don’t feel that the probability of recession is at all elevated.”
US Treasury Secretary Steven Mnuchin is now in Beijing with Trade Representative Robert Lighthizer for trade negotiations. The high-level meeting with Chinese Vice Premier Liu He will start tomorrow. Ahead of that, Mnuchin said he hoped to have “productive meetings”, without any elaborations.
Trump, on the other hand, said yesterday that he could let the March 1 trade truce deadline “slide for a little while” if “we’re close to a deal”. But he added that “generally speaking, I’m not inclined to do that.”
Separately, it’s reported that Chinese President Xi Jinping may meet Mnuchin and Lighthizer on Friday.
Trump was briefed overnight about the Congressional deal to avert another government shutdown, with only USD 1.37B for border fencing. He apparently dislike it as he told reporters “I have to study it. I’m not happy about it.” Though, he added that “I don’t think you’re going to see another shutdown.”
He also kept on pressing for the border wall and signaled unilateral actions. He said “The bottom is on the wall: We’re building the wall”. And, “We’re supplementing things, and moving things around, and we’re doing things that are fantastic and taking, really, from far-less-important areas.”
Risk appetite appears to be rather strong today. It’s reported that Trump is undecided on the congressional deal to avert another shutdown. But investors couldn’t care less and they seem optimistic that Trump will eventually find an excuse to bow down, like claiming that the 90km border fence is a first step. But anyway, S&P 500 has already broken recent high to extend rally. DOW and NASDAQ might follow soon.
In the currency markets, Swiss Franc is the worst performing one, followed by Yen and then Dollar. Australian Dollar is the strongest one, followed by Canadian and then Euro. Sterling is mixed after little reactions to UK Prime Minister Theresa May’s Brexit statement in Commons. Kiwi is also mixed ahead of tomorrow’s RBNZ rate decision.
AUD/CHF is currently the top mover today, up 0.69%. The recovery ahead of 0.7046 support argues that rebound from 0.6646 low might not be completed yet. Intraday bias stays neutral first. Break of 0.7262 will target 0.7376 resistance next. Though, firm break of 0.7046 should confirm near term reversal and target a retest on 0.6646 low.
In other markets:
In Europe:
RBNZ rate decision will be a major focus in the coming Asian session. There is no chance of a shift in OCR, which is currently at 1.75%. While the economy appeared to have picked up momentum in Q3, Q4 data proved that was only a false dawn. RBNZ’s today in the upcoming statement should at least switch to the absolute neutral stance. That is, the language that next move could be up or down would be reintroduced. And there is prospect for the central to even tilt more to the dovish side.
Here are some suggested readings:
NZD/USD dived sharply last week after weaker than expected job data. But the decline slowed this week, with 4 hour MACD crossed above signal line. Intraday bias is turned neutral for now. As long as 0.6773 minor resistance holds, we’d expect further decline ahead. Break of 0.6706 will pave the way to 0.6551 low.
Nevertheless, break of 0.6773 will indicate shorty term bottoming and bring stronger recovery. But even in that case, we don’t expect a break of 0.6941 resistance in near term.
Entering into US session, Yen and Swiss Franc remain the weakest ones for today and the week as stocks rebound continue. DOW futures are currently up 200 pts, cheering the deal in US Congress to avert another government shut down, with funding for 90km of bordering fencing. Dollar is following as the third weakest. US Treasurer Steven Mnuchin and USTR Robert Lighthizer arrived in Beijing today for trade talks, without any notable comments so far.
Meanwhile, Australian Dollar is the strongest one, followed by Canadian. WTI is back at 53.8 after defending 51.37 support earlier. Sterling stays mixed as UK Prime Minister delivered her Brexit update in the parliament. The most important thing to note is that if she cannot get an approvable new deal by February 26, the Commons will be given a chance to vote on a plan B on the following day.
In Europe, currently:
Earlier in Asia:
BoE Governor Mark Carney noted in a speech today that global growth momentum is now “weakening in all major regions” and “downside risks have intensifed”. Also, the proportion of the global economy growing above trend has fallen from four-fifths to one-third.
Tighter financial conditions could be part of the reaons for the deceleration. But he warned, “potentially more seriously, the slowing in global momentum may also be the product of rising trade tensions and growing policy uncertainty.” And, “risks from China and from de-globalisation are significant and growing.” Carney also emphasized “contrary to what you might have heard, it isn’t easy to win a trade war.”
He added that Brexit is the “first test of a new global order”. It could be the “acid test” of “whether a way can be found to broaden the benefits of openness while enhancing democratic accountability.” And, Brexit can also lead to “new form of international cooperation and cross-border commerce built on a better balance of local and supranational authorities.”
ECB Governing Council member Klaas Knot said there is no need to raise interest rates before more sign of inflation pickup to target. He said “we will have to be patient and also, in my view, modest with respect to the precise moment at which we can expect inflation to converge toward our medium-term objective.” And, at this moment, a “wait-and-see attitude is probably the optimal attitude.”
Knot also tried to play down recession risk despite economic slow down. He said “the current situation might last a few quarters, but I’m still positive . . . that afterwards growth will return to levels slightly above potential again.”
UK Prime Minister Theresa May said in the parliament that she told European Commission President Jean-Claude Juncker last week that UK wanted “legal binding” changes to the withdrawal agreement that it would not be kept in the backstop. But Juncker insisted EU would not reopen negotiation on the withdrawal agreement.
May told lawmakers such request for renegotiation was “reasonable”. But she also admitted that “some time” is needed to complete the process of negotiating a better deal on Irish backstop. Though, May is still aiming to leave the EU on March 29. She also promised that if she cannot get a deal by February 26, the Commons will have a chance to vote on a plan B the following day.
For this week, it’s confirmed that there will be no meaningful vote in the Commons, but amendable motion for debate on Thursday.
US Treasury Secretary Steven Mnuchin and Trade Representative Robert Lighthizer arrived in Beijing today, ahead of the high-level meeting on Thursday.
Mnuchin told reporters that “it’s great to be here back in Beijing,” and “we’re looking forward to several important days of talks.”
Lighthizer arrived earlier but didn’t any any questions from reporters.
Bundesbank President Jens Weidmann warned today that the Eurozone is still not crisis proof. He pointed out that “certain issues like the lack of credibility of fiscal rules or the harmful sovereign-bank nexus still have to be adequately addressed.”
At the same time, fighting crises could force unelected ECB bankers to take political positions that’s beyond its own mandate. And, “acting beyond the mandate would also undermine people’s trust in the central bank.”
He added, “at the end of the day, it could become more and more difficult for the European Central Bank to focus on its promise of a stable currency.”
UK Prime Minister Theresa May is going to make a statement on Brexit in the parliament today. According to her office, May is expected to say “the talks are at a crucial stage.” And she’ll urge that “we now all need to hold our nerve to get the changes this House has required and deliver Brexit on time.”
Also, May will say “By getting the changes we need to the backstop; by protecting and enhancing workers’ rights and environmental protections; and by enhancing the role of Parliament in the next phase of negotiations I believe we can reach a deal that this House can support.”
But just yesterday, EU chief Brexit negotiator Michel Barnier reiterated that “It’s clear from our side that we are not going to reopen the withdrawal agreement but we will continue our discussion in the coming days.”
Entering into European session, Australian Dollar is so far the best former for today. It’s partly helped by another day of rebound in Chinese stock markets. Japanese Nikkei also came back from holiday with a rebound. Additionally, better than expected NAB business condition and confidence also give Aussie a pop. But upside momentum is rather weak as the current recovery should be corrective in nature.
For now, Canadian Dollar follows as the second strongest one. WTI crude oil drew support from 51.37 support and is recovering, back at 52.8. Euro is the third strongest, paring some of yesterday’s losses. On the other hand, Yen, New Zealand Dollar and Dollar are the weakest ones so far.
The economic calendar is rather light ahead today. Main focus will be on UK Prime Minister Theresa May’s Brexit statement in the Commons. The US Congress has reached a tentative deal to avert another partial government shutdown. So, focus will turn back to any news regarding US-China trade negotiation.
In Asia:
Overnight:
RBNZ quarterly survey showed inflation expectation for a year ahead dropped from 2.09% to 1.82%. One-year house price expectations dropped sharply from 2.86% to 1.91%. One-year rolling annual GDP expectation dropped slightly from 2.44% to 2.38%. Regarding RBNZ monetary policy, a net 75.6% of respondents believe monetary conditions in one year’s time will be easier than neutral.
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Into US session: Risk appetite continues, Euro weighed by poor production data
Entering into US session, New Zealand and Australian Dollar remain the strongest ones for today. Kiwi was boosted by less dovish than expected RBNZ MPS today. At least, RBNZ suggests that it’s not on track for a rate cut. Meanwhile, Aussie is supported by strong risk appetite based on trade-deal optimism. Trump indicated yesterday that he’s willing to let the March 1 trade truce deadline with Chine slide a little. Treasury Secretary Steven Mnuchin also said talks in Beijing are so far, so good.
Yen remains the weakest one for today, naturally on risk appetite. Euro follows as weighed down by poor industrial production data, then Swiss Franc. Sterling shrugs of weaker than expected inflation reading, with headline CPI dropped to 2-year low in January. Focus will now turn to US CPI.
In Europe, currently:
Earlier in Asia: