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US CPI slowed to 2.2%, core up to 2.2%, Dollar dips mildy

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    Dollar dips mildly after US inflation data. Headline CPI slowed notably to 2.2% yoy in November, down from 2.2%. On the other hand, core CPI rose to 2.2%, up from 2.1% yoy. Both matched market expectations. Headline CPI peaked at 2.9% earlier in June while core CPI peaked at 2.4% in July.

    For now, Fed is still widely expected to raise interest rate again next week, and most likely another one in March. But diminishing upside pressure in inflation could start to tie Fed’s hand beyond March 2019.

    Full release here.

    Sterling jumps as BBC said May has enough support to win leadership challenge

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      More support in Sterling is seen on news of growing support for UK PM Theresa May. Most notably, BBC editor Laura Kuenssberg‏ tweeted 158 Tory MPs have now said they will back May tonight. And that should be enough for her to win.

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      Separately, European Council President Donald Tusk said in a letter to EU27 leaders that May would brief the other leaders before dinner on the EU summit on Thursday. And then, May would leave the leaders to “adopt Brexit conclusions. The EU27 leaders will discuss their preparations for no-deal Brexit.

      Into US session: Sterling strongest as UK PM May faces leadership challenge, Swiss Franc getting weak

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        Entering the US session, the biggest news today is that UK PM Theresa May’s moment of truth has finally come. There are enough requests to trigger a no-confidence vote, which will be held at 1800-2000GMT today. The results will likely come out at around 2100GMT. The Pound actually strengthens on the news. The question is, should May will the vote, would that mean the tories should unite and stay behind her Brexit deal? And, should May lose, a new leader will come in and there is definitely not enough time for Brexit renegotiation. Then, the article 50 requests is likely needed to be revoked. Brexit would be delayed or even cancelled. These cases are most likely much better than a no-deal hard Brexit.

        Staying in the currency markets, Euro is trading as the second strongest one, followed by Canadian. New Zealand Dollar is the weakest one, walking its own path. Swiss Franc and, to a much lesser extend, Yen are next weakest on improved risk appetite. European stocks are trading broadly higher, including FTSE. It seems like UK investors are feeling nothing about May. Asian markets also closed broadly higher. Progress of US-China trade talk is lifting sentiments general.

        At the time of writing in Europe:

        • FTSE is up 1.31%
        • DAX is up 0.94%
        • CAC is up 1.67%
        • German 10 year bund yield is up 0.002 at 0.238
        • Italian 10 year yield is down -0.052 at 3.065. German-Italian spread is now at 282

        Earlier in Asia:

        • Nikkei closed up 2.15% at 21602.72
        • Hong Kong HSI rose 1.61% to 26186.71
        • China Shanghai SSE rose 0.31% to 2602.15
        • Singapore Strait Times rose 1.33% to 3099.99
        • 10 year JGB yield rose 0.0105 to 0.056, back above 0.5 handle.

        UK Prime Minister Theresa May speaks regarding leadership challenge, video

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          UK Prime Minister Theresa May speaks regarding leadership challenge. In short, May pledged to contest the no-confidence vote with “everything I have got”. She believed the deal with EU is “attainable”. And she warned that a change of leadership in the Conservative now will “put the future of our country at risk and create uncertainty we can least afford it”.

          And she also warned that a change of leadership now would “hand the control of the Brexit negotiation to opposition MPs”. And the new leader will have to extend or rescind article 50, “delaying or even stopping ” Brexit. Video below.

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          Confidence vote on UK PM May triggered, Sterling steady

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            It’s confirmed. Graham Brady, chair of the 1922 Committee, has received at least 48 letters from Conservative PMs for a confidence vote on Prime Minister Theresa May. The’s over 15% threshold for triggering the request. A ballot will now be held today between 1800 to 2000 GMT today.

            Brady said in a press release that “the threshold of 15% of the parliamentary party seeking a vote of confidence in the leader of the Conservative party has been exceeded.” And, with votes counted “immediately afterwards and an announcement will be made as soon as possible”.

            Sterling is actually rather calm on the news.

            .

            NAB delays RBA hike expectations, falling house price has bigger impact

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              NAB becomes another bank to delay RBA rate hike expectations. It now expects the first hike to happen in second half of 2020. It noted that “ages pressure remains weak and hence inflationary pressure has remained low.” And, core inflation would continue to “track below RBA’s target band” through all of 2019.

              And, there would be a “moderation in growth back to potential of around 2.3 to 2.5%”. And, “falling house prices suggest a bigger impact on housing construction than previously incorporated and additional concerns about the consumer, though low rates and unemployment are important offsets.”

              NAB’s commentary here.

              Australia Westpac consumer sentiment rose 0.1%, RBA to hold through 2020

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                Australia Westpac consumer sentiment rose 0.1% to 104.4 in December, up from 104.3.

                Westpac Chief Economist Bill Evans noted in the release that the disappointment of just 0.3% Q3 GDP growth is “likely to prompt the RBA to lower its growth forecasts for 2018 and 2019.” Also, “the atmospherics of a central bank forecasting strongly above trend growth is likely to change to one talking more about near trend growth.”

                And markets pricing have largely moved towards Westpac’s rate forecast. That is RBA will keep OCR unchanged at 1.50% “over the course of both 2019 and 2020”.

                Full release here.

                UK PM May’s EU tour ended with nothing, to face leadership challenge ahead

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                  Pressures have been mounting on UK Prime Minister Theresa May after she called off the Brexit parliamentary vote. Her meeting with European leaders appeared to be fruitless. European Council president Donald Tusk tweeted that “Clear that EU27 wants to help. The question is how.”

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                  Domestically, the campaign to oust May seems to be gathering momentum. BBC cited multiple sources saying that the required 48 letters to 1922 Committee chair Graham Brady for leadership challenge have been reached. And, the vote on May’s leadership could happen at the first opportunity, that is, as soon as tonight in the UK.

                  Trump: Fed Powell’s a great guy, may intervene in Huawei case for trade deal

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                    ActionForex.com
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                    In a Reuters interview, Trump toned down his rhetorics against Fed chair Jerome Powell and said he’s a “great guy”. Though, Trump still disagree to Fed’s “foolish” rate hike next week.

                    Trump said, “Well, I think that would be foolish but what can I say? What can I say? You know, I put a man there. What can I say? If they do that, I’d be disappointed and I think a lot of people would be disappointed.” On Powell, Trump said, “I think he’s trying to do what he thinks is best. I disagree with him – I think he’s a great guy. But, I think he’s trying to get it right but I think he’s being too aggressive, far too aggressive, actually far too aggressive.”

                    On trade negotiation with China, Trump said the Chines are “back in the market” buying “tremendous amounts of soybeans”. He added there maybe another meeting of “top people on both sides”. And, if necessary, Trump is open to another meeting with Xi “who I like a lot and get along with very well”.

                    Trump went further and said that he could intervene in the Huawei case if it’s good for the trade deal. He said “If I think it’s good for the country, if I think it’s good for what will be certainly the largest trade deal ever made – which is a very important thing – what’s good for national security – I would certainly intervene if I thought it was necessary.”

                    Highlights: Key quotes from the Reuters interview with Trump

                    Separately, Huawei’s top executive Meng Wanzhou, arrested by Canada on December 1 on US request, was granted bail by a Canadian court yesterday.

                    Today’s top mover: EUR/AUD in corrective retreat, further rise expected for near term

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                      ActionForex.com
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                      At the time of writing, EUR/AUD is the biggest mover for today, down -97 pips or -0.61%. The selloff is partly due to Aussie’s strength on US-China trade optimism. It also lifts US stocks and to a lesser extend Dollar. Focus is back on Euro as Italy might submit revised budget to EU in the next 24-48 hours. Also, traders seem to be repositioning themselves, guarding against dovish ECB press conference on Thursday.

                      Nevertheless, the fall from 1.5887 is seen as a corrective pull back for now. The cross just had a strong rebound ahead of 1.5271 cluster support (38.2% retracement of 1.3624 to 1.6357 at 1.5313). The development argues that price actions from 1.6357 medium term top are developing into sideway consolidation, rather than a deep correction.

                      Hence, we’d expect rise from 1.5346 to extend into 1.5984/6357 resistance zone at least, before completion. So current retreat from 1.5887 should be contained by 1.5596 minor support to bring another rise. Nevertheless, break of 1.5596 will dampen this view and turn focus back to 1.5271/5313 zone.

                      Former UK PM Major: Revoke Brexit notice now, the clock must be stopped

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                        ActionForex.com
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                        Former UK Prime Minister John Major urged the current government to revoke Brexit notice to the EU now. He said, “We need to revoke article 50 with immediate effect. The clock, for the moment, must be stopped.”

                        He added, “It’s clear we now need the most precious commodity of all: time. Time for serious and profound reflection by both parliament and people. There will be a way through the present morass, there always is.”

                        Also, he said Brexit will weaken UK’s position in the world. He argued that “We are a more valued ally for America because of our influence in Europe and we are more valued by Europe because of our close relationship with America.” And, “Britain, shorn of both these long-standing allies, will be seen by the world as a mid-sized, middle-ranking power that is no longer super-powered by her alliances.”

                        Into US session: Sterling pares loss, risk appetite returns as China mulls auto tariff cut to 15%

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                          Entering into US session, Sterling is trading as the strongest one for today, paring some of yesterday’s steep losses. Strong wage growth is a positive factor for the pound. Also, traders are awaiting the results of Prime Minister Theresa May’s EU tour. Both European Council President Donald Tusk and European Commission President Jean-Claude Juncker are clear that they won’t renegotiate the Brexit agreement. But they’re willing to give further assurance to help May secure parliamentary approval. We’ll see what they’re going to offer. Separately May’s spokesman also said the Brexit deal vote will happen before January 21, 2019.

                          Meanwhile, Australian Dollar follows as the second strongest on return of risk appetite. Sentiments are lifted by renewed optimism on US-China trade negotiation. So far, Chinese authorities and even media are distancing the arrest of Huawei’s executive to trade talks. Vice Premier Liu He had a telephone conversation with US Trade Representative Robert Lighthizer on timetable and roadmap for the next stage of negotiations. China dove Treasury Secretary Stephen Mnuchin was also present. Additionally, Bloomberg reports that China is considering to bring down auto tariffs from the current 40% to 15%. And a proposal has been submitted for review by the cabinet in the coming days. The news give solid boost to European stocks and US futures.

                          Quick update: Trump also just tweeted “Very productive conversations going on with China! Watch for some important announcements!”

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                          In Europe, at the time of writing:

                          • FTSE is up 1.58%
                          • DAX is up 1.97%
                          • CAC is up 1.99%
                          • German 10 year yield is up 0.0182 at 0.264
                          • Italian 10 year yield is up 0.033 at 3.130

                          Earlier in Asia:

                          • Nikkei dropped -0.34%
                          • Hong Kong HSI rose 0.07%
                          • China Shanghai SSE rose 0.37%
                          • Singapore Strait Times dropped -0.43%
                          • 10 year JGB yield rose 0.0057 to 0.047

                          EU Juncker: No Brexit renegotiation, only determination to avoid the backstop

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                            European Commission President Jean-Claude Juncker will meet UK Prime Minister Theresa May later today, with the latter seeking for changes in the Brexit agreement so as to pass UK parliament. Juncker said ahead of the meeting that, “The deal we achieved is the best possible. It’s the only deal possible. There is no room whatsoever for renegotiation.”

                            Nevertheless, he added “there is room enough to give further clarifications and further interpretations without opening the withdrawal agreement”. But he reiterated that “the withdrawal agreement will not be reopened.”

                            Regarding the backstop, Juncker somewhat echoed what May has said before. That is, “We have a common determination to do everything to be not in a situation one day to use that backstop but we have to prepare. It’s necessary for the entire coherence of what we have agreed. It’s necessary for Britain and it’s necessary for Ireland. Ireland will never be left alone.”

                            German ZEW: Dramatic deterioration in current situation, indicative of weak Q4

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                              German ZEW economic sentiment improved to -17.5 in December, up from -24.1, better than expectation of 025.0. However, current situation index dropped to 45.3, down from 58.2, missed expectation of 55.6. Eurozone ZEW economic sentiment improved slightly to -21.0, up from -22.0, and beat expectation of -23.2. Eurozone current situation dropped -6.1 to 12.1.

                              ZEW President Achim Wambach noted in the release that the rise in expectation “should not be over-interpreted”. He added that “the assessment of the economic situation has worsened dramatically for both Germany and the Eurozone” And, this is “indicative of relatively weak economic growth in the fourth quarter”. Also, uncertainties remain in terms of the “looming international trade dispute and Brexit, which have a particularly negative impact on private investment and Germany’s exports”.

                              Full release here.

                              UK wage growth accelerated to fastest since 2008

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                                ActionForex.com
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                                UK unemployment rate was unchanged at 4.1% in the three months to October, matched expectation. However, wage growth was rather impressive. Average weekly earnings including bonus rose 3.3% 3moy, above expectation of 3.0% 3moy. Average weekly earnings excluding bonus also rose 3.3% 3moy, above expectation of 3.2% 3moy. Wage growth was indeed fastest since 2008. Also claimant count rose 21.9k in November, above expectation of 13.2k.

                                Full release here.

                                Sterling recovers mildly as UK PM May starts quick EU tour

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                                  ActionForex.com
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                                  Sterling recovers mildly today as UK Prime Minister Theresa May starts her quick EU tour. May will meet Dutch Prime Minister Mark Rutte, German Chancellor Angela Merkel and then European Council President Donald Tusk and European Commission President Jean-Claude Juncker, to seek last minute changes to the Brexit agreement, to get it through her own parliament. May will meet Tusk and Juncker at 1600GMT.

                                  Andrea Leadsom, leader of Commons, said in a radio interview that “the EU is always in a position where it negotiates at the last possible moment.” And she emphasized that “if we want to avoid a no-deal Brexit next March we need to go back to the drawing board to ensure that the UK parliament has that democratic capability that it is demanding.”

                                  Irish Foreign Minister Simon Coveney said the the wording of the withdrawal agreement would not change “at all”. But he hoped that EU could provide the assurance May needs regarding the backstop. But at the same time, he added that “we are now actively, not only preparing for that, but taking actions to ensure that if necessary we will be ready on March 29 for Britain to leave the EU without a deal.”

                                  Australia NAB business confidence dropped to 3, house prices dropped -1.5% qoq

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                                    ActionForex.com
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                                    Australia NAB business confidence dropped to 3 in November, down from 5. Business conditions dropped to 11, down from 13.

                                    Alan Oster, NAB Group Chief Economist noted that “the downtrend in conditions has continued in November” and, “this trend suggests that the business sector has lost some momentum since late 2017 and early 2018.” He added “confidence is now below average, suggesting that businesses themselves think momentum will slow further”.

                                    On falling house prices, though, Oster noted “businesses do not yet suggest they are having a material impact.” And, “falling house prices in themselves may have a ‘wealth effect’ on households but given the prior large run up the impact of the declines to date is unclear”.

                                    Full release here.

                                    Also from Australia, house price index dropped for the third quarter by -1.5% qoq in Q3, matched expectation. Over the year, house priced dropped -1.9% yoy.

                                    Among the capital cities, Sydney’s house prices dropped -1.9% qoq, -4.4% yoy. Melbourne’s dropped -2.6% qoq, -1.5% yoy. However, gains was recorded in Hobart (1.3% qoq, 13.0% yoy), Adelaide (0.6% qoq, 2.0% yoy) and Brisbane (0.6% qoq, 1.7% yoy).

                                    Full release here.

                                     

                                    US automakers called Japan currency manipulator, Japan FM Aso said your government hasn’t brought the topic up

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                                      ActionForex.com
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                                      Japan was fiercely attacked by an US automaker group in a US trade negotiating objectives hearing yesterday. The United Auto Workers representative criticized that the Japanese auto market is largely closed because of non-tariff barriers. Those barriers include Japan-specific regulatory, safety and emissions standards. Also, he said Japan manipulated its currency to push down the value of the Yen.

                                      The UAW representative Desiree Hoffman went further and said “these barriers have created an uneven playing field, so much so that for every car that the U.S. exported to Japan in 2017, Japan sent 100 back”. And, “any loosening of the 2.5 percent automotive or 25 percent light truck tariff would further direct Japan’s overcapacity to our shores, exacerbating the problem.” Hoffman demanded Trump’s administration to impost strict import quotas on Japanese vehicles.

                                      Japan Finance Minister Taro Aso responded calmly regarding currency manipulations. He said that “we have agreed with the U.S. side that any questions on currencies will be discussed with the U.S. Treasury Department, and so far it hasn’t been brought up.”

                                      Chinese VP Liu talked with Lighthizer and Mnuchin on timetable and roadmap of trade negotiations

                                        By
                                        ActionForex.com
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                                        The Chinese Ministry of Commerce said in a very brief statement about the phone call between Vice Premier Liu He, US Trade Representative Robert Lighthizer and Treasury Secretary Mnuchin earlier today.

                                        It noted that “both sides exchanged views on putting into effect the consensus reached by the two countries’ leaders at their meeting, and pushing forward the timetable and roadmap for the next stage of economic and trade consultations work.”

                                        The was no further elaboration on the details of the call. But the presence of Mnuchin is a gesture of willingness on both sides for constructive discussions. Mnuchin is seen by many as the most China-dovish member of Trump’s cabinet. And he should have likely taken a moderator role between Liu and Lighthizer.

                                        MOFCOM’s brief statement in simplified Chinese.

                                        EU Tusk: No Brexit deal renegotiation, including the backstop

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                                          UK Prime Minister Theresa May called off Tuesday’s Brexit parliamentary vote as her deal would be defeated by a wide margin. Instead, May is going back to the EU for adjustments in the deal, in particular on Irish border backstop. Response from EU is so far rather cold.

                                          European Council president Donald Tusk tweeted that they will discuss Brexit at the Dec 13/14 scheduled EU meeting. But he emphasized that “we will not renegotiate the deal, including the backstop”. Though, he said “we are ready to discuss how to facilitate UK ratifications:. Also, “as time is running out, we will also discuss our preparedness for a no-deal scenario.”

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