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DOW staged decisive rebound on dovish Fed Powell

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    ActionForex.com
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    US stocks were shot up overnight after the surprised comments from Fed Chair Jerome Powell that interest rates are “just below” neutral. Markets took that as a sign Fed is nearing to a pause in the currency rate hike cycle.

    DOW rose 617.70 pts or 2.50% to 25366.43. S&P 500 gained 61.62 pts or 2.30% to 2743.79. NASDAQ added 208.89 pts or 2.95% to 7291.59.

    Treasury yields were mixed though. Five-year yield closed down -0.029 at 2.856. 10-year yield dropped -0.011 to 3.044. But 30-year yield rose 0.010 to 3.329.

    The strong rally in DOW was rather decisive technically. 23997.21 structural support was defended again. And the range for medium term consolidation is likely set for now, that is, between 23997.21 and 26961.81. For the near term, 55 day EMA will likely be taken out as the current rebound extends. DOW could head to 26000/27000 region but we don’t expect expect a break of 26951.81 any time soon.

    Fed Powell said rate “just” below neutral, is the Fed still independent?

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      ActionForex.com
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      Dollar dives sharply as Fed Chair Jerome Powell seems to be backing down from his monetary stance, facing political pressure from Trump.

      The key take away is that Powell said “. Interest rates are still low by historical standards, and they remain just below the broad range of estimates of the level that would be neutral for the economy‑‑that is, neither speeding up nor slowing down growth.”

      That is, in Powell’s view, federal funds rate at 2.00-2.25% is “just below” neutral.

      However, it should be noted that in September projections, median longer run projected federal funds rate was 3.0%. Central tendency was at 2.8-3.0%. And the range was from 2.5-3.5%.

      2.00-2.25% couldn’t be considered being “just below” 3.0%, nor 2.8-3.0%. So, is Powell finally revealing himself as a dove, not that balanced, composed Fed chair that he protraited? Or is he selling Fed’s independence?

      Powell’s full speech.

      Also, back on October 3, Powell said “We may go past neutral, but we’re a long way from neutral at this point, probably” (see this CNBC report).  Powell in his own words on October 3. Just in case, start at 8:00.

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      Did the economic outlook change that much since then? Or he lied back in October? Or he is lying now?

      BoE projects GDP to be 1.75% higher in close partnership with EU after Brexit

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        ActionForex.com
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        Following the UK Government, BoE also released it’s economic analysis of different Brexit scenarios.

        In short, in case of economic partnership with EU after Brexit, and relative to November Inflation Report (IR), by end of 2023:

        • GDP is 1.75% higher in the close partnership scenario
        • GDP is -0.75% lower in the less close partnership scenario
        • Unemployment rate will be at 4%, slightly lower than the IR
        • Inflation is a little lower reflecting appreciation of Sterling and peat at 2.25%

        In case of no deal, no transition, relative to November IR, by the end of 2023, in worst case:

        • GDP is -4.75 to -7.75% lower
        • Unemployment rate will jump to 5.75-7.50%
        • Inflation will peak at 4.25 to 6.25%

        Full BoE report here.

        Trump studying auto tariffs again after GM plants closure

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          ActionForex.com
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          Trump blamed other car exporting countries for taking advantage of the US for decades. And he claimed that if the 25% “chicken tax” is imposed on cars, GM would not be closing their plants in Ohio, Michigan and Maryland. And because of GM event, auto tariff is being studied now.

          He tweeted. “The reason that the small truck business in the U.S. is such a go to favorite is that, for many years, Tariffs of 25% have been put on small trucks coming into our country. It is called the “chicken tax.” If we did that with cars coming in, many more cars would be built here …..and G.M. would not be closing their plants in Ohio, Michigan & Maryland. Get smart Congress. Also, the countries that send us cars have taken advantage of the U.S. for decades. The President has great power on this issue – Because of the G.M. event, it is being studied now!”

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          ECB de Guindos: Challenges remain in the form of low trend growth

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            ECB Vice President Luis de Guindos said in a speech that Eurozone economy is “continuing to grow” and the growth is “broad-based across countries and sectors”. He added that “during this recovery, the countries that were most affected by the crisis have regained competitiveness thanks to a combination of accommodative monetary policy, fiscal consolidation and structural reforms.”

            However, de Guindos warned that “challenges remain in the form of low trend growth compared with other advanced economies, and persistently high public and private debt levels in a number of euro area countries.”. He urged further efforts to “strengthen productivity growth and boost productive investments to lift long-term potential growth.”

            UK government Brexit scenario analysis, from -10.7% GDP contraction to -0.1% in 15 years.

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              ActionForex.com
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              The UK Government released a series of five papers on Brexit today. The most anticipated in the one on long term economic analysis of Brexit. In short, according the government, in 15 years by 2034 after Brexit:

              • GDP could contract as much as -10.7% in case of no-deal Brexit with zero net inflow of EEA workers
              • GDP would contract just -1.4% if it’s modelled after EEA-type (European Economic Area) of deal, that is, Norway kind of deal.
              • Under Prime Minister Theresa’s Plan, GDP would contract only -0.6% if there is no change in migration arrangement. Or, in the best case scenario, GDP could just contract -0.1%.

              The EU Exit: Long-term economic analysis report here. And, all five papers here.

              In the parliament, Prime Minister Theresa May hailed her own plan and said “What the analysis shows, it does show that this deal that we have negotiated is the best deal for our jobs and our economy which delivers on the results of the referendum.”

              China Xi in Spain, pledges to open markets access to foreign investments

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                ActionForex.com
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                Chinese President Xi Jinping is visiting Spain today and he’s supposed to meet Trump later in the week in Argentina as sideline of G20 summit. Xi repeated his messages to the Spanish upper house of parliament that China planned to import USD 10T worth of goods over the next five years.

                Also, Xi pledged that “China will make efforts to open, even more, its doors to the exterior world and we will make efforts to streamline access to markets in the areas of investment and protect intellectual property.”

                Italy to tweak budget, balance growth and public accounts

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                  ActionForex.com
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                  Italian Economy Minister Giovanni Tria said today that the coalition government is seeking to adjust its 2019 budget plan. They’d still have to support economic growth, but at the same time need to avoid disciplinary actions by European Commission. Tria said “we are attentively seeing if there is financial space to improve the balance between the need to support growth and the need to solidify the sustainability of the public accounts.”

                  Separately, Deputy Prime Minister Luigi Di Maio, leader of Five-Star Movement, said “we must talk with the EU to find a solution, but we cannot betray the promises we made, otherwise we will become like all the other (governments).”

                  UK Hammond: May’s Brexit deal delivers economic outcome very close to Bremain

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                    ActionForex.com
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                    The UK government is expected to publish its assessment of the impact of different Brexit outcomes today. BoE will also publish it’s own assessments on interest rates implications.

                    According to a report by the Daily Telegraph, the government would show that with PM Theresa May’s Brexit deal, the UK economy would be 1-2% smaller in 15 years time comparing to remaining in EU. In case of no-deal, the economy would be 7.6% smaller.

                    Separately, Chancellor of Exchequer Philip Hammond told BBC that “If the only consideration, the only consideration, was the economy, then the analysis shows clearly remaining in the European Union would be a better outcome for the economy, but not by much. But he also noted that “The prime minister’s deal delivers an outcome that is very close to the economic benefits of remaining in.”

                    German Gfk consumer climate: Weak period of economic activity visible in consumer mood

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                      ActionForex.com
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                      German Gfk consumer climate for December dropped -0.2 to 10.4, slightly below expectation of 10.6.

                      Gfk noted that:

                      • “The weak period of economic activity has also been visible in consumer mood in November. Neither economic activity nor income prospects were able to quite maintain the level of the previous month and have decreased slightly”
                      • “Global economic turbulence, such as the trade conflict between the USA and China and the EU, or Brexit are increasingly concerning German consumers. They see weakening economic momentum and the first dark clouds on the economic horizon. “
                      • “Moreover, the trade conflict between the EU and USA has not yet been fully resolved. Higher customs duties on important exports to the USA continue to pose a threat here.
                      • Finally, the impending Brexit is also creating uncertainty since it is still not clear whether Great Britain will leave the EU with or without a deal.

                      Full release here.

                      Trump: Fed is a much bigger problem than China

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                        ActionForex.com
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                        Trump expressed his dissatisfaction on Fed Chair Jerome “Jay” Powell again yesterday. He told the Washington post that “So far, I’m not even a little bit happy with my selection of Jay. Not even a little bit.” He went further and said “Fed is a much bigger problem than China”.

                        He added “and I’m not blaming anybody, but I’m just telling you I think that the Fed is way off-base with what they’re doing.” He pointed to China and Euro being “accommodative”. But “we’re not getting any accommodation”.

                        Trump complained again that “I’m doing deals, and I’m not being accommodated by the Fed.” And, “they’re making a mistake because I have a gut, and my gut tells me more sometimes than anybody else’s brain can ever tell me.”

                        UK PM May to tell Scotland: Brexit deal protects jobs

                          By
                          ActionForex.com
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                          UK Prime Minister Theresa May will continue her nationwide Brexit deal sales tour today and Scotland is the next destination. May is expected to say “it is a deal that is good for Scottish employers and which will protect jobs.” And, the agreement would create a new free trade area of “unprecedented economic relationship that no other major economy has.”

                          May would also add that “at the same time, we will be free to strike our own trade deals around the world – providing even greater opportunity to Scottish exporters.”

                          China ambassador to US: Using treasuries as weapon could backfire

                            By
                            ActionForex.com
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                            Chinese ambassador to the US, Cui Tiankai, said that no one in Beijing is thinking seriously about using US treasuries as a weapon in trade war. HE said that it could “backfire”. Cui emphasized that “We don’t want to cause any financial instability in global markets. This is very dangerous, this is like playing with fire”.

                            Cui repeated the usual Chinese rhetoric that “we are against any trade war”, but China would “fight to safeguard our own interests.” And he also criticized so far “I have not seen sufficient response from the U.S. side to our concerns.” He emphasized “we cannot accept that one side would put forward a number of demands and the other side just has to satisfy all these things.”

                            White House Kudlow: Xi has an opportunity to change the tone and the substance of trade talks

                              By
                              ActionForex.com
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                              White House economic adviser Larry Kudlow said the dinner meeting between Trump and Xi at G20 this week could “turn the page” on a US-China trade war. But so far, he complained that China’s “responses have disappointed because … we can’t find much change in their approach”. He urged that “President Xi has an opportunity to change the tone and the substance of these talks”. And “Trump has indicated he is open – now we need to know if President Xi is open.”

                              Kudlow also said that in Trump’s view “there is a good possibility that a deal can be made, and that he is open to that.” But he also emphasized “certain conditions have to be met”. Some issues including intellectual property theft, forced technology transfer, ownership of American companies in China, high tariffs and non-tariff barriers on commodities, and commercial hacking, must be solved.

                              However, if there is no progress, Kudlow said Trump is prepared to raise tariffs on $200 billion of imports to 25 percent from current levels of 10 percent on January 1. In addition, Trump could add tariffs on another $267 billion of imports. Kudlow said regarding Trump’s stance on this that “as we’ve all learned, he means what he says”.

                              Today’s top mover: GBP/NZD in near term consolidation, medium term bearish

                                By
                                ActionForex.com
                                -

                                GBP/NZD is the biggest mover today as Sterling suffered renewed selling. On the other hand, Kiwi and Aussie remain firm despite rally in Dollar.

                                Nevertheless, GBP/NZD is staying above 1.8659 support despite today’s fall. It’s technically staying in consolidation and more sideway trading could be seen. But even in case of another recovery, upside should be limited by 1.9282 resistance to bring fall resumption.

                                In our view, the medium term corrective rise from 1.6684 (2016 low) should have completed at 2.0469. Fall from 2.0469 is still in progress. Break of 1.8659 would target 61.8% retracement of 1.6684 to 2.0469 at 1.8130.

                                Trump may impose auto tariffs next week, Dollar lifted and Euro dips

                                  By
                                  ActionForex.com
                                  -

                                  Dollar appears to be lifted by reports that Trump is ready to impose 25% auto tariffs as soon as next week after G20. The Wirtscharfts Woche reported that the Commerce Department recommended “as broad a policy as possible”. And tariffs could be imposed to all countries except Canada and Mexico. That is, EU, Japan and South Korea could be included.

                                  US consumer confidence dropped to 135.7, remains at historically strong levels

                                    By
                                    ActionForex.com
                                    -

                                    US Conference Board Consumer Confidence dropped to 135.7 in November, down from 137.9, missed expectation of 136.0.

                                    In the release, it’s noted that

                                    • “Despite a small decline in November, Consumer Confidence remains at historically strong levels.”
                                    • “Consumers’ assessment of current conditions increased slightly, with job growth the main driver of improvement.
                                    • Expectations, on the other hand, weakened somewhat in November, primarily due to a less optimistic view of future business conditions and personal income prospects.
                                    • Overall, consumers are still quite confident that economic growth will continue at a solid pace into early 2019.
                                    • However, if expectations soften further in the coming months, the pace of growth is likely to begin moderating.”

                                    Full release here.

                                    Fed Bullard: No doubt the US economy will slow in 2019 and 2020

                                      By
                                      ActionForex.com
                                      -

                                      St. Louis Fed President James Bullard said “I don’t have any reason to doubt the economy will slow in 2019 and 2020. It would be much tougher for the Fed to continue to raise at this pace in a slowing economy relative to where we have been.”

                                      He also warned that “the good news won’t last forever, and if potential growth really is at 1.8 percent the economy is going to return to some level more like that.” He added, “the question in my mind is what are we trying to control? We have already been preemptive…We took all this action and it has put us in good shape.”

                                      And, “if we had not had these surprises to the upside my story would have looked better in retrospect than it does,” Bullard said. “As a baseline most forecasts have the economy slowing down…That is the basic structure we are working with going into 2019.”

                                      China Liu said protectionism offers no solution, EU Vestager urges to make real progress

                                        By
                                        ActionForex.com
                                        -

                                        China’s Vice Premier Liu He said in a conference in Hamburg that “protectionist and unilateral approaches do not offer solutions to problems on trade”. And, “on the contrary, they will only bring about more economic uncertainty to the world”. He added that “The history of economic development has proven time and again that raising tariffs will only lead to economic recession and no one ever emerged as a winner from a trade war. Our approach therefore is to seek a negotiated solution to the problems we have on the basis of equality and mutual respect.”

                                        At the same event, European Competition Commissioner Margrethe Vestager urged China to join efforts in reforming the WTO. She said “We need to do more, we need to make it happen, the reform of the WTO”. And, “Not just by discussing the easier issues, but making real progress on bringing rules up to date so global trade is fair as well as free.”

                                        EU Malmstrom urged US to join efforts on WTO reforms

                                          By
                                          ActionForex.com
                                          -

                                          European Trade Commissioner Cecilia Malmstrom urged the US to join WTO reforms today. She pointed to the joint proposals with 11 other countries on reform of the appellate body released yesterday. And she told the US, “Lots of countries in the world are backing this. So please come, sit down and talk to us. That they haven’t done so far. Will that happen? Who knows.”

                                          Also, Malmstrom emphasized “If we don’t reform this in the WTO – and we do not expect China to just sign on the dotted line here and agree, but to engage – there will be others setting a level playing field outside the WTO and I’m not sure that is beneficial for China or the rest of the world.”

                                          On Trump-Xi meeting later this week, she said “It would be good for the whole world if they de-escalated a little bit”. And, “Then somehow it will have to be, possibly not in Buenos Aires but at some time, they will have to negotiate some way forward and we might not like those results, but I can’t speculate on that.”

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