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US retail sales and Empire state manfacturing beat expectation, reactions muted

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    A batch of economic data is released from the US

    • Headline retail sales rose 0.8% in October, above expectation of 0.5% mom
    • Ex-auto sales rose 0.7%, above expectation of 0.5 mom
    • Import price index rose 0.5% mom in October, much higher than expectation of 0.1% mom.
    • Empire State Manufacturing index rose to 23.3 in November, up from 21.1 and beat expectation of 19.3.
    • Philly Fed Business outlook dropped to 12.9, down from 22.2, below expectation of 20.7.
    • Initial jobless claims rose 2k to 216k in the week ended November 10
    • Continuing claims rose 46k to to 1.676M in the week ended November 3.

    Dollar shows little reaction to the data as focus is not in the UK, not the US.

    European Update: UK and Sterling in turmoil on ministers resignations

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      Sterling is without a doubt the biggest loser today. Prime Minister Theresa May’s government is in chaos. In less than 24 hours after May seemed to have secured Cabinet support for her Brexit deal, four ministers resigned. The biggest impact came from resignation of Brexit Minister Dominic Raab, who complained that “no democratic nation has ever signed up to be bound by such an extensive regime, imposed externally without any democratic control over the laws to be applied, nor the ability to decide to exit the arrangement.” It’s also reported Senior Eurosceptic lawmaker Jacob Rees-Mogg is to submit a letter of no confidence later today. It’s just the beginning for May, and the Pound. Btw, much weaker than expected UK retail sales data also weigh on Sterling too.

      For now, Dollar is following as the second weakest together Euro. Meanwhile, Australian Dollar is the strongest one today as boosted by strong employment data, and hope of progress is US-China trade negotiation. New Zealand Dollar is trading as the second strongest. Yen is the third strongest. Focus will turn to a batch of data from the US, including retail sales, Empire State manufacturing, Philly Fed survey, import price, business inventories and jobless claims.

      In other markets, major European indices are mixed at the time of writing:

      • FTSE is up 0.06%
      • DAX is down -0.05%
      • CAC is down -0.39%
      • German 10 year yield drops -0.0244 to 0.379
      • Italian 10 year yield drops -0.023 to 3.481

      Earlier in Asia

      • Nikkei closed down -0.20% at 21803.62.
      • Singapore Strait Times gained 0.37% to 3054.53
      • Both Hong Kong and Chinese stocks gained on US-China trade talk progress
      • Hong Kong HSI rose 1.75% to 26103.34
      • China Shanghai SSE rose 1.36% to 2668.17

      UK PM May insists on her best deal after four ministers resigned

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        Now, just less than 24 hours after the Brexit Cabinet meeting, four ministers have resigned. Those include Brexit Minister Dominic Raab, Welfare Minister Esther McVey, junior Northern Ireland Minister Shailesh Vara, junior Brexit Minister Suella Braverman.

        Prime Minister Theresa May responded by warning that “The choice is clear: We can choose to leave with no deal, we can risk no Brexit at all, or we can choose to unite and support the best deal that can be negotiated.”

        And she also said “We have been preparing for no-deal and we continue to prepare for no-deal because I recognize that we have a further stage of negotiation with the European council and then that deal when finalised … has to come back to this House.”

        Sterling drops sharply after Brexit Minister Raab resigns in protest to PM May’s deal

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          ActionForex.com
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          Sterling tumbles sharply as UK Brexit Secretary Dominic Raab resigns today, just after Prime Minister Theresa May seemed to have got Cabinet support on her Brexit plan. Raab complained that “Above all, I cannot reconcile the terms of the proposed deal with the promises we made to the country in our manifesto at the last election.”

          Raab also warned in his resignation letter “no democratic nation has ever signed up to be bound by such an extensive regime, imposed externally without any democratic control over the laws to be applied, nor the ability to decide to exit the arrangement.” And he emphasized that “this is, at its heart, a matter of public trust,” and “I cannot support the proposed deal.”

          May’s government is now in deeper turmoil. as the future of the Brexit plan is bring into huge uncertainty.

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          Adding to that, October retail sales data were rather poor. Including auto and fuel, sales dropped -0.5% mom in October versus expectation of 0.2% mom. Excluding auto and fuel, sales dropped -0.4% mom versus expectation of 0.2% mom.

          SSE and HSI jump as China made formal concessions to US on trade, but concerns remain

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            ActionForex.com
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            Chinese and Hong Kong stocks surge today on reports that China has sent written responses to the US regarding the concessions it’s willing to made. That could pave the way for some sort of agreement during Xi-Trump meeting at the G20 summit on November 30. The act is generally seen as constructive for the trade negotiations.

            However, concerns remain as most of China described in the documents were just old wine in a new bottle. They’re just recap of what Xi Jinping has announced recently, such case raising the equity caps on foreign investments in some industries. There is so far nothing substantial regarding opening of the markets and removing barriers on trade and investments. Mostly likely too, there wasn’t anything regarding the highly criticized dominance of State-Owned Enterprises in the country.

            Further more, at this point, Treasury Secretary Steven Mnuchin is the one handling the discussion with China. Even if White House economic advisor Larry Kudlow would be involved, they remain far from the stage of making a trade deal. The work of trade agreements fall into the area of trade representative Robert Lighthizer. And, not until Lighthizer is involved, there would only be ceasefire, but no constructive progress.

            Nevertheless, investors in Asia are enjoying the ride no matter what. The China shanghai SSE closed up 1.36% at 2668.17. Hong Kong HSI closed up 1.64% or 421.17 pts at 26075.60.

            EU Tusk confirms Brexit summit on Nov 25 Sunday

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              European Council President Donald Tusk confirmed that the extra EU summit on Brexit will be held on November 25.

              He said after meeting with chief negotiator Michel Barnier “If nothing extraordinary happens, we will hold a European Council meeting in order to finalize and formalize the Brexit agreement. It will take place on Sunday, November 25th at 0900 a.m.”

              Australia employment jumped 32.8k, with strong growth in full-time jobs

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                ActionForex.com
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                Australia employment rose 32.8k in October, much better than expectation of 20.3k. Full-time employment jumped 42.3k to 8.70M. Part-time jobs dropped -9.5k to 3.97M. Unemployment rate was unchanged at 5.0%, below expectation of 5.1%. Participation rate rose 0.1% to 65.6%. Monthly worked hours in all jobs also rose 0.3%. Released yesterday, wages grew 2.3% in Q3, fastest annual pace in three years. The overall set of employment data released this week is pretty encouraging.

                The set of data should be very welcomed by the RBA. However, they kind of just confirmed RBA’s outlook, without too much out-performance. Wage growth remains the key for lifting inflation. And there’s still much more work to do. Nevertheless, it’s a step in the right direction and affirmed that the next move is a hike rather than a cut. But, that leaves RBA with no urgency to move any time soon.

                Australian Dollar is lifted by the release. In particular, EUR/AUD ended the brief consolidation from 1.5575 and resumed the decline from 1.6357 for 1.5271 key support.

                Fed Powell: From now on, Fed can and will move at any meeting

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                  ActionForex.com
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                  Fed Chair Jerome Powell had an hour long exchange with Dallas Fed President Robert Kaplan. Powell reiterated his upbeat comments on the US economy. He said “I’m very happy about the state of the economy now”. He also hailed the Fed collectively and said “our policy is part of the reason why our economy is in such a good place right now.”

                  A key take away is his comments regarding the arrangement of having press conference after all eight FOMC meetings during the year, starting next. He said “certainly all meetings are live now, there’s no question about it now.” And he added, “over time, folks will get used to the idea that we can and will move at any meeting.”

                  On interest rates, Powell acknowledged the need to thing about “how much further to raise rates and the pace at which we will raise rates.” And, “the way we will be approaching that is to be looking really carefully at how the markets and the economy and business contacts will be reacting to our policy.” He emphasized that “our goals will be to extend the recovery … and to keep unemployment low and inflation low. So that’s how we’re going to think about it.”

                  On headwinds, Powell noted slowing growth abroad, waning effect of the administration’s tax cuts and spending increases are some that the economy might face. Also, he noted that there are a lot of factors weighing on home building too.

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                  EU Malmstromg: Scope of trade negotiation with US cannot be defined until early 2019

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                    ActionForex.com
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                    EU Trade Commissioner Cecilia Malmstrom met US Trade Representative Robert Lighthizer yesterday. Malmstrom said the meeting focused on regulatory cooperations issues, plus ways for EU to import more soybeans and LNG from the US. She also told Lighthizer the EU’s willingness to negotiation a trade deal, but that would be limited to industrial goods, excluding agriculture. However, Malmstrom noted that the scope of the talks cannot be defined until early 2019. USTR will have to complete its consultation with Congress. EU will also need to receive negotiating mandate from member states.

                    On US auto tariff threats, Malmstrom said EU already has a list of retaliation targets ready. She said “it could be cars, it could be agriculture, it could be industrial products – it could be everything. And we will do that, but hope we don’t have to get to that situation.”

                    May secured cabinet support for Brexit deal, Sterling reactions volatile yet muted

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                      ActionForex.com
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                      After some last minute dramas, UK Prime Minister Theresa May finally secured the backing from her Cabinet, on the Brexit draft agreement. As a more positive sign, there is no resignation of ministers so far. May said after a five-hour marathon meeting that “the collective decision of cabinet was that the government should agree the draft withdrawal agreement and the outline political declaration.” She added, “when you strip away the detail, the choice before us was clear: this deal, which delivers on the vote of the referendum, which brings back control of our money laws and borders, ends free movement, protects jobs security and our Union; or leave with no deal; or no Brexit at all.”

                      EU chief Brexit negotiator Michel Barnier hailed the UK for making a “decisive, crucial step” towards orderly Brexit. Referring to the draft, he said “this is a precise, detailed document… which provides legal certainty for everyone and on all the issues where we have to deal with the consequences of Brexit.” While it ” may be hard to guarantee an orderly withdrawal”, he pledged that UK will remain “our friend, our partner, and our ally.” Barnier had also passed his recommendation to EU27 leaders that “decisive progress” had been made for an extra EU summit, probably on November 25, to sign off.

                      EU’s statement here, with link to the withdrawal agreement.

                      Sterling’s reactions to the development were volatile, yet muted. There were ups and downs in GBP/USD, GBP/JPY and EUR/GBP. But they’re after all, kept in familiar range.

                      US CPI rose to 2.5%, but core CPI slowed to 2.1%

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                        ActionForex.com
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                        US headline CPI accelerated to 2.5% yoy in October, up from 2.3% yoy and matched expectations. However, core CPI slowed to 2.1% yoy, down from 2.2% yoy and missed expectation of 2.2% yoy.

                        BLS noted that gasoline was responsible for “over one-third” of the headline advances. On the other hand, food index “decline slightly”. For core CPI, ex-food and energy, medical care, household furnishing, motor insurance, tobacco all increased. But communications, new vehicles and recreation all declined.

                        Full release here.

                        European Update: Sterling pares gain as Brexit optimism turns into cautiousness

                          By
                          ActionForex.com
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                          Sterling reversed some of this week’s gain as Brexit optimism has now turned into cautiousness. UK Prime Minister Theresa May will hold a Cabinet meeting shortly to secure support for her agreement with the EU. And she plan to issue Commons statement after that. EU’s chief negotiator Michel Barnier also plans to make a statement today on the status, and hopefully, he would declare “decisive progress” for a November EU summit. The could be some more volatility in the pound in the upcoming hours.

                          For now, New Zealand Dollar remains the strongest one for today, followed by Canadian Dollar and then US Dollar. WTI crude oil dipped to as low as 54.84 but it’s now back above 56. The recovery is giving Canadian a breath but that could be temporary. Meanwhile, Swiss Franc is trading as the weakest one, followed by Australian Dollar and then Sterling.

                          Economic data released today saw US CPI and core CPI stalled at 2.4% yoy and 1.9% yoy respectively. German GDP and Japan GDP contracted in Q3 and both were attributed to global trade tensions. US CPI will be the next focus.

                          In European markets, major indices are trading mildly softer today. At the time of writing:

                          • FTSE is down -0.02%
                          • DAX is down -0.34%
                          • CAC is down -0.42%
                          • German 10 year yield drops -0.018 to 0.396
                          • Italian 10 year yield is up 0.043 at 3.490. German-Italian spread is now at 310. That came after Italy refused to change its 2019 deficit target in the resubmitted plan to EU.

                          Earlier in Asia

                          • Nikkei closed up 0.16%
                          • But Hong Kong HSI dropped -0.54%
                          • China Shanghai SSE dropped -0.85%
                          • Singapore Strait Times dropped -0.34%
                          • Japan 10 year JGB yield dropped -0.0077 to 0.108. We haven’t seen it below 0.11 for a while.

                          ECB Knot: It’s pertinent that Italy complies with EU budget rules

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                            ActionForex.com
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                            ECB Governing Council member Klaas Knot said today that “it’s quite pertinent that Italy actually complies with the rules” of EU on budget. Or, he warned that “if it doesn’t, the result is that spread will go up.”

                            For now, Knot saw limited contagion from rising Italian yields. He added “we’re not seeing an overall deterioration in credit conditions, we’re not seeing an overall deterioration in financial conditions”. And, “those would have to be the kind of things that we would first have to see before could contemplate changing our course of action.”

                            Italian 10 year yield hit as high as 3.547 earlier today and it’s now at 3.494, up 0.047.

                            UK CPI unchanged at 2.4%, core at 1.9%, Pound unmoved

                              By
                              ActionForex.com
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                              UK Headline CPI was unchanged at 2.4% yoy in October, below expectation of 2.5% yoy. Core CPI was also unchanged at 1.9% yoy, below expectation of 2.0% yoy. RPI, too, was unchanged at 3.3% yoy, below expectation of 3.4% yoy.

                              ONS noted that the “large downward contributions to the change in the 12-month rate from food and non-alcoholic beverages, clothing and footwear, and some transport elements”. They were offset by “contributions from rising petrol, diesel and domestic gas prices.”

                              PPI input slowed to 10.0% yoy, down from 10.5% yoy, below expectation of 9.6% yoy. PPI output rose to 3.3% yoy, up from 3.1% yoy and beat expectation of 3.1% yoy. PPI output core was unchanged at 2.4% yoy, matched expectation.

                              Also from UK, house price index rose 3.5% yoy in September, accelerated from 3.1% yoy and beat expectation of 3.3% yoy.

                              Overall, Sterling shows little reaction to the release and eyes are on PM May’s Cabinet meeting on Brexit agreement.

                              German GDP contracted -0.2% qoq mainly due to foreign trade development

                                By
                                ActionForex.com
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                                German GDP contracted -0.2% qoq in Q3, slightly better than expectation of -0.3% qoq. That’s also the first quarter-on-quarter decline since Q1 2015. But that’s a notable reversal from 0.5% qoq growth in Q2. The Federal Statistical Office noted that the slight decline in GDP was “mainly due to the development of foreign trade” as exports were down while imports were up in the quarter. “As regards domestic demand, there were mixed signals”.

                                Economy Ministry said in its monthly report that “the upturn was merely disrupted during the third quarter”. And, “once these special effects have dissipated, the German economy’s upturn will continue.”

                                Italy to cut debt to 129.2% of GDP in 2019 to address EU concern

                                  By
                                  ActionForex.com
                                  -

                                  According to the new draft budget plan (DBP) submitted by Italy to the European commission, growth forecasts are held unchanged at 1.5% in 2019, 1.6% in 2020 and 1.4% in 2021. These are widely seen as overly optimistic as European Commission forecasts only 1.2% growth in 2019. The IMF projects only 1.0% growth in Italy in the same year. The budget deficit target was also held at 2.4% of GDP in 2019. Among that, Italy planned to raise its structural deficit by 0.8% of GDP. This is clearly a violation of EU’s demand to cut by -0.6%.

                                  However, the new draft showed fall debt as Italy planned to use funds equal to 1% of GDP from privatization. This is seen as an act to address EU’s major concern on ballooning debt. Public debt is now estimated to fall to 129.2% of GDP in 2019, then further to 127.3% in 2020, and then 126.0% in 2021. Italy’s debt stands at 130.9% this year.

                                  The new DBP now risk triggering the Commission’s penalty process. But Italian Deputy Prime Minister Matteo Salvini warned that “they’ve got it wrong if they are even just thinking of imposing fines on the Italian people.” Economy Minister Giovanni Tria also insisted that fiscal expansion is necessary for the country.

                                  Japan GDP contracted -0.3% qoq, exports contracted at fastest pace in over three years

                                    By
                                    ActionForex.com
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                                    Japan GDP contracted -0.3% qoq in Q3, matched expectation. Annualized rate showed -1.2% contraction, worse than expectation of -1.0%. GDP deflator dropped -0.3%, lowest than expectation of -0.2%. One detail to note is that exports contracted -1.8% qoq, fastest decline in over three years. It seems that the contraction in Q3 cannot be explained only by natural disasters. But the steep contraction in exports argued that US related trade tensions was also weighing on the economy of Japan. Though, it will take another quarter or two to really gauge the impact from protectionism.

                                    Japan Economy Toshimitsu Motegi sounded confident and optimistic though. He said that “Japan’s economy is expected to recover driven mainly by domestic demand. Though he also warned that “we need to be vigilant to the impact of overseas uncertainties, financial market volatility and how trade problems affect the global economy.”

                                    Also from Japan, tertiary industry index dropped -1.1% mom in September versus expectation of -0.4% mom. Industrial production dropped -0.4% mom versus expectation of -1.1% mom.

                                    Italy defies EU demand, kept deficit target and growth forecasts unchanged in 2019 budget

                                      By
                                      ActionForex.com
                                      -

                                      Italy refused to meet European Commission’s demand on revising its budget. Instead, the coalition government said that 2019 budget deficit target will be maintained at 2.4% of GDP. Growth forecast was also kept unchanged at 1.5%. The government statement noted that “we have the conviction that this is the budget needed for the country to get going again.” Nevertheless,the government pledged to beef up asset sales and monitor spending closely.

                                      The European Commission have rejected Italy’s draft budget plan and requested re submission by November 13, yesterday. European Commission President Jean-Claude Juncker warned earlier this week that “the Italians are moving away not just from what they have promised us but also away from the minimum requirements of the stability pact.”

                                      EU Malmstrom: If US auto tariffs were to happen, that would not be on EU

                                        By
                                        ActionForex.com
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                                        The US Commerce Department has submitted the draft recommendations regarding Section 232 national security tariffs on autos to the White House this week. The recommendations were discussed at a regular weekly meeting of Trump’s top trade officials yesterday. So far, no immediate action is taken by Trump.

                                        At the same time, EU Trade Commissioner Cecilia Malmstrom will meet US Trade Representative Robert Lighthizer on Wednesday to carry on trade negotiations. Ahead of that, she said “We assume that if that (U.S. auto tariffs) were to happen, that would not be for the European Union,”. She referred to the agreement between Trump and European Commission President Jean-Claude Juncker that auto tariffs won’t apply to the EU when negotiations are still on going. Malmstrom also reiterated that the scope of the EU-US trade deal will be “limited” to industrial goods. She emphasized “be very clear, it will not include agriculture.”

                                        Juncker said earlier this week that “we had achieved that there will not be a new trade conflict over the summer months until the end of the year, particularly with regard to car tariffs.”

                                        UK and EU agreed Brexit texts, May to hold Cabinet meeting today

                                          By
                                          ActionForex.com
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                                          The UK and EU have finally agreed on the texts of the Brexit withdrawal agreement after intensive work this week. UK Prime Minister Theresa May’s office confirmed and said “Cabinet will meet at 2:00pm tomorrow to consider the draft agreement the negotiating teams have reached in Brussels, and to decide on next steps.” And, “Cabinet ministers have been invited to read documentation ahead of that meeting”. Approval by the Cabinet will just make the deadline for holding a special EU summit by the end of November for the issue.

                                          It’s reported that the agree will adopt a UK-wide customs backstop aimed preventing a hard Irish border. It’s so far unsure how much support May could get from her Cabinet. Boris Johnson and Jacob Rees-Mogg have already voiced objection to the draft agreement immediately. Johnson said the plan was “utterly unacceptable to anyone who believes in democracy” and he would vote against it. Rees-Mogg warned that UK would become a “vassal state” with Northern Ireland “being ruled from Dublin”. And Mogg added “It is a failure of the government’s negotiating position and a failure to deliver on Brexit”.

                                          On the other hand, it’s reported that five senior ministers Dominic Raab, Jeremy Hunt, Sajid Javid, Michael Gove and Geoffrey Cox will back the Brexit deal.

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