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Sterling gaps down as UK PM May cancels emergency cabinet meeting on Brexit

    By
    ActionForex.com
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    Sterling gaps down the week and stays the weakest one as it’s getting more unlikely for a Brexit deal within November. There was originally a planned emergency cabinet meeting today to approve a Brexit deal. But UK Prime Minister Theresa May dropped the plan due to resistance within her own cabinet. And it’s unlikely for May to come up with something by Tuesday’s regular meeting to secure enough support.

    Irish backstop remains the sticky point. But now, it’s over the right for UK to unilaterally exit the backstop. EU and Ireland have been explicit that UK cannot do that. On the other hand, it’s unacceptable for some Tories that UK would have to be locked into the customs arrangement of the backstop forever.

    Additionally, May is facing more rebellion even within the remain camp of the Tories. It’s rumored that four more pro-Europe ministers are on the brink of resignation, following ex-transport minister Jo Johnson’s departure last week.

    European update: Dollar struggles to extend gain, Sterling weakest after GDP

      By
      ActionForex.com
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      Dollar tries to extend post FOMC rally today but there is little success so far. Firstly, the greenback is overshadowed by Yen and Swiss Franc. Yen is clearly lifted by risk aversion. Meanwhile, Swiss Franc trades higher on some mild weakness in emerging market currencies like Rand and Lira. Secondly, there is no technical breakthrough in Dollar pairs today. USD/HF is limited below 1.0094 resistance. EUR/USD is held well above 1.1300 key support. And even GBP/USD and AUD/USD are held well above 1.2951 and 0.7182 minor support levels respectively.

      Sterling is trading as the weakest one even though Q3 GDP grew 0.6% as expected. But September’s monthly GDP miss raises some doubt over the outlook ahead. And there is never-ending Brexit negotiation, without any progress on Irish border backstop. Canadian Dollar follows as the second weakest, and the Australian Dollar.

      In European markets, all major indices are down at the time of writing.

      • FTSE is down -0.86%
      • DAX is down -0.73%
      • CAC is down -1.01%
      • German 10 year yield is down -0.0271 at 0.433
      • Italian 10 year yield is up 0.030 at 3.432… spread is pressing 300 again

      Asian indices also closed broadly down

      • Nikkei dropped -1.05% to 22250.25
      • Hong Kong HSI dropped -2.39% to 25601.92
      • Shanghai SSE dropped -1.39% to 2598.87
      • Singapore Strait Times dropped -0.49% to 3077.97

      Is SSE’s corrective rebound from 2449.19 completed ahead of 55 day EMA? Probably.

      Italy Tria to keep the main pillars of budget, EU Dombrovskis said assumptions overly optimistic

        By
        ActionForex.com
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        Italy Economy Minister Giovanni Tria said today that the coalition government is “busy drafting the answer to the European Commission with regards to the most contentious points of the budget.” Italy is requested to present a new or revised draft budget plan to the Commission by November 13. Despite the the requests, Tria told the parliament today that they will confirm the budget plan’s “Main pillar”. Tria reiterated the commitment to cap 2019 budget deficit at 2.4% of GDP. But based on the Commission’s projection released yesterday, Italy’s budget deficit would hit 2.9%.

        European Commission Vice President Valdis Dombrovskis blasted Italy’s projections were based on “overly optimistic assumptions.” He added, “Basically the assumption is that if they … increase public spending, it will stimulate the economy and thus will help to reduce budget deficit. We see that this is actually not materializing.”

        UK Hammond: Q3 GDP proof of the economy’s underlying strength

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          ActionForex.com
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          UK Chancellor of Exchequer Philip Hammond hails today’s GDP release with his tweet.

          “Our economy grew 0.6% between July and September – proof of its underlying strength. That’s 8 straight years of economic growth, 3.3 million more people in jobs and wages growing at their fastest pace in almost a decade.”

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          UK Q3 GDP growth fastest since 2016, but September weakness clouds

            By
            ActionForex.com
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            UK Q3 GDP growth accelerated to 0.6% qoq, matched market expectations. That’s also the fastest rate since Q4 2016.

            Head of National Accounts Rob Kent-Smith noted that “The economy saw a strong summer, although longer-term economic growth remained subdued. There are some signs of weakness in September with slowing retail sales and a fall-back in domestic car purchases. However, car manufacture for export grew across the quarter, boosting factory output. Meanwhile, imports of cars dropped substantially helping to improve Britain’s trade balance.”

            However, it should be noted that the rolling three month growth rate slowed from 0.7% in both May-Jul and Jun-Aug periods. This is in line with the above comment that there were some weakness in September. Indeed, monthly GDP growth in September was at 0.0% mom, missed expectation of 0.1% mom.

            Full GDP release here.

            Also released from UK

            • Trade deficit narrowed to GBP -9.7B in September versus expectation of GBP -11.4B.
            • Industrial production rose 0.0% mom, 0.0% yoy in September versus expectation of 0.1% mom, 0.5% yoy.
            • Manufacturing production rose 0.2% mom, 0.5% yoy versus expectation of 0.1% mom 0.4% yoy.
            • Construction output rose 1.7% mom in September versus expectation of 0.2% mom.

            Overall, Sterling turns a bit weaker after the batch of data release.

            US treasury yields jump after FOMC, Dollar lifted

              By
              ActionForex.com
              -

              US treasury yield closed higher overnight after FOMC statement. The decision to stand pat was widely expected. One surprise was probably the lack of reference to the stock market crash in October. Fed policymakers appear to be not bothered by it at all. Five-year yield closed up 0.029 at 3.090. 10-year yield rose 0.021 to 3.234. 30-year yield, though, was just up 0.002 at 3.427. Treasury yields could now be resuming up trend and might help Dollar regain momentum.

              Technically, five-year yield breached 3.092 resistance to 3.095 before closing at 3.090. The development suggests that recent medium term up trend is likely resuming. The strong support by 55 day EMA is a bullish sign. FVX should be heading to 61.8% projection of 1.618 to 2.941 from 2.692 at 3.509 next.

              10-year yield lags behind a little as it’s limited below 3.248 resistance so far. But based on current momentum, and the strong support from 55 day EMA too, TNX should take out 3.248 to resume the up trend soon, maybe today, maybe next week. Next target is 61.8% projection of 2.034 to 3.115 from 2.808 at 3.476.

              Meanwhile, 30-year yield has actually taken out equivalent resistance last week already. And prior retreat from 3.424 was held well above 55 day EMA, indicating even more bullishness. TYX is also expected to extend recent up trend to 61.8% projection of 2.651 to 3.247 from 2.963 at 3.559.

              RBA paints better outlook, but still nowhere near rate hike

                By
                ActionForex.com
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                Despite painting a slightly more upbeat picture on economic outlook in the quarterly monetary statement, RBA maintained the stance that it’s no where near a move interest rate. 2018 year-average GDP growth projection was raised slightly from 3.25% to 3.50%. 2019 GDP growth projection was kept unchanged at 3.25%. Meanwhile, 2020 year-average GDP growth projection was raised slightly from 3.00% to 3.25% too. Unemployment rate is forecast to drop to 5.00% by end of 2018, stay there through 2019 and then drop further to 4.75% in by June 2020.

                Headline inflation by December 2018 was raised from 1.75% to 2.00%, indicating that the temporary drag was less severe than expected. CPI would then climb further to 2.25% by December 2019 and stay there still December 2020, unrevised. Core inflation is projected to be at 1.75% by the end of 2018. Core CPI would then rise to 2.25% by December 2019, revised up from 2.00%. For December 2020, core CPI is projected to stay at 2.25%, unrevised.

                RBA pointed out that “household income remains a key uncertainty around this forecast, especially in the context of high household debt and a slowing housing market.” It added further that the uncertainty is on “outlook for household income growth” and “how households may respond to significant housing price declines”.

                But after all, RBA maintained that “given the expected gradual nature of that progress,” if reducing unemployment and improving inflation, “the Board does not see a strong case to adjust the cash rate in the near term.”

                Fed left federal funds rate unchanged at 2.00-2.25% as widely expected. Full statement

                  By
                  ActionForex.com
                  -

                  Fed left federal funds rate unchanged at 2.00-2.25% as widely expected. Full statement below.

                  Federal Reserve Issues FOMC Statement

                  Information received since the Federal Open Market Committee met in September indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate. Job gains have been strong, on average, in recent months, and the unemployment rate has declined. Household spending has continued to grow strongly, while growth of business fixed investment has moderated from its rapid pace earlier in the year. On a 12-month basis, both overall inflation and inflation for items other than food and energy remain near 2 percent. Indicators of longer-term inflation expectations are little changed, on balance.

                  Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective over the medium term. Risks to the economic outlook appear roughly balanced.

                  In view of realized and expected labor market conditions and inflation, the Committee decided to maintain the target range for the federal funds rate at 2 to 2-1/4 percent.

                  In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

                  Voting for the FOMC monetary policy action were: Jerome H. Powell, Chairman; John C. Williams, Vice Chairman; Thomas I. Barkin; Raphael W. Bostic; Lael Brainard; Richard H. Clarida; Mary C. Daly; Loretta J. Mester; and Randal K. Quarles.

                  Today’s top mover: AUD/JPY completed double bottom, medium term trend in bullish reversal

                    By
                    ActionForex.com
                    -

                    AUD/JPY is so far the biggest gainer today, up 32 pips or 0.39% at the time of writing.

                    The cross experience quite significant technical development this week. The break of 82.50 resistance completed a double bottom reversal pattern (78.67, 78.65). Bullish convergence condition is seen in daily MACD. And it drew support from 61.8% retracement of 72.39 to 90.29 at 79.22. Adding all together, the down trend from 90.29 should have completed at 78.56. The structure suggests fall from 90.29 to 78.56 is a corrective move.

                    Now, near term outlook will remain bullish as long as 81.94 support holds. Sustained break of 38.2% retracement of 90.29 to 78.56 at 83.04 will have 55 week EMA firmly taken out too. In that case, further rally should be seen to 61.8% retracement at 85.80 and above. From a longer term perspective, such development would also argue that rise from 72.39 is resuming and raise the chance of breakthrough through 90.29 in medium term.

                    Italy PM Conte: European Commission has no ground to question our forecasts, we’re not a problem to EU

                      By
                      ActionForex.com
                      -

                      Italian Prime Minister Giuseppe Conte issued a formal statement in response to European Commission’s new forecasts published today.

                      Conte criticized that the 2019 growth forecasts for Italy “underestimate the positive impact of our economic maneuver and our structural reforms.” He emphasized that with the government’s estimate, growth will increase while debt and deficit will decrease. And there is “no grounds for questioning the validity and sustainability of our forecasts.”

                      He also said “Italy is not at all a problem for the Eurozone and European Union, but rather will contribute to the growth of the whole continent.” And, the structural reforms will “give greater impetus to the growth compared to the EU Commission.”

                      Conte’s full statement in Italian here.

                      As a reminder, in EU’s warning letter dated October 10, European commission has already criticized that “the macroeconomic forecast underlying Italy’s budgetary plans has not been endorsed by the Parliamentary Budget Office (PBO), Italy’s independent fiscal monitoring institution. At first sight, this appears not to respect the explicit provision of Regulation 473/2013 (Article 4(4)) calling for the macroeconomic forecast to be produced or endorsed by an independent body.”

                      US initial claims dropped to 214k, continuing claims lowest since 1973

                        By
                        ActionForex.com
                        -

                        US initial jobless claims dropped -1k to 214k in the week ended November 3. Four-week moving average of initial claims dropped -0.25k to 213.75k. Continuing claims dropped -8k to 1.623m in the week ended October 27, lowest since July 28, 1973. Four-week moving average of continuing claim dropped -7.5k to 1.64075m, lowest since August 11, 1973.

                        Full release here.

                        Tria: EU forecasts of Italy deficit inaccurate and incomplete

                          By
                          ActionForex.com
                          -

                          Italian Economy Minister Giovanni Tria complained that the new budget deficit forecasts for Italy by European Commission released today. The Commission projected Italy’s deficit to hit 2.9% of GDP in 2019. Even worse, Italy’s deficit is projected to hit 3.1% in 2020, breaking EU’s 3% limit. This is much higher than Italy’s own target of 2.4% in 2019.

                          Tria said “the European Commission’s forecasts for the Italian deficit are in sharp contrast to those of the Italian government and derive from an inaccurate and incomplete analysis.” Though, Tria also said that the projections would not affect the “continuation of constructive dialogue” with the Commission. And, the coalition government is committed to the 2.4% deficit target.

                          UK Hunt: Brexit negotiation in final stage but seven days is probably pushing it

                            By
                            ActionForex.com
                            -

                            UK Foreign Minister Jeremy Hunt said in Paris today that Brexit negotiation is in a “final stage”. Regarding EU, he said “I am confident that we will reach an agreement because it is in all sides interest to reach an agreement.” However, he also emphasized that “seven days is probably pushing it”, referring to question whether the agreement could be done within seven days.

                            Domestically, Hunt said “we are confident that we will be able to get a final deal through parliament for the simple reason that Theresa May is not going to sign up to a deal that is inconsistent with the letter and spirit of the referendum.”

                            European update: Selloffs in EUR/GBP and EUR/AUD starting to spillover

                              By
                              ActionForex.com
                              -

                              Dollar is trading to regain some ground in European session as markets await FOMC rate decision later today. Though, It’s Australian Dollar which is the strongest one for today so far. Canadian Dollar follows as the second strongest. On the other other hand, European majors are generally lower. There isn’t any special trigger for the weakest for Sterling. The Pound is just starting to feel tired after this week’s strong rally. And, there is no Brexit-positive news to give it another lift. For Euro, it seems the selloffs in EUR/GBP and EUR/AUD are starting to spillover.

                              In other markets, European stocks are mixed at the time of writing.

                              • FTSE is up 0.32%
                              • DAX is down -0.17%
                              • CAC is down -0.03%
                              • German 10 year yield is up 0.011 at 0.462
                              • Italian 10 year yield is up 0.054 at 3.396

                              Earlier in Asia:

                              • Nikkei closed up 1.82% at 22486.92
                              • Hong Kong HSI rose 0.31% to 26227.72
                              • Singapore Strait Times rose 0.91% to 3093.24
                              • But China Shanghai SSE dropped -0.22% to 2635.63

                              Eurozone 2019 growth forecasts lowered, inflation to dive to only 1.6% in 2020

                                By
                                ActionForex.com
                                -

                                The European Commission lowered 2019 Eurozone growth forecast by 0.1% to 1.9%, then slow to 1.7% in 2020. HICP inflation forecast for both 2018 and 2019 are raised by 0.1% to 1.8%. However, HICP inflation is projected to slow down to 1.6% in 2020.

                                In the release European Commission warned that “rising global uncertainty, international trade tensions and higher oil prices will have a dampening effect on growth in Europe”. And looking ahead “the drivers of growth are set to become increasingly domestic”.

                                There are two interesting points to note. Firstly, inflation is forecast to move away from ECB’s 2% target in 2020, reflecting further slowdown in activity. Does that mean ECB shouldn’t raise interest rates in 2019? Secondly, Italy’s budget deficit is projected at -2.9% of GDP in 2019, way higher than its government’s own target of -2.4%. In 2020, Italy’s deficit is even projected to exceed EU’s limit of -3%.

                                This is a quick summary:

                                GDP growth at

                                • 2.1% in 2018 vs 2.1% (Summer) vs 2.3% (Spring)
                                • 1.9% in 2019 vs 2.0% (Summer) vs 2.0% (Spring)
                                • 1.7% in 2020

                                HICP inflation at

                                • 1.8% in 2018 vs 1.7% (Summer) vs 1.5% (Spring)
                                • 1.8% in 2019 vs 1.7% (Summer) 1.6% (Spring)
                                • 1.6% in 2020

                                And, the full table by country:

                                Full release.

                                ECB: Ongoing broad-based expansion to continue, markets revised up interest rate expectations

                                  By
                                  ActionForex.com
                                  -

                                  ECB’s monthly bulletin paints an upbeat picture on the Eurozone economy. In short, even though incoming information was “somewhat weaker than expected”, they remains consistent with “ongoing broad-based economic expansion”. The expansion is supported by ” domestic demand and continued improvements in the labour market.  Risks are “broadly balanced”.

                                  On prices, measures of underlying inflation “remained generally muted but stand above earlier lows”. At the same time “Supply chain price pressures for non-energy industrial goods in the HICP continued to increase.” “Wage growth developments point to increasing domestic cost pressures.”

                                  Also, ECB noted that the EONIA forward curve shifted slightly upwards over the review period. And, that indicates “market participants revised up their interest rate expectations for longer horizons.”

                                  Here are some highlights of ECB monthly bulletin:

                                  External environment

                                  • Global survey indicators of economic growth have weakened recently as the global economic cycle matures.
                                  • Risks to the global economy remain to the downside, amid ongoing actions and threats regarding trade tariff increases by the United States and possible retaliation by the affected countries.
                                  • Global financial conditions remain supportive for advanced economies, while creating headwinds for emerging market economies.
                                  • The global trade momentum has moderated, but the near-term outlook remains steady.
                                  • Global inflation was stable in August.
                                  • Oil markets have been mainly affected by factors related to the US sanctions against Iran.

                                  Financial developments

                                  • Euro area government bond yields have risen since mid-September.
                                  • Broad indices of euro area equity prices declined.
                                  • Yield spreads on bonds issued by euro area NFCs remained relatively insulated from tensions in sovereign debt and equity markets.
                                  • The EONIA forward curve shifted slightly upwards over the review period. Market participants revised up their interest rate expectations for longer horizons.

                                  Economic activity

                                  • Incoming information, while somewhat weaker than expected, remains overall consistent with ongoing broad-based economic expansion.
                                  • Looking ahead, short-term indicators point to continued strength in the labour market in the coming quarters.
                                  • Household income continued to support growth in private consumption.
                                  • Private consumption is expected to display resilient growth in the coming quarters.
                                  • Following the weak first quarter of 2018, investment growth rebounded in the second quarter.
                                  • Investment is expected to continue to grow solidly, supported by robust domestic demand and favourable financing conditions.
                                  • Euro area trade growth remained moderate at the beginning of the third quarter of 2018.
                                  • Overall, the latest economic indicators suggest ongoing broad–based growth.
                                  • The economic expansion is supported by domestic demand and continued improvements in the labour market.
                                  • The risks surrounding the euro area growth outlook are assessed as broadly balanced.

                                  Prices and costs

                                  • Euro area annual HICP inflation was 2.1% in September, up from 2.0% in August.
                                  • Measures of underlying inflation have remained generally muted but stand above earlier lows.
                                  • Supply chain price pressures for non-energy industrial goods in the HICP continued to increase.
                                  • Wage growth developments point to increasing domestic cost pressures.
                                  • Both market and survey-based measures of longer-term inflation expectations have remained stable.

                                  Full ECB monthly bulletin here.

                                  China-US trade shrank sharply in October, exports down -8.5%, imports down -12.9%

                                    By
                                    ActionForex.com
                                    -

                                    Trade data from China showed sharp decline in trade between the US and China in October, clearly a result of tariffs. To highlight, exports to US dropped -8.5% mom. Imports from US dropped even more by -12.9% mom. One might argue that imports from EU also dropped -12.5% mom. Admittedly, that could be a warning sign of slowdown in the Chinese economy. But over the year, imports from EU did rose 12.3% yoy.

                                    In USD term, exports rose 15.6% yoy in October to USD 217.3B. Imports rose 21.4% yoy to USD 183.2B. Trade surplus widened to USD 34.0B, below expectation of USD 36.3B.

                                    In CNY terms, exports rose 20.1% to CNY 1490B. Imports rose 26.3% to 1257B. Trade surplus widened to CNY 234B, above expectation of CNY 209B.

                                    With EU in October:

                                    • Total trade dropped -8.8% mom, rose 13.7% yoy to USD 56.7B.
                                    • Exports to EU dropped -6.4% mom, up 14.6% yoy to USD 35.0B
                                    • Imports from EU dropped -12.5% mom, up 12.3% yoy to USD 21.6B
                                    • Trade surplus rose 5.3% mom, 18.5% yoy to USD 13.4B

                                    With EU from January to October

                                    • Total trade rose 12.8% yoy to USD 563.6B
                                    • Exports to EU rose 11.8% yoy to USD 336.7B
                                    • Imports from EU rose 14.3% yoy to USD 226.8B
                                    • Trade surplus rose 7.0% yoy to USD 109.9B

                                    With US in October

                                    • Total trade dropped -9.4% mom, rose 9.8% yoy to USD 53.7B
                                    • Exports to US dropped -8.5% mom, up 13.2% yoy to USD 42.7B
                                    • Imports from US dropped -12.9% mom, down -1.8% yoy to USD 10.9B
                                    • Trade surplus rose 19.4% to USD 31.8B

                                    With US from January to October

                                    • Total trade rose 11.8% yoy to USD 526.1B
                                    • Exports to US rose 13.1% yoy to USD 392.1B
                                    • Imports from US rose 8.2% yoy to USD 134.0B
                                    • Total trade surplus rose 15.8% yoy to USD 258.1B

                                    China trade surplus widened to USD 34B in October, both import and export rose

                                      By
                                      ActionForex.com
                                      -

                                      From China, exports rose 15.6% yoy in October to USD 217.3B. Imports rose 21.4% yoy to USD 183.2B. Trade surplus widened to USD 34.0B, below expectation of USD 36.3B.

                                      In CNY terms, exports rose 20.1% to CNY 1490B. Imports rose 26.3% to 1257B. Trade surplus widened to CNY 234B, above expectation of CNY 209B.

                                       

                                      UK RICS house price balance dropped to six year low, never-ending Brexit negotiation a key drag

                                        By
                                        ActionForex.com
                                        -

                                        UK RICS house price balance dropped to -10 in October, down from -2. That’s also the weakest reading since September 2012. RICS noted that “The weaker trend in prices is being driven by the lack of demand from new buyers, which is in part a result of heightened political uncertainty, ongoing affordability pressures, a modest upward move in interest rates and a lack of fresh stock coming onto the market.”

                                        RICS Chief Economist Simon Rubinsohn also noted that “uncertainty about the economic outlook on the back of the never-ending Brexit negotiations appears a key drag on sentiment according to respondents to the survey.”

                                        BoJ: Recent fall in stocks reflects effect of US-China trade frictions

                                          By
                                          ActionForex.com
                                          -

                                          BoJ released the summary of opinions at October 30/31 monetary policy meeting today. There the central reiterated that the economy is “likely to continue expanding”. It noted “positive momentum in domestic demand”. The September Tankan survey also “reconfirmed enterprises’ strong fixed investment stance”.

                                          However, momentum of the expansion “weakened somewhat” recently due to natural disaster and US-China trade conflicts. BoJ also pointed out that recent stock prices fall “large for external demand-oriented firms” and “small for domestic demand-oriented firms”. Therefore, “the fall in stock prices certainly seems to reflect the effects of the trade friction to some extent.”

                                          On inflation, BoJ maintained that CPI is “likely to continue accelerating moderately” but the developments have been “weak and unstable”. And, “rise in inflation has been delayed with a positive output gap” as inflation mechanism is becoming “complex”.

                                          On monetary policy, BoJ noted “t is important to consider in a flexible manner such factors as the range of yield movement and the target maturity of JGBs in conducting yield curve control, while maintaining the framework of monetary easing.” This suggested policymakers are considering further tweak to the current framework.

                                          Full summary of opinions.

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