Mid-US update: Dow rises 360 pts, EUR/USD back in range after brief spike

    Yen and Swiss Franc are trading as the weakest ones as risk appetite return to the markets today. Dollar gets no support from the strong rebound in US equities, as treasury yields are essentially flat.

    Meanwhile, New Zealand Dollar, Canadian Dollar and Sterling are the strongest ones.

    Dollar was sold off in early US session as EUR/USD broke 1.1610 minor resistance. But the pair quickly lost steam and is now back in familiar range.

    At the time of writing, DOW is trading up 1.38%, S&P 500 up 1.43% and NASDAQ up 1.84%. Five-year yield is up 0.004, 10-year yield down -0.002, 30-year yield down -0.003. While DOW’s rebound is strong, it should be reminded that it’s more likely a corrective move than not. And, it’s already close to first hurdle of 38.2% retracement of 26951 to 24845.10 at 25649.86, which is close to 55 H EMA at 25706. We’ll see whether DOW could extend the rebound through this hurdle, or get an instant rejection from it before today’s close.

    In Europe, stock closed broadly higher on late buying.

    • FTSE rose 0.43% to 7059.40
    • DAX rose 1.40% to 11776.55
    • CAC rose 1.53% to 5173.05
    • German 10 year yield dropped -0.0102 to 0.495
    • Italian 10 year yield also dropped -0.0928 to 3.462

    Japan GDP grew 12.7% annualized, 3.0% qoq in Q4, well above expectations

      Japan’s GDP grew 12.7% annualized in Q4, well above expectation of 9.5%. On quarterly terms, GDP grew 3.0% qoq, beat expectation of 2.3% qoq. Looking at some details, private consumption rose 2.2% qoq, above expectation of 1.8% qoq. Capital expenditure rose 4.5% qoq, above expectation of 2.6% qoq. External demand rose 1.0% qoq, matched expectations. Price index, however, rose just 0.2% yoy, missed expectation of 0.5% yoy.

      Economy Minister Yasutoshi Nishimura said that the set of data showed the economy’s capacity on recovery. Nevertheless, consumer spending remained below average. Exports could also weaken if the coronavirus infections prompts more restrictions in other markets like Europe. The country is not out of the woods yet.

      Also from Japan, industrial production was finalized at -1.0% mom in December.

      HKMA bought HKD 3.59b in fifth intervention move

        The Hong Kong Monetary Authority (HKMA) intervenes in the markets again today to defend the peg to US Dollar. HKD 3.59b (USD 457m) was bought by HKMA (at around 3pm HKT) as the currency remains persistently weak and continues to press its trading band.

        This is the fifth action intervention in recent period and the first time that happens during HK stock trading house. Accumulatively, HKMA bought HKD 13.55b in total.

        Eurozone PMI composite at over four-year low, moved down another gear

          Eurozone PMI services was finalized at 51.2 in December, down from November’s 53.4. PMI composite dropped to 51.1, down from prior month’s 52.7. It’s also the lowest level in over four years. Among the countries, France PMI composite worsened further to 48.7, a 49-month low. Germany PMI composite dropped to 51.6, 66-month low. Italy, on the other hand, recovered to 50, a 3-month high.

          Chris Williamson, Chief Business Economist at IHS Markit said:

          “The eurozone economy moved down another gear at the end of 2018, with growth down considerably from the elevated rates at the start of the year. December saw business activity grow at the weakest rate since late-2014 as inflows of new work barely rose. Levels of unfinished business are now falling for the first time in nearly four years as previously-received orders are not being fully replaced with new work.

          “The data are consistent with eurozone GDP rising by just under 0.3% in the fourth quarter, but with quarterly growth momentum slowing to 0.15% in December.

          “While a drop in business activity in France could be partly blamed on the ‘yellow vest’ protests, the rest of the region lacks any such mitigating factors, albeit with the recent weakness of the autos sector hopefully a temporary set-back.

          “Importantly, with expectations of output dropping to the lowest for over four years, companies are not anticipating any imminent revival in demand. Worries reflect multiple headwinds from trade wars, Brexit, heightened political uncertainty, financial market volatility and slower global economic growth.

          “Employment growth has already taken a knock as companies take a more cautious approach to hiring in the face of weaker order books. Jobs growth has hit a two-year low.

          “Better news came in the form of an easing in price pressures to the lowest for over a year, which should provide some breathing space for the European Central Bank to review its policy guidance.”

          Full release here.

          German ZEW rises to 12.8 on increasing expectation of ECB rate cut

            German ZEW Economic Sentiment rose slightly from 9.8 to 12.8 in December, above expectation of 8.8. Current Situation Index rose from -79.8 to -77.1, but missed expectation of -75.5.

            Eurozone ZEW Economic Sentiment rose sharply from 13.8 to 23.0, well above expectation of 11.2. Current Situation Index, however, fell marginally by -0.9 pts to -62.7.

            ZEW President Achim Wambach noted the slight improvement in Germany’s economic outlook could be attributed to doubled expectations of interest rate cuts by ECB in the medium term. In particular, significantly more optimistic expectations are observed in the construction industry.

            Full German ZEW release here.

            European Update: Sterling volatile on Brexit jitters, but still firm

              Some volatility is seen in Sterling in European session. It reacted negatively to a DUP lawmaker’s tweet that “Looks like we’re heading for no deal” Brexit. But the Pound was lifted by Brexit Minister Dominic Raab’s thumbs up out of the Cabinet meeting. Sterling is trading generally firm, as the second strongest, just next to Australian Dollar and above New Zealand Dollar. The Aussie is supported by slightly more upbeat RBA statement, after the central bank stood pat on interest rate.

              On the other hand, Canadian Dollar, Dollar, and Euro are generally weak. The US calendar is empty today, making way for mid-term election. So volatility could dies down a bit too, until we get the results.

              In European markets, at the time of writing:

              • FTSE is down -0.66%
              • DAX down -0.20%
              • CAC down -0.26%
              • German 10 year yield drops -0.008 at 0.421
              • Italian 10 year yield rises 0.081 to 3.404. Spread is marginally below 300.

              In Asia:

              • Nikkei rose 1.14% to 22147.75
              • Hong Kong HSI rose 0.72% to 26120.96
              • China Shanghai SSE dropped -0.23% to 2659.36
              • USD/CNH is now above 6.9, as range trading extends

              Fed Powell: Policymakers do not know how or when trade war will end

                In the opening remarks at the “Conference on Monetary Policy Strategy, Tools, and Communications Practices”, Fed Chair Jerome Powell said policy makers “do not know how or when” the issues on trade negotiations and other matters will be resolved. But they are closely monitoring the implications on economic outlook. And, Fed will “act as appropriate to sustain the expansion, with a strong labor market and inflation near our symmetric 2 percent objective.”

                For the rest of the remarks, Powell focus on the longer-run issues related to the public review on monetary policy strategy, tools and communications. Specifically, the review in focused on three questions:

                1. Can the Federal Reserve best meet its statutory objectives with its existing monetary policy strategy, or should it consider strategies that aim to reverse past misses of the inflation objective?
                2. Are the existing monetary policy tools adequate to achieve and maintain maximum employment and price stability, or should the toolkit be expanded?
                3. How can the FOMC’s communication of its policy framework and implementation be improved?

                Full remarks here.

                Eurozone economic sentiment up slightly to 99.3, third month of sideways movement

                  Eurozone Economic Sentiment Indicator ticked up from 99.2 to 99.3 in April, below expectation of 99.9. This is the third month of a general sideways movement of the indicator. Industry confidence dropped from -0.5 to -2.6. Services confidence rose from 9.6 to 10.5. Consumer confidence rose from -19.1 to -17.5. Retail trade confidence rose from -1.5 to -1.0. Construction confidence was unchanged at 1.0. Employment Expectation Indicator dropped from 108.9 to 107.4. Economic Uncertainty Indicator dropped from 22.4 to 22.2.

                  EU ESI was unchanged at 97.3. Employment Expectation Indicator dropped from 107.5 to 106.1. Economic Uncertainty Indicator dropped from 22.1 to 21.8. Amongst the largest EU economies, the ESI improved in Spain (+3.7) and, to a lesser extent, in Poland (+1.1) and Germany (+0.8). While sentiment edged up also in Italy (+0.3), it deteriorated in the Netherlands (-1.6) and, particularly, in France (-4.2).

                  Full Eurozone Economic Sentiment Indicator release here.

                  Japan PMIs: Potential hit to Q2 could be as large as 20% on previous year

                    PMI Manufacturing dropped to 31.7 in May, down from 34.7. PMI Services recovered to 25.3, up from 21.5. PMI Composite recovered to 27.4, up from 25.8.

                    Joe Hayes, Economist at IHS Markit, said latest data provide “yet another shocking insight into the devastating impact of the COVID-19 outbreak”. “Plummeting demand for goods is finally catching up with manufacturing sector”. Taking April and May data together, they’re indicative of GDP falling at an annual rate in excess of 10% and the economy is going to contract for a third straight quarter. Potential hit to Q2 could be as large as 20% on the previous year. Also, “damage to the manufacturing sector could continue to worsen as global trade conditions deteriorate and the global economic recovery is slow”.

                    Full release here.

                    UK PMI manufacturing finalized at 55.1 in Feb, stretched supply chains and rising costs

                      UK PMI Manufacturing was finalized at 55.1 in February, up from January’s 54.1. Markit noted growth was subdued by stretched supply chains and rising costs. But business optimism rose to near six-and-a-half year high.

                      Rob Dobson, Director at IHS Markit: “The UK manufacturing sector was again hit by supply chain issues, COVID-19 restrictions, stalling exports, input shortages and rising cost pressures in February. Look past the headline PMI and the survey reveals near-stagnant production, widespread shipping and port delays and confusion following the end of the Brexit transition period.

                      “In fact the biggest contributor to the headline PMI reading was a near-record lengthening of supplier delivery times. However, while normally a positive sign of an increasingly busy economy, the recent lengthening was far from welcome, more often than not linked to problems resulting from Brexit and COVID related. The resultant shortages for a vast array of components and raw materials, as rising demand chased restricted supply, led to a further acceleration in input cost inflation to a four-year high.

                      “With current constraints likely to continue for the foreseeable future, pressure on prices and output volumes may remain a feature during the coming months. That said, improved domestic demand as lockdown restrictions ease and a further rise in manufacturers’ optimism are reasons to hope brighter times are on the horizon, and have already supported a modest rebound in staffing levels since the turn of the year.”

                      Full release here.

                      EU Malmstrom still working on negotiated solution with US on tariffs

                        EU appeared to be still working on avoiding trade war escalation with US. Earlier this week, WTO gave US the go ahead for tariffs on as much as USD 7.5B of EU imports, as retaliation for EU subsidies to Airbus. US Trade Representative quickly announced 10% on large civil aircraft and 25% on agricultural and other products, effective October 18.

                        EU has already drafted retaliation plan to target US 4B of American goods, on a WTO case from 22 years ago. But European Trade Commissioner Cecilia Malmstrom said that “until the American tariffs take effect, we haven’t given up” on reaching a “negotiated solution”. Yet, she added, “we are looking at all options and we are discussing that with member states.”

                        In the US, Specialty Food Association warned in a statement that the new tariffs would decrease sales and adversely impact employment at 14,000 specialty food retailers and 20,000 other food retailers. Distilled Spirits Council warned that the tariffs could lead to a loss of approximately 13,000 jobs, including truckers, farmers, and bartenders and servers in the hospitality industry.

                        UK PMI construction rose to 61.7 in Mar, highest since 2014

                          UK PMI Construction rose to 61.7 in March, up sharply from 53.3, well above expectation of 55.0. That’s the strongest reading since September 2014. Markit also said there was robust growth in all major categories of construction activity. Rise in commercial work was fastest for six-and-a-half years. Job creation also accelerated to 27-month high.

                          Tim Moore, Economics Director at IHS Markit: “March data revealed a surge in UK construction output as the recovery broadened out from house building to commercial work and civil engineering… Improving confidence among clients in the commercial segment was a key driver of growth.. The increasingly optimistic UK economic outlook has created a halo effect on construction demand and the perceived viability of new projects.”

                          Full release here.

                          Into US session: Euro down as Turkish Lira loses another 3%, Sterling and Dollar firmer

                            Entering into US session, Euro suffers some heavy selling and is trading as the second weakest one for today, just next to Australian Dollar. ON the other hand Sterling leads the way higher, followed by Dollar. The renewed selloff in Turkish Lira is seen by us as the main driver of the forex markets today. Dollar and Sterling has suffered some selling against Euro and today’s moves are just reversing these selloffs. Canadian Dollar is also trading a touch softer as focus is now on day 2 of Canada-US trade negotiations.

                            In other markets, European indices are mixed with FTSE down -0.32% at the time of writing, DA is up 0.17% and CAC is up 0.26%. German 10 year bund extends this week’s rally and is currently up 0.015 at 0.396. 0.4 handle is back in sight. Earlier today, Asian markets were mixed with Nikkei and HSI up 0.15% and 0.23% respectively. But China SSA and Singapore Strait Times were down -0.31% and -0.11% respectively.

                            USD/TRY is rising another 3% today and hits as high as 6.4732. Break of 6.346 minor resistance confirms resumption of rebound from 5.6919. Further rise would be seen to 61.8% retracement to of 7.2068 to 5.6919 at 6.6281. Firm break there will put 7.000 handle back into focus. And such development could weigh on Euro again.

                            WTI crude oil resumes corrective decline from 66.49, targeting 55 day EMA at 60.67

                              WTI crude oil’s corrective decline from 66.49 resumes today and reaches as low as 61.38 so far. Such decline is on track to first line of defense at 55 day EMA (now at 60.67). Decisive break there will confirm that fall from 66.49 is correcting whole rise from 42.05. WTI should then target 38.2% retracement of 42.05 to 66.49 at 57.15. We’d expect strong support from there to contain downside and bring rebound.

                              Meanwhile, strong support and rebound from 55 day EMA could bring another rise through 66.49 before forming a medium term top.

                              Fed Williams: It’s a matter of fiscal policy that tilts the economic trajectory

                                New York Fed President John Williams said the economy is on a “pretty good trajectory”. And, “it’s really a matter of if there’s more or less fiscal policy that maybe tilts that trajectory”. He expects the economy to be back close to full employment in “about three years time”, but “there’s clearly a lot of unknowns”.

                                On Fed’s average inflation targeting, “we’re purposely overshooting that moderately for some time to get that balance,” he said. “To me, success is not some arithmetic or some formula but it’s really this notion of inflation expectations, how people think about what’s inflation going to be in the future.”

                                China’s deepening deflation: CPI hits 14-year low in Jan

                                  China’s CPI took a notable dip in January, registering decrease of -0.8% yoy, marking a significant deepening of deflationary pressures from the previous month’s -0.3% and falling short of expectation -0.5% yoy. This downturn represents the fourth consecutive negative reading and the most substantial fall observed since 2009, over fourteen years ago.

                                  The decline was particularly pronounced in food prices, which was down -5.9% yoy. Meanwhile, core CPI, which excludes volatile energy and food prices, rose by a modest 0.4% yoy, slowing from December’s 0.6% yoy increase. Despite the annual downturn, CPI saw a slight month-on-month increase of 0.3%, albeit below the anticipated 0.4% growth.

                                  The NBS attributed January’s inflation figures to the high base effect associated with the Spring Festival, or Lunar New Year, which occurred in January the previous year. This annual holiday, which shifts between January and February depending on the lunar calendar, significantly impacts consumption patterns and inflation metrics due to its influence on consumer spending and business operations.

                                  In parallel, PPI fell by -2.5% yoy in January, showing a modest improvement from the -2.7% yoy observed in the previous month and slightly better than -2.6% forecast. This marks the 16th consecutive month of annual declines for PPI, with factory-gate prices decreasing by -0.2% mom, following -0.3% mom drop in December.

                                  German FM Scholz : Some richer countries only think of their own interest

                                    German Finance Minister Olaf Scholz warned in at the World Policy Forum in Berlin that trade conflicts are damaging the world. Without naming any country, he singled out “richer countries” who only think of their own interest. At the same time, he also urged Europe to have one voice to have more bargaining power.

                                    Scholz said “trade conflicts, as we have seen over the last months – especially between richer countries only thinking of their own interest – are damaging the world economy”. He added that “trade policy has been an EU-level responsibility for a long time”. And, “it is obvious that we have much more bargaining power if we speak with one European voice… only together we are able to set and enforce standards of fair trade.”

                                    US initial jobless claims dropped to 205k

                                      US initial jobless claims dropped -1k to 205k in the week ending January 7, below expectation of 210k. Four-week moving average of initial claims dropped -2k to 213k.

                                      Continuing claims dropped -63k to 1634k in the week ending December 31. Four-week moving average of initial claims dropped -9k to 1680k.

                                      Full release here.

                                      New Zealand BusinessNZ PMI rose to 53.7, return to growth

                                        New Zealand BusinessNZ Performance of Manufacturing Index rose from 51.2 to 53.7 in December. Looking at some details, Production rose from 53.0 to 56.3. Employment rose from 48.5 to 52.0. New orders rose from 55.4 to 57.5. Finished stocks rose from 48.7 to 52.0. Deliveries rose from 43.9 to 50.0.

                                        BNZ Senior Economist, Doug Steel stated that “in the final quarter of 2021 the PMI averaged 53.2, indicating a return to positive manufacturing GDP growth after a sharp negative in the prior quarter.”

                                        Full release here.

                                        BoE Cunliffe: Could see stockpiling cycle build up again in Q3 on Brexit

                                          In an interview with Newcastle Journal yesterday, BoE Deputy Governor Jon Cunliffe said “I haven’t picked up a strong sense that the economy is contracting and people are seeing big drops in demand”.

                                          Q2 will likely be weak due to unwinding of stocks. But he added “with Q1 and the second quarter of this year, you won’t get a very accurate read on the underlying nature of the economy”.

                                          Additionally, there is a Brexit “decision point” coming up on October 31. And, “we don’t know whether we’ll leave, or stay, or whether there’ll be an extension”. He added “we could see that stockpiling cycle build up again”.