UK retail sales volumes (quantity bought) rose 1.3% mom in November, well above expectation of 0.4% mom. Ex-automotive fuel sales values rose 1.3% mom. Over the year, sales volumes rose 0.1% yoy while ex-fuel sales volume rose 0.3% yoy.
Sales value (amount spent) rose 1.0% mom, 3.8% yoy. Ex-fuel sales value rose 1.2% mom, 5.7% yoy.
Canada employment grew 230.7k in June, above expectation of 172.5k. Statistics Canada noted, “employment growth in June was entirely in part-time work and concentrated among youth aged 15 to 24, primarily young women.”
Unemployment rate dropped to 7.8%, down from 8.2%, matched expectations. Labor force participation rate also rose 0.6% to 65.2%. The figure remained above post-pandemic low of 7.5% recorded in April this year, but was considerably lower than recent peak at 9.4% in January, and the record high of 13.7% in May 2020.
In a CNBC Squawk Box telephone interview, Trump romanticized tariffs as a “beautiful thing” that countries with money should use. He said “People haven’t used tariffs, but tariffs are a beautiful thing when you are the piggy bank, when you have all the money. Everyone is trying to get our money”. He also touted boasted that “If we didn’t have tariffs we wouldn’t have made a deal with Mexico” on migration problem of the US.
He’s also confidence that the China trade deal is going to work out “Because of tariffs. Because right now China is getting absolutely decimated by countries that are leaving China, going to other countries, including our own.” China is “going to make a deal because they’re going to have to make a deal, ” Trump added.
Yet, he praised China’s system as “the head of the Fed in China is President Xi” and “He can do whatever he wants. They devalue.” They loosen”. He added, “They devalue their currency. They have for years. It’s put them at a tremendous advantage”. On the other hand, “we don’t have that advantage because we have a Fed that doesn’t lower interest rates.”
Trump said the Fed “certainly didn’t listen to me because they made a big mistake. They raised interest rates far too fast,” and he went on to chide them for hiking “the day before a bond issue goes out so we have to pay more money.” He certainly believed in a system that central banks work for the countries leader, instead of independently.
UK unemployment rate dropped to 3.8% in the three months to July, down from 3.9% and beat expectation of 3.9%. That’s also the lowest level since 1974. estimated unemployment rate for men was at 4.0%, for women at 3.6%.
Wage growth was also solid. Average weekly earnings including bonus rose 4.0% 3moy, above expectation of 3.7% 3moy. Weekly earnings excluding bonus slowed to 3.8% 3moy, matched expectations.
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.”
BoE Governor Andrew Bailey said in a speech to Queen’s University Belfast that the economy has performed a bit stronger than expected. However, there are signs that recovery might not be as strong going forward. In Q3, economic activity was around -7% to -10% lower than pre-pandemic levels. Risks include COVID, Brexit talks, US-China relationship.
On monetary policy he emphasized it’s “critically important that the BoE’s can use all its tools to support the economy.” The central bank is “not out of ammunition on QE”, and it can also use “forward guidance”.
“Negative interest rates are in the BoE’s toolbox, have not reached judgement on whether or when to use them,” he added. “We do not rule out using negative interest rates but are realistic about challenges from banking retail deposits.”
US PMI Manufacturing rose to 56.7 in November, up from 53.4, a 74-month high. PMI Services rose to 57.7, up from 56.9, a 68-month high. PMI Composite rose to 57.9, up from 56.3, a 68-month high.
Chris Williamson, Chief Business Economist at IHS Markit, said:
“The November PMI surveys provide the first post-election snapshot of the US economy, and makes for very encouraging reading, though stronger economic growth is quite literally coming at a price.
“First the good news: business activity across both manufacturing and services rose in November at the strongest rate since March 2015. The upturn reflected a further strengthening of demand, which in turn encouraged firms to take on staff at a rate not previously seen since the survey began in 2009.
“However, the surge in demand and hiring has pushed prices and wages higher. Average selling prices for goods and services rose at the fastest rate yet recorded by the survey, with shortages of supplies also more widespread than at any time previously reported.
“Firms are scrambling for inputs and workers to meet the recent growth of demand, and to meet rising future workloads. Expectations about the year ahead have surged to the most optimistic for over six years, reflecting the combination of a post-election lift to confidence and encouraging news that vaccines may allow a return to more normal business conditions in the not too distant future.”
Goldman Sachs published a note that’s bullish on gold price yesterday and expected it to outperform over the coming months. It’s forecasting four Fed hikes this year, which is one more than FOMC’s own projection. And the bank admitted that its upbeat view on gold is “counter-intuitive”.
However, the report pointed to empirical data for the past six tightening cycles of Fed, and found gold has “outperformed post rate hikes four times”. And according to their analysts, “the dislocation between the gold prices and US rates is here to stay”.
It added that the bullish view was also driven by higher inflation, rising EM wealth and increased risk of equity correction. Also, it’s a likely a function of investors “waiting on the sidelines” and the becoming interested in Gold again once the tightening “catalyst” has passed.
Our technical view
From our technical view, gold’s recent jump from 1307.32 suggests that consolidation pattern from 1366.05 has completed. And, rise from 1236.66, and the larger choppy up trend, is ready to resume. Based on the near term pattern, Gold will likely target 100% projection of 1236.66 to 1266.05 from 1307.32 at 1436.07.
However, bear in mind that gold is now close to an important long term fibonacci level. That is, 38.2% retracement of 1920.94 to 1046.54 at 1380.56. Gold failed this fibonacci resistance once back in 2016. And felt heavy approaching it twice since then. Add that to the fact that rise from 1122.81 is clearly not impulsive looking. For now, we’d be skeptical on gold bullish momentum ahead. And 61.8% projection of 1236.66 to 1266.05 from 1307.32 at 1386.88 is the hurdle to overcome.
Eurozone CPI was finalized at 1.2% yoy in May, down from April’s 1.7% yoy. CPI core was finalized at 0.8% yoy, unchanged from April’s figure. EU28 CPI was finalized at 1.6% yoy in May, down from April’s 1.9% yoy.
The lowest annual rates were registered in Cyprus (0.2%), Portugal (0.3%) and Greece (0.6%). The highest annual rates were recorded in Romania (4.4%), Hungary (4.0%) and Latvia (3.5%). Compared with April 2019, annual inflation fell in sixteen Member States, remained stable in five and rose in six.
In May 2019, the highest contribution to the annual euro area inflation rate came from services (0.47%), followed by energy (0.38%), food, alcohol & tobacco (0.29%) and non-energy industrial goods (0.08%).
BoJ Governor Haruhiko Kuroda said today, at the annual meeting of Keidanren, “while continuing to carefully examine various risks, the BOJ will not hesitate to take additional easing measures if there is a greater possibility that the momentum toward achieving the price stability target will be lost.”
He acknowledged that “uncertainties over the global economy, including developments in U.S.-China trade negotiations, have eased somewhat. But he also warned, “the BOJ considers that downside risks regarding the outlook for the global economy remain significant.”
Swiss KOF Economic Barometer rose to 94.7 in October, up from 93.2, and beat expectation of 94.2. The index halted its downward movement, “at least for the time being”, but it’s still well below its long term average.
KOF said the increase is “attributable in particular to bundles of indicators from the banking and insurance sector as well as from accommodation and food service activities”. Also, “indicators regarding foreign demand and other services are pointing in a slightly less negative direction”. But “indicators from the manufacturing sector record a slight decline.”
In the Summary of Opinions of BoJ’s March 18-19 meeting, it’s said, “for the time being, it is important for the Bank to firmly continue with policy responses to the impact of COVID-19. The Bank should continue to provide support for financing, mainly of firms, and ensure stability in financial markets.”
BoJ’s policy actions decided at the meeting “have ensured the sustainability and nimbleness of policy measures that are necessary to achieve the price stability target”. And, it’s “desirable” for the framework to continue to be the basic guideline for “a few years to come”.
Long-term interest rates were allowed to move in a wider range of plus and minus 0.25%. “This flexibility is desirable since it prevents arbitrageurs and speculators who had lost their profit opportunities from exiting the bond market and helps maintain the price stabilization function in the market.”
The revision on ETFS purchases were made “to conduct purchases more effectively”. It’s necessary to “avoid a misunderstanding that the Bank has adopted a less accommodative stance on monetary policy.
The “inflation-overshooting commitment” implies that monetary easing will be continued for a “long period”. As a “deflationary risk” is a “matter of concern at present”, the commitment shows BoJ’s “strong stance that it will not head toward an exit easily.”
New York Fed President John Williams said in a speech that US is “closing in on the longest economic expansion on record, unemployment is at historically low levels, and inflation is close to our 2 percent target “. And, from a “pure monetary policy perspective”, this is a “healthy economy”.
However, he also noted that Fed’s monetary policy decisions ” don’t affect the kinds of jobs that are created or who benefits from growth.”
BoE MPC member Catherine Mann said, “falling natural gas and electricity costs “might be good from the standpoint of making households feel more comfortable.”
But, “on the other hand, what they aren’t going to spend on energy, they’re going to spend on something else… That translates something that I do not control, which is external energy prices, into something that looks a whole lot more like what I’m supposed to control, which is domestically generated inflation.”
“A recession is a particularly dramatic way of disciplining the pricing structure of firms, but it’s not the only way,” Mann said. “I would like to see more on the supply side in order to give us a faster speed limit to work with as a central bank. It’s not like there’s an automatic relationship between recessions and bringing inflation down.”
US treasury yields had a wild session overnight. 10 year yield hit as high as 2.992 but closed sharply lower at 2.933, down -0.042.
There was no apparent major reason for the ride. Reasons cited include slump in emerging market currencies, fat finger trade as well as technical resistance at 3% handle.
Net effect in the forex market is also no too clear, except that USD/JPY is dragged down. Judging from 6H action bias chart, the rebound from 108.10 is likely over.
China’s GDP grew a record 18.3% yoy in Q1, but missed expectation of 18.8% yoy slightly. The data was distorted by the low base as the economy was choked by the outbreak of coronavirus in Wuhan last year, which quickly spread to the world, and it’s still spreading. Nevertheless, the annual growth was still the strongest since record began in 1992.
March economic data was solid too. Retail sales rose 34.2% yoy versus expectation of 27.2%. Industrial production rose 14.1% yoy, missed expectation of 15.6% yoy. Fixed asset investment rose 25.6% ytd yoy, above expectation of 25.3%. Overall, the economy is on track to beat the government’s annual target of 6% GDP growth.
In the statement of monetary policy, “the Board will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band”. Additionally, “the Board is committed to do what it can to support jobs, incomes and businesses during this difficult period and to make sure that Australia is well placed for the expected recovery.”
In the latest projections, GDP could contract by as much as -6.00% in the year ended December 2020, then recovered by 6.00% in the year-ended December 2021. Unemployment rate would surge to 10% in June 2020, then gradually drop back to 6.50% in two year’s time, without reaching the pre-crisis level of 5.20%.
Path of headline inflation projected is rather rocky. CPI would tumble to -1.00% in June 2020, then surge to 2.75% by June 2021, then drop back to 1.25-1.50% before June 2022. Trimmed mean inflation would remain steady, though, at between 1.25-1.50% throughout projection horizon, without hitting the 2% target.
Boston Fed Bank President Eric Rosengren said the US is “still in the depths of a recession” and he hoped, “over the course of the spring we’re really talking about a significant recovery.”
“The first thing we can do is do everything in our power to get back to full employment as quickly as possible,” he added.” “I don’t want to say that the burden is all on monetary policy. Most of the burden is actually on fiscal policy when interest rates are as low as they are.”
Bundesbank President Jens Weidmann said a “gradual approach” might make sense in digital Euro given the risks involved. “That means a digital euro with a specific set of features and the option to add further functionalities later,” he added.
In particular, he warned that in times of crises, consumers could rush to covert bank deposits to central bank money. That would destabilize the financial system.
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US PCE inflation rose to 6.4% yoy, core PCE rose to 5.4% yoy
US personal income rose 0.5% mom or USD 101.5B in February, matched expectations. Spending rose 0.2% or USD 34.9B, below expectation of 0.6% mom.
The PCE price index for February increased 6.4% yoy, up from January’s 6.0% yoy, but missed expectation of 6.7% yoy. The increase reflected rise in both goods and services. Excluding food and energy, core PCE price index was at 5.4% yoy, up from January’s 5.2% yoy, slightly below expectation of 5.5% yoy. Energy prices rose 25.7% yoy while food prices rose 8.0% yoy.
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