Contrasting comments from Fed Brainard and Bullard

    There are some contrasting comments from Fed officials today.

    Fed Governor Lael Brainard said that “with fiscal stimulus in the pipeline and financial conditions supportive of growth, the shorter-run neutral interest rate is likely to move up somewhat further, and it may well surpass the longer-run equilibrium rate for some period.” And to her, gradual interest rate hikes are likely to be appropriate.

    On the other hand, St. Louis Fed President James Bullard emphasized that “you can’t just say, ‘unemployment is 3.9 percent, obviously we have to raise rates’; or, ‘growth is fast, obviously we have to raise rates.'” He noted that “I don’t think that feedback to inflation is very strong to be able to make that argument.”

    An update on AUD/JPY short after strong rebound

      This is a follow up to our AUD/JPY short trade, entered at 80.25, stop at break even 80.25. Last updated in our weekly report.

      AUD/JPY rebound strongly today on news that the US is trying to restart trade talk with China. And Trump intends to postpone the announcement of 25% tariffs on USD 200B in Chinese goods after that. Public hearing on the tariffs ended last week.

      While the rebound is strong, our strategy is… don’t panic. Firstly, at the time of writing, both he Treasury Department and Commerce Department declined to comment. So, it could be another piece of “fake news”. Secondly, at the time of writing too, there is no follow through buying above 4 hour 55 EMA yet.

      Technically, 4 hour technical doesn’t look very promising, with bullish convergence condition in 4 hour MACD. But there is no confirmed reversal yet. Hence, we’d hold on to the short position, with stop unchanged at 80.25 (break even). But the chance for us to exit slightly above 61.8% projection of 90.29 to 80.48 from 83.92 at 77.85 has increased. We’ll still not rigid exit there yet, as we’d like to give the cross a little breathing room on the news (real or fake).

      And, after all, it’s trading. Sometimes you win, sometimes you lose. Even if we’re stopped out, it’s not a loss!

      US to re-initiate trade talk with China before new tariffs, Aussie and DOW surge

        The WSJ reported that the US is proposing new round of trade talk with China. That could happen in the near future before Trump imposes the new round of 25% tariffs on USD 200B in Chinese goods. It’s reported that Treasury Secretary Steven Mnuchin sent an invitation to Chinese officials, proposing a meeting in the next few weeks to discuss trade issues, citing unnamed sources.

        The proposal could be resulted from public hearing ended last week. Or, it could also be in response to outcries from American businesses.

        As we noted here, over 60 US industry groups formed a coalition “Americans for Free Trade” to launch a campaign against Trump’s tariffs and trade policies.

        The news boosts Australian and New Zealand Dollar sharply higher. Meanwhile, Dollar clearly suffers.

        Meanwhile, DOW is also surging around 170 pts , taking recent high at 26167.74.

        EU Juncker pushes to strengthen Europe’s role in the world stage

          In his annual State of the Union address, European Commission President Jean-Claude Juncker urged the EU to “become a more sovereign actor on the world stage.” He added that “if Europe were to unite all the political, economic and military might of its nations, its role in the world could be strengthened.” And, “we will always be a global payer but it is time we started being a global player too.”

          His proposals include promoting the euro currency abroad to compete with the US dollar, maintaining close ties with the UK after Brexit through free trade agreement, new rules to crack down on cross-border terrorism, tackling migration by increasing resources to the EU border and coastguard and, a trade deal with Africa for attracting investments and job creation.

          On Brexit, Juncker said “I welcome Prime Minister May’s proposal to develop an ambitious new partnership for the future, after Brexit. We agree with the statement made in Chequers that the starting point for such a partnership should be a free trade area between the United Kingdom and the European Union.”

          Pro-Brexit MPs discussed ousting PM May, who pledged to fight on

            In the UK, BBC reported that around 50 pro-Brexit MPs met to discuss how to oust Prime Minister Theresa May. The so called European Research Group, who prefers a clearer divorce with the EU, met yesterday with comments like “everyone I know says she has to go”, “she’s a disaster” and “this can’t go on,” flowing around. It’s clearly that Brexiteers are unhappy with the Chequers plan for the close tie with EU after Brexit.

            May’s spokesman said today that she would fight any attempt by her lawmakers to oust her. Also,the spokesman added “we have been working on the issue of the Northern Irish border for two years and we have looked at a significant number of potential solutions and we believe that the plan put forward by Chequers is the only credible and negotiable one.”

            5-Star Movement denied threatening to oust EM Tria on budget

              In Italy, there were rumors that the 5-Star Movement, one of the anti-establishment coalition party, threatened to oust Economy Minister Giovanni Tria if he didn’t allow EUR 10B of funding in 2019 budget for its flagship campaign. But the news was denied by 5-Star Movement. The party said in a statement “that 5-Star is putting pressure on minister Tria is unfounded, as is any reference to (requesting) his possible resignation.”

              Recent comments from Tria, and leaders of both the 5-Star Movement and the League suggested that they will stick to fiscal discipline for now. That helped stabilize Italian bond markets and eased some pressure on the Euro. The more progressive measures were promised to be rolled out gradually over the next few years. Separately, Massimo Bitonci, an undersecretary at the economy ministry and a member of the League, said in a newspaper interview at the weekend that both parties would have EUR 5B each to implement their campaign promises in the 2019 budget.

              US PPI posted first monthly decline since Feb 2017

                In August, US headline PPI dropped -0.1% mom versus expectation of 0.2% mom rise. Year-over-year rate also slowed from 3.3% yoy to 2.8% yoy, below expectation of 3.2% yoy.

                Core PPI dropped -0.1% mom versus expectation of 0.2% mom. Year-over-year rate also slowed from 2.7% yoy to 2.3% yoy, below expectation of 2.8% yoy.

                That’s also the first monthly decline in 1.5 years February 2017. Decline in food prices and trade serves offset the increase in energy costs.

                Dollar trades mildly lower against Yen after the remains, but stays range-bound against others.

                Enough is enough, US industry group coalition launches new campaign against Trump’s tariffs

                  Over 60 US industry groups formed a coalition “Americans for Free Trade” to launch a campaign against Trump’s abusive use of tariffs and trade policies. Business groups have already expressed they objections to the tariffs on USD 200B of Chinese goods in the public hearing that ended last week. But instead of listening to what the Americans said, Trump raised the stakes last Friday by warning that tariffs on another USD 267B in Chines imports are “ready to go on short notice”.

                  The coalition involves almost every sector of the US economy, with heavy weight names represented including Exxon Mobil Corp and Chevron Corp, Target Corp and Autozone Inc., Microsoft Corp, Google owner Alphabet Inc and Apple Inc., Amazon.com, Macy’s Inc and Walmart Inc., IBM Corp and Facebook Inc., Mattel Inc, Hasbro Inc and Barnes & Noble Inc., etc.

                  Matthew Shay, president of the National Retail Federation, who is helping lead the coalition group warned that “there has been no sign of progress in the talks or de-escalation, simply more rhetoric about increasing tariffs, that’s not going to be good for the economy.” Nicole Vasilaros, the top lobbyist for the National Marine Manufacturers Association, also said the layering effect (of tariffs) has finally gotten everyone to say: ‘Enough is enough.'”

                  The campaign includes reaching out to lawmakers, buying ads and hosting town hall style meeting in swing states. Also, the coalition is targeting lawmakers in five states as the first step, including Ohio, Pennsylvania, Illinois, Indiana and Tennessee. And, it’s planned to expand to a dozen states by the end of the year.

                  In a letter to members of Congress, the coalition said “we also strongly encourage Congress to exercise its oversight role on trade policy matters to prevent further harm to U.S. workers, consumers and families that will result from new tariffs — both those already being implemented and future tariffs that have been proposed.”

                  Canada-US trade talks continue in good faith, but nothing is done until everything is done

                    Canadian Dollar is apparently lifted after Trump said the trade talks continue “in good faith”. And, Trump is open to include Canada in the US-Mexican agreement but noted that “they want to make a deal very much”, but if we don’t make it, that’s okay too”.

                    Foreign Minister Chrystia Freeland returned to the US and met USTR Robert Lighthizer yesterday, to resume the trade talks. Afterwards, she said the was a positive atmosphere during the meeting. And, “both sides did a lot of thinking over the weekend, so this was a very productive meeting.” But she also emphasized that “nothing is done until everything is done.”

                    Meanwhile Reuters reported quoting unnamed source that Canada is ready to have concessions on dairy. But in return, it would request US concession on Chapter 19 dispute resolution mechanism.

                    Canada collected nearly CAD 300m in tariffs after starting retaliation on US steel and aluminum tariffs. Finance Ministry spokesman pledged that the money will be funneled back to the industries hurt by Trump’s tariffs. He said “we are committed to making sure that every dollar raised in reciprocal tariffs is given back in the form of support for affected sectors.”

                    Japan EM Motegi to meet USTR Lighthizer for trade talk on Sep 21

                      Japanese Economy Minister Toshimitsu Motegi is said to be meeting US Trade Representative Robert Lighthizer on September 21 in the US. That will be a follow up to an inconclusive meeting on trade back in August. Back then Motegi said acknowledged the importance of expanding trade. Also, both sides exchanged views individual areas but nothing had been decided. Earlier this week, Motegi was quoted saying that the US and Japan have some difference in views but will seek to proceed with the discussions.

                      It’s known that Japan has been insisting in bring the US back to the Trans Pacific Partnership, which Trump pulled out soon after taking office. The multilateral framework is what Japan has been pushing for, which is clearly shown in its leadership role in the TPP too. On the other hand, Trump has been trying to force Japan into bilateral agreement, which he fails o far. It’s uncertain how this fundamental difference could be bridged.

                      The meeting between Motegi and Lighthizer will precede summit between Japanese Prime Minister Shinzo Abe and Trump on the sidelines of a UN meeting starting September 25.

                      Mid-US update: Dollar rises on yield and stocks, USD/JPY to take on 111.75/82 resistance zone

                        Dollar is rather strong today as lifted by surging US yields as well as rally is equities. Though, it’s slightly outperformed by Swiss Franc and Canadian Dollar. For the Swiss Franc, it’s resilience could be seen as a sign that investors still have many things to worry about, in particular in the emerging markets. Canadian Dollar might be lifted by oil price as WTI is back above 69.

                        Yen is apparently the weakest one as pressured by US yields and rally in US indices. Australian and New Zealand Dollar follow. Meanwhile, Sterling’s lift from Brexit optimism faded rather quickly. Rhetorics from all sides are pointing to a Brexit deal in 6-8 weeks. But the impact on the markets are just that.

                        Apple and Microsoft are the main drivers of the US stock markets. DOW is up 0.54% at the time of writing. S&P 500 up 0.49% and NASDAQ up 0.69% respectively. Five year yield is up 0.037 at 2.865, 10 year yield is up 0.035 at 2.972. European indices staged a strong rebound before close. FTSE ended just down -0.08% and DAX down -0.13%. CAC has indeed closed up 0.27%.

                        USD/JPY is a pair to watch for the rest of the session. 111.75/82 resistance zone is now within touching distance. Decisive break will resume the rebound from 109.76 and target 113.17. More importantly, this reaffirm our view that corrective from 113.17 has completed at 109.76 and whole rise from 104.62 is still in progress.

                        UK Hammond said Brexit deal do-able in 6-8 weeks, but will be less detailed

                          UK Chancellor of Exchequer Philip Hammond told upper house of parliament today that a Brexit deal can be agreed in 6-8 weeks with EU. Though, the agreement would be less detailed. He said “there’s merit in having quite a bit of detail, but clearly we don’t have enough time to negotiate the full draft legal text in what will be quite a complex future partnership agreement.”

                          Hammond’s Treasury also announced earlier today that BoE Governor Mark Carney will extend his term till January 2020. Hammond also told MPs that “if we leave the European Union without a deal… we could expect a period when there would be some turbulence and when there would be some issues arising for financial services businesses.” And, “a governor who was leaving at the end of June, with his bags already packed, would be in a poor position to represent the UK in what might be some quite critical – and time critical – negotiations over that period.”

                          Canada Freeland insisted converstaions with US constructive and productive

                            Heading to restart trade talk with the US, Canadian Foreign Minister Chrystia Freeland said that the discussions were still constructive. She added her team had “a lot of contact” with US Trade Representative Robert Lighthizer over the weekend.

                            Freeland added that “we agreed that it would be useful to continue talking today, so we’re back for more negotiations.” And, “the conversations over the weekend continued to be constructive and productive.”

                            Rising US treasury yields support Dollar

                              Dollar’s strength in a relatively mixed markets today can be partly attributed to surging US yields.

                              Five year yield is up 0.031 at 2.859. 2.887/2.941 resistance is within touching distance for FVX

                              10 year yield is also up 0.029 at 2.966. 3.115 high is a bit far for TNX. But 3.000 now looks touchable.

                              30 year yield is also up 0.023 at 3.111.

                              Into US session: Sterling rally lost steam, global stocks in red again

                                Entering into US session, while Sterling remains the strongest one for the week, it continues to ignore solid economic data. Pound’s rally is losing some steam with Swiss Franc and Canadian Dollar trading as the strongest one for today. Dollar is following as the third strongest. ON the other hand, Japan is the weakest one, followed by Australian and then New Zealand Dollar. The markets lack clear direction after the Brexit run. And investors are probably waiting for new developments in trade cautiously.

                                European stocks are back under selling pressure today with FTSE trading down -0.68%, DAX down -0.68% and CAC down -0.37% at the time of writing. US futures also point to lower open. In Asia, Nikkei gained 1.3% to 22664.69. But Hong Kong HSI lost -0.72% while Singapore Strait Times dropped -0.35%.

                                In particular, China Shanghai SSE dropped -0.18% to 2664.8, below August’s lowest close at 2668.96. Key support level at 2638.30 (2016 low) looks rather vulnerable. And it seems, investors are preparing themselves well for escalation in US-China trade war.

                                UK PM May: Salzburg EU meeting a staging post for Chequers Brexit plan

                                  According to UK Prime Minister Theresa May’s spokesman, she will travel to Salzburg next Wednesday to attend an EU informal council. And, that will be “both a staging post in exit negotiations and an opportunity to engage with the rest of the EU on shared challenges”.

                                  Also, referring to the Chequers plan, “it will also be the first time the leaders will discuss together the UK government’s white paper which put forward a series of credible and serious proposals.”

                                  BoE Governor Carney extends his term till Jan 2020

                                    The UK Treasury announced today that BoE Governor Mark Carney will extend his term until January 2020. Carney has originally planned to step down in June 2019. Chancellor of Exchequer Philip Hammond said in the release that I’m delighted that the Governor has agreed to stay in his role for a further seven months to support a smooth exit from the European Union and provide vital stability for our economy.

                                    In the same release, Jon Cunliffe was re-appointed as Deputy Governor till October 2023.

                                    Carney said in a letter to Hammond saying “I recognize that during this critical period, it is important that everyone does everything they can to support a smooth and successful Brexit.” And, “accordingly, I am willing to do whatever I can in order to promote both a successful Brexit and an effective transition at the Bank of England and I can confirm that I would be honored to extend my term to January 2020.”

                                    German FM Scholz urged to complete EU banking union this year

                                      German Finance Minister Olaf Scholz urged EU to make progress on banking union this year. He said in the Bundestag lower house of parliament that “we must take action so that we can act in a new crisis – not everything has been done.” Scholz also said Germany and France laid a foundation with an agreement in Meseberg in June. And so, “we can quickly take the last steps to make Europe stable and to equip ourselves for the next crisis”.

                                      He added that ‘have the task of completing a banking union and we should fulfil the most important steps this year.” Under the current EU plan, the Single Resolution Board will be given a clearer mandate to set the level of capital buffers that banks should hold against the risk of failure. However, another pillar of the union, a common bank deposit insurance scheme, is not agreed upon yet.

                                      German ZEW economic sentiment jumped to -10.6 as considerable fears diminished somewhat

                                        German ZEW Economic Sentiment improved to -10.6 in September, up from -13.7 and beat expectation of -13.4. Current Situation index rose to 76.0, up from 72.6, above expectation of 72.3. Eurozone ZEW Economic Sentiment rose to -7.2, up from -11.1, beat expectation of -14.9. Current Situation index rose 1.7 pts to 31.7.

                                        ZEW President Professor Achim Wambach noted in the release that “during the survey period, the currency crises in Turkey and Argentina intensified, while German industrial production and incoming orders were surprisingly low in July.” However, “despite these unfavourable circumstances, economic expectations for Germany improved slightly.” And “the considerable fears displayed by the survey participants regarding the economic development have diminished somewhat, which may in part be attributable to the new trade agreement between the USA and Mexico”.

                                        Full release here.

                                        Also from Eurozone, employment rose 0.4% qoq, 1.5% yoy in Q2 versus expectation of 0.4% qoq, 1.4% yoy.

                                        Gold range-bound but eventual upside breakout expected

                                          Gold is still bounded in consolidation pattern from 1214.30 and outlook is unchanged. With 1182.90 minor support intact, rebound from 1160.36 is expected to resume with an upside breakout eventually. Break of 1213.40 will target 55 day EMA (now at 1219.68) and above.

                                          However, we’d expect strong resistance from 38.2% retracement of 1365.24 to 1160.36 at 1238.62 to limit upside to complete the rebound.

                                          Meanwhile, on the downside, break of 118229 will argue that the rebound has completed much earlier than expected. In that case, retest of 1160.36 low should be seen next.