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Sterling jumps as wage growth picked up more than expected

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    ActionForex.com
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    Sterling extends this week’s strong rally as boosted by stronger than expected wage growth. Average weekly earnings including bonus rose 3.6% 3moy in July, up from 2.4% and beat expectation of 2.5%. Weekly earnings excluding bonus rose 2.9% 3moy, accelerated from 2.7% and beat expectation of 2.7%. Unemployment rate was unchanged at 4.0% as expected. In August, claimant count rose 8.7k, above expectation of 3.6k.

    ONS statistician David Freeman said that “earnings have grown faster than prices for several months, especially looking at pay excluding bonuses”. Also, “the labour market remains robust, with the number of people working still at historically high levels,”

    Full release here.

    Australia NAB business confidence hit 2-year low, but business condition rebounded

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      ActionForex.com
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      Australia NAB Business Confidence dropped to 4 in August, down from 7and missed expectation of 5. That’s a two year low since August 2016, and it’s below long-run average. Confidence is lowest in wholesale and manufacturing, highest in mining and construction. And, confidence declined across all states except Western Australia and Queensland in the month, with New South Wales and Victoria continue to lag.

      However, Business Condition rose to 15, up from 12 and matched expectations. Results were driven by increases in the profitability and trading indices. Forward looking indicators also rebounded a little in the month. Surveyed price and wage variables continue to show a gradual building of inflationary pressures.

      Full release here.

      Canada-US trade talk to resume as EU-US talks ended

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        ActionForex.com
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        Canada and the US will restart high-level trade talks in Washington today. Whether it’s still NAFTA or not, the two sides reached a deadlock in three key issues, Canadian dairy market access, cultural exemption for Canada and Chapter 19 dispute resolution mechanism. Not much news is released regarding the discussions as both sides agreed not to negotiate in public.

        Canadian Prime Minister Justin Trudeau just reiterated yesterday that “we continue to work hard and we are positively optimistic that we can get a win-win-win for all three countries.” Foreign Minister Chrystia Freeland, who’ll be in Washington today, said last week that the negotiation has entered into a “very intense phase” and the officials have been working 24-7.

        US Trade Representative Robert Lighthizer just finished a meeting with European Trade Commissioner Cecilia Malmstrom in Brussels yesterday. Malmstrom said in a tweet that “Lighthizer discussed how the EU-US achieves concrete results in the short to medium term towards a free trade agreement.” And they’ll meet again at the end of September.

        Lighthizer’s office described the talks as constructive. Also, work would be done in October to identify tariff and non-tariff barriers that could be cut. And trade chiefs of EU and US will follow up in November to finalize certain results.

        US House Republicans released Tax Reform 2.0 as political move

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          ActionForex.com
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          In the US, House Republicans released the so called “Tax Reform 2.0” yesterday, aiming to put it to committee-level vote this Thursday, and a full House vote on October 1. There are three major elements in the new package. Firstly, the temporary individual rates lowered in the December tax cut plan would be make permanent. Secondly, maximum age for some contributions to retirement accounts would be eliminated. Thirdly, new businesses would be allowed to write-off more start-up costs.

          But some analysts saw the new tax plan as merely a political move ahead of mid-term elections. There is no chance of passing the Congress in short term. However, it will put Democrats in the position of opposing the tax cuts just ahead of November 6 elections. And there are also criticisms on adding another several billion dollars to the deficit.

          Mid-US update: Sterling strong on Brexit optimism, Swiss Franc weakest

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            ActionForex.com
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            Sterling surges broadly today as lifted by EU chief negotiator Michel Barnier again. He said in a forum in Slovenia that a Brexit deal within 6-8 weeks if both sides are realistic their demand. Also, it’s reported that EU will announce next week to hold a special summit for Brexit in November, possibly on Nov 13. Euro follows Sterling as the second strongest due to easing worries over Italy’s budget. Swiss Franc is the worst performing one for the same reason as Euro. Yen and Dollar follow as the second and third weakest because of receding risk aversion. And, there is no news regarding trade war yet.

            European stocks closed generally higher today but it should be noted that major indices pared back much of earlier gains. FTSE hit as high as 7307.85 but closed at 7279.30, up only 0.02%. DAX hit as high as 12039.22 but closed at 11986.34, up 0.22%. CAC hit as high as 5291.21 but closed at 5269.63, up 0.33%. Gold strengthens mildly as Dollar weakens. But it’s staying in consolidation from 1214.

            Sterling surges as EU Barnier said Brexit deal in 6-8 weeks realistic, GBP/CHF bottomed

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              ActionForex.com
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              Sterling surges broadly in early US session and it’s now the strongest one for today. It’s EU chief negotiator Michel Barnier again. Bloomberg reports that Barnier said a Brexit deal with the UK is “realistic” within six to eight weeks.

              According to an excerpt by Sky News, Barnier said “I think that if we are realistic we are able to reach an agreement on the first stage of the negotiation, which is the Brexit treaty, within 6 or 8 weeks.” And, “taking into account the time necessary for the ratification process, the House of Commons on one side, the European Parliament and the Council on the other side … we must reach an agreement before the beginning of November. I think it is possible.”

              Separately, it’s reported that EU is preparing to give Barnier new instructions to help closing a deal with UK. And that’s seen as a act to support UK Prime Minister Theresa May as she’s suffering attacks from Brexiteers at home. The decision could be made at the September 20 summit, paving the way to be adopted in October. And the Brexit deal could then be concluded at a special summit in November.

              Riding on Swiss Franc’s weakness too, GBP/CHF has taken out 1.2665 near term support, confirming short term bottoming. It’s a bit early to tell if the whole down trend from 1.3854 has completed. But in short term, further rise should be see to 55 day EMA (now at 1.2827).

              Into US session: Swiss Franc broadly lower as Italian budget worries eased

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                ActionForex.com
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                Entering into US session, Australian Dollar is the strongest for the day, but it’s Euro that’s actually got some momentum. Or, actually, it’s Swiss Franc’s weakness that’s the theme while Euro is a main beneficiary. Canadian Dollar is trading as the second weakest one for today.

                Economic data released from UK and Eurozone were largely ignored. Sterling didn’t get much lift from GDP which strong the strongest 3-month growth in nearly a year. Instead, easing concerns over Italy’s budget was the main driver. At the time of writing, Italian 10 year yield is down -0.124 at 2.921, back below 3.000. German 10 year bund yield is up 0.012 at 0.403, above above 0.400. That’s seen as that main factor driving funds out of safe haven Franc, back to Euro.

                Elsewhere, European stock indices also pare back some of last week’s losses. FTSE is up 0.38%, DAX up 0.41% and CAC up 0.53%. Asian markets clearly under performed with China SSE lost -1.21% to 2669.48, Hong Kong HSI dropped -1.33% to 26613.42, Singapore Strait Times fell -0.43% to 3120.92. Raising trade tension between US and the rest of the world is weighing down sentiments. But Japanese Nikkei buck the trend and gained 0.30% even though Japan is clearly Trump’s next target.

                Gold continues to consolidate below 1214.30 but is held comfortably above key near term support at 1182.9.

                UK PM May: Chequers is the only Brexit plan on the table

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                  ActionForex.com
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                  UK Prime Minister Theresa May’s spokesman said that “Chequers is the only plan on the table which will deliver on the will of the British people while avoiding a hard border in Northern Ireland. The prime minister is working hard to secure a deal and hopes all MPs (members of parliament) will be able to support it.”

                  And, May will hold a cabinet meeting on Thursday to discuss preparation on “no-deal” Brexit.

                  Italy Tria’s comments well received, Italian yield dips, German yield breaks 0.4, EUR/CHF rebounds

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                    ActionForex.com
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                    The European markets are responding to Italian Economy Minister Giovanni Tria’s comments on Sunday that the progressive measures will only be implemented gradually. And, it makes no sense to seek extra deficit when yields are high.

                    Italian 10 year yield is currently dropping -0.109 to 2.936, back below 3.000.

                    German 10 year bund yield is rising 0.021 at 0.412, back above 0.400.

                    The development is giving Euro a lift, especially against Swiss Franc. It’s now getting more likely that EUR/CHF can defend 1.1154/98 key support zone as we expected in our technical outlook report.

                    UK 3-month GDP grew 0.6% in July, highest in nearly a year, but production drags

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                      ActionForex.com
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                      UK GDP grew 0.3% mom in July, above expectation of 0.2% mom.

                      For the three months to July, GDP grew 0.6%, met expectations.

                      The three month growth rate was the highest since August 2017.

                      Growth was driven by services (0.45%) and construction (0.20%), with small drag from production (-0.07%).

                      Also from UK, visible trade deficit narrowed slightly to GBP -10.0B in July. Industrial production dropped -0.2% mom, rose 0.9% yoy versus expectation of 0.4% mom, 1.0% yoy. Manufacturing production rose 0.1% mom, 1.1% yoy versus expectation of 0.3% mom, 1.5% yoy. construction output rose 0.5% mom in July versus expectation of -0.4% mom fall.

                       

                      Eurozone Sentix Investor Confidence dropped to 12.0, emerging markets and US trade disputes weigh

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                        ActionForex.com
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                        Eurozone Sentix Investor Confidence overall index dropped to 12 in September, down from 14.7, below expectation of 13.8. Current situation index dropped to 35.0, down from 37.3. Expectations index also dropped to -8.8, down from -5.8. Sentix noted that “the weakness of the emerging markets, especially in Asia and Latin America, is weighing on economic assessments. But also homemade European problems.”

                        Sentix also noted that two developments are “particularly noticeable in the search for the causes” for the deteriorations. One is “weakness in the international arena”, in particular in Asia and Latin America. And, “due to the solid US dollar and political crises, the emerging markets are in the crossfire.”

                        For Europe itself, there are problems “especially at the political level”. Also, “external, international catalyst, which is also intensified by the trade dispute between the USA and almost the rest of the world, is now having a noticeable negative impact.”

                        Full release here.

                        China pledges retaliation again if US imposes new tariffs

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                          ActionForex.com
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                          China Foreign Ministry spokesman Geng Shuang said in a regular press briefing that “If the U.S. side obstinately clings to its course and takes any new tariff measures against China, then the Chinese side will inevitably take countermeasures to resolutely protect our legitimate rights.” That came after public hearing on 25% tariffs on USD 200B in Chinese goods ended last week. Trump is ready to start imposing the tariffs any time. Meanwhile, he raised the stakes further and threatened to put tariffs on additional USD 267B in Chinese imports.

                          No further elaboration or comments were given by Chinese officials yet. But it’s believed that China is also ready for retaliation to the tariffs on the USD 200B goods. China has already unveiled a list of 5207 product lines, in USD 60B of value, with tariffs from 5% to 25%.

                          Former junior minister Baker warns catastrophic Conservative party split on Chequers Brexit plan

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                            ActionForex.com
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                            Steve Baker, a former junior Minister at the Department for Exiting the European Union, warned that there will be 80 or more MPs voting against Prime Minister Theresa May’s Chequers Brexit plan at the party conference. And, the part will suffer from “catastrophic split”. Instead, he urged May to go for the route of a free trade agreement with the terms laid down by European Council president Donald Tusk.

                            And he added, “if we come out of conference with her hoping to get Chequers through on the back of Labour votes, I think the EU negotiators would probably understand that if that were done, the Tory party would suffer the catastrophic split which thus far we have managed to avoid.”

                            Baker resigned earlier this year in opposition to the Chequers’ plan. The party conference will be held on September 30 to October 3.

                            Boston Fed Rosengren: There’s an argument to normalize policy, and probably be mildly restrictive

                              By
                              ActionForex.com
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                              Boston Fed President Eric Rosengren reiterated on Saturday that it’s time to bring interest rate back to “normal” level. He told reporters after an economic conference that “here is upward pressure on inflation, and given that we are already at 2 percent, labor markets are already tight … that is going to be a situation where we start persistently having inflation above what our target is.” And he noted, “there is an argument to normalize policy and probably be mildly restrictive.”

                              Rosengren also added that recent job and growth data were increasingly “inconsistent” with the estimates of a low neutral rate. And, “it would not surprise me at all if the committee estimates (on neutral rate) … go up over time.” And, if those estimates rise, “you would expect the path to move as well.”

                              US Agriculture Secretary Perdue: Class 7 has to go for a NAFTA deal

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                                ActionForex.com
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                                As White House economic advisor Larry Kudlow repeated many times, “milk” is the key word in NAFTA renegotiation. This was echoed by US Agriculture Secretary Sonny Perdue in a TV interview aired on Sunday. Perdue said “our farmers don’t have access to the Canadian markets the way that they have access to us. Class 7 has to go. It can’t be renamed something or called something else.”

                                Class 7 is a new milk class created by Canada to price milk ingredients such as protein concentrates, skim milk and whole milk powder. Perdue added the class “allowed them to export milk solids on the world market and below prices that cut into our opportunity for our dairy people to have access to that world market.”

                                Canadian Foreign Minister Chrystia Freeland insisted over the weekend that to reach a deal, “it’s going to take flexibility on all sides.” She didn’t respond to Kudlow’s comments by pointed out that he is “not at the negotiating table”.

                                Italian EM Tria: Makes no sense to borrow more on higher yields

                                  By
                                  ActionForex.com
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                                  Italian Economy Minister Giovanni Tria pledged on Sunday that the coalition will respect EU fiscal rules. And, more progressive budget plans would only be introduced gradually. The programs include both a new welfare tool advocated by the Five Star Movement and tax cuts promoted by the League. But he emphasized that “almost all reforms will start to be implemented gradually.” And, “we are looking into Italy’s big state balance sheet to find financial resources to be shifted toward these measures.”

                                  Also, he acknowledge the need to bring down the 130% debt to output ratio, which is the second highest in Eurozone. And such reduction “may bring about a strengthening and consolidation of Italy’s presence on financial markets, which will free up resources and attract investments.”He added “it makes no sense to seek two or three billion euros of extra deficit if we then have to pay three or four billion more due to higher yields”. Further, “as the government puts words into actions, the (bond yield) spread will return to more normal levels.”

                                  Italian 10 year yield dipped notably from August high at 3.281 after the coalition government pledged not to break the bank. But, currently above 3%, it’s still notably higher than 1.75-2.00% range before the coalition took office.

                                  Japan PM Abe: Trade fights no benefit anyone, will proceed with sale tax hike

                                    By
                                    ActionForex.com
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                                    Facing trade threats from the US, Japanese Prime Minister Shinzo Abe kept his cool today and note that trade fights do not benefit any country. Japan is clearly the next trade target of Trump, who pull out of the Trans Pacific Partnership as the first “achievement” after taking office. Japan has been clear in insisting on promoting multilateral frameworks despite requests from the US on bilateral trade deals. Trump warned on Friday that “if we don’t make a deal with Japan, Japan knows it’s a big problem.”

                                    Additionally, Abe would proceed with the planned sales tax hike in October 2019 and carry out fiscal reforms. He said that “we will carry out fiscal consolidation and want to raise the sales tax as planned” to 10 percent, in a kick off news conference for his LDP leadership campaign. Abe added that he’s learned a lesson from the 2014 sales tax hike and pledge with measures to ease consumptions.

                                    Released from Japan today, Q2 GDP was finalized at 0.7% qoq, revised up from 0.5% qoq. GDP deflator rose 0.1% yoy, unrevised. Current account surplus narrowed to JPY 1.48T in July.

                                    Trump’s trade policy failed again in August, China bought more from others, but US stayed the same

                                      By
                                      ActionForex.com
                                      -

                                      It’s still early to tell. But trade data from China showed that Trump’s trade policy failed for another month.

                                      It’s clear that China increased imports from other regions in August like EU (10.6% yoy) and AU (34.0% yoy). Import from US slowed drastically to 2.7% yoy. On the other hand, exports to the US still grew steadily at 13.2% yoy comparing to EU (8.3% yoy) and AU (23.3% yoy). In the end, trade surplus with the US grew 18.4% yoy. And, trade surplus with EU just rose 4.0% yoy. Trade deficit with AU has indeed jumped 45.7% yoy.

                                      For year-to-August, exports to USD rose 13.0% yoy while imports rose 10.3% yoy. Trade surplus rose 14.6% yoy. At the same time, imports from EU rose 14.9% yoy, from AU rose 14.6% yoy. Trade surplus with EU just rose 2.6% yoy. And trade deficit with AU rose 12.2%.

                                      In the end, it’s not the size of trade that matters, but how elastic the demand and supply that matter. For now, it seems like the US is maintaining the pace of growth in Chinese imports. But China is quickly turning to other countries for goods.

                                      Below are some more details.

                                      In CNY terms in August, China’s total trade rose 12.7% yoy to CNY 2.71T. Exports rose 7.9% yoy to CNY 1.44T. Imports rose 18.8% yoy to CNY 1.26T. Trade surplus came in at CNY 180B, wider than July’s CNY 177B.

                                      Year-to-August, total trade rose 9.1% yoy to CNY 19.4. Exports rose 5.4% yoy to CNY 10.3T. Imports rose 13.7% yoy to CNY 9.1T. Trade surplus came in at CNY 1246B.

                                      In USD terms in August, total trade rose 14.3% yoy to USD 407B. Exports rose 9.8% yoy to USD 217B. Imports rose 20.0% yoy to 190B. Trade surplus came in at USD 27.9B, narrowed from July’s USD 28.1B.

                                      Year-to-August, total trade rose 16.1% yoy to USD 3.02T. Exports rose 12.2% yoy to USD 1.60T. Imports rose 20.9% to USD 1.41T. Trade surplus came in at USD 193.6B.

                                      Looking at some details, for the month of August:

                                      • Exports to EU rose 8.3% yoy to USD 37.0B, imports from EU rose 10.6% yoy to USD 24.9B, trade surplus rose 4.0% to USD 12.1B
                                      • Exports to US rose 13.2% yoy to USD 44.4B, imports from US rose 2.7% yoy to USD 13.3B, trade surplus rose 18.4% to USD 31.1B
                                      • Exports to AU rose 23.3% yoy to USD 4.3B, imports from AU rose 34.0% yoy to USD 9.0B, trade deficit rose 45.7% to USD -4.7B

                                      For year-to-August

                                      • Exports to EU rose 10.7% yoy to USD 265.6B, imports from EU rose 14.9% yoy to USD 180.4B, trade surplus rose 2.6% yoy to USD 84.2B
                                      • Exports to US rose 13.0% yoy to USD 303.4B, imports from US rose 10.3% yoy to USD 110.8B, trade surplus rose 14.6% to USD 192.6B
                                      • Exports to AU rose 18.1% yoy to USD 30.1B, imports from AU rose 14.6% yoy to USD 71.2B, trade deficit rose 12.2% yoy to USD -41.2B.

                                      August 2018 data. August 2017 data.

                                      Stocks fall, Dollar and Yen surge as Trump ready to tariff additional $267B in Chinese goods

                                        By
                                        ActionForex.com
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                                        DOW drops “slightly” by -130 pts, Dollar and yen surge, after Trump said he’s ready for more tariffs on China. The public hearing on 25% tariffs on USD 200B of Chinese goods ended yesterday. Trump said he has additional USD 267 billion in goods identified to tariff any time. Additionally, he said he’s started trade negotiation with Japan. And on Canada, he added “we’ll see what happens”.

                                        Dallas Fed Kaplan: Job report reaffirm view to move rate to neutral

                                          By
                                          ActionForex.com
                                          -

                                          Dallas Fed President Robert Kaplan said in a Fox interview that “I believe in light of economic performance we ought to be moving toward neutral…that tells me over the next nine to 12 months we ought to be raising the fed funds rate probably at least three more times, maybe three or four times.”

                                          And referring to today’s strong NFP, he added “everything that is in this jobs report today just causes me to reaffirm that view.”

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