BoE announced to enter into a liquidity facility with the Bank for International Settlements to “ensure the provision of Sterling liquidity during any future periods of market stress”.
“Together with the swap lines the BoE has with a number of central banks, this new facility will provide a further liquidity backstop in Sterling to help ease any potential future strains in funding markets,” BoE said.
ECB Governing Council member Yannis Stournaras said “in my opinion, the adjustment of interest rates needs to be more gradual, taking into account the slowdown in growth of the euro area economy.”
“Given the high uncertainty, ongoing geopolitical and macroeconomic turmoil, and volatility in the markets, it is very difficult to accurately predict the level at which interest rates need to be set,” he added.
Swiss KOF Economic Barometer, a key indicator for forecasting the economy’s direction, has shown a slight improvement in November, rising from 95.1 to 96.7. This rise slightly exceeded market expectations, which were set at 96.2.
According to KOF Swiss Economic Institute, since mid-2023, the barometer has stabilized, though it remains at a level below the historical average. This stabilization indicates moderate outlook for the Swiss economy in the near future.
The increase in the KOF Barometer can primarily be attributed to positive developments in manufacturing sector and other services sector.
However, not all sectors are signaling positive trends. Indicators for hospitality industry and finance and insurance sector are showing slightly negative signals.
Entering into US session, Dollar turned weak earlier today and failed to sustain gains. On the other hand, the Japanese Yen is holding broadly firm. Australian Dollar and New Zealand Dollar turned the corner. Much focus will be on US treasury yields and some solid gain there is needed to give the greenback some support. Otherwise, recent correction will likely continue with some more downside potential in the greenback.
In other markets, Europe indices are trading generally higher, with DAX up 1.34%, CAC up 0.81% and FTSE up 0.81% at the time of writing. That follows the strong rally in Asian equities. China Shanghai Composite jumped 1.61% to 2905.56 as boosted by the governments stimulus policies. While the announce measures are just fine-tunings and are hardly anything dramatic, that’s seen as a sign of the director where the Chinese government is heading towards. That is do more to support growth.
The SSE’s rebound is set to extend to 55 day EMA (now at 2944.64) and above. But for now, we’re seeing no reason for it to regain 3000 handle.
Nikkei also rose 0.51% to close at 22510.48 and pared back much of Monday’s loss. However, the day high was seen at the open at 22555.05 and there was no follow through momentum back then. Overall strength of support from the 55 day EMA is rather weak. We’ll keep monitor this level, which will decide whether Nikkei would head for test on 21462.94 support before an upside breakout.
Eurozone PMI Services was finalized at 50.5 in April, up from March’s 49.6. PMI Composite was finalized at 53.8, up from March’s 53.2. Latest data indicated fastest expansion since last July and the second best in over two-and -a-half years.
Chris Williamson, Chief Business Economist at IHS Markit said: “April’s survey data provide encouraging evidence that the eurozone will pull out of its double-dip recession in the second quarter. A manufacturing boom, fueled by surging demand both in domestic and export markets as many economies emerge from lockdowns, is being accompanied by signs that the service sector has now also returned to growth…
“The intensity of the rebound will naturally depend on the extent to which Covid restrictions can be removed – and some measures relating to international travel are likely to remain in place for some time to come – but experience in other countries hints that the bounce in domestic activity could be strong as pent up demand and savings power a surge in spending.”
Credit Suisse’s measures to ease investor concerns over potential contagion and a banking crisis have failed to lift market pressures, with the Asian markets remaining under pressure.
The bank announced it would borrow up to CHF50B from the SNB, calling it a “decisive action to pre-emptively strengthen its liquidity.” The loan and a repurchase of billions of dollars of Credit Suisse debt aim to manage its liabilities and interest payment expenses.
Earlier, in a joint statement with the Swiss financial market regulator FINMA, the SNB assured the markets that the Credit Suisse had met “strict capital and liquidity requirements” and said, “there are no indications of a direct risk of contagion for Swiss institutions due to the current turmoil in the US banking market.”
“If necessary, the SNB will provide CS with liquidity,” FINMA and SNB said.
Hong Kong HSI gapped down today and is trading down -1.6% at the time of writing. From a technical perspective, the index’s decline from 22700.85 is still ongoing, and unless the 55-day EMA (now at 20256.19) is breached, a further decrease is anticipated. Even as a corrective move, this drop could aim for the 100% projection of 22700.85 to 19783.07 from 21005.66 at 18087.88.
US initial jobless claims rose 9k to 225k in the week ending December 24, matched expectations. Four-week moving average of initial claims dropped -250 to 221k.
Continuing claims rose 41k to 1710k in the week ending December 17. Four-week moving average of continuing claims rose 25k to 1680k.
In September, US personal income rose 0.2%, below expectation of 0.3%. Spending rose 0.4%, matched expectations. Headline CPI slowed to 2.0%, down from 2.2%. Core PCE was unchanged at 2.0% yoy.
Dollar is mildly higher after the release but remains mixed for the day. The most notable development today is the selloff in Yen and Swiss Franc as stock markets rebound.
UK Prime Minister Boris Johnson met opposition Labour leader Jeremy Corbyn today. But they failed to agree on a timetable to press ahead with the Brexit Withdrawal Agreement Bill.
Labour spokesperson said “Jeremy Corbyn reiterated Labour’s offer to the prime minister to agree a reasonable timetable to debate, scrutinise and amend the withdrawal agreement bill, and restated that Labour will support a general election when the threat of a no-deal crash-out is off the table.”
Afterwards in the PMQs, Johnson accused Labour of seeking to scupper Brexit. Corbyn called for “the necessary time to improve on this worse-than-terrible treaty”.
In the minutes of September 20-21 FOMC meeting, it’s noted that with “broad-based and unacceptably high level of inflation” and the “upside risks”, participants remarked that “purposefully moving to a restrictive policy stance in the near term was consistent with risk-management considerations”.
Further than that, “many participants emphasized that the cost of taking too little action to bring down inflation likely outweighed the cost of taking too much action.”
Also, “several participants underlined the need to maintain a restrictive stance for as long as necessary”.
Dallas Fed President Robert Kaplan told Bloomberg News, “”As we make substantial further progress, which I think will happen sooner than people expect — sooner rather than later”.
“We’re weathering the pandemic, I think we’d be far better off, from a risk-management point of view, beginning to adjust these purchases of Treasuries and mortgage-backed securities,” he added.
“I’d rather start tapering, assuming we meet our conditions, sooner rather than later so that we have more flexibility in deciding what we want to do on rates down the road.”
“I think it’s a good thing for the Fed to emphasize that we’re vigilant and we’re committed to anchoring inflation at an average of 2% and that we’re committed to anchoring inflation expectations in a manner that’s consistent with 2% inflation,” Kaplan said. “I think just emphasizing that is probably a healthy thing.”
Kaplan expected one rate hike in 2022, without indicating his expectations for 2023.
US goods exports rose USD 4.9B to USD 172.7B in March. Goods imports dropped USD -2.5B to 257.3B. Trade deficit came in at USD -84.6B, smaller than expectation of USD -89.8B.
Wholesale inventories rose 0.1% mom to USD 919.9B. Retail inventories rose 0.7% mom to USD 773.4B.
Reuters reported that EU leaders believe that progress in Brexit negotiation with the UK is “still not sufficient” for an agreement. The decision wold be confirmed at the EU summit on Thursday and Friday. Also, the leaders would ask chief negotiator Michel Barnier to intensify the talks and implement an agreement from January 1, 2021. At the same time, EU would step up no-deal preparations.
Separately, Commissioner for the EU’s single market, Thierry Breton, told BFM business radio “We prefer a deal but not at any price and if there is no deal, we are ready… our customs are ready for a no-deal and it is urgent that British customs also prepare for it.”
Dollar jumps after Fed chair Jerome Powell said it would take “material change” in the outlook to justify another rate cut. After today’s cut to 1.50-1.75%, he noted that risks to outlook have shifted more positively. Though, he added that Fed will need to see considerably higher inflation before considering raising interest rate.
USD/JPY surges along with the comments in the press conference. It’s now pressing 109.31 key resistance level. Decisive break there will raise the chance of medium term reversal and turn focus back to 112.40 key resistance.
Preliminary reading of ANZ Business Outlook survey showed marked improvement in business confidence , from -41.8 to -26.0. Own activity outlook also jumped form -17.5 to -9.9. ANZ said “firms are largely looking through the re-emergence of COVID-19 in the community”. Many activity indicators are also “at their highest levels since February”, even though still well down compared to pre-COVID days”.
ANZ added: “The New Zealand economy has a long way to go to navigate this crisis. Fiscal and monetary policy are certainly working their magic. But come year end, far fewer firms will be supported by wage subsidies, and the loss of tourists will be more sorely felt. But for now, things appear to be firmly in the “could be worse” basket.”
Also released, manufacturing sales dropped -12.2% in Q2. The main industry movements were: petroleum and coal products; down -33%, metal products, down -22%; transport equipment, machinery, and equipment, down -14%.
Euro is given a lift on reports that the Italian coalition is considering adjustment on its 2019 budget plan. Il Messaggero newspaper quoted Armando Siri, a Transport Ministry undersecretary saying that “In order to save the budget and avoid an increase in market turbulence … a small fine-tuning (of the deficit target) could be considered.”
Separately, it’s reported that Deputy Prime Minister, leader of Five-Star Movement, Luigi Di Maio also said deficit target reduction is not a problem as long as budget measures remain the same. On Sunday, another Deputy Prime Minister, leader of the League, Matteo Salvini also said “no one is stuck” to the deficit target, hinting at some flexibility for adjustment.
The cabinet is expected to meet today in the evening to discuss reduction of the 2.4% deficit target of 2019. And that could open up the door for constructive dialogue with the European Commission to avoid Excessive Deficit Procedure.
Italian 10 year yield dips notably today and is down -0.191 at 3.223. German 10 year yield is currently up 0.028 at 0.372. That is, spread is now below 300 alarming level.
US retail sales dropped -1.1% mom in July to USD 61.7B, worse than expectation of -0.2% mom. Ex-auto sales dropped -0.4% mom, below expectation of 0.1% mom. Ex-gasoline sales dropped -1.4% mom. Ex-auto, ex-gasoline sales dropped -0.7% mom. Comparing to July 2020, sales were up 15.8% yoy. Total sales for May through July period were up 20.6% from the same period a year ago.
Japan PMI Manufacturing dropped to 44.8 in March, down fro 47.8. That’s the lowest level since April 2019. PMI Services dropped sharply to 32.7, down from 46.8. That’s the lowest level since the start of the survey in September 2007. PMI Composite dropped to 35.8, down from 47.0, lowest since April 2011.
Joe Hayes, Economist at IHS Markit said: ” Latest PMI data show that the Japanese economy slipped into an aggressive downturn in March that was primarily led by the service sector… In contrast to other parts of Asia, the US and Europe, Japan (at the time of writing) has not issued a public lockdown, while there are reports that footfall in places such as Tokyo remains high. If the outbreak were to accelerate, the economic damage could far exceed what we’ve seen so far, particularly if The Olympic Games are postponed”.
In a speech, Fed Vice Chair Richard Clarida said neutral interest rates appear to have fallen in the US and abroad. And, “this global decline in r* is widely expected to persist for years”. He emphasized the importance of the trend as “all else being equal, a fall in neutral rates increases the likelihood that a central bank’s policy rate will reach its effective lower bound (ELB) in future economic downturns. ” And that in turn “could make it more difficult during downturns for monetary policy to support household spending, business investment, and employment, and keep inflation from falling too low.”
Clarida pointed to another key development in decreasing responsiveness of inflation to resource slack. That is, “short-run Phillips curve appears to have flattened, implying a change in the dynamic relationship between inflation and employment”. He warned that a flatter Philips curve increases the cost of reversing unwelcome increase in long-run inflation expectations. And “a flatter Phillips curve makes it all the more important that longer-run inflation expectations remain anchored at levels consistent with our 2 percent inflation objective.”
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Trump vows not to back down on tariffs, China warns of countermeasures
At a rally in Florida late Wednesday, Trump accused that China “broke the deal” as the trade negotiations entered the final stage. And he pledged no to back down on tariffs unless China “stops cheating our workers”. He said, “I just announced that we’ll increase tariffs on China and we won’t back down until China stops cheating our workers and stealing our jobs, and that’s what’s going to happen, otherwise we don’t have to do business with them”. And, ‘They broke the deal,” he added. “They can’t do that. So they’ll be paying. If we don’t make the deal, nothing wrong with taking in more than $100 billion a year.”
In response to new tariff threats, China’s Ministry of Commerce said in a statement: “Escalating the trade conflict is not in the interest of the people in both countries and the world. China deeply regrets the move. But if the US tariff measures are implemented, China will have to take necessary countermeasures.” Chinese Vice Premier will be in Washington to try to save the trade deal while new round of tariffs will take effect in less than 24 hours.