Gold lost momentum after hitting 1214.3, turns into near term consoldiation

    Gold’s rebound lost momentum after hitting 1214.30 and retreated sharply. Nonetheless, it’s try to draw support from 4 hour 55 EMA. For now some consolidations would be seen below 1214.30 first. But downside of retreat should be contained above 1182.90 support to bring another rise.

    Overall outlook is unchanged. 1160.26 is seen as a medium term bottom. The corrective rise from there should extend to 55 day EMA (now at 1228.18) and possibly above. But we’d expect upside to be limited by 38.2% retracement of 1365.25 to 1160.36 at 1238.62 to bring down trend resumption at a later stage.

    UK in shop price inflation for the first time in five years

      UK BRC shop price index rose 0.1% yoy in August, up from July’s -0.3% yoy fall. More importantly, that’s the first rise in over five years, breaking a deflation cycle of 63 months. BRC noted in the release that “both higher food price inflation and lower non-food price deflation contributed to the return of Shop Prices to inflation”. However, Shop Price inflation remains well below headline CPI as a result of “high levels of competition”.

      BRC Chief Executive Helen Dickinson noted that for now, “retailers are keeping price increases faced by consumers to a minimum”. However, “current inflationary pressures pale in comparison to potential increases in costs retailers will face in the event the we leave the EU without a deal”. And if that happens, “retailers will not be able to shield consumers from price increases.” She also urged that “the EU and UK negotiating teams must deliver a Withdrawal Agreement in the coming weeks to avoid the severe consequences that would result from such a cliff edge scenario next March.”

      Full release here.

      Canada Freeland had very constructive meeting with Lighthizer, but MILK is the word

        Canadian Dollar trades firmer in Asian session today and remains the strongest one for the week. All eyes are on the trade negotiations between Canada and the US. Canadian Foreign Minister Chrystia Freeland, who cut short a European trip to Washington, said she had “very constructive meeting” with US Trade Representative Robert Lighthizer yesterday, and the meeting will continue today. She failed that Mexico had made some “significant concessions” in the are of labor and auto rules of original. And that has “really paved the way for what Canada believes will be a good week”.

        Dairy products is believed to be a key area that the US will press Canada on. White House top economic adviser Larry Kudlow said in a TV interview that “there’s a word that Canada has trouble with and it’s M-I-L-K. Milk. Anything to do with milk and dairy — they have this government-run, centrally planned system and some tariffs run upwards of 300 per cent. They’re going to have to fix that.” And, Kudlow warned that “the president did say if he cannot satisfactorily negotiate with [Canada] he may have to go to a large 20 to 25 per cent tax on Canadian automobiles headed for the U.S.” Trump also imposed a Friday deadline for Canada to join the U.S, and Mexico, which is when the administration plans to give Congress its mandatory 90-day notification of the new trade deal.

        According to a report by the Globe and Mail, Canada is ready to make a major concession on Diary products.

        IMF: Substantial time lag in transmission of Eurozone labor market improvements to inflation

          In an IMF blog article titled “Euro Area Inflation: Why Low For So Long?“, the puzzle of the broken relationship of core inflation and unemployment was discussed. The study found that the key is “strong persistence of euro area inflation”. That is, for example, “coefficient on past inflation is high, much higher than for US inflation”. Also, “coefficient on inflation expectations is much lower for the euro area than for the US”.

          In layman terms, the implication is that “in the euro area, following a period of weak demand and low inflation, it will take a much longer period of strong demand to get inflation back to the inflation objective”. Or in more technical term, ” there is a substantial time lag in the transmission of improving labor market developments to prices.”

          The implication to ECB’s monetary policy is that it reinforces the case for being “patient, prudent and persistent”. And, that will “support the slow process of returning inflation to its objective, through both stronger demand and well anchored inflation expectations.”

          Full article here.

          Mid-US update: Stock rally losing momentum, treasury yield jumps

            US stocks surge in initial trading, with S&P 500 and NASDAQ extending recent record run. The moves seem to have exhausted their momentum. No follow through buying is seen after S&P 500 hit 2903.77 and NASDAQ hit 8046.31. Both indices have indeed turned red at the time of writing and DOW is up only 0.06%.

            In the currency markets, Canadian Dollar is now the strongest one, followed by Swiss Franc and then Euro. The US seems to be optimistic in the trade negotiations with Canada. Treasury Secretary Mnuchin said today that “the U.S. market and the Canadian markets are very intertwined.” And, ‘it’s important for them to get this deal and it’s important for us to get this deal.” He said the agreement could be concluded within this week.

            On the other hand, Sterling suffers fresh selling in US session, in particular against Euro and Swiss Franc. Yen follows as the second weakest. Dollar is the third weakest even though data showed consumer confidence rose to highest since October 2000.

            One development to note is the strong rally in treasury yields. It’s believed to have started from Germany as 10 year bund yield jumps 0.10 to 0.38. The move is on the back on news that Germany is considering to extend financial aid to Turkey, to prevent knock-on effect from deterioration in the latter’s economy. But the WSJ report also noted that the discussions are in very early stage, and the talk could eventually fall apart.

            Nevertheless, the over developments help lift 10 year US yield sharply higher. At the time of writing it’s up 0.27 at 2.875. The rebound also marks strong support from 2.811 and focus is back of 55 day EMA (now at 2.892). Break there will bring 3% handle back in radar.

            US consumer confidence rose to 133.4, highest since October 2000

              US conference board consumer confidence jumped to 133.4 in August, up from 127.9 and beat expectation of 127.0. That’s also the highest reading since October 2000.

              Lynn Franco, Director of Economic Indicators at The Conference Board said “Consumers’ assessment of current business and labor market conditions improved further. Expectations, which had declined in June and July, bounced back in August and continue to suggest solid economic growth for the remainder of 2018. Overall, these historically high confidence levels should continue to support healthy consumer spending in the near-term.”

              Full release here.

              US Mnuchin: We’ll try to get Canada on board quickly

                US Treasury Secretary Steven Mnuchin said in an interview that the US-Mexico Trade Agreement is a “great move forward for trade”. Meanwhile, he, as perceived as a trade dove, added that “our objective is to try to get Canada on board quickly”.

                Mnuchin also acknowledged that “this is a great deal for American workers. If you remember one thing, this deal is about more trade for U.S. companies and goods and services, and that’s what we’re focused on.”

                Regarding China, Mnuchin said that “We’ve been very clear. We need better market access to China we need reciprocal trade”. And, “these are issues that our allies in the G-7 agree with us on.”

                ECB Praet: Patient, prudent and persistent monetary policy is still needed

                  In a speech titled Monetary and Macroprudential Policy Interactions, ECB chief economist Peter Praet said that the central bank’s monetary policy has been “effective in stabilising the euro area economy and creating conditions for a sustained adjustment of inflation towards below, but close to, 2% over the medium term.” But for now, “patient, prudent and persistent monetary policy is still needed” for the Eurozone right now.” And, at the same time and in particular at this stage of the monetary policy cycle, “the risk channel of our policy has to be closely monitored”.

                  Praet also explained that monetary policy enhances financial stability by “smoothing business cycles and keeping inflation expectations anchored”. Also, it provides “liquidity to solvent institutions in stressful situations.” However, as monetary policy operates amid uncertainty, “miscalibration is a possibility”. And Financial stability risks “mostly arise when the chosen policy interacts with distorted incentives in the financial sector” that “that lead to excessive leverage and maturity transformation, and funding fragilities”.

                  Full presentation here.

                  Into US session: Dollar & Yen Weakest, Swiss strongest, investors calmed from trade optimism quickly

                    Entering into US session, Dollar is back under broad based selling pressure as trade war fear receded. It’s taking turn to be the weakest one with Japanese Yen. Sterling and Australian are not doing much better. Both are somewhat left behind in the general sell-off against the greenback. Swiss Franc overtakes Euro to be the strongest one today, followed by Canadian Dollar and then Euro. While the Loonie is strong on “NAFTA” progress, its fate will very much lies on the result of Foreign Minister Chrystia Freeland’s visit to Washington today.

                    In other markets, Gold’s upside momentum has apparently weakened somewhat. But its, nevertheless, staying in the rebound from 1160.36. It’s on course for 1238.62 fibonnaci level. European stocks open higher today but apparently lost momentum quickly. FTSE hit as high as 7636.72, but it’s now at 7601, up 0.32%. DAX reached 1259702 but is now back at 12550, up 0.10% only. CAD reaches 5494.53 stays firm at 5490, but it’s just up 0.2%. European investors are not as excited on the US-Mexico trade deal as American traders.

                    At the same time, we’d also like to point to the developments in Asia too. Nikkei jumped to 23006.77 in initial trading and almost touched 23050.39 key resistance. But the index the turned south to close at 22417.23, just up 0.06%. It seems like after some impulsive stimulus, investors were quick to calm down.

                    An update on GBP/CHF short, lower stop to 1.2725

                      Swiss Franc overtakes Euro as the strongest currency for today and the week so far as buyers jump in during early part of European session. On the other hand, Sterling was left behind by others in the broad based selloff in Dollar. As a result, GBP/CHF dips notably to as low as 1.2588 so far today and is set to recent down trend. As planned in the last weekly report, we’ll now lower the stop of our GBP/CHF short (sold at 1.2971) to 1.2725, which is slightly above 1.2722 minor resistance.

                      Overall view is unchanged that fall from 1.3854 is in progress and should target cluster level at 100% projection of 1.3854 to 1.3049 from 1.3265 at 1.2460 and 61.8% retracement of 1.1638 to 1.3854 at 1.2485. We plan to exit our short position at 1.2500, which is slightly above this 1.2460/85 support zone. Consider that there is loss of downside momentum, as seen it daily MACD’s stay above signal line. There is no compelling reason to change this plan.

                      UK PM May: No-deal Brexit is not the end of the world

                        UK Prime Minister Theresa May cited endorsed remarks by Roberto Azevêdo, the director general of the World Trade Organization regarding no-deal Brexit. May said, a no-deal situation “will not be a walk in the park, but it wouldn’t be the end of the world”. May added that “what the government is doing is putting in place the preparation such that if we are in that situation, we can make a success of it, just as we can make a success of a good deal.”

                        Chancellor of Exchequer Philip Hammond warned last week that a no-deal Brexit would costs UK GBP 80B in extra borrowing and inhibit long term growth. But May tried to talk that down and said the figures dated back to January and “they were a work in progress at that particular time.” Regarding the time frame of Brexit negotiation, May said “we are all working to the October deadline” because “from our point of view there is some legislation we have to get through parliament”.

                        Separately, German Foreign Minister Heiko Maas said “Regrettably, a hard Brexit is not off the table.” French Prime Minister Edouard Philippe also “tasked ministers to prepare contingency measures that would be necessary … to mitigate the difficulties linked with this unprecedented challenge”.

                        San Francisco Fed: It’s 10-yr 3-mth spread that predicts most accurately, not 10-yr 2yr spread

                          The San Francisco Fed released an interesting economic letter titled “Information in the Yield Curve about Future Recessions” yesterday.

                          There it’s noted that yield curve inversion has been a “reliable predictor of recessions”. However, the difference between ten-year and three-month Treasury rates is the most useful term spread for forecasting recessions. That is, not the ten-year and two-year yield spread that’s most referred to.

                          Also, the letter noted that currently, the ten-year and three-month spread is still at a “comfortable distance from a yield curve inversion.” If the paper reflects the norm of FOMC member’s thoughts, the yield curve flattening shouldn’t be much of a curve for keeping rate hikes continue.

                          Full article here.

                          Trump: Not the right time for trade talk with China

                            There is breakthrough in US-Mexico trade talk, which will likely pave the way for Canada. There is progress in US-EU trade talks too. But how about China? Trump is clear with his priority as he said yesterday that “it’s just not the right time to talk right now, to be honest with China.” He went further and added that “it’s too one-sided for too many years and too many decades, and so it’s not the right time to talk.” Though, he said “eventually I’m sure that we’ll be able to work out a deal with China.” US Trade Representative Robert Lighthizer said that “we have to change the way we work with China”, without giving any detail.

                            This could explain why all Asian stocks surge today but China SSE is left behind. Yuan was lifted since the PBoC reintroduced measures last Friday that acts counter-cyclical to market forces to keep Yuan from falling too quickly. But the Yuan is quickly losing some momentum already.

                            Canada in tricky but positive spot in trade negotiation with US

                              Canadian Foreign Minister Chrystia Freeland is expected to travel to Washington to “reset” the trade talks today. And the situation is tricky for the country. Trump appeared to want to play an upper hand by saying that “we’ll give them a chance to have a separate deal, or we could put it into this deal.” On the other hand, Freeland’s office sounded firm and said Canada “will only sign a new NAFTA that is good for Canada and good for the middle class.”

                              And what’s more confusing is that Trump made himself clear again he is ditching NAFTA, which is a “ripoff”. But Mexican president Enrique Peña Nieto constantly refer to the name of NAFTA, sounding like this is the agreement in negotiation. And, Republicans are also clear that a final agreement should include Canada. Sen. John Cornyn also indicated that a final agreement with Canada has “bipartisan support”.

                              Technically, in the US-Mexico agreed deal, percentage of auto-parts must be produced in North America increases from 62% to 75%. And, at least 40% of vehicles must come from suppliers paying at least USD 16 an hour on workers. Mexico’s Economy Minister Ildefonso Guajardo said that “the whole issue of rules of origin is considered trilaterally, so if we go forward with a bilateral model it would need to be rethought.” And he added that “it’s not the same having integration between three countries as two.”

                              So, Trump’s verbal threats to Canada are more likely bluffs than substance. Good news is more likely than bad when Freeland comes out of Washington

                              Euro and stocks cheer US-Mexico deal, as threats of trade war diminished

                                Be it NAFTA or United States-Mexico Trade Agreement, the markets global markets cheer the conclusion of the bilateral deal. DOW ended up 1.01% at 26049.54. S&P 500 and NASDAQ extended record runs, gained 0.77% to 2896.74 and 0.91% to 8017.909 respectively. Asian markets are also generally higher. At the time of writing, Nikkei is up 0.38%, Singapore Strait Times is up 1.06%, Hong Kong HSI is up 0.22%. But China Shanghai SSE is flat only.

                                The most notable breakthrough in the US-Mexico negotiation is Trump’s concession on the so called “sunset clause”. In the original NAFTA re-negotiation, the US demanded that the agreement would automatically terminate every five years unless all the countries agreed to continue. This has been one of the show stoppers all the way . But now, US Trade Representative Robert Lighthizer, said both countries agreed to review the trade deal every six years. If problems cannot be resolved, the agreement can be terminated 10 a decade after the review. If one of the parties refuses to renew, a yearly review would take effect to address the issues.

                                The move showed that the Trump is backing down from his hard line stance, for business pressures ahead of election, or whatever reason. Such softening in stance could give way to more concessions to major allies of the US, like Canada, and more importantly the EU. Now, the threat of auto tariffs have materially diminished after the US-Mexico breakthrough. The White House also said that German Chancellor Angel Merkel talked to Trump on phone yesterday. And the two leaders “strongly supported ongoing discussions between Washington and Brussels to remove barriers to a deeper trading relationship.” Canadian Foreign Minister Chrystia Freeland is expected to travel to Washington to “reset” the talks today.

                                The movements in the forex markets clearly reflect the implications of the development. Euro is trading as the strongest one for the week, followed by Canadian Dollar. Yen is trading as the weakest, finally aligning itself with strong risk appetite. Dollar is soft on the pattern that lower trader war threat, lower the exchange rate.

                                Canadian Dollar Firmer as Mexico wants Canada to be in the trade deal

                                  The Canadian Dollar surged, hesitated, and then regains some strength as news regarding NAFTA flow through. It remains unclear how Canada would fit in the so called United States-Mexico Trade Agreement, which Trump intends to replace NAFTA with. But there are signs that Canada is not totally out of the picture, whether the eventual agreement is still called NAFTA or not.

                                  Canadian Prime Minister Justin Trudeau’s office said that he talked to outgoing Mexican President Enrique Pena Nieto on Sunday. And they both shared the commitment to reach a conclusion of NAFTA “for all three parties”. Pena Neito also tweeted that “we want Canada’s re-incorporation into talks to achieve a successful trilateral negotiation of NAFTA this week.”

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                                  Mexico’s Foreign Minister Marcelo Ebrard also said “in the coming days we will continue in trilateral negotiations with Canada, which is vital to be able to renew the (trade) pact.”

                                  So, things would be very interesting for Canadian Dollar in the days ahead. Technically, the break of channel support is now taken as a sign of medium term reversal. 38.2% retracement of 1.2061 to 1.3385 at 1.2879 is now the first level to target. We’ll see how USD/CAD respond there.

                                  Dollar dives on US-Mexico Trade Agreement, NAFTA to be replaced, Canada out of the picture

                                    Dollar is sold off broadly as markets anticipated announcement of a certain agreement between the US and Mexico on trade. It was originally thought as part of the trilateral NAFTA agreement. But it turned out to be something that could eventually replace NAFTA.

                                    Trump said that the deal will now be called the United States-Mexico Trade Agreement. He said the NAFTA name will be ditched. He added that the deal is very special for farmers as Mexico will start buying as many farm products from the US as possible.

                                    Meanwhile, Trump said that the negotiation with Canada had not started, adding that if they want to negotiate fairly, the US would do that. Trump also said the US could do a separate deal with Canada, or make it part of the deal with Mexico.

                                    USD/CAD dipped to as low as 1.2952 but quickly recovered as trades realize that Canada is totally out of the picture.

                                    DOW breaks 26000 as NAFTA announcement is almost certain

                                      Strong risk appetites carries on in early US session. DOW surges over 200 pts, or 0.8% and is back breaks 26000 handle. NASDAQ and S&P 500 extends he record run. Adding to the global trend, US equities are lifted by optimism that NAFTA negotiation is finally having a concrete breakthrough. It’s widely reported that Mexico and the US are hammering out the final details for a bilateral agreement. And an announcement is “also certain” for today.

                                      DOW is now pressing a key near term channel resistance. Decisive break there will indicate upside acceleration. In that case, the index could finally catch up with the other two in making new records.

                                      French Macron: Multilateralism going through a major crisis because of US policy

                                        French President Emmanuel Macron delivers a speech during the annual ambassadors’ conference at the Élysée Palace in Paris today.

                                        There he called on Europe to be a “trade and economic power” with independent tools that can fend of US extraterritorial sanctions. Macron warned that “multilateralism is going through a major crisis which collides with all our diplomatic activity, above all because of U.S. policy.” And, “the partner with whom Europe built the new post-World War order appears to be turning its back on this shared history.”

                                        He also added that while the current system is imperfect, “unilateralism and trade war is the worst response”. And, “we can build a fairer and more efficient system. I think we should not give in to one’s hegemony and everyone’s division”

                                        On Brexit, Macron said “France wants to maintain a strong, special relationship with London but not if the cost is the European Union’s unravelling.” While Brexit is a “sovereign choice, which we must respect”, he emphasized that “it can’t come at the expense of the European Union’s integrity.”

                                        Into US session: Yen maintains gains, markets shrug renewed Turkish Lira selling

                                          Entering into US session, the forex markets decouple from the risk markets today. Global stock markets, from Asia to Europe, trade broadly higher today. But we’re seeing Yen as the strongest while commodity currencies are the weakest ones. Nevertheless, for now, with the exception of USD/JPY, all major pairs are trading in Friday’s range. It’s a consolidative market without a clear direction.

                                          News flow is slow with Germany Ifo as the only futures. Improvement in German business climate paint a positive picture for Q3. Ifo said the readings are consistent with 0.5% qoq in in Germany. But that doesn’t translate into strength in Euro.

                                          USD/TRY is given a up today and hits at high as 6.2975 so far. It’s currently up 3.8%. As long as 6.3460 minor resistance holds, there’s nothing to worried about yet. The pair is merely staying in a sideway pattern. And the selloff in Lira isn’t reflected in corresponding moment in the forex markets so far.

                                          In other markets, UK is on bank holiday today. DAX is up 0.46% while CAC is up 0.38% at the time of writing. Asian stocks flexed muscles with Hong Kong HSI gained 2.17%, China Shanghai SSE added 1.89%, Singapore Strait Times rose 0.39%. Nikkei also closed up 0.88%. WTI crude oil is nearly flat at 68.69, still some distance from 70 handle. Gold trades sligthly lower by -0.07%. But recent rebound from 1160 is still expected to extend higher.