US ISM Manufacturing PMI rose from 46.7 to 47.4 in December, above expectation of 47.1. That’s still the 14th month of contraction reading.
Looking at some details, new orders, fell from 48.3 to 47.1, the 16th month of contraction. Production rose from 48.5 to 50.3. Employment rose from 45.8 to 48.1. Prices fell sharply from 49.9 to 45.2.
December PMI reading of 47.4 corresponds to an estimated decrease of -0.5% in the real GDP on an annualized basis.
Dallas Fed President Robert Kaplan said the current monetary policy remained “modestly” accommodative. It will take two or three more rate hikes to become “neutral” which is neither accommodative nor restrictive. And he’s not decided whether Fed should continue rate hikes above neutral level.
Referring to the economy, Kaplan said Fed is “basically meeting its dual mandate”.Ka
AUD/JPY rises to as high as 87.05 today, following broad based selloff in Yen. The break of 86.24 high confirms resumption of larger up trend from 59.85 (2020 low). The next near term target is 161.8% projection of 78.77 to 84.27 from 80.34 at 89.23, which is close to 90.29 long term resistance.
In the bigger picture, the whole down trend from 105.42 (2013 high) has completed with three waves down to 59.85. The support from 55 week EMA was a medium term bullish sign, and argues that AUD/JPY is reversing the whole down trend from 105.42. Sustained break of 90.29 would confirm this case and target 105.42 again.
CAD/JPY’s picture is similar. It’s now extending the up trend from from 73.80, (2020 low). Break of 100% projection of 87.42 to 92.16 from 89.21 at 93.95 should pave the way to 161.8% projection at 96.87 next.
The down trend from 106.38 (2014 high) has completed with three waves down to 73.80. 91.62 key resistance has been taken out already (corresponding to 90.29 in AUD/JPY). Further rally is now expected as long as 89.;21 support holds, towards 106.48 high.
France PMI Manufacturing dropped from 58.0 to 57.3 in July, matched expectations. PMI Services dropped from 56.8 to 56.4, below expectation of 57.0. PMI Composite dropped from 56.6 to 55.9.
Joe Hayes, Senior Economist at IHS Markit said: “Another strong month of growth across France was signalled by the flash PMI figure for August. Despite some of the challenges businesses are facing on the supply side, it’s encouraging to see PMI data consistently signalling robust expansion. Furthermore, given we’re now midway through the third quarter, the survey data up to this point suggest we could see another decent out turn in the corresponding GDP figure.”
According to health officials in China’s Hubei province, coronavirus death tolls surged by a record 242 on February 12, bringing total deaths in the province to 1310. A massive 14840 new confirmed cases were also reported in Hubei alone, dwarfing the 2015 cases reported for February 11 throughout whole of China. The surge in numbers were said to be due to new counting methods. Excluding cases confirmed using the new methods, the number of new cases rose by only 1,508 in the province.
The new reporting system created much confusions and raised questions on transparency again. Meanwhile, at the time of writing, there is no update from the National Health Commission on country-wide numbers of the Wuhan coronavirus yet, which is very unusual.
Separately, Jiang Chaoliang, Chinese Communist Party’s Hubei provincial secretary, is relieved of duty by the central committee. Shanghai Mayor Ying Yong is appointed as replacement.
US equities ended mixed in Wednesday’s session, following Fed’s expected rate increase by 25 bps to 5.25-5.50%. Despite the major policy decision, market volatility was surprisingly restrained throughout the trading session. Fed Chair Jerome Powell indicated that another rate hike could be on the table for September, while steering clear of predicting when a rate cut might transpire, pointing to the prevailing high economic uncertainty.
Current market expectations for additional rate hikes this year stand at 22% for September, 33% for November, and 30% for December. The likelihood of a rate cut commencing as early as March next year is considered to be 55.8%.
Powell, in the post-meeting press conference, stated, “It is certainly possible we would raise the funds rate at the September meeting if the data warranted, and I would also say it’s possible that we would choose to hold steady at that meeting”. He emphasized that Fed’s monetary policy decisions will continue to be formulated on a meeting-by-meeting basis, largely dependent on economic data and indicators.
When discussing potential rate cuts, Powell asserted, “We’d be comfortable cutting rates when we’re comfortable cutting rates,” suggesting that a cut could take place next year if inflation hovers consistently near the Fed’s target. However, he stressed that this scenario remains a considerable ‘if,’ given the considerable uncertainty surrounding future economic developments and subsequent policy meetings.
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S&P 500 closed down slightly by -0.02% overnight. The index continued to lose upside momentum as seen in D MACD. While further rise cannot be ruled out, upside would likely be limited by 138.2% projection of 3491.58 to 4100.51 from 3808.86 at 4650.40. Meanwhile, break of 4458.48 resistance turned support will confirm that a correction is at least underway, and target 55 D EMA (now at 4362.79) and below.
Westpac Leading Index in Australia showed an encouraging rise from -0.39% to 0.30% in November, marking the first positive, above-trend reading since mid-2022. However, Westpac cautioned that this uptick might be influenced by temporary factors. Also, the shift in underlying momentum, as RBA’s tightening begins to slow, is seen more as a stabilization rather than the start of an upturn.
Further, Westpac highlighted weaker conditions in the domestic sphere, particularly impacting the household sector. This weakness is expected to continue into the first half of next year. Hence, Westpac anticipates that barring a “truly disastrous” December quarter CPI update, RBA is likely to maintain its current policy in the upcoming February meeting.
Japan national CPI core slipped back to 0.9% yoy in March, down from February’s 1.0% yoy, meeting market expectations. It will take a few more months to see if it’s only a blip or a change in trend. Core inflation had an impressive up this year but momentum has been slowing. It’s already looking a be challenging for inflation to meet BoJ’s own media projection of 1.4% in the current fiscal year. And BoJ might need to delay the timing for hitting 2% target again, if the slowdown in inflation persists.
Separately, BoJ Governor Haruhiko Kuroda stepped up his warning on protectionism, as he arrived at the G20 summit of finance ministers and central bankers. He said there will be “quite comprehensive” debate on trade during the meeting. And he emphasized that “many countries share the view they benefit greatly from free trade, so I don’t think protectionism will spread and lead to a decline in global growth. But the risk is there.” He added that “protectionism isn’t having a huge impact on Japan’s economy yet. But the risk is right in front of us, so we need to carefully watch how developments unfold.”
GBP/USD dives sharply through 1.3 handle today, breaking through 1.2971 low too. Immediate focus is now on 61.8% projection of 1.3641 to 1.2999 from 1.3297 at 1.2900. Firm break there could trigger more downside acceleration to 100% projection at 1.2655. Watch out!
Richmond Fed President Barkin said “it’s time both on rates and on the balance sheet to normalize where we are”. He added, with “inflation this elevated and the economy still this strong, it just makes perfect sense to do that.”
“When we get to the fall, I think we’re going to have a lot more information on the strength of the economy, we’ll have a lot more information on the pace of inflation. Those are the two things I’m paying the most attention to, and the stronger inflation and the stronger the economy, the more the case to do more, and to the extent that the two are weaker, the better the case is to do less,” he said.
BoE Deputy Governor Dave Ramsden told Daily Telegraph that Brexit uncertainty has damaged UK’s “speech limit” for growth. He pointed to declining productivity and falling business investment. Also, “underlying growth has slowed through the year as Brexit uncertainty has really weighed,”
Nevertheless, Ramsden saw “less of a case for a more accommodative monetary position”, even in case of another Brexit delay. Company wage costs were “picking up quite significantly, which will drive domestic inflationary pressure”. Meanwhile, spare capacity in the economy might not have opened up. Supply potential, the speed limit of the economy, is also slowing through this period
Ramsden’s view was in contract to fellow BoE rate-setters Michael Saunders and Gertjan Vlieghe, who suggested that another delay to leaving the EU might mean lower interest rates.
Sterling jumps broadly after YouGov projected that the Conservative Party is on track to win its biggest majority in more than three decades in the upcoming election on December 12. The results, if realized, would put UK on track for Brexit with a deal finally on January 31.
According to the poll, Conservatives would win 359 seats, giving it a majority of 68. Labour is predicted to win 211 seats, SNP 43, and Lib Dems 13. “As expected, the key thing deciding the extent to which each of these seats is moving against Labour are how that seat voted in the European Union referendum,” said Chris Curtis, YouGov’s political research manager. “This is allowing the Tories to overturn quite substantial majorities.”
GBP/CHF’s rally resumed by taking out 1.2892 resistance and hits as high as 1.2931 so far. Near term outlook will now remain bullish as long as 1.2673 support holds. Rise from 1.1674 is targeting 1.3399 key structural resistance next.
UK PMI Construction improved to 45.3 in November, up from 44.2 and beat expectation of 44.5. Markit said that output fell in all three broad categories of construction. There was sharp drop in new work. Also, staffing levels decreased for the eighth month in a row.
Tim Moore, Economics Associate Director at IHS Markit, which compiles the survey:
“UK construction output fell again in November as Brexit uncertainty and the forthcoming General Election continued to send a chill breeze across the sector. The speed of the downturn in construction work eased a little since October, but the survey continues to signal a notable drop-off in business conditions compared with the first half of 2019.
“Greater hesitancy among clients led to a decline in overall new work for the eighth consecutive month during November. Construction companies reported a particularly sharp fall in demand for commercial projects amid a greater squeeze from domestic political uncertainty and delayed investment decisions.
“House building has been the most resilient category of construction output in 2019. However, it remains a concern that overall volumes of residential building work have dropped in each month since June, which is the longest phase of decline since the start of 2013.
“Greater spending on transportation and energy projects had been expected to help boost infrastructure work this year and next, but survey respondents indicated a sustained soft patch for overall civil engineering activity in November. Some construction companies reaffirmed their concern about the delivery of road and rail projects, with delays to contract awards acting as an additional headwind to growth projections for 2020.”
Eurozone PMI Manufacturing was finalized at 45.8 in April, a 35-month low. The index was also below the 50 no-change mark for a tenth straight month. PMI Manufacturing Output was finalized at 48.5, a 4-month low.
PMI Manufacturing of all major states declined in the month, and recorded contractionary reading except Greece (52.4). Ireland (48.6), France (45.6), the Netherlands (44.9), Germany (44.5) and Austria (42.0) were all at 35-month low. Spain was at 3-month low of 49.0 while Italy was at 6-month low at 46.8.
Germany Gfk Consumer Sentiment for July rose to -9.6, up from -18.6, beat expectation of -11.0. Economic expectations rebounded strongly to 8.5, up from -10.4, back in positive territory. Income expectations also turned positive to 6.6., up from -5.7.
“The faint light at the end of the tunnel, which was already apparent last month, is apparently getting somewhat brighter,” explains Rolf Bürkl, GfK consumer expert. “The extensive support provided by the economic stimulus packages, such as the announcement of a temporary reduction in value-added tax (VAT), is certainly a contributing factor. Provided that retailers and manufacturers also pass these reductions on to consumers, it can be assumed that one or two planned purchases will instead be made in the second half of 2020, thereby supporting consumption this year.”
US housing starts jumped 16.9% mom to 1.61m annualized rate in December, well above expectation of 1.38m. That’s the largest percentage gain since October 2016. Building permits dropped -3.9% mom to 1.42m, below expectation of 1.47m.
Industrial production dropped -0.3% mom in December, below expectation of 0.0% mom. Capacity utilization dropped to 77.0%, below expectation of 77.2%.
Dollar and Yen are under much selling pressure today as markets are embracing coronavirus vaccine optimism. Even Gold is hammered down. The breach of 1729.99 minor support suggests temporary topping at 1765.29. More importantly, firstly, bearish divergence condition is seen in 4 hour MACD. Secondly, the thrust out of a triangle consolidation pattern might be terminal. Focus is immediately back on 4 hour 55 EMA (now at 1718.75). Sustained break there would likely bring deeper pull back to 38.2% retracement of 1451.16 to 1765.25 at 1645.26 before bottoming.
Eurozone Sentix Investor Confidence dropped to 16.9 in October, down from 19.6, missed expectation of 19.0. That’s the third decline in a row and the lowest level since April. Current Situation Index dropped from 30.8 to 26.3. Expectations index dropped from 9.0 to 8.0, fifth decline in a row, lowest since May 2020.
Sentix said, “Autumn revival fails to materialize for the time being”. It added, “so far, the criteria for a mere ‘mid-cycle slowdown’ have still been met. It remains crucial that the expectations do not fall below the zero line. For then a stronger slump in economic output would be expected – a trend reversal would then be in the offing.”
Philadelphia Fed President Patrick Harker said yesterday “I don’t expect that the federal funds rate will rise before the tapering is complete.” But he added, “we are monitoring inflation very closely and are prepared to take action, should circumstances warrant it.”
Harker expected the economy to grow by around 5.5% this year and 4% next, provided that there is no further wave of COVID-19 infections. Then growth was slow to 2-3% in 2023.
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Today’s top mover: AUD/JPY completed post flash crash rebound
AUD/JPY is currently the top mover for today, down over -1.6%. Australian Dollar is knocked down by comments from RBA Governor Philip Lowe. Meanwhile, Yen is lifted by falling global treasury yields. Yen crosses also generally display signs of bearish reversal.
Back to AUD/JPY, current development argues that corrective rebound from 70.27 flash crash low has completed at 79.84 already. This is supported by mild bearish divergence condition in 4 hour MACD, as well as rejection by 55 day EMA. Focus is now on 77.51 support. Break there will confirm this bearish case.
As the 70.27 is an abnormal spike low, it’s hard to judge whether it would be taken out in near term at this point. The momentum through 77.51 should be watched to assess the chance. But in any case, risk will now stay on the downside as long as 79.84 holds, even in case of strong recovery.