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Eurozone Sentix Investor Confidence rose to 14.7, all-clear in trade dispute with US

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    ActionForex.com
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    Eurozone Sentix Investor Confidence rose solidly to 14.7 in August, up from 12.1 and beat expectation of 12.8. Current situation index rose from 36.8 to 33. Expectations index also improved from -10.0 to -5.8. Sentix noted that the indices “reflect less the danger of a general turnaround”. Instead, they point to a “cooling of phase”. Also, the data “reflect a certain all-clear in the trade dispute with the US after EU Commission President Juncker succeeded in preventing a further intensification of the conflict in negotiations with US President Trump.”

    Germany is a beneficiary of the diminishing fear of a trade war. Its overall Sentix index rose from 16.2 to 20.4, with current situation index up from 51.3 to 54.8, expectations index up from -14.0 to -9.3. US overall index climbed from 18.6 to 25.6, highest since March. The US current situation index rose from 53.8 to 62.8 and hit an all time high. Expectations index also improved from -11.8 to -6.3.

    Japan overall index improved from 10.9 to 13.2 but was capped below June’s 14.3. Also, current situation index dropped from 30.5 to 30.3, hitting the lowest since September 2017. That’s also the sixth decline in a row. Japan expectations index rose from -7.0 to -2.5.

    Full release here.

     

    Impact of PBoC FX RRR hike quickly fades, Yuan struggles to extend rebound

      By
      ActionForex.com
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      The People’s Bank of China’s starts today to raise foreign exchange risk reserve ratio from 0% to 20%. It’s a move to stabilize the Yuan and curb capital outflow and was announced Friday after close. The move gives some support to Chinese and Hong Kong stock today but the impact seems to fade quickly. The Shanghai Composite index, SSE, edged higher to 2760.47 but it’s back down -0.77% at 2719.38 at the time of writing. It’s still more likely than not to revisit 2700 handle and possibly 2016 low at 2638.30.

      Hong Kong HSI hits as high as 28074.53 earlier today but quickly pares back some gain. it’s now up only 0.70% at 27870.07. The index is pressing a key fibonacci level at 27671.56. 38.2% retracement of 18268.09 (2016 low) to 33484.07 (2018 high). Whether this support could hold will very much depends on whether SSE could defend 2700. For now, it’s not optimistic.

      USD/CNH (offshore Yuan) also stabilized at around 6.84 at the time of writing. There is no follow through selling after the spike move on Friday, following PBoC’s announcement. For now, 55 H EMA is capping the upside and more decline is mildly in favor back to 6.7703 support. But a break above the EMA could prompt another selloff in the Yuan back to 6.9. That would give the Chinese government a lot of headache.

      New Zealand Treasury: Any RBNZ tightening remains some time away

        By
        ActionForex.com
        -

        New Zealand Treasury released July’s Monthly Economic Indicators report today. The key points are

        • Mixed messages for growth as labour income continued to grow strongly but retail card spending weakened
        • Risks to our growth forecasts are rising as the housing market cools, business confidence weakens, and international trade tensions rise
        • Inflation remained subdued, but pressures appear to be gradually increasing
        • Strong growth in the US, offset by a weaker outlook for the rest of the world

        The report also noted that inflation “remained subdued” and “any monetary policy tightening remains some time away”. It pointed out market pricing “currently implies no OCR increase for at least 12 months”. And, the Treasury expected ” outlook for inflation to remain stable for the rest of the year as the drivers in either direction remain largely in balance.”

        Also, it noted that “possibly the most significant risk to the world growth outlook is escalating trade protectionism”. The report said that “the direct effects of tariff measures announced by the US and China to date are expected to be minor”. However, “the Australian and New Zealand economies are likely to be significantly impacted should there be a more generalised downturn in commodity prices”.

        Full Monthly Economic Indicator Report here.

        ECB Lautenschläger very much in favor of policy normalization

          By
          ActionForex.com
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          ECB Executive Board member Sabine Lautenschläger said in an interview that she is “very much in favor of normalizing monetary policy”. That is, “gradually increase interest rates again”. However, she emphasized that’s on a precondition that Eurozone is “on a sustainable path towards price stability”.

          Also, she noted that “after pursuing such an expansionary monetary policy, it would be wrong to now move abruptly in the other direction”. And that “wouldn’t help either the economy or price stability.”

          The interview was done with Welt am Sonntag on July 30, published on August 5. It could be found in ECB’s website here.

          UK TM Fox: 60-40 chance of no-deal Brexit due to EU intransigence

            By
            ActionForex.com
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            UK Trade Minister Liam Fox said in an interview with the Sunday Times that he saw “not much more than 60-40” chance of a no-deal Brexit. And he put the blame on EU as the “intransigence of the (European) commission is pushing us towards no deal.” He also warned that if EU chooses “theological obsessions of the unelected” over “economic wellbeing of the people”, then it’s a “bureaucrats’ Brexit, not a people’s Brexit”. He went further and said it’s up to EU to choose “ideological purity” or “real economies:”

            Domestically, Fox also criticized that “there are people trying to undermine, to block and to thwart Brexit and having fought so long and hard to get to this point, I don’t want anything done to jeopardise our exit from the EU.” He added “the most important thing is that we actually leave the EU in March of next year. And my job is making sure that Britain is match fit for whatever Brexit outcome we have.”

            Kudlow: China is increasingly isolated with a weak economy

              By
              ActionForex.com
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              White House’s National Economic Council head Larry Kudlow warned China that “they better not underestimate the president,” and Trump is “going to stand tough” on trade war.

              He added that “we are coming together with the European Union to make a deal with them, so we’ll have a united front against China and, I think, most of our trade team would tell you, we’re moving close on Mexico.” So, “China is increasingly isolated with a weak economy.”

              Regarding the trade negotiations with the EU, he said “we will have a number of announcements coming up, I hope, in the next thirty or so days with respect to transactions and market opening and increased investments with the European Union.”

              US NFP grew 157k, missed expectation. But average hourly earnings grew solidly by 0.3% mom

                By
                ActionForex.com
                -

                US non-farm payroll grew 157k in July, below expectation of 193k. But prior month’s figure was revised up from 213k to 248k. Unemployment rate dropped back to 3.9% as expected. Most importantly, average hourly earnings grew 0.3% mom, matched expectation.

                Also from US, trade deficit widened to USD -46.3B in June, slightly higher than expectation of USD 3.1B.

                From Canada, trade deficit narrowed to CAD -0.6B in June, much smaller than expectation of CAD -2.3B.

                China announces additional tariffs on 5207 US imports, valued at USD 60B, rates from 5% to 25%

                  By
                  ActionForex.com
                  -

                  More from China, the Finance Ministry announced the counter measures to US threat of imposing 25% products on USD 200B in Chinese goods. The State Council’s Customs Tariff Commission decided to impost additional levies on 5207 US products, totalling around USD 60B in value.

                  Additional 25% tariff will be imposed on 2493 products, additional 20% on 1078 products, additional 10% on 974 products and additional 5% on 662 products. The effect date is to be determined.

                  Here is the official statement in simplified Chinese.

                  China raises FX RRR to 20% to stabilize Yuan from free fall, Dollar tumbles broadly. Is that manipulation?

                    By
                    ActionForex.com
                    -

                    Offshore Chinese Yuan staged a strong rebound, while Dollar tumbles across the board, after China’s Central bank announced measure to curb capital outflow and stabilize the falling Yuan exchange rate.

                    The People’s Bank of China said after market close that it raises the “foreign exchange risk reserve ratio of forward sales from 0% to 20%, effective August 6, 2018. According to the statement, it’s an act to “prevent macro financial risks, promote the stable operation of financial institutions, and strengthen macro-prudential management.”

                    In the next step, PBoC will “continue to strengthen the monitoring of the foreign exchange market,” and, “take effective measures to carry out countercyclical adjustments, maintain the smooth operation of the foreign exchange market, and maintain the basic stability of the RMB exchange rate at a reasonable and balanced level.”

                    Full statement in simplified Chinese.

                    USD/CNH (offshore Yuan) tumbles sharply after hitting 6.912 earlier today, and it looks like it’s set to take on 6.8 handle soon.

                    Dollar tumbles across the board in the current 4H bar, just ahead of NFP. It’s also the weakest major currency for today now.

                    We’ve mentioned many times that the Chinese Government won’t allow free fall of the Yuan happens. If they’re going to do something, they will either halt its decline, or at best, slow the Yuan’s decline.

                    This is clear exchange rate manipulation to us. Where is Mnuchin? Where is Trump? Don’t move goal post, and stop your lies. Come out and tell China to stop the manipulation!

                    Gold breached 2017 low, 1200 vulnerable as downtrend resumes

                      By
                      ActionForex.com
                      -

                      Gold’s downside resumed yesterday and hits as low as 1204.58 so far. 2017 low at 1205.02 is breached. There is no sign of bottoming yet even though it’s facing 1200 psychological support. And, near term outlook will stay bearish as long as 1235.24 resistance holds.

                      We’d expect current down trend to continue to 61.8% retracement of 1046.54 to 1375.15 at 1172.07. Based on oversold condition in weekly MACD and RSI, gold could be contained there in first attempt. However, sustained break of this fibonacci level will pave the way to 1046.54/1122.81 support zone.

                      UK PMI services dropped to 53.5, back into slow lane

                        By
                        ActionForex.com
                        -

                        UK PMI services dropped to 53.5 in July, down from 55.1 and missed expectation of 54.7.

                        Tim Moore, Associate Director at IHS Markit, which compiles the survey:

                        “The service sector moved back into the slow lane in July as business activity growth lost momentum for the first time since the start of spring. While it’s difficult to quantify the precise impact of the recent heat wave on overall business performance, some survey respondents reported that a combination of hot weather and the World Cup had weighed on consumer footfall. These short-term disruptions and a general slowdown in new business growth appear to have offset the boost to tourism-related activity from the extended dry period in July.

                        “Looking at demand fundamentals, service providers commented that Brexit uncertainty had held back new project wins, reflecting risk aversion and a wait-and-see approach to investment spending among international clients.

                        “Tight labour market conditions and rising wage pressures are also a key challenge for service sector companies, which contributed to the slowest pace of job creation since August 2016. Survey respondents are increasingly citing worries about the availability of suitably skilled candidates to fill vacancies, although this is also helping drive efforts to boost productivity across the service sector.

                        “Meanwhile, input cost inflation eased back from June’s nine-month high, which helped to moderate the rate at which service sector firms increased their own charges. The combination of slower output growth and softer price pressures during July will reinforce expectations that any further Bank of England rate rises will be both gradual and limited.”

                        Full release here.

                        BoE Carney: No-deal Brexit risks uncomfortably high, but we’re prepared

                          By
                          ActionForex.com
                          -

                          BoE Governor Mark Carney said in a BBC radio interview that the risk of no-deal Brexit is “a relatively unlikely possibility but it is still a possibility”. And it would be “highly undesirable”. He added that “the possibility of a no deal is uncomfortably high at this point.”

                          In case of a no-deal Brexit, there would be disruption in trade, economic activity and higher prices for a period of time. He emphasized that “our job in the Bank of England is to make sure that those things don’t happen. It’s relatively unlikely but it is a possibility. We don’t want to have people worrying that they can’t get their money out.”

                          Nonetheless, he also noted that the financial system is robust and “banks have the capital, the liquidity that they need and we have the contingency plans in place”.

                          But he also said “the UK has taken all the steps, all the secondary legislation it needs to. The European authorities still have some steps they need to take. We’re having conversations and we expect those to be addressed.”

                          Eurozone PMI services finalized at 54.3, points to 0.3% GDP growth in Q3

                            By
                            ActionForex.com
                            -

                            Eurozone PMI services was finalized at 54.2 in July, revised down from 54.4. That compares to June’s final reading of 55.2. PMI composite was finalized at 54.3, down 0.6 from June’s 54.9.

                            Among the countries, Germany PMI composite was a 4-month high of 55.0. France PMI composite was at a 2-month low of 54.4. Spain PMI composite hit 56-month low at 52.7.

                            Rob Dobson, Director at IHS Markit said:

                            “The final PMI numbers confirm the euro area economy started quarter three on a softer footing. July saw rates of expansion in both output and new orders cede the momentum recaptured in the prior survey month, returning to a picture of sliding growth rates seen through much of the year-to-date. “If the headline index continues to track at its current level, quarterly GDP growth over the third quarter as a whole would be little-changed from the softer-thanexpected expansion of 0.3% signalled by official Eurostat data for quarter two.

                            “The outlook seems to be turning into a straight choice between the upturn being sustained at its current subdued pace or rising headwinds reining in growth further during the months ahead. On this front, downside risks are more prevalent, as the slower expansion in new order inflows during July was partnered by a tandem dip in business optimism to a 20-month low. Both are reflecting the uncertainty about global market conditions, especially given the ongoing rhetoric about trade wars and the potential spillover effects to the broader economy and to manufacturing in particular.

                            “Improved domestic demand may offset some of this in the near-term, but will need to strengthen further if it is to maintain that role. The faster growth seen in Germany, if sustained, should also help in this regard, especially if it can aid in reversing the weaker expansions seen in its eurozone partners such as France, Italy and Spain during July. However, given rising signs of slowdown and the current uncertain outlook, the ECB will likely maintain its cautious approach to policy at present.”

                            BoJ minutes: No pronounced signs on improvement in trade tensions

                              By
                              ActionForex.com
                              -

                              BoJ released minutes of the June 14/15 meeting today (not the one earlier this week). The discussions during this meeting were of much less important to the one on July 30/31, after which BoJ announced strengthening of the easing framework. Nonetheless, there were still some interesting points to note.

                              One member questioned that BoJ’s credibility and commitment of achieving the 2% inflation target was undermined “because the description on the timing of reaching around 2 percent inflation had been deleted from the April 2018 Outlook Report.” And there communication strategy was a deeply discussed topic. There was consensus on emphasizing the bank’s commitment to achieving price stability.

                              The minutes also noted the “sluggish growth in the CPI since the start of fiscal 2018”. Some members pointed to “short term factors” including Yen’s appreciation. Theses members also pointed to “increasingly competitive environment surrounding the retail sector”. Some members took a long-term perspective and attribute to ” the fact that the mindset and behavior based on the assumption that wages and prices would not increase easily had been deeply entrenched among firms and households.” One member said inflation was constrained by “social mode” which was brought about by “prolonged period of low growth and deflation”.

                              On risks the minutes noted US economic policies, Brexit and geopolitical risks as the main ones. In particular, “a few members said that, although the U.S. protectionist trade policy had been criticized at international conferences such as the Group of Seven (G-7) meetings, there were no pronounced signs at the moment that the situation surrounding the policy would improve.”

                              Full minutes here.

                              Near 50% of UK businesses not anticipating any Brexit contingency plan

                                By
                                ActionForex.com
                                -

                                According to a survey by the Institute of Directors, only 31% of respondents are have carried out Brexit contingency plan. 8% have the plan implement already, 11% are drawing up the plans, and 12% have drawn up bot not implemented the plans yet. 19% of them haven’t even drawn up any plans even though the anticipate doing so. And 49% have no intention to do any Brexit contingency plans.

                                From the figures, it looks like business are not to worried about the impact of Brexit and transitions on businesses. But Director-General of the IoD Stephen Martin has another interpretation. He said that firms have been “left in the dark” when it comes to the planning. And “the reality is that many companies feel they can only make changes once there is tangible information about what they are adjusting to.” And he urged that “as long as no deal remains a possibility, it is essential that the government steps up to the plate and provides advice on preparing for such an outcome.”

                                Very good advancement in bilateral US-Mexico NAFTA talk

                                  By
                                  ActionForex.com
                                  -

                                  Mexico’s Economy Minister Ildefonso Guajardo met with US Trade Representative Robert Lighthizer in a bilateral NAFTA meeting yesterday. Guajardo said after the meeting that there is “very good advancement” in at least 20 items. But they have yet to discuss the stickier issues like the “sunset clause”. The meeting will continue on in Washington today.

                                  It’s believed that the differences between the US and Mexico have somewhat narrowed after leftist Andres Manuel Lopez Obrador’s victory in the presidential election on July 1. A large part of the convergence was in both sides’ push to raise wages for auto workers. There’s a change that both US and Mexico could agree on most of the items before letting Canada join in again to make it trilateral.

                                  An update on GBP/CHF short

                                    By
                                    ActionForex.com
                                    -

                                    Based on the position trading strategy noted in the weekly report, we’ve sold GBP/CHF on break of 1.2971 this week.

                                    Overall outlook is unchanged with the cross staying well below falling 55 day EMA. It’s also held well inside medium term falling channel from 1.3854. This decline fall from 1.3854 is expected extend to 61.8% projection of 1.3854 to 1.3049 from 1.3265 at 1.2768 as first target.

                                    There is prospect of further decline to 100% projection at 1.2460 before bottoming. But we’ll monitor downside momentum in the current fall to gauge the chance.

                                    Stop will be put slightly above today’s high at 1.3040.

                                    US factory orders rose 0.7%, initial jobless claims rose 1k to 218k

                                      By
                                      ActionForex.com
                                      -

                                      Released from US, factory orders rose 0.7% in June, in line with expectation.

                                      US initial jobless claims rose 1k to 218k in the week ended July 28. Four-week moving average of initial claims dropped -3.5k to 214.5k.

                                      Continuing claims dropped -23k to 1.724m in the week ended July 21. Four-week moving average of continuing claims dropped -4.5k to 1.74175m.

                                      U

                                      Full release here.

                                      China condemns US for playing two-handed strategy in trade war

                                        By
                                        ActionForex.com
                                        -

                                        China finally issued a rather strong statement in response to Trump’s initiative to impose 25% tariffs on USD 200B in Chinese imports. The Ministry of Commerce criticized the US for playing a “two handed” strategy. Firstly, the US spread rumors of re-engagement. Secondly, it announced the above tariff intention. the MOFCOM condemned the US for “disregarding the interests of the whole world, as well as those of the common Americans, businessmen and consumers”. And China emphasized that such practice will have “no effect on China”.

                                        MOFCOM also pledged that China is “fully prepared for counter-measures to defend the country’s dignity and the interests of the people, defend free trade and the multilateral system, and defend the common interests of all countries in the world”. And it reiterated the stance on resolving differences through dialogue, “but only under the principal of equality and keeping promises”.

                                        Here is the full statement in simplified Chinese.

                                        BoE Carney’s post meeting press conference, live stream

                                          By
                                          ActionForex.com
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                                          Summary on interest rates

                                          “With domestically-generated inflation building and the prospect of excess demand in the economy emerging, a modest tightening of monetary policy is now appropriate to return inflation to its 2 percent target, and to keep it there.”

                                          “Gradual tightening of monetary policy is likely to be required in order to return inflation sustainably to its target at a conventional horizon.

                                          “Structural factors that have pushed down the trend equilibrium real rate are likely to persist.

                                          “Domestic short-term factors (particularly headwinds from uncertainty and fiscal drag) will fade slowly.

                                          “R* expected to rise gradually. Policy needs to walk – not run- to stand still”.

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