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Minneapolis Fed Kashkari: Fed might be one hike away from achieving neutral

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    ActionForex.com
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    Minneapolis Fed President Neel Kashkari is seen clearly as a dove as he voted against al three of Fed’s rate hikes last year.

    He said in a WSJ interview published today that fiscal stimulus of the federal government, including tax cuts would make Fed meeting its 2% inflation target more likely. The tax cuts and spending increases are “macroeconomically significant, and they are big enough to have an effect on the trajectory of the economy… that could change things in a meaningful way.” And with that development, Fed can move ahead with the planned tightening.

    But he also argued that “it isn’t going to be obvious to me once we achieve our inflation target that we need to now put the brakes on the economy.” He reiterated his stance that ” once we achieve our inflation target, we should try to get to neutral in a reasonable period of time,”

    And he added that “we might be one hike away from achieving neutral.”

    Australian NAB business confidence rose to 16, highest since early 2010

      By
      ActionForex.com
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      Australia NAB business confidence rose from 12 to 16 in February. That’s the highest level since early 2010, as all states and industries reported gains, except for retail. Business conditions rose from 9 to 15, also a multi-year high. Looking at some details, trading conditions rose from 13 to 21. Profitability conditions rose from 13 to 17. Employment conditions rose from 3 to 8.

      “Businesses are the most optimistic they’ve been since 2010. This says the economy recovery has very strong momentum and even though government support is tapering, businesses are increasingly confident the economy will continue to improve,” said Alan Oster, NAB Group Chief Economist.

      “Business conditions have rebounded to the very strong levels we saw in December and, importantly, employment conditions remain strong. Businesses are again expanding their workforce, which is key for supporting the labour market recovery.”

      Full release here.

      Swiss KOF falls to 101.5, yet outlook remains positive

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        ActionForex.com
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        Swiss KOF Economic Barometer fell from 102.0 to 101.5 in March, below expectation of 102.3. Despite this minor setback, the barometer continues to hover above its long-term average, indicating a positive outlook for the Swiss economy in the coming months.

        The decline can primarily be attributed to weaker performances in the construction sector and private consumption. However, finance and insurance sector emerged as a bright spot, with indicators pointing to slight improvements.

        Full Swiss KOF release here.

        RBA SoMP reiterates no urgency for rate hike, economic projections largely unchanged

          By
          ActionForex.com
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          The RBA Statement on Monetary Policy revealed nothing new give then Governor Philip Lowe had delivered an update in a speech earlier this week. In the SoMP, RBA, reiterated that “higher interest rates are likely to be appropriate at some point, if the economy continues to evolve as expected.” That is, the next move is “up not down”. But, Given the gradual nature of the improvement, however, the Board does not see a strong case to adjust the cash rate in the near term.

          RBA’s new economic forecasts appear to be largely unchanged from the May SoMP.

          • Four-quarter GDP growth is projected to be at 3.25% in Q4 2018, 3.25% in Q2 2019 (revised down from 3.50%), 3.25% in Q4 2019, 3.00% in Q2 2020 and 3.00% in Q4 2020 (new).
          • Unemployment rate is projected to be at 5.5% in Q4 2018, 5.25% in Q2 2019, 5.25% in Q4 2019, 5.25% in Q2 2020 and 5.00% in Q4 2020 (new).
          • Headline CPI is projected to be at 1.75% in Q4 2018 (revised down from 2.25%), 2.0% in Q2 2019 (revised down from 2.25%), 2.25% in Q4 2019, 2.25% in Q2 2020 and 2.25% in Q4 2020 (new).
          • Underlying inflation is projected to be at 1.75% in Q4 2018 (revised down from 2.00%), 2.00% in Q2 2019, 2.00% in Q4 2019, 2.25% in Q2 2020, 2.25% in Q2 2020 (new).

          These are the latest forecasts.

          Full RBA Statement on Monetary Policy here.

          UK Corbyn: Brexit deadlock should go back to people through election or public vote

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            ActionForex.com
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            UK opposition Labour Party leader Jeremy Corbyn said today that Brexit could only be revolved by either a general election or a public vote.

            He said in a statement: “With the Conservatives disintegrating and unable to govern, and parliament deadlocked, this issue will have to go back to the people, whether through a general election or a public vote.

            “We will not let the continuing chaos in the Conservative Party push our country into a no deal exit from the EU. Parliament can and will prevent such a damaging outcome for jobs and industry in the UK.”

            Richmond Fed Barkin: Economy calls for normalizing interest rates, Fed should follow through

              By
              ActionForex.com
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              Richmond Fed President Tom Barkin said in a speech titled “Unlocking Our Potential” that the US economy looks “quite strong a present”. Also, underlying this growth, there is “strong consumer and business confidence”.

              Even though Fed has begun raising interest rates, “they are not yet back to normal levels”. And “it is difficult to argue that lower than normal rates are appropriate when unemployment is low and inflation is effectively at the Fed’s target.

              As the “economy calls for moving back to normal levels”, the Fed should “follow through”. Barkin also added that “given the strength of the underlying economy and the recent additional fiscal stimulus, the risk of normalization is reduced.”

              But “how high rates will ultimately need to rise depends on economic growth.” For unlocking growth potential, Barkin suggests to “target segments of the population where labor force participation is relatively low”. Another strategy is to “invest further in workforce development.”

              Full speech here.

              Gemeinschaftsdiagnose slashes 2019 Germany growth forecasts to 0.8%, long-term upswing has come to an end

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                ActionForex.com
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                Germany’s leading economic institutes lowered economic growth forecasts for the country in 2019 sharply. GDP is projected to rise just 0.8%, down from Autumn 2018 forecasts of 1.9%. Nevertheless, for 2020, GDP is projected to grow 1.8%, unrevised.

                In the press release, Oliver Holtemöller, head of the Department of Macroeconomics and Vice President of the Halle Institute for Economic Research (IWH) said that “the long-term upswing of the German economy has come to an end.” Though, he noted that “we still consider the chance of a pronounced recession to be slight.”

                The statement also noted that “political risks have further clouded the global economic environment.” Also, “if a no-deal Brexit occurs, economic growth this year and the next is likely to be significantly lower than indicated in this forecast.”

                The state was released by joint project group “Gemeinschaftsdiagnose”: German Institute for Economic Research (DIW Berlin), Halle Institute for Economic Research (IWH) – Member of the Leibniz Association, ifo Institute – Leibniz Institute for Economic Research at the University of Munich in cooperation with the KOF Swiss Economic Institute at ETH Zurich, Kiel Institute for the World Economy (IfW), RWI – Leibniz Institute for Economic Research in cooperation with the Institute for Advanced Studies Vienna.

                Full release here.

                UK CPI slowed to 0.5% in May, lowest since 2016

                  By
                  ActionForex.com
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                  UK CPI slowed further to 0.5% yoy in May, down from 0.8% yoy, matched expectations. That’s the lowest level since 2016. Nearly all categories of prices contributed to the decline in CPI, except food and non-alcoholic beverages. Core CPI dropped to 1.2% yoy, down from 1.4% yoy, matched expectations too.

                  Also released, RPI slowed to 1.0% yoy in May, down from 1.5% yoy, missed expectation of 1.3% yoy. PPI input came in at 0.3% mom, -10.0% yoy, versus expectation of -4.0% mom, -8.7% yoy. PPI output was at -0.3% mom, -1.4% yoy, versus expectation of -0.1% mom, -0.9% yoy. PPI output core was at 0.0% mom, 0.6% yoy versus expectation of 0.1% mom, 0.7% yoy.

                  WTO goods trade barometer dropped to record low 84.5

                    By
                    ActionForex.com
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                    WTO’s Goods Trade Barometer dropped to 84.5, -15.5 pts below baseline value of 100. That’s also the lowest on record dating back to 2007, “on part with the nadir of the 2008-09 financial crisis”.

                    “Additional indicators point to partial upticks in world trade and output in the third quarter, but the strength of any such recovery remains highly uncertain: an L-shaped, rather than V-shaped, trajectory cannot be ruled out,” WTO added.

                    Full release here.

                    BoJ stands part, interest rate to remain at present or lower levels

                      By
                      ActionForex.com
                      -

                      BoJ kept monetary policy unchanged as widely expected. Under the yield curve control framework, short-term policy interest rate is held at -0.10%. BoJ will continue to purchase Japanese government bonds, without setting an upper limit, to keep 10-year JGB yield at around 0%. Also, BoJ will offer to purchase 10-year JGBs at 0.25% every business day through fixed -rate purchase operations, to cap the upside. These decisions were made by unanimous vote.

                      BoJ also pledge to continue with Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control to achieve 2% price target, “as long as it is necessary for maintaining that target in a stable manner”. The bank will not hesitate to take additional easing measures if necessary”. It expects short- and long-term policy interest rates to “remain at their present or lower levels”.

                      Full statement here.

                      BoJ Masayoshi: Inflation sluggish and powerful easing necessary

                        By
                        ActionForex.com
                        -

                        BoJ Deputy Governor Amamiya Masayoshi said speech, an uptrend in private consumption is expected to “become evident” as the impact of COVID-19 wanes gradually and employee income increases”. The “virtuous cycle” in the “corporate sector” will spread to the “household sector”, and “intensifying the cycle in the overall economy.” Nevertheless, the baseline scenario entails “high uncertainties” with risks “skewed to the downside” on the spread of variants. But activity could improve more than expected as vaccine rollout accelerates.

                        Masayoshi also said that it will “take time” to achieve price stability target of 2% inflation. He added, “while the inflation rate has risen clearly of late in the United States and other countries, it has been sluggish in Japan.” Giver this, “it is necessary for the Bank to persistently continue to conduct powerful monetary easing with a view to achieving the price stability target.”

                        Full speech here.

                         

                        RBA Lowe: We’re not out of firepower, but negative rate still extraordinarily unlikely

                          By
                          ActionForex.com
                          -

                          In the post meeting press conference, RBA Governor Philip Lowe said ” it would be incorrect to conclude that we are out of firepower” after today’s package of easing measures. He emphasized the central bank still has a “range of tools”, including ” further liquidity provision, asset purchases and transactions in the foreign exchange market.”

                          Still, negative rate policy is “extraordinarily unlikely”. “There is little to be gained from lowering the policy rate into negative territory,” he added. “While a negative rate might lead to a helpful depreciation of the Australian dollar, it could impair the supply of credit to the economy and lead some people to save more, rather than spend more. ”

                          Full speech here.

                          DOW and 10 year yield still heading down after FOMC

                            By
                            ActionForex.com
                            -

                            Major US equity indices closed lower overnight. DOW lose -174.07 pts or -0.72% to 23924.98. S&P 500 dropped -19.13 pts or -0.72% to 2635.67. NASDAQ closed down -29.8 pts or -0.42% at 7100.90. Long term treasury yields also closed lower, with 30-year yield down -0.002 at 3.135. 10-year yield lost -0.012 to 2.964.

                            The reactions, falling stocks and falling yield, argue that markets didn’t bother much with the FOMC announcement.

                            Overall development in DOW is still in-line with our bearish view. The rebound since late last week we limited by 55 day EMA, the triangle pattern from 23360.29 still holds. Price actions from 2330.29 is seen as the second leg of the corrective pattern from 26617.71. It could extend for a while. But eventual downside breakout is expected. The correction from 26617.71 would extend to 38.2% retracement of 15450.56 to 26616.71 at 23351.24 before completion.

                            Outlook in 10 year yield is also unchanged. The correction from 3.035 short term top should extend lower to 55 day EMA (now at 2.837), which is also close to channel support. If it’s corrective whole five wave rally from 2.033, there is prospect of touching 2.717 support or 38.2% retracement of 2.033 to 3.035 at 2.652 before completion. That is, It will take a while before TNX would have another take of 3.036 key resistance (2013 high).

                            BoE Bailey: We haven’t addressed the question of using negative rates

                              By
                              ActionForex.com
                              -

                              BoE Governor Andrew Bailey said in a webinar yesterday that the central isn’t ready for implementation of negative interest rate yet. “Given the shock we’ve had, there are good reasons to say we shouldn’t rule them out and therefore they’re in the toolbox,” he said. “We haven’t addressed the question of should we use them.”

                              Earlier, Governor Sam Woods has sent a letter banks asking for their readiness on negative interest. “We are requesting specific information about your firm’s current readiness to deal with a zero Bank Rate, a negative Bank Rate, or a tiered system of reserves remuneration – and the steps that you would need to take to prepare for the implementation of these,” Woods said in a letter. “We are also seeking to understand whether there may be potential for short-term solutions or workarounds, as well as permanent systems changes.”

                              China exports to US dropped -9.7% from Jan to Apr, imports dropped -30.4%

                                By
                                ActionForex.com
                                -

                                Latest trade data from China showed that growth in exports in other regions in 2019 so far was merely enough to offset contraction of -9.7% ytd yoy in exports to US. Total export grew a mere 0.2% ytd yoy. On the other hand, total exports contracted -2.5% ytd yoy, as dragged down by -30.4% ytd yoy contraction in exports from US. Trade with EU remained relatively healthy.

                                In USD terms, in April,

                                • Total trade grew 0.4% to USD 373.14B.
                                • Exports contracted -2.7% yoy to USD 193.49B.
                                • Import rose 4.0% yoy to USD 179.65B.
                                • Trade surplus came in at USD 13.84B

                                In USD terms, from January to April total:

                                • Total trade contracted -1.1% yoy to USD 1399.82B.
                                • Exports rose 0.2% yoy to USD 744.61B.
                                • Imports dropped -2.5% to USD 655.21B.
                                • Trade surplus came in at USD 894.0B.

                                With US, from January to April total

                                • Total trade contracted -15.7% yoy to USD 161.2.
                                • Exports to US contracted -9.7% yoy to USD 122.4B.
                                • Imports from US dropped -30.4% yoy to USD 39.8B.
                                • Trade surplus came in at USD 82.6B.

                                With EU, from January to April total:

                                • Total trade grew 5.9% yoy to USD 220.1B.
                                • Exports to EU rose 8.3% yoy to USD 131.5B.
                                • Imports from EU rose 2.5% yoy to USD 88.5B.
                                • Trade surplus came in at USD 43B.

                                With AU, from January to April total:

                                • Total trade grew 6.65 yoy to USD 51.1B.
                                • Exports to AU rose 3.4% to USD 14.3B.
                                • Imports from AU rose 7.9% to 36.8B.
                                • Trade deficit came in at USD -36.8B.

                                Summary release.

                                Trade data by region.

                                Into US session: European majors weak ahead of NFP

                                  By
                                  ActionForex.com
                                  -

                                  Entering into US session, European majors are generally the weakest ones despite some positive data. UK PMI services rose back above 50 in April. Eurozone CPI and core CPI accelerated more than expected. But Euro and Sterling are so far the weakest ones for today. On the other hand, Canadian, Yen and Dollar are the strongest ones, and it’s hard to tell who’s better yet.

                                  Non-farm payroll report will be the main focus today and will be released within an hour. Any upside surprise, in particular in wage growth, will further lower the chance of a Fed rate cut. Dollar and treasury yields should be boosted in this case naturally. The main question is whether stocks would indeed react negatively to a good set of NFP numbers. If that happens, Yen could jump together with Dollar, with EUR/JPY taking out 124.09 temporary low. AUD/USD could finally make up its mind to get rid of 0.7 handle decisively.

                                  In Europe, currently:

                                  • FTSE is up 0.78%.
                                  • DAX is up 0.35%.
                                  • CAC is up 0.27%.
                                  • German 10-year yield is up 0.0091 at 0.041, staying positive.

                                  Earlier in Asia:

                                  • Hong Kong HSI rose 0.46%.
                                  • China Shanghai SSE rose 0.52%.
                                  • Singapore Strait Times dropped -0.03%.
                                  • Japan stayed in 10-day holiday.

                                  Japan PMI manufacturing finalized 48.9, seventh month of contraction

                                    By
                                    ActionForex.com
                                    -

                                    Japan PMI Manufacturing was finalized at 48.9 in November, up from 48.4 in October. That’s the seven straight month of sub-50 reading, signalling a continuation of the downturn in the manufacturing sector. Jibun Bank noted that solid decline in new orders led to further output cutbacks. Economic weakness across Asia hit exports. Selling charges also decreased for the sixth month running.

                                    Commenting on the latest survey results, Joe Hayes, Economist at IHS Markit, said:

                                    “Japan’s manufacturing sector remains firmly stuck in contraction, with the same issues which have plagued the industrial world once again hitting firms where it hurts. In particular, export orders dropped at the fastest rate since mid-year amid reports of demand weakness at key trade destinations, namely China.

                                    “At the sub-sectors, it was intermediate and investment goods which were the primary sources of economic decline, whereas consumer goods makers observed improvements in business conditions.

                                    “Signs of how deeply-rooted this manufacturing downturn in Japan has become were seen in other survey data. Price discounting has been a trend in each of the past six months, highlighting that firms are now actively trying to tackle the sluggish demand conditions. Inventories of inputs also fell at a sharp rate, suggesting that firms are not expecting output requirements to rise anytime soon.”

                                    Full release here.

                                    Fed Kaplan: Continuation of the unemployment benefits needed

                                      By
                                      ActionForex.com
                                      -

                                      Dallas Fed President Robert Kaplan said “the issue with the resurgence in the virus is it slowed down or somewhat muted the recovery we’ve been expecting”. Hence, “the better again we manage the virus, the better we’ll recover.”

                                      “I believe the economy needs a continuation of the unemployment benefits,” Kaplan told CNN. “It may not need to be in the same form as it currently is, but we need a continuation.”

                                      Fed Bullard urges 50bps rate cut to realign with markets

                                        By
                                        ActionForex.com
                                        -

                                        St. Louis Fed President James Bullard said Fed’s interest rates are “too high” and a -50bps cut this month is needed to realign with financial markets. Bond yields dropped to record lows on expectation of Fed cut and intensifying risk of global trade war. Bullard said “in this situation I would respect the market signal,”

                                        He added, “we should have a robust debate about moving 50 basis points at this meeting…It’d be better in my mind to go ahead and get realigned right now”.

                                        Dollar rally solidified by Trump’s tweets that bash Fed chair Powell

                                          By
                                          ActionForex.com
                                          -

                                          Dollar surges broadly overnight after Fed cut interest rate by -25bps to 2.00-2.25% as widely expected. The trigger for Dollar buying came from Fed Chair Jerome Powell’s press conference. He described the rate cut as a “mid-cycle” adjustment of policy, and then added he was “contrasting with the beginning of a lengthy cutting cycle”. The message was clear that he tried to talk down the expectations of further interest rate cuts ahead. The key would be developments in global economy, trade tensions, domestic data and inflation.

                                          Suggested readings on FOMC:

                                          Trump bashed Powell again with his tweets. Trump said “What the Market wanted to hear from Jay Powell and the Federal Reserve was that this was the beginning of a lengthy and aggressive rate-cutting cycle which would keep pace with China, The European Union and other countries around the world….As usual, Powell let us down, but at least he is ending quantitative tightening, which shouldn’t have started in the first place – no inflation. We are winning anyway, but I am certainly not getting much help from the Federal Reserve!”

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                                          Ironically, Trumps tweets somehow confirmed market understanding of what Powell tried to deliver. And they help solidify Dollar’s rally and stocks’ selloff. DOW dropped -1.23% overnight. S&P 500 dropped -1.09% and NASDAQ dropped -1.19%. While a short term top was clearly formed at 3027.98 record high in S&P 500, it’s too early to call for reversal. The uptrend looks tired with bearish divergence condition in daily MACD. But there will be first line of defense from 55 day EMA and then second line in medium term trend line. Recent uptrend starts to look week but it’s still healthy.

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