ECB released the latest Survey of Professional Forecasters (SPF) today. On Eurozone inflation, SPF respondents raised their headline HICP inflation forecast to 1.7% in 2018 (from 1.5%) , 1.7% in 2019 (from 1.6%) and 1.7% in 2010 (unchanged). They now matched Eurosystem staff projection of 1.7% through 2018 to 2020.
On Core HICP inflation, SPF projections were unchanged at 1.2% in 2018, 1.5% in 2019 and 1.7% in 2020. That compares to Eurosystem staff forecasts of 1.1% in 2018, 1.6% in 2019 and 1.9% in 2020. That is, SPF respondents expect faster pickup in core inflation in 2018 but the slowed the rise slows quickly.
On growth, SPF respondents revised down GDP forecast to 2.2% in 2018 (from 2.4%), 1.9% in 2019 (from 2.0%) and 1.6% in 2020 (unchanged). That compares to Eurosystem staff projections of 2.1% in 2018, 1.9% in 2019 and 1.7% in 2020.
According to a YouGov poll for the Times, 42% British voters would like to have a referendum on the final terms of Brexit deal with the EU. Only 40% said there should not be, and the rest didn’t know.
Among the votes, 58% of labor supporters, 67% of Lib-dem supporters and 21% of Conservative supported wanted a second referendum on the terms.
In the event of another referendum on Brexit tomorrow, 45% said they would vote to remain, 42% would vote to leave, 4% wouldn’t vote and 9% said they didn’t know.
It’s a poll of 1653 adults in the UK conducted on Wednesday and Thursday this week.
Yen trades in a broadly firm tone today as helped by resilient in JGB yield. JGB 10 year yield hit as high as 0.113 today and is hovering around 0.10 at the time of writing. JGB yield could remain firm ahead of tomorrow’s highlight anticipated BoJ meeting. There are speculations that BoJ is considering to tweak its monetary policy to probably target 10 year yield at 0.1%, rather than 0.0%. But so far, it’s believed the discussions are preliminary. And, there is very likely chance of any announce of any sort that carries significance next week.
While Dollar is mixed this in Asia, it’s trading as the third strongest one for the week, next to Canadian Dollar and Yen. The rebound in US treasury yields overnight reaffirmed underlying near term upside momentum. 10 year yield closed up 0.039 to 2.975, making a near high for the week. 30 year yield also gained 0.036 to 3.10. Both are on track for near term resistance at 3.009 and 3.140. The development will, at least, limit downside attempts of Dollar.
Asian markets are mixed today, following US. DOW closed up 0.44% or 112.97 pts to 25527.07. However, thanks to Facebook, NASDAQ dropped -1.01% or -80.06 pts to close at 7852.18. At the time of writing, Nikkei is up 0.33% at 22661.73. Hong Kong HSI is downside -0.25%, China Shanghai SSE is down -0.16%. Singapore Strait Times is down -0.21%.
IMF said in a report that China’s economy continues to “perform strongly”, with growth projected at 6.6% this year. But it also warned that the country is at a “historic juncture”. The shift from “high-speed” to “high-quality” growth will determine China’s “development path for decades to come”. Risk of “near-term abrupt adjustment” was reduced by recent strong growth momentum and “significant financial de-risking progress”. While there were accelerated rebalancing in some dimensions, “progress slowed” in many other dimensions. Also, while credit growth has slowed, “it remains excessive.
In the latest projections, IMF projected China GDP growth to be at 6.6% in 2018, slow to 6.4% in 2019, 6.3% in 2020, 6.0% in 2021, 5.7% in 2022 and 5.5% in 2023. Current account surplus as to GDP is projected to be at 0.9% in 2019, to close to 0.8% in 2019, at 0.8% in 2020, then slow to 0.7% in 2021, 0.5% in 2022 and 0.4% in 2023.
IMF also summarized the report in six charts.
1. China’s strong GDP growth continues. The country now accounts for one-third of global growth. Over 800 million people have been lifted out of poverty and the country has achieved upper middle-income status. China’s per capita GDP continues to converge to that of the United States, albeit at a more moderate pace in the last few years.
2. A focus on high-quality growth. China is at an historic juncture. After decades of high-speed growth, the government is now focusing on high-quality growth. The authorities will need to build on the existing reform agenda and take advantage of the current growth momentum to “fix the roof while the sun is shining.” Key elements are: continuing to rein in credit growth, accelerating rebalancing efforts, increasing the role of market forces, fostering openness, and modernizing policy frameworks. Even with a gradual slowdown in growth, China could become the world’s largest economy by 2030.
3. Credit growth has slowed but remains too fast. Despite the sharp rebound in nominal GDP and industrial profits, total nonfinancial sector debt still rose significantly faster than nominal GDP growth in 2017. While the corporate debt to GDP ratio has stabilized, government and especially household debt is rising, driven by continued strong off-budget investment spending and a rapid increase in mortgage and consumer loans. It may take determined actions over an extended period of time to address underlying vulnerabilities.
4. China, a global digital leader. China has around 700 million internet users and 282 million digital natives (internet users less than 25 years old) eager to adopt new technology. The massive scale of the Chinese market and a supportive regulatory and supervisory environment in the early years of digitalization made China a global leader in frontier industries such as e-commerce and fintech. Digitalization will continue to reshape the Chinese economy by improving efficiency, softening—but not reversing—slowing growth as the economy matures.
5. Rebalancing efforts should be accelerated. Increases in health, education, and social transfers—financed by taxes on income, property and carbon emissions—would support consumption, and reduce income inequality and pollution. A more comprehensive approach to structural reforms, such as increasing transfers to the regions most affected by overcapacity reduction or pollution control, could help address the tensions across rebalancing dimensions.
6. The benefits of faster reform. In the baseline, real GDP growth is projected at 6.6 in 2018, reflecting the lagged effect of regulatory tightening and softer external demand. Risks are tilted to the downside, with tightening global financial market conditions and rising trade tensions. If the authorities move more decisively to resolve the policy tensions now and focus on higher-quality growth and a greater role for the market, near-term growth would be weaker but longer-term growth would be stronger and more sustainable. An illustrative “proactive” scenario features faster reform progress, particularly state-owned enterprises (SOE) reform and resolving zombie firms, which also accelerates rebalancing from investment to consumption. If there is a risk of a too sharp slowdown, a temporary fiscal stimulus package with resources to support rebalancing could help cushion the near-term adverse impact.
Japanese Finance Minister Taro ago said the G20 meeting in Osaka next year should play the role to ” nip crises in the bud before they develop further.” He also wanted G20 to focus “to promote investment in high-quality infrastructure to ensure economic growth.”
Aso also noted that the G20 finance minister and central banker meeting last week discussed the downside risks to the global economy and reaffirmed the consensus over current issues. However, it should be noted that there was no consensus of the resolutions on US tariffs actions. And the situation could only worsen next year and protectionism rises and spreads.
Overnight, Mexican Economy Minister Ildefonso Guajardo had “constructive” and “very positive” talks with US Trade Representative Robert Lighthizer on NAFTA renegotiation. He added that both sides agreed to work towards hammering a deal in principal some time in August. And he said “We agree that in order to align the times and to eventually reach an agreement in principle, we should give ourselves the opportunity to move forward and try to bring this to fruition.”
The final format of the agreement remains to be seen as both Canada and Mexico insists on trilateral deal while the US is known for pushing bilateral deals. Another sticky point is the US push for a “sunset clause” which the other two sides firmly disagree to.
US Treasury Secretary Steven Mnuchin said the US is “very focused on the EU” on strengthening the trade relationship. He said that after Meeting of Trump and Juncker, there is an agreement in principal and the officials planned to move forward to “turn it into real agreement”.
Both sides would immediately focus on steel and aluminum tariffs first “so that there can be no tariffs in either direction”. The issue is expected to be resolved “very quickly”. Mnuchin also said there is an outline already, “in agriculture, in chemicals, in medical devices, in industrial LNG” and so “we’re going to make a lot of progress.
Regarding China, Mnuchin said “if they’re willing to make serious changes just as the EU did yesterday, we’ll negotiate with China any time.”
And on NAFTA, he said “hopeful that we’ll have an agreement in principal in the near future.” He also noted that “whether it’s one deal or two deals, so long as we get the right agreement, we’re indifferent.”
US Trade Representative Robert Lighthizer said that the US was close to reaching a broad agreement on NAFTA renegotiations. And he added that “we are in the finishing stages of achieving an agreement in principle that will benefit American workers, farmers, ranchers, and businesses.” And talks were being done at an “unprecedented speed”.
US initial jobless claims rose 9k to 217k in the week ended July 21, below expectation of 221k. The four-week moving average of initial claims dropped -2.75k to 218k. Continuing claims dropped -8k to 1.745m. The four-week moving average of continuing claims rose 9.5k to 1.74575m.
Headline durable goods orders rose 1.0% in June, well below expectation of 2.5%. Ex-transport orders rose 0.4%, above expectation of 0.3%. Wholesale inventories rose 0.0% mom versus expectation of 0.3% mom. Dollar is relatively unmoved after the releases.
Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press conference. We will now report on the outcome of today’s meeting of the Governing Council.
Based on our regular economic and monetary analyses, we decided to keep the key ECB interest rates unchanged. We continue to expect them to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.
Regarding non-standard monetary policy measures, we will continue to make net purchases under the asset purchase programme (APP) at the current monthly pace of €30 billion until the end of September 2018. We anticipate that, after September 2018, subject to incoming data confirming our medium-term inflation outlook, we will reduce the monthly pace of the net asset purchases to €15 billion until the end of December 2018 and then end net purchases. We intend to reinvest the principal payments from maturing securities purchased under the APP for an extended period of time after the end of our net asset purchases, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
While uncertainties, notably related to the global trade environment, remain prominent, the information available since our last monetary policy meeting indicates that the euro area economy is proceeding along a solid and broad-based growth path. The underlying strength of the economy confirms our confidence that the sustained convergence of inflation to our aim will continue in the period ahead and will be maintained even after a gradual winding-down of our net asset purchases. Nevertheless, significant monetary policy stimulus is still needed to support the further build-up of domestic price pressures and headline inflation developments over the medium term. This support will continue to be provided by the net asset purchases until the end of the year, by the sizeable stock of acquired assets and the associated reinvestments, and by our enhanced forward guidance on the key ECB interest rates. In any event, the Governing Council stands ready to adjust all of its instruments as appropriate to ensure that inflation continues to move towards the Governing Council’s inflation aim in a sustained manner.
Let me now explain our assessment in greater detail, starting with the economic analysis. Quarterly real GDP growth moderated to 0.4% in the first quarter of 2018, following growth of 0.7% in the previous three quarters. This easing reflects a pull-back from the very high levels of growth in 2017 and is related mainly to weaker impetus from previously very strong external trade, compounded by an increase in uncertainty and some temporary and supply-side factors at both the domestic and the global level. The latest economic indicators and survey results have stabilised and continue to point to ongoing solid and broad-based economic growth, in line with the June 2018 Eurosystem staff macroeconomic projections for the euro area. Our monetary policy measures, which have facilitated the deleveraging process, continue to underpin domestic demand. Private consumption is supported by ongoing employment gains, which, in turn, partly reflect past labour market reforms, and by growing household wealth. Business investment is fostered by the favourable financing conditions, rising corporate profitability and solid demand. Housing investment remains robust. In addition, the broad-based expansion in global demand is expected to continue, thus providing impetus to euro area exports.
The risks surrounding the euro area growth outlook can still be assessed as broadly balanced. Uncertainties related to global factors, notably the threat of protectionism, remain prominent. Moreover, the risk of persistent heightened financial market volatility continues to warrant monitoring.
Euro area annual HICP inflation increased to 2.0% in June 2018, from 1.9% in May, reflecting mainly higher energy and food price inflation. On the basis of current futures prices for oil, annual rates of headline inflation are likely to hover around the current level for the remainder of the year. While measures of underlying inflation remain generally muted, they have been increasing from earlier lows. Domestic cost pressures are strengthening and broadening amid high levels of capacity utilisation and tightening labour markets. Uncertainty around the inflation outlook is receding. Looking ahead, underlying inflation is expected to pick up towards the end of the year and thereafter to increase gradually over the medium term, supported by our monetary policy measures, the continuing economic expansion, the corresponding absorption of economic slack and rising wage growth.
Turning to the monetary analysis, broad money (M3) growth increased to 4.4% in June 2018, up from 4.0% in May. M3 growth continues to benefit from the impact of the ECB’s monetary policy measures and the low opportunity cost of holding the most liquid deposits. The narrow monetary aggregate M1 remained the main contributor to broad money growth.
The recovery in the growth of loans to the private sector observed since the beginning of 2014 is proceeding. The annual growth rate of loans to non-financial corporations rose to 4.1% in June 2018, after 3.7% in the previous month, while the annual growth rate of loans to households remained unchanged at 2.9%. The euro area bank lending survey for the second quarter of 2018 indicates that loan growth continues to be supported by easing credit standards and increasing demand across all loan categories.
The pass-through of the monetary policy measures put in place since June 2014 continues to significantly support borrowing conditions for firms and households, access to financing – in particular for small and medium-sized enterprises – and credit flows across the euro area.
To sum up, a cross-check of the outcome of the economic analysis with the signals coming from the monetary analysis confirmed that an ample degree of monetary accommodation is still necessary for the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.
In order to reap the full benefits from our monetary policy measures, other policy areas must contribute more decisively to raising the longer-term growth potential and reducing vulnerabilities. The implementation of structural reforms in euro area countries needs to be substantially stepped up to increase resilience, reduce structural unemployment and boost euro area productivity and growth potential. Regarding fiscal policies, the ongoing broad-based expansion calls for rebuilding fiscal buffers. This is particularly important in countries where government debt remains high. All countries would benefit from intensifying efforts towards achieving a more growth-friendly composition of public finances. A full, transparent and consistent implementation of the Stability and Growth Pact and of the macroeconomic imbalance procedure over time and across countries remains essential to increase the resilience of the euro area economy. Improving the functioning of Economic and Monetary Union remains a priority. The Governing Council urges specific and decisive steps to complete the banking union and the capital markets union.
Chinese President Xi Jinping called for joint effort in fighting protectionism at a BRICS summit in South Africa today. He told BRICS leaders that “we must work together … to safeguard the rule-based multilateral trading regime; promote trade and investment, globalization and facilitation; and reject protectionism outright.”
But Xi should be reminded that EU and US have agreed on a joint position. That is, both EU and US agreed to join forces against “unfair global trade practices”. And specifically, they the practices include “intellectual property theft, forced technology transfer, industrial subsidies, distortions created by state owned enterprises, and overcapacity.” They clearly target China and it’s time for Xi to step up reforms.
Entering into US session, Euro trades mildly softer after ECB left interest rates unchanged as widely expected. Main refinancing rate is held at 0.00%, marginal lending facility rate at 0.25%, deposit facility rate at -0.40%. Yen remains the strongest one as supported by strength in JGB yields. 10 year JGB yield hit as high as 0.099 before closing at 0.09. Australian Dollar and New Zealand reversed earlier gain and turn broadly lower. On the other hand, Dollar is regaining some ground for today.
But for the week, Canadian Dollar remains the strongest one, followed by Yen. Euro and Dollar are taking turn to be the weakest. ECB President Mario Draghi holds the key to unlock a direction in EUR/USD. But he’s likely hold it to his chest in today’s press conference.
In other markets, stocks are mixed. Germany responds very well to the EU Juncker’s assessment and Trump’s concessions. At the timing of writing, DAX is up 1.38%, CAC is up 0.35%. FTSE, on the other hand, is flat. Risk aversion was dominant in Asia though. China Shanghai SSE closed down -0.74%, Hong Kong HSI down -0.48%. Nikkei also lost -0.12%.
The offshore Chinese yuan continues to stabilize against dollar today. USD/CNH once dipped to as low as 6.733 earlier today but recovered to above 6.78. For now, there is no clear sign of a trend reversal yet. That is Yuan is still technically in a near term down trend. But at least, it’s past the climax of selloff. And we’d likely see more consolidation below 6.85.
At today’s meeting the Governing Council of the ECB decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00%, 0.25% and -0.40% respectively. The Governing Council expects the key ECB interest rates to remain at their present levels at least through the summer of 2019, and in any case for as long as necessary to ensure the continued sustained convergence of inflation to levels that are below, but close to, 2% over the medium term.
Regarding non-standard monetary policy measures, the Governing Council will continue to make net purchases under the asset purchase programme (APP) at the current monthly pace of €30 billion until the end of September 2018. The Governing Council anticipates that, after September 2018, subject to incoming data confirming the Governing Council’s medium-term inflation outlook, the monthly pace of the net asset purchases will be reduced to €15 billion until the end of December 2018 and that net purchases will then end. The Governing Council intends to reinvest the principal payments from maturing securities purchased under the APP for an extended period of time after the end of the net asset purchases, and in any case for as long as necessary to maintain favourable liquidity conditions and an ample degree of monetary accommodation.
The President of the ECB will comment on the considerations underlying these decisions at a press conference starting at 14:30 CET today.
Finance Minister Bruno Le Maire urged that “each side, the Europeans and the Americans, must find something in these discussions”, and, “any trade deal must be based on reciprocity”. He also emphasized that agriculture must be excluded from the trade negotiations. To him, Europe could not ease its food safety and environmental norms. Also, he seems to prefer more focus in the negotiation and said “we don’t want to enter into a negotiation a wide-ranging deal.”
German Foreign Minister Heiko Maas welcomed the results even though “this is not yet the result we are aiming for”. He acknowledged that “it has made a positive result in the whole discussion…on free trade or protectionism more likely than before.” Economy Minister Peter Altmaier also expressed his optimism that ” we can get a good result in the coming weeks and months.”
Department for International Trade said in statement that “we welcome the agreement by the U.S. and the EU to work together to reduce barriers to trade and to further increase trade and investment.” And, “we look forward to progress towards the removal of steel and aluminum tariffs and de-escalation of the tit-for-tat action that could harm businesses and jobs on both sides of the Atlantic.”
Yen is trading broadly higher in Asia today as 10 year JGB yield extended recent rally. It hits as high as 0.098 and without sign of a retreat. For a bit perspective, it traded in range of 0.024/49 for most of July. And it’s not close to 52 week high at 0.102.
Nonetheless, while Yen is firm today, it’s limited below yesterday’s high against all others for now. So, some more buying is needed to confirm underlying strength.
For the week so far, Canadian Dollar is the strongest one. The Loonie seems to be benefited most from the breakthrough in EU-US trade talk. The risk of auto tariffs is, at least for now, lessened. It’s followed by Yen as the second strongest. Meanwhile, Euro and Dollar remain the two weakest one despite their trade talks.
Canadian Dollar seemed to be benefited from the EU-US trade talks too. Trump’s softened stance on auto tariffs is a positive to Canada, as well as NAFTA talks too. Canadian Foreign Minister Chrystia Freeland said after meeting with Mexican Economy Minister Ildefonso Guajardo that “Canada’s very clear desire is to move the NAFTA negotiations back into higher gear now that we are past the Mexican election”
Guajardo said that “in the next few months and definitely before the election process in the United States, we are trying to constructively advance this negotiation.” He is also optimistic that “there is the possibility of finding a safe landing zone.”
Nonetheless, it should be noted that while the US would want to pursue bilateral agreements with Canada and Mexico, the latter two insist on trilateral agreement. Guajardo said “the essence of this agreement is trilateral, and it will continue being trilateral.” Incoming Mexican Foreign Minister Marcelo Ebrard also said NAFTA “can be modernized but we’re not thinking about it having a different nature to that of today.”
The joint statement of Juncker and Trump is well received by both sides in general. .The Alliance of Automobile manufacturers said the announcement “demonstrates that bilateral negotiations are a more effective approach to resolving trade barriers, not increasing tariffs.” German Economy Minister Peter Altmaier tweeted that “breakthrough achieved that can avoid trade war and save millions of jobs! Great for global economy.”
But Eric Schweitzer, president of the German Chambers of Industry and Commerce appeared to be a bit skeptical. He said “the proposed solutions move in the right direction, but a significant portion of scepticism remains.” He emphasized that “only united as Europeans do we have sufficient economic and political weight to effectively represent our interests.” And Schweitzer warned that “without strong European answers, there is a danger that only we will make concessions and in response face new unreasonable demands from the USA.”
European Commission President Jean-Claude Juncker’s meeting with US President Donald Trump seemed to have achieved a breakthrough that could avoid a full-blown EU-US trade war. A rather positive joint statement was issued pledging to work towards “zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods”. This is taken well generally by both sides.
While the auto tariffs were not mentioned in the joint statement, Juncker later said that the Trump made a “major concession” for holding off on further tariffs, including autos, as long as the negotiations continue. Juncker said he expected Trump to follow through on it. Also, he noted that Trump agreed to reassess the measures in the steel and aluminum sector.
On the other hand, Trump hailed that “a breakthrough has been quickly made that nobody thought possible!” He also told reports that EU is going to start to “buy a lot of soybeans”. Trump also said “they’re going to be a massive buyer of LNG… and we have plenty of it”.
Below is the full text of the joint statement following the meeting between European President Jean-Claude Juncker and US President Donald Trump. In short, both sides agreed to strengthen the trade relationship and make trade fairer and more reciprocal. The agreed to worked together toward ” zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods” and increase trade and services, soybeans and other products. The agricultural sector will be opened and energy partnership strengthened.
And, both sides agreed to join forces against “unfair global trade practices”. And specifically, they the practices include “intellectual property theft, forced technology transfer, industrial subsidies, distortions created by state owned enterprises, and overcapacity.” That’s exactly talking about China.
Here is the full statement.
Joint U.S.-EU Statement following President Juncker’s visit to the White House
We met today in Washington, D.C. to launch a new phase in the relationship between the United States and the European Union – a phase of close friendship, of strong trade relations in which both of us will win, of working better together for global security and prosperity, and of fighting jointly against terrorism.
The United States and the European Union together count more than 830 million citizens and more than 50 percent of global GDP. If we team up, we can make our planet a better, more secure, and more prosperous place.
Already today, the United States and the European Union have a $1 trillion bilateral trade relationship – the largest economic relationship in the world. We want to further strengthen this trade relationship to the benefit of all American and European citizens.
This is why we agreed today, first of all, to work together toward zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods. We will also work to reduce barriers and increase trade in services, chemicals, pharmaceuticals, medical products, as well as soybeans.
This will open markets for farmers and workers, increase investment, and lead to greater prosperity in both the United States and the European Union. It will also make trade fairer and more reciprocal.
Secondly, we agreed today to strengthen our strategic cooperation with respect to energy. The European Union wants to import more liquefied natural gas (LNG) from the United States to diversify its energy supply.
Thirdly, we agreed today to launch a close dialogue on standards in order to ease trade, reduce bureaucratic obstacles, and slash costs.
Fourthly, we agreed today to join forces to protect American and European companies better from unfair global trade practices. We will therefore work closely together with like-minded partners to reform the WTO and to address unfair trading practices, including intellectual property theft, forced technology transfer, industrial subsidies, distortions created by state owned enterprises, and overcapacity.
We decided to set up immediately an Executive Working Group of our closest advisors to carry this joint agenda forward. In addition, it will identify short-term measures to facilitate commercial exchanges and assess existing tariff measures. While we are working on this, we will not go against the spirit of this agreement, unless either party terminates the negotiations.
We also want to resolve the steel and aluminum tariff issues and retaliatory tariffs.
Euro seems to be troubled by a Washington Post story that Trump insists on, ignoring the outcries from Republicans and business executives, pushing through 25% auto tariffs. That came just ahead of the meeting with EU Juncker. Earlier today, there was an ABC story saying that Juncker is bringing offers to Trump to avert a trade war. But that’s on condition that Trump has to drop tariffs on steel and aluminum first.
As we pointed out before, there is no common ground for negotiation between Trump and the EU. From his recent tweets and talks, Trump will continue to play victim and request EU to act before he drops the tariff threats. EU, on the other hand, will insist on Trump dropping the gun first before starting the talk.
But most importantly, Trump, and to a certain extent his supporters, views BOTH EU and China as threat to the US hegemony. When national security can be used as an excuse to impose tariffs on the closest allies in Canada, tariffs can be also used as a excuse for some agenda other than trade. It’s widely known that tariffs won’t solve global imbalances. The economists know it. Trump’s advisors and himself certainly know it. So, it’s totally unsurprising for Trump to insist on auto tariffs.
But after all, we’d like to emphasize that while EUR/USD’s dip may look wild in a 1 min chart, but it’s peanut, nothing, in an hourly chart, not to mention a 4H chart. Always look at the big picture. EUR/USD is in consolidation. And anything goes inside a corrective pattern.
EUR/JPY’s is an extension of the decline from 131.97. We’ve mentioned in the technical outlook that EUR/JPY is heading back towards 127.13 support because the rebound form 124.61 has completed with three waves up to 131.97, on bearish divergence condition in 4 hour MACD. So the decline is not a surprise neither.
Gold turned sideway after hitting 1211.65 last week. There seems to be some support from 1205.20 support level, which is close to 1200 psychological level. Oversold condition, as seen in daily MACD was also limiting downside momentum.
However, the recovery is so far limited below 1238.00 support turned resistance. Hence, there is no confirmation of near term bottoming yet. We’re viewing the fall from 1365.24 as a leg in the pattern from 2015 low at 1046.54. And further fall would be seen to 61.8% retracement of 1046.54 to 1375.15 at 1172.06 and possibly below.
Nonetheless, break of 1238.00 resistance will likely bring stronger rebound back to 55 day EMA (now at 1267.53) before staging another fall.
Professionals revised up inflation forecast in ECB survey
ECB released the latest Survey of Professional Forecasters (SPF) today. On Eurozone inflation, SPF respondents raised their headline HICP inflation forecast to 1.7% in 2018 (from 1.5%) , 1.7% in 2019 (from 1.6%) and 1.7% in 2010 (unchanged). They now matched Eurosystem staff projection of 1.7% through 2018 to 2020.
On Core HICP inflation, SPF projections were unchanged at 1.2% in 2018, 1.5% in 2019 and 1.7% in 2020. That compares to Eurosystem staff forecasts of 1.1% in 2018, 1.6% in 2019 and 1.9% in 2020. That is, SPF respondents expect faster pickup in core inflation in 2018 but the slowed the rise slows quickly.
On growth, SPF respondents revised down GDP forecast to 2.2% in 2018 (from 2.4%), 1.9% in 2019 (from 2.0%) and 1.6% in 2020 (unchanged). That compares to Eurosystem staff projections of 2.1% in 2018, 1.9% in 2019 and 1.7% in 2020.