Eurozone exports of goods fell -9.3% yoy to EUR 235.8B in September. Imports fell -23.9% yoy. As a result, a EUR 10.0B trade surplus was recorded. Intra-Eurozone trade fell -15.5% yoy to EUR 217.3B.
In seasonally adjusted term, Eurozone goods exports fell -0.5% mom to EUR 234.0B. Imports rose 0.3% mom to 224.8B. Trade surplus narrowed from August’s EUR 11.1B to EUR 9.2B, smaller than expectation of EUR 12.3B. Intra-Eurozone trade fell from August’s 215.8B to EUR 213.9B.
There is so far no known progress as US-China trade talks conclude in Beijing. US Treasury Secretary Steven Mnuchin just tweeted “Productive meetings with China’s Vice Premier Liu He and @USTradeRep Amb. Lighthizer”, without any elaboration.
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On the Chinese side, Foreign Ministry spokesman Geng Shuang said in a regular press briefing that “just wait for a while and the answer will be revealed soon”.
Mnuchin and Lighthizer will meet Chinese President Xi Jinping later this afternoon.
US Treasury Janet Yellen said in a Bloomberg interview that the USD 4T spending plan would be good even if it results in higher inflation and interest rates. “If we ended up with a slightly higher interest rate environment it would actually be a plus for society’s point of view and the Fed’s point of view,” she added.
“We’ve been fighting inflation that’s too low and interest rates that are too low now for a decade,” the former Federal Reserve chair said, adding that “we want them to go back to” a normal interest rate environment, “and if this helps a little bit to alleviate things then that’s not a bad thing — that’s a good thing.”
ECB Governing Council member Bostjan Vasle has hinted at the possibility of further rate cuts this year, provided the baseline scenario holds and economic data supports such a move.
Speaking to Finance newspaper, Vasle said, “If the baseline scenario is realized and the data are favorable, then we can probably expect further rate cuts already this year, and then also next year.”
However, he cautioned that if the economic conditions are not as supportive, it would be prudent to “wait some more time with further steps.”
Vasle also highlighted several risks that could slow down the disinflation process, pointing to “relatively strong” momentum in wages, ongoing economic growth, and geopolitical uncertainties. These factors could impact the ECB’s decision-making process regarding future rate cuts.
New York Fed President John Williams shared optimistic views on the US economy in an interview with FOX Business today. Williams highlighted encouraging signs that supply and demand are rebalancing, contributing to a “disinflationary process continuing.” He anticipates that inflation will keep decreasing throughout the second half of this year and into the next.
Williams expects interest rates to “come down gradually over the next couple of years” as inflation moves back towards the Fed’s 2% target and the economy follows a strong, sustainable path.
However, he refrained from specifying the timing of the first rate cut, stating, “I’m not going to make a prediction” about the exact path of policy.
Williams emphasized that future decisions will be data-dependent, noting, “I think that things are moving in the right direction” for eventual policy easing.
UK PMI Construction rose further to 58.1 in July, up from 55.3, beat expectation of 57.0. That’s the second straight month of expansion reading, and the best since October 2015. Markit said growth was led by sharp increase in house building. There was modest improvement in new order books. However, employment fell at a faster pace.
Tim Moore, Economics Director at IHS Markit: “Survey respondents noted a boost to sales from easing lockdown measures across the UK economy and reduced anxiety about starting new projects. However, new work was still relatively thin on the ground, especially outside of residential work, with order book growth much weaker than the rebound in construction output volumes.
“Concerns about the pipeline of new work across the construction sector and intense pressure on margins go a long way to explain the sharp and accelerated fall in employment numbers reported during July. This shortfall of demand was mirrored by the fastest rise in sub-contractor availability since November 2010 and another decline in hourly rates charged.”
US initial jobless claims dropped -43k to 184k in the week ending December 4, much better than expectation of 225k. That’s also the lowest level since September 6, 1969. Four-week moving average of initial claims dropped -21k to 219k, lowest since March 7, 2020.
Continuing claims rose 38k to 1992k in the week ending November 27. Four-week moving average of continuing claims dropped -54k to 2028k, lowest since March 14, 2020.
Eurozone PPI was down -0.3% mom, -8.8% yoy in November, versus expectation of -0.1% mom, -8.7% yoy. For the month, industrial producer prices, decreased by -0.8% for energy, by -0.5% for intermediate goods and by -0.1% for both capital goods and durable consumer goods, while prices remained stable for non-durable consumer goods. Prices in total industry excluding energy decreased by -0.2%.
EU PPI was down -0.2% mom, -8.1% yoy. The largest monthly decreases in industrial producer prices were recorded in Slovakia (-3.0%), Portugal (-2.3%) and Spain (-2.1%), while the highest increases were observed in Sweden (+4.1%), France (+2.4%) and Bulgaria (+0.7%).
Oil prices follow broad based risk-on sentiments and jumped higher this week. Investors seem to be getting Omicron worries behind, as the health impacts of infection look much milder than feared.
With the strong break of 55 day EMA, WTI’s pull back from 85.92 has likely completed at 62.90 already. Immediate focus is now on 100% projection of 62.90 to 73.66 from 66.46 at 77.22. Firm break there could bring upside acceleration to 161.8% projection at 83.86.
For now, we’re viewing the pattern from 85.92 has a sideway corrective pattern, with range set between 61.90 and 85.92. Hence, we’d not expecting a break of 85.92 any time soon. Instead, there should at least be one more falling leg to complete the pattern. Let’s see.
In May, Eurozone PMI manufacturing dropped to 47.7, down from 47.9 and missed expectation of 48.1. PMI services dropped to 52.5, down from 52.8 and missed expectation of 53.0. PMI Composite rose to 51.6, slightly up from 51.5. Markit noted that “the weak reading puts growth in the second quarter so far on a par with the lacklustre gain seen in the first quarter and is among the lowest recorded since mid-2013.”
Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:
“The eurozone economy remained becalmed in the doldrums in May, adding to signs that only modest growth will be achieved in the second quarter. At current levels the PMI is so far indicating GDP growth of only 0.2% in the second quarter.
“A renewed deterioration in optimism about the year ahead suggests that the business situation could deteriorate further in coming months. Worries reflected concerns over lower economic growth forecasts, signs of weaker sales and rising geopolitical uncertainty, with escalating trade wars and auto sector woes commonly cited as specific causes for concern.
“Sector divergences remain marked, with manufacturing still in decline and the region therefore reliant on the service sector to support growth.
“While some encouragement can be gained from the manufacturing sector showing signs of its downturn having bottomed out in March, the concern is that the slowdown is spreading to the service sector, where new business growth has slipped to one of the weakest seen since 2014.
“Germany is on course for a 0.2% expansion of GDP in the second quarter while the survey for data France point to a meagre 0.1% gain. However, the bigger concern is for the rest of the region, which collectively saw growth falter amid the first fall in orders for almost six years.”
ECB said it expected the purchases under the pandemic emergency purchase programme (PEPP) to be conducted at a “significantly higher pace” over the next quarter. Though, the total envelop will be left unchanged at EUR 1850B, and the program will continue until at least end of March 2022.
The Governing Council will purchase flexibly according to market conditions and with a view to “preventing a tightening of financing conditions”. The total envelop can be “recalibrated if required”, to maintain favourable financing conditions to help counter the negative pandemic shock to the path of inflation.
Main refinancing rate is kept at 0.00%. Marginal lending rate and deposit rate are held at 0.25% and -0.50% respectively. Interest are expected to “remain at their present or lower levels” until inflation outlook robustly converges to target within its horizon.
Australian Dollar is continuing to under-perform New Zealand and Canadian Dollar. While Victoria’s lockdown is set to be eased by mid-night, it’s uncertain what the New South Wales government could do on restrictions after the end of the month as delta variant is still spreading quickly in the community. Whether RBA would taper asset purchase beyond September is now is question as renewed lockdowns are derailing recovery.
AUD/NZD edged lower today as fall from 1.0944 is still in force. Downside momentum weakened a little on oversold condition in daily RIS. But there is no sign of bottoming yet. With 1.0611 resistance intact, AUD/NZD is on track to 1.0415 support next.
AUD/CAD’s decline from 0.9991 resumed after failing to sustain above 55 day EMA. It’s still trying to draw support from 0.9247 key support level but firm break of 0.9417 resistance is needed to indicate short term bottoming. Sustained trading below 0.9247 would open up further fall towards 61.8% retracement of 0.8058 to 0.9991 at 0.8796.
Sterling opens the week mildly lower but loss is so far very limited. The House of Commons voted on Saturday to withhold the decision on UK Prime Minister Boris Johnson’s Brexit instead. Instead, MPs forced Johnson to seek another three-month extension from EU first. While initially refused, Johnson eventually sent a delay request to EU, without signing it.
At this point, it’s generally viewed that UK is still on track for orderly Brexit, just deferred. The vote on the Withdrawal Agreement Bill could still be held on Tuesday, after Johnson makes another attempt on Monday to get Parliament to sign off on the principle of his deal. And, if Johnson wins, the extension request could be withdrawn and Brexit will happen on October 31.
The Times of London reported that EU is ready to approve a three-month flexible extensions. UK could leave EU earlier if the Parliament could ratify a deal. Or, Germany could push for a longer extension, pushing the deadline well into June 2020, if the UK government meets are serious obstacles.
The UK government activated the so-called “Operation Yellowhammer” on Sunday, entering the “final, most intensive stage” of disorderly Brexit preparation. Quoted by Bloomberg, a government official said, “with less than two weeks until 31 October, hundreds of civil servants will from today move to work on these operational matters.”
RBNZ Governor Adrian Orr said the New Zealand economy has been “relatively resilient” to the economic shock from the pandemic so far. The financial system “has not been tested as severely as it could have been”. However, he warned, “businesses domestically and internationally face ongoing challenges as fiscal support measures unwind, which will lead to an increase in loan impairments for banks.”
On the topic of house prices, Deputy Governor Geoff Bascand said, “high leverage in the housing sector poses risks if house prices fall sharply or unemployment rises, reducing the ability to service loans”. Hence, RBNZ “intends to re-impose LVR restrictions to guard against continued growth in high-risk lending and ensure that banks remain resilient to a future housing market downturn.”
BoC Governor Tiff Macklem said in a speech yesterday, “tighter monetary policy is necessary to lower the parts of inflation that are driven by domestic demand. And that is critical to bringing price increases back in line with our 2% inflation target.”
BoC will also be considering when to move to quantitative tightening, or QT. “The timing and pace of further increases in the policy rate, and the start of QT, will be guided by the Bank’s ongoing assessment of the economy and its commitment to achieving the 2% inflation target,” he added.
In the Q&A session, Macklem said, there is certainly considerable space to raise interest rates over the course of the year”. “If we have to move more quickly, we are prepared to do that,” he added. “I am not going to rule out a 50-basis-point move in the future.”
Australia Westpac-MI leading index improved slightly from -0.50% to -0.25% in February. But Westpac is expecting “strong above trend growth in 2022”, largely due to the aftermath of the extraordinary emergency policy measures from both the fiscal and monetary authorities during 2020 and 2021.
Westpac expects RBA to stand pat in April meeting with its “patience” stance. But after Q1 inflation data and further progress on wages growth, RBA would moving to a tightening bias over June and July, prior to raising the cash rate in August.
Markets are expecting NFP report to show 188k job growth in September. Unemployment rate is expected to drop 0.1% to 3.8%. Wage growth will again be a major focus. Average hourly earnings are expected to rise 0.3% mom.
Related pre-NFP job data were generally solid. ADP report showed 230k growth in private sector jobs, well above exceptiones. ISM manufacturing employment rose 0.3 to 58.8. ISM non-manufacturing was jumped notably by 5.7 to 62.4, which is very impressive. Initial jobless claims and continuing claims hit multi decade record lows.
So overall, we’d expect NFP to give a set of decent to strong data. The main question is how fast wage growth has been. Meanwhile, the reaction in forex markets is not that straight forward. We’ll have to see how treasury yield and stocks respond to the data at the same time.
Here are some other NFP previews:
Mexico’s Economy Minister Graciela Marquez is going to meet US Commerce Secretary Wilbur Ross in Washington on Monday to discuss Trump’s tariff threats. Foreign Minister Marcelo Ebrard will also be in Washington on Wednesday for the issue.
Mexican President Andres Manuel Lopez Obrador expected “good results” from the meetings. And he said on Saturday that “the main thing is to inform about what we’re already doing on the migration issue, and if it’s necessary to reinforce these measures without violating human rights, we could be prepared to reach that deal.”
Lopez Obrador also insisted that Mexico would not pursue trade war with the US. And, “we’re doing all we can to reach a deal through dialogue… we’re not going to get into a trade war, a war of tariffs and of taxes.”
US Empire State Manufacturing Survey general business conditions index dropped a massive -34pts to -21.5 in March, well below expectation of 8.7. it’s also the worst reading since 2009. Looking at some details, new orders dropped -3.14 to -9.3. Shipments dropped -20.6 to -1.7. Delivery times dropped -6.1 to 2.2. Number of employees dropped -8.1 to -1.5. Average employee workweek dropped -9.6 to -10.6.
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Canada GDP grew 0.1% mom in Jun, but to contract -0.1% mom in Jul
Canada GDP grew 0.1% mom in June, matched expectations. Services-producing industries grew 0.2% mom while goods- producing industries rose 0.1% mom. 14 of 20 industrial sectors expanded in the month.
Advance information indicates that real GDP edged down by -0.1% mom in July. Output was down in the manufacturing, wholesale, retail trade and utilities sectors. Declines were partly offset by increases in the mining, quarrying, oil and gas sector and the agriculture, forestry, fishing and hunting sector.
Full release here.