In to US session: A look at AUDUSD and EURCHF

    Heading into US session, CHF and JPY are notably higher against others. Commodity currencies are the weakest, together with EUR.

    The surge in USD/CAD earlier in European session first caught out attention. As mentioned earlier, it’s on course for 1.3124 resistance.

    Selling of AUD and EUR came in later. AUD/USD traders should have finally made up them mind to push the pair through 0.7500 key support level. Such development should confirm medium term reversal in the pair and should pave the way to 0.7328 support next.

    Also, the steep fall in EUR/CHF suggests that it’s finally being rejected by 1.2 key handle. Break of 1.1888 support will confirm near term reversal. And deeper pull back should be seen to 38.2% retracement of 1.1445 to 1.2004 at 1.1790 next.

     

    Japan industrial production rose 0.8% mom, with signs of moderate pick up

      Japan’s industrial production expanded for the second consecutive month, recording a 0.8% mom growth in March, surpassing the expected 0.4% mom increase. The growth was driven by output in eight sectors, led by motor vehicles, while declines were observed in seven sectors, including electronic components and devices.

      The Ministry of Economy, Trade and Industry upgraded its basic assessment for the month, stating that industrial production was “showing signs of moderately picking up” as parts supply shortages continued to ease. This is a marked improvement from the previous month’s assessment of “weakening.” The ministry also projects a further 4.1% growth in industrial production for April and a -2.0% decline in May.

      Other economic indicators released include 7.2% yoy increase in retail sales for March, surpassing expectations of 6.5% yoy. However, unemployment rate rose for the second month in a row, reaching 2.8%, above expectation of 2.5%.

      April, Tokyo core CPI, which excludes fresh food, accelerated from 3.2% to 3.5% yoy, exceeding expectations of 3.2% yoy. Core-core CPI, which excludes fresh food and fuel costs, accelerated from 3.4% to 3.8% year-on-year, marking the highest rate since April 1982.

      Fed’s Beige Book: Activity slowdown, easing labor demand, moderating price pressures

        The latest Fed’s Beige Book report indicates general slowdown in economic activity, with variations across different regions. Specifically, four districts reported “modest growth”, two districts experienced “flat to slightly down”, and six districts observed “slight declines” in activity.

        This mixed picture reflects the diverse economic conditions across the country and points to a cautious economic outlook for the next six to twelve months, which is perceived to have “diminished” during the reporting period.

        In terms of labor market dynamics, demand for labor “continued to ease”. Most districts reported either flat or modest increases in overall employment. Wage growth across most districts was characterized as “modest to moderate”. Notably, the report highlights “easing in wage pressures”, with several districts even reporting declines in starting wages. This trend could be a response to the overall economic slowdown and a signal of less competition for labor.

        Regarding prices, the report notes a general moderation in price increases across districts, although prices remain at elevated levels. The expectation is for “moderate price increases to continue into next year”.

        Full Fed’s Beige Book report here.

        Australia Birmingham: China is a significant coal market, but not our largest

          In response to news that China has blocked Australian coal imports, Trade Minister Simon Birmingham said he has not ruled out taking China to the WTO. Though, he emphasized, “we do have to make sure that we have the facts behind us when it comes to undertaking WTO challenges.”

          “In terms of coal exports, it is important to recognise that although China is a significant market, it is not our largest market,” he added. “We do have significant markets in Japan … with India, strong growth recently in relation to Vietnam.” “We continue to work in a range of other markets where our government has secured trade agreements to develop trade ties to make sure that all of those exporters can have as many choices available to them as possible.”

          Trade tensions between the two countries escalated in the past few months as China has recently increased tariffs on Australian wine and barley and blocked imports on lamb, beef, lobsters and other goods.
          Just two weeks a ago, the Inter-Parliamentary Alliance on China, an international cross-party group of legislators working to reform the approach of democratic countries to China, called on a global campaign to drink Australian wines in December in support for the country.

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          Japan PMI services composite finalized at 47.9, but firms optimist on eventual end to pandemic

            Japan PMI Services was finalized at 47.8 in September, up from August’s 42.9. PMI Composite was finalized at 47.9, up from August’s 45.5. Markit said contractions in output and new business eased. Employment rose at quickest pace since April. Business optimism also strengthened to three-month high.

            Usamah Bhatti, Economist at IHS Markit, said: “Overall private sector activity saw a sustained, albeit softer decline in September, led by a slower decline in the larger service sector. At the same time, manufacturing output and new orders were both in decline for the first time since late-2020.

            “Businesses in the Japanese private sector also noted the strongest cost pressures for 13 years, as supply chain disruption continued to dampen domestic and global activity. Price rises were notably sharp for raw materials, staff and fuel. Regardless of this, firms were optimistic that an eventual end to the pandemic would occur within the coming 12 months, and provide a broad-based boost to demand and activity. As a result, IHS Markit expects the economy to grow 2.5% in 2021.”

            Full release here.

            Fed Barkin expects inflation to come down, but not immediately, not suddenly, and not predictably

              Richmond Fed President Thomas Barkin said yesterday, “I definitely see signs of softening” in the economy, with evidence “most pronounced in lower income households”.

              “I expect inflation to come down but not immediately, not suddenly, and not predictably,” he said. “My expectations are it will be a slower path rather than an immediate path down to 2%.”

              Barkin also said he’s open to a 50bps or 75bps hike in July. “I am one of the guys who like the option value of deciding the week of the meeting as opposed to two weeks before the meeting. But I thought Jay’s (Fed Chair Jerome Powell) guidance the last time was very sound,” he added.

              Bitcoin back above 40k, next hurdle at 46k

                Bitcoin’s rebounded strongly over the week and and it’s now trading back above 42k handle. The decline from 68986 is seen as the first leg of a long term corrective pattern. Such fall should have completed at 33000, on bullish convergence condition in daily MACD.

                Rise from 33000 is seen as the second leg of the pattern. Further rally is expected as long as 37309 support holds, back to 38.2% retracement of 68986 to 33000 at 46476. Sustained break there will target 61.8% retracement at 55239 and above. In this case, the even pattern would be a sideway one, with range set between 33000 and 68986.

                However, rejection by 46476, or earlier, would argue that it’s developing into a deep correction that should have another down leg through 33000 and even 30k.

                US Empire State manufacturing rose to 17.2, but 6-month outlook dropped to 38.4

                  US Empire State Manufacturing index rose to 17.2 in July, up from -0.2, above expectation of 7.85. It’s also the first positive reading since February. However, six-months ahead business conditions dropped -18.1 pts to 38.4, down from 56.5.

                  The indexes for future new orders and future shipments fell somewhat, but remained near 40. The index for future employment rose to 21.1, suggesting firms expect to increase employment in the months ahead. The capital expenditures index rose to 9.1, a sign that firms, on net, planned to increase capital spending.

                  Full release here.

                  RBNZ’s Conway: OCR to stay restrictive for some time into the future

                    RBNZ Chief Economist Paul Conway, speaking at a webinar today, noted that emphasizing the contractionary nature of current interest rates is effectively “tapping the brakes” on the economy to moderate its pace of growth and address inflationary pressures.

                    Conway expressed optimism about the recent declines in core inflation and business inflation expectations. However, he also highlighted ongoing concerns regarding elevated household inflation expectations, which pose a potential risk to the inflation outlook.

                    Looking forward, Conway underscored the necessity for OCR to maintain a restrictive level “for some time into the future” to get headline inflation, currently at 4.7%, back into the 1-3% target band.

                    An interesting consideration Conway raised was the impact of Fed’s policy moves on New Zealand’s monetary policy trajectory. He suggested that if Fed were to initiate rate cuts towards the end of the year, and RBNZ did not follow suit, the resulting appreciation in NZD could alleviate inflationary pressures in New Zealand. This scenario might prompt RBNZ to reassess its rate cut timeline, leading to earlier-than-anticipated adjustments depending on the broader economic implications.

                    EU Malmstrom: WTO in deep crisis, appellate body would probably collapse

                      EU Trade Commissioner Cecilia Malmstrom warned in a conference in France that WTO is in “deep crisis” and “we have to recognize this”. In particular, she said “if the appellate body collapses, which probably it will in December – at least temporarily – we will have no enforcement. And if you have no rules everybody can do whatever they want.”

                      At the same conference, WTO Director General Alan Wolff said “you get into a possible scenario where a country that lost (a case) says we appeal but there is no appeal which means the panel is not final. Then, “you could go to retaliation and counter-retaliation, which is what has happened between the U.S and China, which is certainly not good for the world.”

                      Eurozone PMI composite hits 12-month high at 52.3, pointing to 0.3% GDP growth in Q2

                        In May, Eurozone’s PMI Manufacturing rose from 45.7 to 47.4, surpassing expectations of 46.6 and marking a 15-month high. PMI Services remained unchanged at 53.3, slightly below the forecast of 53.5. PMI Composite increased from 51.7 to 52.3, reaching a 12-month high.

                        Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, noted that Eurozone’s economy is “gathering further strength.” He highlighted that new orders are growing at a healthy rate, and companies’ confidence is reflected in a steady hiring pace.

                        Additionally, de la Rubia pointed out some positive developments for ECB. Rates of inflation for input and output prices in the services sector have softened. This trend supports ECB’s apparent stance to cut rates at the upcoming meeting on June 6.

                        Incorporating PMI numbers into their GDP nowcast, de la Rubia suggested that Eurozone will likely grow at a rate of 0.3% during Q2, effectively dispelling fears of a recession. He further indicated that GDP growth rate of nearly 1% could be achievable this year, with potential for even higher growth.

                        Full Eurozone PMI release here.

                        Also released, French PMI Manufacturing rose from 45.3 to 46.7 in May. PMI Services fell from 51.3 to 49.4. PMI Composite fell from 50.5 to 49.1, back in contraction.

                        Germany PMI Manufacturing rose from 42.5 to 45.4 in May, a 4-month high. PMI Services rose from 53.2 to 53.9, an 11-month high. PMI Composite rose from 50.6 to 52.2, a 12-month high.

                        Australia AiG manufacturing rose to 61.7, no adverse effect from strong Australian Dollar

                          Australia AiG Performance of Manufacturing Index rose 1.8 pts to 61.7 in April. that’s the seventh straight month of rise, and the strongest reading since March 2018. All six manufacturing sectors expanded, as did all seven activity indicators.

                          Ai Group Chief Executive Innes Willox said: “Australia’s manufacturing industry showed no signs of slowing in the month following the end of the JobKeeper wage subsidy…. There was a large lift in manufacturing production, sales and exports and employment continued to grow solidly – although not at the very rapid pace seen in March. To date the sector as a whole has not been adversely affected by the stronger Australian dollar although a number of businesses are keeping a close eye on where the currency goes from here.”

                          Full release here.

                          Canada’s employment rises 0.1k in Dec, vs exp 13.2k

                            Canada’s employment rose 0.1k in December, well below expectation of 13.2k.
                            Employment rate fell -0.2% to 61.6%. Unemployment rate was unchanged at 5.8%. Participation rate fell -0.2% to 65.4%. Total hours worked rose 0.4% mom , 1.7% yoy. Average hourly wages rose 5.4% yoy.

                            Full Canada employment release here.

                            Fed Barkin: I don’t hear much resistance to rate hikes

                              Richmond Fed President Thomas Barkin said yesterday, “as I talk to participants in the economy, what I hear is they actually want us to do something now about inflation. They’d like us to get back to at least a normal interest-rate posture and not be simulating more demand on top of normal levels. So, I don’t hear much resistance to that.”

                              “I’d like us to be better positioned,” Barkin said. “Better positioned is somewhere closer to neutral, certainly, than we are now and I think the pace of that just depends on the pace of inflation.”

                              BoE hawk Mann: Next step more likely another hike than a cut or hold

                                BoE MPC member Catherine Mann, a known hawk, said in a speech that “we need to stay the course, and in my view the next step in Bank Rate is still more likely to be another hike than a cut or hold.”

                                She noted that “some (global) central bankers are seeing a turning point in data to which they are responding with an inflection in their respective policy paths”.

                                Also, “recent market chatter has focused on when central banks will stop hiking and if they will reverse, with fears torn between the risks of overtightening and stopping too soon.

                                But for assessment on the turning point, she is looking for “significant and sustained deceleration in higher frequency price increases and in the underlying inflation measures and expectations towards inflation rates that are consistent with achieving the 2% target”.

                                She emphasized, “uncertainty around turning points should not motivate a wait-and-see approach, as the consequences of under tightening far outweigh, in my opinion, the alternative.”

                                Full speech here.

                                AUD/JPY and NZD/JPY extending rebound, to retest recent highs

                                  AUD/JPY powers through 84.39/46 minor resistance today, as rise from 83.02 resumes. Further rally is now expected as long as 83.73 support holds. At this point, it’s unsure whether consolidation pattern from 85.43 has completed already. Hence, we’d pay attention to topping at around 85.43. Though, eventually, the whole up trend from 59.89 is expected to resume sooner or later. It’s just a matter of time. Next medium term target is 61.8% projection of 73.13 to 85.43 from 83.02 at 90.62.

                                  Similarly, NZD/JPY is also resuming rise from 75.61 today, and hits as high as 78.36 so far. Further rally is expected as long as 77.38 minor support holds, for retesting 79.19 high. We’d also be cautious on topping around there. But eventually upside breakout is anticipated. Next medium term target is 61.8% projection of 68.86 to 79.19 from 75.61 at 81.99.

                                  US ISM services rose to 61.9 in Sep, corresponds to 4.5% annualized GDP growth

                                    US ISM Services PMI rose slightly from 61.7 to 61.9 in September, above expectation of 59.8. Looking at some details, business activity/production rose 2.2 to 62.3. New orders rose 0.3 to 63.5. Employment dropped -0.7 to 53.0. Prices rose 2.1 to 77.5.

                                    ISM said: “The past relationship between the Services PMI® and the overall economy indicates that the Services PMI® for September (61.9 percent) corresponds to a 4.5-percent increase in real gross domestic product (GDP) on an annualized basis.”

                                    Full release here.

                                    NATO pledged to spend more, but Trump wants double the target

                                      In a NATO summit statement “Brussels Declaration on Transatlantic Security and Solidarity”, the alliance pled to “share fairly the responsibilities of defending each other. ” It noted that “Real progress has been made across NATO since our last Summit in Warsaw, with more funding by all Allies for defence, more investment in capabilities, and more forces in operations.”

                                      And, “even if we have turned a corner, we need to do more, and there will be further progress.  We are committed to the Defence Investment Pledge agreed in 2014, and we will report annually on national plans to meet this Pledge.”

                                      That seemed to be a unified answer to Trump’s call for more spending from other NATO members.

                                      Separately, Bulgaria’s President Rumen Radev told reporters that “President Trump, who spoke first, raised the issue not only to achieve 2 percent, today, but (set) a new barrier – 4 percent.” Reuters also reported an unnamed UK official saying
                                      “He certainly said that he wanted more money to be spent on defense”, referring to Trump.

                                      Here is full NATO statement.

                                      Brussels Declaration on Transatlantic Security and Solidarity

                                      1. NATO guarantees the security of our territory and populations, our freedom, and the values we share – including democracy, individual liberty, human rights and the rule of law.  Our Alliance embodies the enduring and unbreakable transatlantic bond between Europe and North America to stand together against threats and challenges from any direction. This includes the bedrock commitment to collective defence set out in Article 5 of the Washington Treaty.  NATO will continue to strive for peace, security and stability in the whole of the Euro-Atlantic area, in accordance with the purposes and principles of the UN Charter.
                                      2. We face a prolonged period of instability. Russia is challenging the rules-based international order by destabilising Ukraine including through the illegal and illegitimate annexation of Crimea; it is violating international law, conducting provocative military activities, and attempting to undermine our institutions and sow disunity.  At the same time, a multitude of threats emanate from NATO’s Southern periphery. While significant progress has been made in defeating ISIS/Daesh, terrorism, in all its forms and manifestations, continues to threaten Allies and the international community and to undermine stability. Instability contributes to irregular migration, trafficking and other challenges for our countries. Allies stand firmly in unity and solidarity in the fight against terrorism.
                                      3. We will share fairly the responsibilities of defending each other.  Real progress has been made across NATO since our last Summit in Warsaw, with more funding by all Allies for defence, more investment in capabilities, and more forces in operations.  But even if we have turned a corner, we need to do more, and there will be further progress.  We are committed to the Defence Investment Pledge agreed in 2014, and we will report annually on national plans to meet this Pledge.
                                      4. Today we are strengthening further our deterrence and the collective defence of all NATO territory and populations, building on our Forward Presence and consistent with the decisions taken in Warsaw. Our deterrence and defence is based on an appropriate mix of nuclear, conventional and missile defence capabilities, which we continue to adapt.  We will increase the readiness of our forces and improve our ability to reinforce each other within Europe and across the Atlantic. As part of that, we have agreed an adapted and strengthened NATO Command Structure. We are also further reinforcing the cyber defence capabilities of Allies and of NATO itself.
                                      5. We are strengthening our capacity to prepare against, deter and respond to hybrid threats. Hybrid tactics increasingly target our political institutions, our public opinion and the security of our citizens.  Allies are making our societies more resilient against them, and we will respond with resolve when necessary.
                                      6. NATO poses no threat to any country. All these measures are defensive, proportionate and transparent, and within NATO’s legal and political commitments.  We remain fully committed to arms control, disarmament and non-proliferation.
                                      7. We remain ready for a meaningful dialogue with Russia to communicate clearly our positions and, as a first priority, to minimize risk from military incidents, including through reciprocal measures of transparency.  We continue to aspire to a constructive relationship with Russia, when Russia’s actions make that possible.
                                      8. We are boosting NATO’s contribution to the international fight against terrorism. We have decided, on request of the Iraqi Government and in coordination with the Global Coalition to Defeat ISIS, to establish a training mission in Iraq.  We will increase our assistance to the Afghan Security Forces, providing more trainers and extending financial support, as the Government makes an unprecedented political effort to seek a peaceful resolution to the conflict.   NATO will do more to help Allies, on their request, to tackle terrorism at home; to provide advice and support to partners, including through the new Hub for the South; and will continue to contribute to the Global Coalition.
                                      9. We are strengthening NATO’s contribution to projecting stability, because we know that our security is best assured if it is shared beyond our borders. We have agreed a Package on the South to deepen our political dialogue and practical cooperation with our partners in the region, including Jordan and Tunisia.  We provide tailored support to our eastern partners Georgia, the Republic of Moldova and Ukraine, as well as to Bosnia and Herzegovina.  We will also boost NATO’s cooperation with Finland and Sweden in the Baltic Sea, as well as with our partners in the Black Sea, Western Balkans and Mediterranean regions, each of which is important to Alliance security.  We are maintaining our important operation in Kosovo. And while remaining a transatlantic Alliance, NATO will retain its global perspective.
                                      10. The NATO-EU strategic partnership is essential for the security and prosperity of our nations and of the Euro-Atlantic area.  The European and North American Allies contribute significantly to European security and defence. We recognize that a stronger and more capable European defence will lead to a stronger NATO. We therefore welcome the Joint Declaration signed by the NATO Secretary General and the Presidents of the European Council and Commission, which sets out the unprecedented progress being made in NATO-EU cooperation, including on military mobility. We welcome the significant contributions of the members of both organisations to Euro-Atlantic security.
                                      11. We are committed to NATO’s Open Door policy because it strengthens the Alliance and contributes to Euro-Atlantic security, in keeping with the Bucharest Summit.  We warmly welcome the agreement between Athens and Skopje; this success will benefit both countries, the region and NATO.  We have decided to invite the Government in Skopje to begin accession talks to join the Alliance once the terms of the agreement are met.
                                      12. We continue to modernize the Alliance. To face evolving security challenges, we have taken steps to ensure that NATO can continue to act at the speed required. Our new policies on NATO’s support for Women, Peace and Security, and for the protection of civilians and children in armed conflict, demonstrate our determination to step up NATO’s role in these areas.
                                      13. We pay tribute to all the men and women who serve, and who have served, in NATO operations and missions.  Their service and sacrifice has been essential to keep our territories and populations safe.

                                      ECB press conference live stream

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                                        DOW in third leg of medium term correction after -6.9% fall

                                          DOW tumbled sharply overnight by -1861.82 pts or -6.90% to close at 25128.17, near to day low. A short term top was formed at 27580.21 without a doubt. Our preferred view is that rebound from 18213.65 is the second leg of the medium term corrective pattern from 29568.57, which is likely completed.

                                          Immediate focus is now on support zone between 38.2% retracement of 18213.65 to 27580.21 at 24002.18 and 55 day EMA (now at 24886.88). Firm break there will affirm our view and argue that the third leg of the consolidation has started. Deeper fall should then be seen to 61.8% retracement at 21791.67 and below. Nevertheless, rebound from the support zone could retain near term bullishness, for another rise through 27580.21 before topping.