Trump holds an unscheduled press conference after an “emergency” NATO meeting. He reiterate that the US commitment to NATO “remains very strong”. And he’s “extremely happy” that all members have agreed to raise their defense spending.
Trump said in the conference that “everyone has agreed to substantially up their commitment. They’re going to up it at levels that they never thought of before.” And, “I told people that I’d be very unhappy if they didn’t up their financial commitments substantially” “I let them know that I was extremely unhappy with what was happening, and they have now substantially upped their commitment.”
Answering CNN’s question on whether his insulted Germany by saying they’re a “captive” of Russia, Trump said it’s a very effective way to deal,” “it’s a very effective way of negotiating.”
Yen continues to trade as the weakest one for today, followed by Swiss Franc. Meanwhile Dollar pares back some again as markets await US consumer inflation release later today, which could see headline CPI accelerated to 2.9% yoy.
Global equities stage a strong rebound today as the impact of trade war escalation faded. Investors are getting tired of the noises from the US and China. Some attributed the chance of resuming negotiation between US and China. But we’re don’t buy into this as Trump is clear with what he’s doing. Negotiation has started and ended abruptly, showing no intention to continue. And, just as Trump is blasting NATO allies on spending again today after the latters promised to increase it. It’s clear to the objective eyes whether one is pushing for reforms or finding excuses to quit, and blame the others for his decision.
Anyway, at the time of writing, DAX is up 0.35%, CAC is up 0.39% while FTSE is up 0.68%. Earlier today, Nikkei closed up 1.17%, Hong Kong HSI rose 0.60%, Singapore Strait Times rose 0.12%.
More importantly, China Shanghai SSE rose 2.16% to close at 2837.66, back above 2800 handle. The development indicates certain calmness in the markets despite this week’s trade war escalation. And it affirmed the view of strong support between 2016 low at 2638.3 and 2700 psychological level. The rebound from 2691.02 is in progress and break of 2848.37 will extend it to 55 day EMA now at 2984.49. For now, we’re seeing no chance of breakthrough 3000 psychological level. But such near term development is enough to stabilize the Asian markets, which suffered most last week.
European Commission released summer 2018 Interim Economic Forecast today.
On Eurozone growth:
2018 GDP is projected to grow 2.1%, revised down from Spring forecast of 2.3%.
2019 growth is projected to grow 2.0%, unchanged.
On Eurozone inflation:
2018 CPI is projected to be at 1.7%, revised up from 1.5%
2019 CPI is projected to be at 1.7%, revised up from 1.6%
On EU 28 growth:
2018 GDP is projected grow 2.1%, revised down from 2.3%.
2019 GDP is projected grow at 2.0%, unchanged.
On EU 28 inflation:
2018 CPI is projected to be at 1.9%, revised up from 1.7%
2019 CPI is projected to be at 1.8%, unchanged
On some countries
Germany GDP growth forecast at 1.9% in 2018, revised down from 2.3%.
Germany GDP growth forecast at 1.9% in 2019, revised down from 2.1%.
France GDP growth forecast at 1.7% in 2018, revised down from 2.0%.
France GDP growth forecast at 1.7% in 2019, revised down from 1.8%.
Italy GDP growth forecast at 1.3% in 2018, revised down from 1.5%.
Italy GDP growth forecast at 1.1% in 2019, revised down from 1.2%.
UK GDP growth forecast at 1.3% in 2018, revised down from 1.5%.
UK GDP growth forecast at 1.2% in 2019, unchanged
Quotes from the release:
Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, also in charge of Financial Stability, Financial Services and Capital Markets Union, said: “European economic activity remains solid with 2.1% GDP growth forecast for the euro area and the EU28 this year. Nevertheless, the downward revision of GDP growth since May shows that an unfavourable external environment, such as growing trade tensions with the US, can dampen confidence and take a toll on economic expansion. The growing external risks are yet another reminder of the need to strengthen the resilience of our individual economies and the euro area as a whole.”
Pierre Moscovici, Commissioner for Economic and Financial Affairs, Taxation and Customs, said: “Growth in Europe is set to remain resilient, as monetary policies stay accommodative and unemployment continues to fall. The slight downward revision compared to the spring reflects the impact on confidence of trade tensions and policy uncertainty, as well as rising energy prices. Our forecast is for a continued expansion in 2018 and 2019, although a further escalation of protectionist measures is a clear downside risk. Trade wars produce no winners, only casualties.”
UK new Foreign Minister Jeremy Hunt anticipated a “very very lively debates” in the parliament on the soon to be published Brexit White Paper. He added that “this is one of the biggest decisions that we have taken as a country in our political lifetimes so there’s going to be a pretty fierce discussion but the prime minister has found a way forward.”
Present in the NATO summit in Brussels, Hunt also said he had “good discussions with my French, German and Dutch counterparts, many other counterparts here, explaining to them that this is the way we get that deep and special partnership with Europe.” He acknowledged the EU had “had a lot of concern about, for example how we’re going to avoid a hard border with Northern Ireland, whether it is possible to have frictionless trade without a customs union.” Hunt assured that “what we’ve shown them is that that is possible. This is a very very significant step… I think we have the basis that we can move forward.”
New Brexit Minister Dominic Raab said the White Paper got “detailed proposals” and he wanted to assure EU Brexit negotiator Michel Barnier on that.
The white paper is scheduled to be released today.
Yen suffered steep selling overnight on stronger as a reaction to stronger than expected US PPI. In the background, it’s believed that escalation of trade war will eventually lift inflation and forces Fed to continue with tightening beyond neutral rate. Also, Yen is getting little support from stock markets as the reactions to the US 301 tariffs on USD 200B in Chinese goods were brief. Yen is stays pressured today and is trading as the weakest one for today and the week.
Asian markets are paring much of yesterday’s losses. At the time of writing, Nikkei is up 1.3% , HK HSI is up 0.7%, Singapore Straight times is up 0.1. China SSE is up 1.9% at 2830.44, back above 2800 handle.
We’ve noted multiple times that the support zone between 2016 low at 2638.30 and 2700 psychological level is a very strong one. While the larger trend is still bearish, we’re not expecting this zone to be taken out easily. And if there is a breakthrough, there is risk of direct intervention by the government too.
Now, with SSE back above 2800, the case of near term rebound is saved. And focus is back on 2848.37 resistance. Break will extend the rebound towards 3000 handle. And that will help stabilize the Asian markets.
In a policy news release, the South Korean Ministry of Trade, Industry and Energy warned that the US-China trade dispute is likely to be “prolonged and proliferated”. And it urged private sector to seek analysis from the Korea Institute for Industrial Economics and Industry (KIEP) on the effects on imports and exports of each industry.
The Ministry also warned that “China’s home appliances, computers and telecommunication equipment are included in the additional tariffs, which suggests that exports of intermediate goods to China will decrease .” Meanwhile, the government would prepare a scenario for developing trade disputes with the US and prepare counter measures accordingly.
The issue regarding US 232 auto tariffs was discussed at a meeting with the motor industry representatives on July 10. Follow up actions including attending the US hearing by the government and the industry. In addition, delegation of representatives from the Ministry of Industry , Ministry of Foreign Affairs and the Ministry of Information and Communication , automobile industry association, Hyundai Motor , and trade association representatives, is scheduled to meet with US officials, legislators and automobile organizations.
New York Fed President John Williams said yesterday that the US is now in a state of “overall strong economy”. And, “employers are now struggling to fill job openings.” He called it a “great time for businesses to set up” with internships, training programs and school partnerships.
And he’s not concerned with the rise in housing and stock prices. He pointed out that “we’re not seeing the kind of build-up in leverage in the financial system that was pretty obvious in the mid-2000s.” Also, “we’re not seeing that kind of risk-taking in the financial system right now, but we are watching very carefully.”
WTI crude oil dropped sharply overnight to as low as 70.02 before closing the regular session at 70.38. It’s now staying soft at around 70.75. It’s originally lifted by larger than expected US inventory decline but than pressured as Libya resumed production. The Libya’s National Oil Corp. said that it would lift the force majeure on several major export terminals and resume shipments of oil. That would mean some 700k bpd to come back online even though it’s uncertain how quickly exports can return to normal.
Also, oil price seemed to be benefited from earlier comments from US Secretary of State Mike Pompeo too. Pompeo was quoted saying that “there will be a handful of countries that come to the United States and ask for relief from that. (Iran sanction). We’ll consider it.” Though he also emphasized that “make no mistake about it, we are determined to convince the Iranian leadership that this malign behavior will not be rewarded and that the economic situation in their country will not be permitted to be rectified until such time as they become a more normal nation.”
The development also pushed USD/CAD sharply higher, after it dipped following hawkish BoC rate hike. As expected in our technical report, 1.3067 key near term support was defended well. With 1.3173 minor resistance taken out and BoC risk cleared, USD/CAD maintained bullishness and is heading back to retest 1.3385 high.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
Good morning. Senior Deputy Governor Wilkins and I are pleased to be here to answer your questions about today’s interest rate announcement and our Monetary Policy Report (MPR). Before taking your questions, let me offer some insight into Governing Council’s deliberations.
Our discussion began with the big picture: inflation is on target and the economy is operating close to capacity. Our outlook published today is that this situation will continue. Governing Council believes that higher interest rates will be needed to keep inflation on target, and that is consistent with our actions today.
Monetary policy is, of course, always conditioned on new data, particularly when they do not align with the Bank’s projections. A few data points over the past few weeks have seemed out of step with those projections, but when all the data are taken together, the economy seems to be on track.
Given the various uncertainties we face, the Bank is particularly data dependent at this time. However, that does not mean that monetary policy will react to every data fluctuation. A better way to think of this is that it takes hundreds of data points to make a complete picture, and each new one helps the picture come into sharper focus. So, when a data point comes in differently than what the Bank or other forecasters expect, it matters to the big picture, but it is almost never decisive on its own.
As we have previously discussed, an important issue we face is to understand how the economy reacts to higher interest rates, given the high debt loads being carried by Canadian households. We are monitoring this situation closely. We have seen a moderation in credit growth and the debt-to-income ratio has begun to edge lower. At the same time, the housing market is also dealing with the revised B-20 Guideline for mortgage lending, and the data do not yet permit a sharp distinction between the impact of the guideline and the effects of higher interest rates.
Governing Council did take some comfort from an analysis of the renewal process for five-year mortgages taken out in 2014 and 2015 and up for renewal in 2019 and 2020. This analysis shows a very modest increase in debt-service ratios compared with the date of origination. Keep in mind that many households have had some income growth during these past five years, and these households may have grown accustomed to higher income levels. They may face an adjustment as their debt-service ratio rises once again, with consequences for their consumption spending. Of course, this issue is most important for highly indebted households. We also know that the jump in payments will be greatest for those who took out mortgages when interest rates were at their lowest levels, in 2015 and 2016, so the mortgage renewal process is likely to weigh on the economy more in 2020 and 2021. All that being said, Governing Council concluded that the economy should be resilient to higher interest rates, provided that labour income continues to grow.
The biggest issue on the table was trade tensions. As discussed before, uncertainty around the future of the North American Free Trade Agreement has caused some companies to delay investment spending or to move their investments to the United States. This channel was identified and captured in our projection some time ago. The recent imposition by the US government of actual tariffs on Canadian exports has made the situation more concrete. In the projections we are presenting today, we have added more negative judgment to our business investment forecast in recognition of this. We have also incorporated the effects of the US tariffs on steel and aluminum, and the various countermeasures implemented around the world. Box 2 in the MPR gives a flavour of the complex effects such actions will have on the economy. Let me summarize briefly.
A US company importing Canadian steel must now pay a 25 per cent tariff. They may instead buy steel made in the United States or in some other country. Or, if no obvious substitutes are available, they may just pay the higher price. Or, the Canadian company may offer to reduce its price in order to absorb some of the tariff’s impact. Or, it may look to other markets to sell its products. The response of companies will depend on how long they think the tariffs might be in place—for example, it appears that if NAFTA is successfully renegotiated, those tariffs would no longer be in effect. The point is, the outcome depends on individual reactions, which depend on the circumstances.
And then there are countermeasures. Canada has imposed a 25 per cent tariff on steel imported from the United States. This would seem to level the playing field, but many of the same complexities enter the analysis. All things considered, our analysis suggests that Canadian exports would fall, as would Canadian imports. Prices would rise at a time when the economy is already operating at capacity, so inflation would rise at least temporarily, but the effect could persist. Consumers would have less purchasing power, so demand would slow. Meanwhile, the potential of the economy would be eroded as companies invest less and become less competitive. So, the economy would see shocks to both demand and supply, resulting in two-sided risks to future inflation. Furthermore, the net effect on the economy might be buffered by any fiscal actions that governments might take.
Now, as we said in the MPR, these various effects are likely to be small for the measures already taken. In contrast, a large tariff on Canadian-made automobiles and parts would have a much greater effect on trade and the economy through these same channels. People are understandably concerned about this sort of escalation and want to know how monetary policy might react to it. Indeed, there was speculation that the Bank would not move interest rates today because of the possibility of further trade measures.
The Bank cannot make policy on the basis of hypothetical scenarios. We felt it appropriate to set aside this risk and make policy on the basis of what has been announced. Given the multiple channels through which protectionist measures affect economies, it should be clear that monetary policy is ill-suited to counteract all of their effects. It may, of course, play a supporting role, in conjunction with other policies. But, to put it bluntly, the economy would slow, inflation would rise, and the exchange rate would depreciate, adding further to near-term price pressures in the Canadian economy. Therefore, the implications for interest rates of an escalation in trade actions would depend on the circumstances. Let me emphasize that monetary policy by itself could not undo the long-term damage to jobs and income that could result from rising protectionism.
All this being said, it is important to remember that our economy is in a good place. We are operating near capacity, companies are investing even if some are hesitating, the labour market has been strong, and, most importantly, inflation is on target. In this context, higher interest rates will be warranted to keep inflation near target. Governing Council will continue to take a gradual approach to adjusting rates, guided by incoming data.
With that, Senior Deputy Governor Wilkins and I would be happy to answer your questions.
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USD/CAD drops notably after dovish BoC rate hike. There is additional boost and WTI crude oil spikes higher after larger than expected fall in US crude oil inventory (-12.6m vs -4.1m exp). But still, it’s unable to break through 1.3067 key support level yet.
BoC raises overnight rate target by 25bps to 1.50% as widely expected. The most important part of the statement is that tightening bias is maintained. It noted “governing Council expects that higher interest rates will be warranted to keep inflation near target and will continue to take a gradual approach, guided by incoming data.”
That’s still considered hawkish even though it noted “the Bank is monitoring the economy’s adjustment to higher interest rates and the evolution of capacity and wage pressures, as well as the response of companies and consumers to trade actions.”
Also, as of July projections, the impact of US steel tariffs and Canada retaliation are incorporated already. Yet the “effect of these measures on Canadian growth and inflation is expected to be modest.”
Full statement below.
Bank of Canada raises overnight rate target to 1 ½ per cent
The Bank of Canada today increased its target for the overnight rate to 1 ½ per cent. The Bank Rate is correspondingly 1 ¾ per cent and the deposit rate is 1 ¼ per cent.
The Bank expects the global economy to grow by about 3 ¾ per cent in 2018 and 3 ½ per cent in 2019, in line with the April Monetary Policy Report (MPR). The US economy is proving stronger than expected, reinforcing market expectations of higher policy rates and pushing up the US dollar. This is contributing to financial stresses in some emerging market economies. Meanwhile, oil prices have risen. Yet, the Canadian dollar is lower, reflecting broad-based US dollar strength and concerns about trade actions. The possibility of more trade protectionism is the most important threat to global prospects.
Canada’s economy continues to operate close to its capacity and the composition of growth is shifting. Temporary factors are causing volatility in quarterly growth rates: the Bank projects a pick-up to 2.8 per cent in the second quarter and a moderation to 1.5 per cent in the third. Household spending is being dampened by higher interest rates and tighter mortgage lending guidelines. Recent data suggest housing markets are beginning to stabilize following a weak start to 2018. Meanwhile, exports are being buoyed by strong global demand and higher commodity prices. Business investment is growing in response to solid demand growth and capacity pressures, although trade tensions are weighing on investment in some sectors. Overall, the Bank still expects average growth of close to 2 per cent over 2018-2020.
CPI and the Bank’s core measures of inflation remain near 2 per cent, consistent with an economy operating close to capacity. CPI inflation is expected to edge up further to about 2.5 per cent before settling back to 2 per cent by the second half of 2019. The Bank estimates that underlying wage growth is running at about 2.3 per cent, slower than would be expected in a labour market with no slack.
As in April, the projection incorporates an estimate of the impact of trade uncertainty on Canadian investment and exports. This effect is now judged to be larger, given mounting trade tensions.
The July projection also incorporates the estimated impact of tariffs on steel and aluminum recently imposed by the United States, as well as the countermeasures enacted by Canada. Although there will be difficult adjustments for some industries and their workers, the effect of these measures on Canadian growth and inflation is expected to be modest.
Governing Council expects that higher interest rates will be warranted to keep inflation near target and will continue to take a gradual approach, guided by incoming data. In particular, the Bank is monitoring the economy’s adjustment to higher interest rates and the evolution of capacity and wage pressures, as well as the response of companies and consumers to trade actions.
Euro is lifted by reports that ECB policymakers are split over the timing of the first rate hike in years. ECB official communications said rates will remain at current level until through the summer of 2019. But the wordings are vague and subject to interpretation.
Reuters quoted one unnamed source saying that after September 21 is the “only possible interpretation”. That is, October 24 is the earliest date.
But another unnamed source said “you cannot tie yourself for more than a year”. And instead, the wordings could be interpreted as July 25 meeting for hike if data supports.
UK Cabinet Office Minister David Lidington, Prime Minister Theresa May’s effective second-in-command, said the services industry must diverge from EU rules after Brexit.
He said that “the reason why we are proposing to treat services differently is because it is in services where regulatory flexibility matters most for both current and future trading opportunities.”
And, “while the EU acquis on goods has been stable for about 30 years, the EU acquis on services has not been and the risk of unwelcome EU measures coming into play through the acquis on services is much greater.”
Separealy, European Commission Vice President Valdis Dombrovskis said “overall, even after Brexit, the performance of existing obligations can generally continue.” Therefore, existing financial contracts are unlikely to be affected.
In response to Trump’s attack on Germany as a “captive of Russia”, German Chancellor Angela Merkel recalled the days when East Germany was under USSR control. She told reporters that “I have experienced myself how a part of Germany was controlled by the Soviet Union … I am very happy that today we are united in freedom, the Federal Republic of Germany. Because of that we can say that we can make our independent policies and make independent decisions. That is very good, especially for people in eastern Germany.”
Merkel also added that “Germany does a lot for NATO”, it’s the “second largest provider of troops, the largest part of our military capacity is offered to NATO”. And point to the fact that until today, Germany has a “strong engagement toward Afghanistan” and in that “we also defend the interests of the United States.”
Trump landed his usual accusation of allies in NATO summit in Brussels today. He said “we’re protecting Germany, we’re protecting France, we’re protecting all of these countries. And then numerous of the countries go out and make a pipeline deal with Russia where they’re paying billions of dollars into the coffers of Russia … I think that’s very inappropriate.” He added, “if you look at it, Germany is a captive of Russia. They got rid of their coal plants, they got rid of their nuclear, they’re getting so much of their oil and gas from Russia. I think it is something NATO has to look at.”
Also, Trump said “Germany is totally controlled by Russia because they are getting 60 to 70 percent of their energy from Russia and a new pipeline”. But according to a Reuters fact check on Germany energy use, “about 20 percent of which is accounted for by oil and gas imports from Russia.”
In some countries, it’s typical for sometime to affirm to tell “the truth, the whole truth and nothing but the truth” when making commitment to tell the truth. Why? It’s because liars, especially those morally unfit ones, will usually tell 99% of truth. The 1% left is either hidden, twisted, or made up.
Following selloff in Asia, Major European indices are all trading in red in initial trading. At the time of writing, DAX is down -1.4%, CAC down -1.2%, FTSE down -1.3%. But they are kept well above last week’s low, suggesting that selling is not too serious.
The China SSE composite closed down -49.85 pts, or -1.76% at 2777.77. While SSE lose 2800 handle again, it’s kept well above last week’s low at 2691.02. We’ve mentioned a number of times that 2638.30 – 2700 zone represents important support level. Judging from the fact that SSE close just slightly lower than open at 2780.70, there was no panic selling. We’re holding on to the case that 2691.02 is at least a short term bottom and there should be another rise through 2848.37 to extend the corrective rebound.
In the currency markets, Australian Dollar remains the weakest one for today, with AUD/USD as the biggest loser.
From Action Bias point of view, the string of downside red bar in H Action Bias is hinting at down trend resumption. The break of 0.7414 minor support today is another signal on it. But we’d wait for 6H Action Bias to turn red too to give us more confidence on it. After all, we see 0.7328 as an important medium term support that takes some determination to break.
China MOFCOM responds to US move on tariffs on USD 200B in Chinese imports below.
Google translated, not perfect but you’ll get the idea. Original in simplified Chinese here.
“It is totally unacceptable for the US to publish the tax collection list in an accelerated upgrade. We express our solemn protest. The behavior of the US is hurting China, hurting the world, and hurting itself. This irrational behavior is unpopular.
The Chinese side is shocked by the actions of the US. In order to safeguard the core interests of the country and the fundamental interests of the people, the Chinese government will, as always, have to make the necessary counter-measures. At the same time, we call on the international community to work together to safeguard the rules of free trade and the multilateral trading system and jointly oppose trade hegemonism. At the same time, we will immediately file an additional lawsuit against the US unilateralist behavior to the World Trade Organization.”
The US Retail Industry Leaders Association responded to Trump’s latest move on tariffs on USD 200B in Chinese goods. The group condemned Trump for breaking his promise to bring ‘maximum pain on China, minimum pain on consumers”. And it warned Trump administration not to “move the goal post any more”.
Separately, a spokesperson of the US Chamber of Commerce warned that “tariffs are taxes, plain and simple. Imposing taxes on another $200 billion worth of products will raise the costs of every day goods for American families, farmers, ranchers, workers, and job creators. It will also result in retaliatory tariffs, further hurting American workers.”
Here is the full statement of RILA:
RETAILERS RESPOND TO ADMINISTRATION’S LATEST ANNOUNCEMENT ON TARIFFS
Today, Retail Industry Leaders Association vice president of international trade, Hun Quach, issued a statement following the Administration’s announcement of new tariffs on an additional $200 billion worth of imported goods from China:
“American retailers and the families we serve barely had time to process the barrage of tariffs implemented last week. Now, we will need to grapple with new tariffs on an additional $200 billion worth of imports, which are bound to include even more consumer products and everyday essentials.
“The President has broken his promise to bring ‘maximum pain on China, minimum pain on consumers,’ and American families are the ones being punished. Consumers, businesses and the American jobs dependent on trade, are left in the crosshairs of an escalating global trade war.
“The Administration cannot continue to move the goal post. Unless the Administration finds meaningful solutions, American businesses, families, and jobs are on the losing end of this battle.”
“Defence spending and burden-sharing will be high on the agenda” as NATO said in a statement released ahead of the summit of the 29 Allies in Brussels today and tomorrow (July 11, 12). NATO Secretary General Jens Stoltenberg noted that “we expect 8 Allies to spend at least 2 percent of GDP on defence this year, compared to just 3 Allies in 2014.” In additional, he estimated that European Allies and Canada will add an “extra 266 billion US dollar” to defence between now and 2024.
But a showdown is expected in the summit as US President Donald Trump continued to blasts his own allies ahead of the meeting.
He tweeted yesterday:
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Asian markets are generally trading in red on US announcement on the move to impose 10% tariffs on USD 200B in Chinese goods. But after initial weakness, stocks are starting to recover.
Shanghai SSE hit as low as 2758.91 and is now at 2792, down -1.25%.
Hong Kong HSI hit as low as 28013.72 and is now at 28270, down -1.44%.
Nikkei hit as low as 21744.25 and is now at 21891, down -1.38%.
Let’s see if the recovery could sustain. The key would be of whether SSE could regain 2800, or kisses it good bye.
In the currency markets. Dollar, as it happens recently, is benefiting from rising trade tension and is trading broadly higher. Yen also surges on risk version. But gains on both currencies are limited so far. Commodity currencies are the main casualties with Australian Dollar leading the way down.
Trump said NATO members agreed to rise defense spending substantially
Trump holds an unscheduled press conference after an “emergency” NATO meeting. He reiterate that the US commitment to NATO “remains very strong”. And he’s “extremely happy” that all members have agreed to raise their defense spending.
Trump said in the conference that “everyone has agreed to substantially up their commitment. They’re going to up it at levels that they never thought of before.” And, “I told people that I’d be very unhappy if they didn’t up their financial commitments substantially” “I let them know that I was extremely unhappy with what was happening, and they have now substantially upped their commitment.”
Answering CNN’s question on whether his insulted Germany by saying they’re a “captive” of Russia, Trump said it’s a very effective way to deal,” “it’s a very effective way of negotiating.”