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European Update: Sterling recovers, bears refuses to commit

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    ActionForex.com
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    Sterling rebounds broadly today, except versus Kiwi, as bears refuse to commit further selling. Stronger than expected UK wage growth in September does provide some support. But more importantly, there are rumors flying around about an imminent Brexit deal with the EU. It’s reported that the “texts” are ready and they’re just waiting for the nod from UK Prime Minister Theresa May. We’ll see if both sides can really agree on something that paves the way to a November EU summit.

    Australian and New Zealand Dollar are also strong on improved sentiment over optimism on US-China trade spat. China Vice Premier Liu He might travel to the US to meet with Treasury Secretary Steven Mnuchin shortly, to prepare for the meeting between Trump and Xi on November 30 at the G20 summit. Yen and Dollar are trading as the weakest ones, paring some of this week’s gain. Canadian Dollar is back under pressure as WTI crude oil resumes recent free fall and hit as low as 58.33.

    In other markets, major European indices are trading higher at the time of writing:

    • FTSE is up 0.23%
    • DAX is up 0.91%
    • CAC is up 0.54%
    • German 10 year yield is up 0.003 at 0.404
    • Italian 10 year yield is up 0.020 at 3.467. German-Italian spread is above 300

    Earlier in Asia

    • Nikkei closed down -2.06% at 21810.52
    • Hong Kong HSI rose 0.62% to 25792.87
    • China Shanghai SSE rose 0.93% to 2654.88
    • Singapore Strait Times dropped -0.47% to 3053.6
    • Japan 10 year yield dropped further by -0.0026 to 0.117

    New Zealand business confidence dropped -53.5, no impact from RBNZ’s rate cut

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      ActionForex.com
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      New Zealand ANZ Business Confidence dropped to -53.5 in September, down from -52.3. That’s also the worst reading since April 2008. Agriculture scored weakest confidence at -75.6 while manufacturing was best at -46.2. Activity outlook also dropped to -1.8, down from -0.5. Activity outlook was worst in construction at -7.1, best at services at -0.6.

      ANZ noted that RBNZ will be “disappointed that its unexpectedly large 50bp cut in the Official Cash Rate last month does not appear to have had much impact on business’ sentiment or investment and employment intentions.” And, “prolonged lack of confidence is starting to feed its way through the economy and is threatening the tight labour market.” Also, “this gradual but prolonged economic slowdown is at risk of ceasing to be about the data and starting to become about the people.

      Full release here.

      Today’s decline in NZD/JPY the release suggests the corrective recovery from 67.20 has completed at 68.26, after failing to sustain above 4 hour 55 EMA. Focus is immediately back on 67.20 and break will target a test on 66.31 low. Overall, NZD/JPY is clearly staying in near term down trend, held well by falling 55 day EMA. Next target is 61.8% projection of 73.24 to 66.31 from 69.68 at 65.39, and then 100% projection at 62.75.

      New Zealand CPI rose 0.5% qoq on transport costs, NZD recovers mildly

        By
        ActionForex.com
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        New Zealand CPI slowed to 0.5% qoq in Q4, down from 0.7% qoq, but beat expectation of 0.4% qoq. Annually, CPI accelerated to 1.9% yoy, up from 1.5% yoy, but missed expectation of 2.2% yoy. Transport cost was a main driver of quarterly inflation pickup, rose 2.1%. Recreation and culture rose 1.6%. Housing and household utilities rose 0.5%. On the other hand, food prices dropped -0.6%.

        NZD/USD recovers mildly after the release but upside is so far limited. As long as 0.6665 minor resistance holds, corrective fall from 0.6755 might extend through 0.6851 temporary low. But considering bullish convergence condition in 4 hour MACD, downside should be contained by 38.2% retracement of 0.6203 to 0.6755 at 0.6544 to bring rebound. Break of 0.6665 should bring retest of 0.6755 high.

        Fed’s Mester, Bostic, and Barkin signal extended restrictive stance

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          ActionForex.com
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          Some Fed officials have emphasized overnight the need for a extended period of restrictive monetary policy as they seek clearer signs of sustainable inflation reduction.

          At an event, Cleveland Fed President Loretta Mester stated that incoming economic data suggests it will “take longer” to gain the confidence needed to start lowering interest rates. Mester emphasized that “holding our restrictive stance for longer is prudent” as Fed seeks clarity on the inflation path.

          Atlanta Fed President Raphael Bostic, speaking at another event, acknowledged that the April inflation report provided some important insights, particularly noting a slowed rise in shelter costs. However, he cautioned that “one data point is not a trend,” highlighting the importance of watching the May and June data to ensure figures don’t reverse.

          In a CNBC interview, Richmond Fed President Thomas Barkin reiterated the need for patience, noting that achieving 2% inflation sustainably “is going to take a little bit more time.” Barkin pointed out that there is still significant movement on the services side of the economy.

          China Caixin PMI composite dropped to 28-month low, mounting downward pressure on the economy

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            ActionForex.com
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            China Caixin PMI services dropped to 50.8 in October, down from 53.1 and missed expectation of 52.9. That’s the lowest level in 13 months.

            PMI composite output index dropped from 51.2 to 50.5, hitting a 28-month low, lowest since June 2016.

            Commenting on the China General Services PMI™ data, Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:

            “The Caixin China General Services Business Activity Index slipped significantly to 50.8 in October from the previous month, marking its lowest level since September 2017. The subindex for new business dropped to its lowest point since November 2008, despite staying in expansionary territory, indicating an obviously weakening demand for services. The employment subindex returned to positive territory following a drop in the previous month. The subindex for prices charged by service providers also returned to positive territory, while the one for input costs dropped despite staying in positive territory, suggesting easing pressure on company profit margins. The subindex for business expectations, which gauges services providers’ confidence toward operation prospects over the next 12 months, edged down mildly.

            “The Caixin China Composite Output Index dipped to 50.5 in October from the previous month, reaching its lowest level since June 2016, indicating mounting downward pressure on China’s economy. The subindex for new orders fell, pointing to softening overall demand conditions. The employment subindex edged up despite staying in negative territory, which could possibly be due to government efforts to stabilize the labor market. The subindex for input costs remained unchanged from the month before, while the one for output charges inched up, indicating easing pressure on company profit margins — though upward price pressure remained. The subindex for future output edged down, reflecting weakening confidence among companies.”

            Full release here.

            Bundesbank Weidmann: Get the normalization ball rolling without undue delay

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              ActionForex.com
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              Bundesbank President Jens Weidmann warned today that ECB must not delay monetary policy normalization. He said, it’s ” time to begin exiting the very expansionary monetary policy and the non-standard measures, especially considering their possible side effects.” And, such normalization process would “take place only gradually over the next few years.” That “exactly why it has been so important to actually get the ball rolling without undue delay.”

              Weidmann added that ECB’s projection of 1.7% headline inflation for 2020 is “broadly consistent” with the mandate. And, domestic prices are ” likely to intensify as aggregate capacity utilization increases.” Therefore, “they will thus counteract waning impetus from other components of the inflation rate, such as energy prices.”

              UK PMI composite output dropped to 17-mth low, growth slowed to a crawl

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                ActionForex.com
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                UK PMI Manufacturing dropped from 52.8 to 52.2 in July, above expectation of 52.0. that’s the lowest level in 24 months. PMI Services dropped from 54.3 to 53.3, above expectation of 53.2. That’s the lowest level in 17 months. PMI Composite dropped from 53.7 to 52.8, a 17-month low.

                Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: “UK economic growth slowed to a crawl in July, registering the slowest expansion since the lockdowns of early-2021. Although not yet in decline, with pent-up demand for vehicles and consumer-oriented services such as travel and tourism helping to sustain growth in July, the PMI is now at a level consistent with just 0.2% GDP growth….

                “The concern is that rising interest rates, as the Bank of England seeks to control inflation, will cause demand growth to weaken further in the coming months. To be hiking interest rates at a time of such weak business growth is unprecedented over the past quarter-century of survey history.

                Full release here.

                Eurozone PMI manufacturing dropped to 45.6, downturn spreading to services too

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                  ActionForex.com
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                  Eurozone PMI Manufacturing dropped to 45.6 in September, down from 47.0 and missed expectation of 47.3. That’s the lowest level in 83 months. PMI services dropped to 52.0, down from 53.5, missed expectation of 53.3. That’s also an 8-month low. PMI Composite dropped to 50.4, down from 51.9, a 75-month low.

                  Commenting on the flash PMI data, Chris Williamson, Chief Business Economist at IHS Markit said:

                  “The eurozone economy is close to stalling as a deepening manufacturing downturn shows further signs of spreading to the services sector.

                  “The survey data indicate that GDP looks set to rise by just 0.1% in the third quarter, with momentum weakening as the quarter closed.

                  “The goods-producing sector is going from bad to worse, suffering its steepest downturn since 2012, but a further worrying trend is the broadening-out of the malaise to the service sector, where the rate of growth has now slowed to one of the weakest since 2014.

                  “The details of the survey suggest the risks are tilted towards the economy contracting in coming months. Most vividly, new orders for goods and services are already falling at the fastest rate since mid-2013, suggesting firms will increasingly look to reduce output unless demand revives.

                  “Furthermore, hiring is being scaled back due to the order book slowdown, with jobs growth now down to the lowest since the start of 2015. A worsening labour market adds to the risk that households could trim their spending.

                  “The overall picture of an economy on the cusp of sliding into decline is underscored by a further deterioration in firms’ pricing power, with average prices charged for goods and services barely rising in September.

                  “With survey data like these, pressure will grow on the ECB to add to its recent stimulus package.”

                  Full release here.

                  Australia retail sales rose 0.6% mom in Aug

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                    ActionForex.com
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                    Australia retail sales turnover rose 0.6% mom to AUD 34.88B in August, slightly above expectation of 0.5% mom. That’s the eighth consecutive monthly increase.

                    Ben Dorber, head of retail statistics at the ABS, said: “This month’s rise was driven by the combined increase in food related industries, with cafes, restaurants and takeaway food services up 1.3 per cent and food retailing up 1.1 per cent.”

                    “While households continue to spend, non-food industry results were mixed and only contributed a small amount to the total rise in retail turnover.”

                    Full release here.

                    BoJ Uchida: Monetary easing to continue to nurture firms’ changing pricing strategies

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                      ActionForex.com
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                      BoJ Deputy Governor Shinichi Uchida highlighted in a speech today an emerging trend in firms’ pricing strategies, noting that “firms are developing more forward-looking strategies for setting prices.” According to Uchida, these changes “might be the chance to finally change Japan’s economy.” Hence, he emphasized BoJ will “patiently continue with monetary easing to carefully nurture these signs.”

                      Uchida was explicit in outlining the Bank’s monetary policy stances. Firstly, he ruled out near-term adjustments to short-term interest rate, currently at -0.10%, stating “there is still a long way to go before such decisions are made.”

                      Secondly, BoJ will “maintain the current framework” until sustainable and stable achievement of 2% inflation target “come in sight”.

                      Thirdly, Uchida affirmed the ongoing yield curve control under the present policy framework, aiming to balance its benefits and drawbacks, especially in relation to financial intermediation and the market.

                      Despite the high economic and price outlook uncertainty, Uchida stated the recent yield curve control modification, allowing the 10-year JGB yield to rise to up to 1%, is aimed at sustaining the ultra-loose policy. “Needless to say, we do not have an exit from monetary easing in mind,” he emphasized.

                      US exports rose 1.1% in Apr, imports dropped -1.4%

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                        ActionForex.com
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                        US goods and services exports rose 1.1% mom to USD 205.0B in April. Imports dropped -1.4% mom to USD 273.9B. Trade deficit narrowed to USD 68.9B, from March’s USD 75.0B, matched expectations.

                        Trade deficit dropped USD 7.1B to USD 32.4B, while exports rose USD 1B and imports dropped USD 6B. Deficit with EU dropped USD 1B to USD 16.1B, while exports rose USD 2B and imports rose USD 1B.

                        Full release here.

                        Ifo: German economy to contract only -5.2% this year, enormous uncertainty due to coronavirus, Brexit and trade wars

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                          ActionForex.com
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                          Ifo said Germany’s recession was “rather mild compared with other countries”. Spread of the coronavirus was brought under control with less restrictive measures. Industrial production was also less affected by government’s measures. Still, GDP will not reach its pre-crisis level until Q2 of 2021.

                          GDP forecasts was revised up to -5.2% in 2020, raised from prior forecast of 6.7%. 5.1% growth in GDP is projected for 2021 and then 1.7% in 2022. Unemployment rise is forecast to drop steadily from 5.9% in 2020 to 5.7% in 2021 and 5.5% in 2022. CPI is projected to climb back from 0.6% in 2020 to 1.4% in 2021, then 1.6% in 2022.

                          Ifo chief economist Timo Wollmershaeuser noted, however, “the degree of uncertainty in our forecasts is enormous because nobody knows how the coronavirus pandemic will develop, whether there will be a hard Brexit after all, and whether the trade wars will be resolved. ”

                          Full release here.

                          Germany ZEW jumped to 16.9, positive again after a year

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                            ActionForex.com
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                            Germany ZEW Economic Sentiment jumped sharply from -23.3 to 16.9 in January, well above expectation of -15.5. That’s also the first positive reading in a year since February 2022. Current Situation improved from -61.4 to -58.6, below expectation of -57.0.

                            Eurozone ZEW Economic Sentiment surged from-23.6 to 16.7, well above expectation of -14.3. Current Situation rose 2.6 pts to -54.8.

                            ZEW President Professor Achim Wambach said: “The ZEW Indicator of Economic Sentiment signals a positive outlook again in January. For the first time since February 2022, the month in which the war in Ukraine began, the indicator points to a noticeable improvement in the economic situation over the next six months.

                            “The more favourable situation on the energy markets and the German government’s energy price caps have contributed to this in particular. In addition, export conditions for the German economy are improving due to China’s lifting of Covid-restrictions.

                            “Accordingly, the earnings expectations of the export-oriented and energy-intensive sectors have gone up significantly. The prospect that the inflation rate will continue to fall has brightened expectations for the consumer-related sectors.”

                            Full release here.

                            SECO downgrades 2024 Swiss growth outlook

                              By
                              ActionForex.com
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                              Swiss State Secretariat for Economic Affairs has revised down its 2024 economic growth forecast for Switzerland, now expecting a growth of 1.1% instead of previous 1.2%. This revision indicates an expectation of below-average growth for the Swiss economy for a second consecutive year. A key factor influencing this outlook is the expected slow growth in the eurozone in 2024, which is anticipated to impact Swiss exports.

                              Looking ahead to 2025, SECO forecasts an economic recovery with growth projected at 1.7%, driven by a gradual global economic rebound. On the inflation front, SECO anticipates deceleration from 2.1% in 2023 (revised down from 2.2%) to 1.9% in 2024, followed by a further reduction to 1.1% in 2025.

                              SECO’s report also underscores several considerable risks to the economic outlook. Ongoing conflict in the Middle East poses geopolitical risks that could lead to surge in oil prices and, consequently, higher inflation. Additionally, the report warns of possibility of tighter international monetary policy in response to sustained core inflation.

                              Other highlighted risks include global debt, potential market corrections in real estate and finance, and balance sheet vulnerabilities at financial institutions. Further, economic developments in Germany and China are noted as potential risks for the international economy that could adversely affect Swiss foreign trade.

                              Energy security remains a concern for Switzerland. Significant energy shortage in Europe, leading to widespread production stoppages and a severe economic downturn, could push Switzerland into a recession coupled with high inflation.

                              Full Swiss SECO forecasts release here.

                              SNB stands pat, upgrades 2021 and 2022 inflation forecasts

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                                ActionForex.com
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                                SNB kept the sight deposits rate unchanged at -0.75% as widely expected. It also remained “remains willing to intervene in the foreign exchange market as necessary, in order to counter upward pressure on the Swiss franc”. The Swiss Franc “remains highly valued”.

                                The new conditional inflation forecasts for 2021 and 2022 were revised higher “primarily due to higher import prices, all all for oil products and for goods affected by global supply bottlenecks”. New forecast stands at 0.6% for 2021, 1.0% for 2022 and 0.6% for 2023, comparing to September forecasts of 0.5% for 2021, 0.7% for 2022, and 0.6% for 2023. They based on assumption that policy rate remains at -0.75% over the entire forecast horizon.

                                As for the economy, the baseline scenario is a “continuation of the economic recovery next year”. SNB expects GDP growth of around 3% for 2022 while unemployment is “likely to decline again somewhat”.

                                Full statement here.

                                Bundesbank: Germany inflation to hit 7% or higher, resolute action needed

                                  By
                                  ActionForex.com
                                  -

                                  Bundesbank revised down growth projection for Germany’s GDP in 2022 and 2023, and upgraded inflation projection for 2022, 2023, and 2024.

                                  2022 GDP growth is slashed from 4.2% to just 1.9%. 2023 growth was cut from 3.2% to 2.4%. But 2024 growth was raised from 0.9% to 1.8%.

                                  2022 HICP inflation forecast was raised from 3.6% to 7.1%. 2023 HICP forecast was raised from 2.25% to 4.5%. 2024 HICP forecast was raised from 2.2% to 2.6%.

                                  President Joachim Nagel said: “Inflation this year will be even stronger than it was at the beginning of the 1980s. Price pressures have even intensified again recently, which is not fully reflected in the present projections. If this development is assumed to continue, the annual average HICP rate for 2022 could be considerably above 7%”.

                                  Euro area inflation rates won’t fall by themselves,” Nagel added. “Monetary policy is called upon to reduce inflation through resolute action.”

                                  Full release here.

                                  PBoC announces RRR cut to support the real economy

                                    By
                                    ActionForex.com
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                                    China’s central bank PBoC announced to lower reserve requirement ratio for all banks by 50bps, starting September 16. Additionally, the RRR will be lowered by further 100bps for commercial banks operating only in the provincial administrative region, to support small and micro enterprises. This additional RRR cut will be implemented by two batches on October 15 and November 15.

                                    Together, the RRR cuts are expected to release around CNY 900B. They will increase resources of financial institutions for supporting the real economy. And, targeted RRR cut is an important measure to improve the “three-grade and two-optimal” policy framework for small and medium-sized banks to implement a low deposit reserve ratio.

                                    PBoC also said that the RRR cut will hedge against tax period in mid-September. Total liquidity of the banking system will remain basically stable. Thus, stable monetary policy orientation has not changed.

                                    European Commission forecasts -7.7% contraction in Eurozone GDP this year

                                      By
                                      ActionForex.com
                                      -

                                      European Commission forecasts Eurozone GDP to contract -7.7% in 2020, then rebound by 6.3% in 2021. Inflation is projected to slow sharply to 0.2% in 20202, then climb back to 1.1% in 2021. Unemployment rate would jump to 9.6% in 2020, then fall back to 8.6% in 2021.

                                      EU GDP is projected to contract -7.4% in 202, then rebound by 6.1% in 2021. Inflation would drop to 0.6% in 2020, then climb back to 1.3% in 2021. Unemployment rate would surge to 9.0% in 2020, then fall back to 7.9% in 2021.

                                      Valdis Dombrovskis, Executive Vice-President for an Economy that works for People, said, the coronavirus pandemic is a “symmetric shock” as all EU countries are expected to fall into recession this year. The collective recovery will “depend on continued strong and coordinated responses at EU and national level.”

                                      Paolo Gentiloni, European Commissioner for the Economy, said, “Both the depth of the recession and the strength of recovery will be uneven, conditioned by the speed at which lockdowns can be lifted, the importance of services like tourism in each economy and by each country’s financial resources. Such divergence poses a threat to the single market and the euro area”.

                                      Full release here.

                                      Fed Bullard: May have to act sooner to keep inflation under control

                                        By
                                        ActionForex.com
                                        -

                                        St. Louis Fed President James Bullard told Fox Business network, that supply chain disruption is expected to extend through 2022. “if inflation is more persistent than we are saying right now, then I think we may have to take a little sooner action in order to keep inflation under control,” he added.

                                        But he said, “we’ve done a lot to move the policy in a more hawkish direction.” And, “if we had to, we could end the taper somewhat sooner than June”.

                                        He penciled in two rate hikes in 2022.

                                        German ifo dropped to 95.9, manufacturing improved markedly, services fell noticeably

                                          By
                                          ActionForex.com
                                          -

                                          Germany ifo Business Climate dropped to 95.9 in January, down from 96.3, missed expectation of 97.0. Current Assessment Index rose to 99.1, up from 98.8, but missed expectation of 99.4. Expectations Index dropped to 92.9, down form 93.9, missed expectation of 95.0.

                                          Ifo President Clemens Fuest said the decline in the headline index was “due to companies’ more pessimistic outlook for the coming months”. The German economy is starting the year “in a cautious mood”.

                                          Manufacturing “improved markedly”, up from -5.0 to -1.6, and is showing “signs of recovery”. But services indictor “fell noticeably” from 21.3 to 18.7, “due to companies’ considerably more restrained expectations”. Trade rose from 0.0 to 2.2 while construction dropped from 17.9 to 14.0.

                                          Full release here.

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