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BoE Carney warns of financial stability risks originating beyond the UK shores

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    ActionForex.com
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    The Bank of England published the latest Financial Stability Report today. In the opening remarks of the press conference, BoE Governor Mark Carney warned that “events of the past few months are a reminder that many of the most important risks to financial stability in the United Kingdom originate beyond our shores.”

    The risks include “recent tightening in global financial conditions” that could be a “‘precursor to a much more substantial snapback in world interest rates”. There could be “more challenging bank, corporate and sovereign funding conditions.”

    Besides, “Rising protectionist sentiment could sap some of the current strength of the global economy and reduce the size of sustainable external imbalances.”

    In addition, “the complete set of mitigants to the risks of a cliff-edge Brexit also rely on the efforts of EU authorities”. Lastly, “cyber risks to UK financial services could originate from anywhere on the planet.”

    Here is Carney’s remarks.

    Here is the report.

    Below is the press conference.

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    ECB: Impacts of exchange rate on inflation are spread out over several quarters

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      ECB published an article today titled Monitoring the exchange rate pass-through to inflation. There it noted that exchange rate developments can play an “important role” in shaping the HICP inflation outlook, through “both direct and indirect channels”. The impacts are “spread out over several quarters”. And, the effect could be difficult to detect if it is “offset by a confluence of other factors”. Among the components, “energy and food, non-energy industrial goods” are most sensitive to exchange rate movements.

      As the background, Euro appreciated by about 8% in nominal effective terms and by about 10% against the US dollar, between April 2017 and May 2018. The impact of past euro exchange rate appreciation has been clearly visible in import price developments. The report pointed to import prices for non-food consumer goods, which dropped to 2.0% in April 2018, down from 1.3% in 2017. Over the same period, extra-euro area import price inflation for industry (excluding energy and construction), which also affect prices earlier in the domestic production chain, decreased from 3.1% to ‑1.7%.

      Producer price inflation, on the other hand, has remained resilient to downward pressure from the exchange rate appreciation. PPI for intermediate goods declined only moderately during the period. PPI of non-food consumer goods increased from 0.2% in April 2017 to 0.5% in April 2018.

      Indirectly, euro exchange range can affect domestic price pressure through company profits, “albeit with a somewhat ambiguous overall sign.” The
      non-energy industrial goods inflation does not provide a clear sign for significant effects of the exchange rate appreciation.

      Full report here.

      New Zealand Dollar selloff extends ahead of RBNZ

        By
        ActionForex.com
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        New Zealand Dollar is under broad based selling pressure today as markets await RBNZ rate decision. RBNZ will keep the OCR unchanged at 1.75%, no doubt. It will also reiterate the neutral stance to “keep the OCR at this expansionary level for a considerable period of time” too. The main question is how RBNZ Governor Adrian Orr view the balance of risks. On the one hand, there will be stimulus from the government’s expansive fiscal policy. But on the other hand, there is threat of global trade war and slow down in China, it’s major trading partner.

        Action Bias tables and charts of NZD/USD show down trend resumption with solid downside momentum. In particular, the lack of upside blue bar in the corrective rise since May shows that bears remained in control despite the rebound.

        Further fall should be seen to 0.6779 (2017 low) support in near term. We’d maintain our view here that 0.6779 is a key support level. For short term trading one should tighten up the stop as NZD/USD approaches 0.6779 to guard of a strong and quick rebound.

        For position trading, we’d suggest to have a little patience to see if NZD/USD would take out this level firmly. And, decisive break there will confirm completion of the corrective rise from 2015 low at 0.6102. That would also be accompanied by a head and shoulder top (ls: 0.7487, h: 0.7557, rs: 0.7436. And that will very likely resume the long term down trend from 2014 high at 0.8835, through 0.6102. It’s worth the wait.

        New Zealand business confidence deteriorated, trade surplus widened

          By
          ActionForex.com
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          New Zealand ANZ Business Confidence deteriorated again in June and dropped to -39.0, down from -27.2. The Own Activity index also dropped from 14 to 9. ANZ noted in the release that the GDP growth growth indicator remained expansionary but “the economy may continue gently losing steam over coming months, despite the support coming from fiscal stimulus and high commodity prices.”

          And, “tailwinds in the form of fiscal stimulus and strong terms of trade will see the economy continue to grow at about par. However, cost, credit and capacity headwinds have strengthened, and firms have noticed.”

          Full release here.

          New Zealand trade surplus widened to NZD 294m in May, beat expectation of NZD 100m. Goods exports rose 10% to NZD 5.4B, hitting a new high for total exports in a May month, and the second largest for any month. Goods imports rose 5.7% to 5.1B, also a new high for total imports in a May month.

          Full release here.

          BoJ Amamiya: Don’t change public perceptions with a shock blow

            By
            ActionForex.com
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            BoJ Deputy Governor Masayoshi Amamiya said Japan is having “steady progress” towards 2% inflation even though that could take time. And he emphasized that “instead of trying to change public perceptions with a shock blow, we should guide inflation toward our target through steady improvements in the output gap and inflation expectations.”

            He added that BoJ will “scrutinise factors that are preventing inflation from accelerating” and “look very carefully into what is happening.” He doesn’t rule out fine-tuning of the ultra-loose monetary policy and “an adjustment could happen if that’s necessary to stably achieve our price target.

            USTR Lighthizer on EU’s complete hypocrisy and distortion of WTO rules

              By
              ActionForex.com
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              US Trade Representative Robert Lighthizer condemns retaliatory tariffs from EU and other WTO members in a statement released overnight. He claimed that the US actions on steel and aluminum tariffs were “wholly legitimate and fully justified”. But the EU has concocted a groundless legal theory to justify immediate tariffs on U.S. exports.

              Lighthizer went further to say that “these retaliatory tariffs underscore the complete hypocrisy that governs so much of the global trading system.” According to him, the EU and others claimed to champion the WTO but “their recent tariffs prove that they simply ignore WTO rules whenever doing so is convenient.”

              Also, “when the EU and others falsely assert the U.S. steel and aluminum duties are safeguard measures, and impose retaliatory duties under this pretense, they do great damage to the multilateral trading system.  Indeed, they show that they are willing to distort WTO rules to mean whatever they want, whenever they want.”

              Full statement here.

              In short, the US is ready to go for auto tariffs.

              Dallas Fed Kaplan: Let’s fight the big threat China, not others

                By
                ActionForex.com
                -

                Dallas Fed President Robert Kaplan trade with Canada and Mexico boosts US employment and competitiveness. And he warned that the US risks losing such competitiveness as the trade spat continues. He emphasized that the real threats come from China. Kaplan noted that “intellectual property rights and technology transfer are very big issues, where China is using the joint ventures to get technology and then compete globally” And, “let’s fight what I think is actually a very big threat, which is the relationship with China.”

                Regarding monetary policy, he reiterated the view that neutral rate is between 2.50-2.75%. And Fed is “still accommodative” at the current 1.75-2.00%. Kaplan also felt reluctant to dismiss the yield curve signal on recession as it reflections expectations of future growth. Flattening yield curve can also affect behavior of businessmen.

                Atlanta Fed Bostic could move away from four hikes as trade spat worsens

                  By
                  ActionForex.com
                  -

                  While Fed is projecting four rate hikes in total this year, Atlanta Fed President Raphael Bostic said there is “some likelihood I will be moving away from four as a real possibility” due to the development of US trade policy. He commented on the “progresses the way it has been the last couple of days” regarding the trade threats of Trump’s administration to trading partners. And Bostic noted that “the more it progresses in this more contentious way, the more it leads me to feel the risks are on the downside for the broader economy.”

                  He added that “the disruption that comes from this type of trade war is not going to be good for the cost basis for businesses and it makes me a bit concerned how robust the economy will perform moving forward.”

                  ECB de Guindos: Risks stem from increased protectionism, oil prices and debt

                    By
                    ActionForex.com
                    -

                    ECB Vice President Luis de Guindos said Eurozone is on track for solid and broad-based growth. And there is increasing confidence for on inflation. But he also warned that “downside risks to the outlook stem from the threat of increased protectionism, rising oil prices and its impact on inflation and global growth, as well as very elevated levels of global debt.”

                    Meanwhile, the relatively muted reactions on ECB’s June policy meeting suggested that the policy stance is appropriate. He also emphasized that “monetary policy will be firmly guided by the outlook for price stability and our stance will evolve in a data-dependent and time-consistent manner.”

                    US consumer confidence dropped to 126.4, not foresee the economy gaining much momentum in the months ahead

                      By
                      ActionForex.com
                      -

                      Conference Board US consumer confidence dropped to 126.4 in Jun, down from 128.8 and missed expectation of 127.6.

                      Quote from the release by Lynn Franco, Director of Economic Indicators at The Conference Board:

                      “Consumer confidence declined in June after improving in May,”

                      “Consumers’ assessment of present-day conditions was relatively unchanged, suggesting that the level of economic growth remains strong.

                      While expectations remain high by historical standards, the modest curtailment in optimism suggests that consumers do not foresee the economy gaining much momentum in the months ahead.”

                      Trump blasts Harley Davidson again, finishing study of car tariffs

                        By
                        ActionForex.com
                        -

                        In a series of tweets, Trump blasts Harley-Davidson for using tariffs/trade wars as excuse for moving production to Thailand. And he warned that HD won’t be able to sell back into the US “without paying a big tax.

                        Also, he said the administration is “finishing” the study of tariffs on cars from EU. Trump blamed EU again as “they have long taken advantage of the U.S. in the form of Trade Barriers and Tariffs.” Trump promised “in the end it will all even out – and it won’t take very long!”

                        So, it’s clear that Trump is continuing with his confrontational approach on trade. For those who’s still expecting de-escalation, it’s time to wake up.

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                        BoE Haskel agrees with MPC’s broad direction of travel

                          By
                          ActionForex.com
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                          New BoE MPC member Jonathan Haskel testifies in the parliament today. On interest rates he said that “at this stage, I would merely say that given current conditions and current economic data, I agree with the broad direction of travel (of the BoE’s current guidance).”

                          But he pointed out that “ultimately, long run consumer demand depends on how much (perceived long run) incomes grow and how much is saved or spent.” And, “in recent years savings rates seem to have declined and thus consumption has been stronger than was expected. I would expect that savings rates would fall assuming the outlook for wages and productivity remains subdued.” Therefore, he predicted that ” outlook for consumer spending in the UK is that it will be similarly subdued.”

                          On Brexit, Haskel said “what all of this hangs on is the extent to which we can re-negotiate advantageous supply trade relationships, trade and services and all of those kinds of things.” And, “If they can be negotiated and we can be in a good place, then the economy can keep on growing. If we’re in a bad place, then I think most people will agree there may at least be a temporary lull.”

                          Haskel’s term will start in September. That is, after the highly anticipated August BoE MPC meeting, when a rate hike is on the table.

                          UK Hammond: Full scale trade war a disaster for everyone, not least for US

                            By
                            ActionForex.com
                            -

                            UK Chancellor of Exchequer Philip Hammond said today that “I very much hope that we can avoid a full scale trade war (because) that would be a disaster for everyone, not least for the United States”. He added that “but what I can say is this: whatever happens the UK will remain an outspoken proponent of open markets and free trade, low tariff barriers and low non-tariff barriers.”

                            Also Hammond said that “we live in uncertain times because the old certainty for many decades has been that the United States was completely wedded to open markets and free trade.”

                            China drops tariffs on soybeans, soybean cake and fishmeal from Asian neighbors

                              By
                              ActionForex.com
                              -

                              China announced to drop tariffs on some animal feed ingredients from five Asian neighbor countries. The products include soybeans, soybean cake and fishmeal. There are currently 3%, 5% and 2% tariffs on these products currently. And, tariffs on these products originating from Bangladesh, India, Laos, South Korea and Sri Lanka will be dropped effective July 1.

                              The move is seen as a preparation for US initiated trade war. China announced to retaliate to US section 301 tariffs. Soybean is on the list of US goods to be imposed 25 tariffs, effective July 6.

                              Gold building up bearishness for 1236 support

                                By
                                ActionForex.com
                                -

                                Gold’s selling pressure re-emerges today and it looks like recovery from last week’s low of 1261.52 has completed yesterday. Focus is back on 1261.52 now. And break will resume the fall from 1365.24. near term outlook is quite bearish, with solid break of trend line support and rejection by the falling 55 day EMA. 1236.66 will be the next downside. While some support might be seen there on first attempt, outlook will stay bearish as long as 1309.30 resistance holds.

                                Also, current development also re-confirm the strong resistance from long term fibonacci level of 1920.94 (2011 high) to 1046.54 (2015 low) at 1380.56). Firm break of 1236.66 should at least send gold to 1046.54/1122.81 support zone, as a leg in the long term sideway pattern.

                                UK automotive industry urged swift Brexit negotiation and rethink on customs union

                                  By
                                  ActionForex.com
                                  -

                                  UK Society of Motor Manufacturers and Traders urged “swifter progress” on Brexit negotiation and pushed for as deal that , as a minimum, “maintains customs union membership and delivers single market benefits.”

                                  SMMT Chief Executive Mike Hawes said in a report there is “growing frustration in global boardrooms at the slow pace of negotiations”. And “the current position, with conflicting messages and red lines goes directly against the interests of the UK automotive sector which has thrived on single market and customs union membership.”

                                  Hawes added that there is “no credible plan B” for so called frictionless customs arrangements. And it’s unrealistic to expect new trade deals with the rest of the world would ” replicate the immense value of trade with the EU”. He urged Prime Minister Theresa May’s government to “rethink its position on the customs union”.

                                  He also pointed to “increasingly hostile and protectionist global trading environment”. And the until the government can “demonstrate exactly how a new model for customs and trade with the EU can replicate the benefits we currently enjoy, don’t change it.

                                  Full report here.

                                  Navarro and Mnuchin sent conflicted messages on foreign investment curb

                                    By
                                    ActionForex.com
                                    -

                                    The US markets were confused by the mixed messages from Trump’s administration regarding investment restrictions on foreign companies. US Treasury Secretary Steven Mnuchin tweeted saying that the statement regarding foreign investment on tech companies “will be out not specific to China, but to all countries that are trying to steal our technology. DOW dropped nearly -500 pts after the message

                                    But later White House trade adviser Peter Navarro tried to talked down the idea of restrictions on all foreign investments. He said “there’s no plans to impose investment restrictions on any countries that are interfering in any way with our country. This is not the plan.: Navarro added that “the whole idea that we’re putting investment restrictions on the world — please discount that.”

                                    DOW pared pack some losses after reaching as low as 24084.39. It closed down -1.33% or -328.09 pts at 24252.80. S&P 500 lose -1.37% or -37.81pts to close at 2717.07. NASDAQ suffered the worst decline, losing -2.09% or -160.91 pts to 7532.01.

                                    France FM Le Maire on trade war: we don’t want an escalation, but we are the ones being attacked

                                      By
                                      ActionForex.com
                                      -

                                      French Finance Minister Bruno Le Maire warned yesterday that “if the United States hits us again with a 20 percent increase on cars we will respond again..” And he emphasized that “we don’t want an escalation, but we are the ones being attacked.”

                                      Harley Davidsons plans to move production of motorcycles shipped to EU from US to other international facilities to avoid the tariffs. Regarding that news, Le Maire said “whatever allows jobs to be created in Europe goes in the right direction. We don’t want a trade war, but we will defend ourselves.”

                                      France, Germany and the UK have requested for exemptions from sanctions on their companies for doing businesses with Iran. Le Maire said there was no positive signs from the US. And “for the moment, our requests remain unanswered”.

                                      Mnuchin blames WSJ and Bloomberg on fake news

                                        By
                                        ActionForex.com
                                        -

                                        US Treasury Secretary Steven Mnuchin blamed WSJ and Bloomberg on “fake news”. That’s regarding the report on Trump’s intention to limit Chinese investments in US tech companies. Mnuchin said in his tweet that a statement will be out “not specific to China, but to all countries that are trying to steal out technology”.

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                                        First of all, who else is “stealing” other than China?

                                        Secondly, definition from Oxford dictionary on the verb “steal” – Take (another person’s property) without permission or legal right and without intending to return it.

                                        When some buy a company, is the property of the company “another person’s property”?

                                        Or now, you forbid them to buy the company, so that they have to “steal”?

                                        Anyway we don’t expect anything more than that from Trump and his team.

                                        DOW loses 300pts as selloff accelerates, 24247 support in focus

                                          By
                                          ActionForex.com
                                          -

                                          DOW is dropping more than -300 pts, or -1.2% as selloff accelerates. 24247.84 key near term support is now in focus. As noted previously, the corrective rise from 23344.52 should have completed at 25402.83. It should be in form of an ascending triangle. Sustained break of 24247.84 should confirm this view and target a test on 23344.52.

                                          In addition, that will also affirm our view that fall from 25402.83 is the third leg of the corrective pattern from 26616.71. And we should at least see a test on 38.2% retracement of 15450.56 to 26616.71 at 22351.24 before completing the correction. Let’s see how it plays out.

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