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Iran urged JCPOA signatories to stand up to US bullying

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    Iranian Foreign Minister Mohammad Javad Zarif called on his counterparts to save the JCPOA Iran nuclear deal in letter that’s partly published by the state news agency IRNA.

    Zarif emphasized that the deal was the result of “meticulous, sensitive and balanced multilateral talks” and could not be renegotiated as the US requested.

    And, he urged the remaining signatories, France, Germany, Britain, Russia and China to stand up to US “illegal withdrawal” and its “bullying methods to bring other governments in line”.

    China regrets EU’s WTO complaint on patent rights

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      The European Commission lodged a complaint to the WTO against China last week over its breach of patent rights of European companies. That came along side EC’s complaint against US steel and aluminum tariffs.

      Chinese Ministry of Commerce responded to the complaint over the weekend, saying that it regrets the complaint and said it will handle it through WTO dispute settlement. At this same time the MOFCOM said “The Chinese government has always attached great importance to the protection of intellectual property rights and adopted many powerful measures to protect the legitimate rights and interests of domestic and foreign intellectual property rights holders. The achievements have been obvious to all. In terms of intellectual property cooperation, China and the EU have established a working group mechanism for intellectual property rights. Through this mechanism, China and the EU have maintained effective communication and achieved positive results in many areas.”

      Aussie lifted by retail sales, AUD/CAD long opportunity

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        Australian Dollar is trading as the strongest one as the week starts, on the back of some positive economic data.

        Retail sales rose 0.4% mom in April versus expectation of 0.3% mom, and prior month’s 0.0%. The Australian Bureau of Statistics noted that cafes, restaurants and takeaways led the rise assisted by an unusually warm April. But there were likely negative impacts for some businesses in “clothing, footwear and personal accessories and department stores.” Company gross operating profits rose 5.9% qoq, 5.8% yoy seasonally adjusted in Q1. Wage growth was slow at 0.8% qoq seasonally adjusted and 5.1% yoy. TD securities inflation gauge, however, was flat 0.0% mom in May versus expectation of 0.3% mom and prior month’s 0.5% mom.

        AUD/CAD is a pair to note as it’s showing consistent near-to-medium term upside momentum. From the action bias table, D row argues that’s AUD/CAD has just come out of a consolidation. This is also reflected in H and 6H action bias.

        The above indication is consistent with the D action bias chart too.

        Take a look at the regular OHLC chart, the break of 0.9873 indicates resumption of recent rebound from 0.9553. Strong support was seen slightly below 0.9578/91 medium term support zone. That is, the fall from 1.0241 should have completed too. Further rise should now be seen back to 61.8% retracement of 1.0241 to 0.9553 at 1.0066. A way to trade this move is by going long at the current level, with a stop below today’s low at 0.9780, and a target at 1.0066.

        Dollar surges as non-farm payrolls beat expectation on all front

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          Dollar jumps immediately after an all round solid job report.

          Non farm payrolls grew 223k in May, above expectation of 190k.

          Unemployment rate dropped to 3.8%, beat expectation of 3.9%. That’s also the lowest level in 18 years.

          Average hourly earnings rose 0.3% mom, beat expectation of 0.2% mom.

          Fed is widely expected to raise interest rate agian on June 13 even though market pared back some bets. Today’s data will put Fed back on track for another hike in September.

          UK PMI manufacturing rose to 54.4, rebound far from convincing

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            UK PMI manufacturing rose to 54.4 in May, up from 53.9 and beat expectation of 53.5. Markit noted in the release that output growth ticks higher despite slower expansion of new work received. And, supply-chain constraints and cost pressures intensify.

            Rob Dobson, Director at IHS Markit, which compiles the survey:

            “At first glance, the mild acceleration in the rate of output growth and rise in the headline PMI would appear positive outcomes given the backdrop of the slowdown seen in manufacturing since the turn of the year. However, scratch beneath the surface and the rebound in the PMI from April’s 17-month low is far from convincing.

            “A slowdown in new order inflows meant the expansion in production was achieved only by firms working through their backlogs of work. Weaker than expected sales meanwhile led to the largest rise in unsold stock in the survey’s 26-year history. This suggests that manufacturers have yet to fully adjust their production to the weakening trend in new business growth and there will need to be a rapid improvement in demand if output volumes are to be sustained in the coming months.

            “Manufacturers will also likely be constrained if the resurgence in both cost inflation and supply-chain pressures becomes more firmly embedded. Input price inflation accelerated for the first time since January as general cost increases, often linked to higher oil prices, were exacerbated by shortages of certain inputs. Average vendor lead times – a key bellwether of supply-side constraints – lengthened to the greatest extent during 2018 so far. These price and supply headwinds, combined with a further slowdown in new order growth, could jeopardise any further expansion of the manufacturing sector.”

            Full release here.

            Eurozone PMI manufacturing finalized at 55.5, 15-month low

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              Eurozone PMI manufacturing was finalized at 55.5, unrevised from initial reading.

              The Netherlands, Germany and Austria remain strongest performing nations despite some deterioration. Netherlands PMI manufacturing, despite hitting an 8-month low, was at 60.3. Austria PMI manufacturing hit 14-month low at 57.3. Germany PMI manufacturing hit 15 month low at 56.9.

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

              “The eurozone manufacturing sector reported its weakest expansion for 15 months in May. Some of the weakness may have been related to a higher than usual number of holidays during the month, but risks appear tilted towards growth remaining subdued or even cooling further in coming months.

              “Slowing export sales have been a key drag on both production and order book growth, with the May survey indicating that new export orders rose at the weakest rate for nearly two years, linked in part to the appreciation of the euro alongside reports of weakened demand for imports from key markets, notably the US.

              “There are signs that the soft patch has further to run. Despite the production trend slowing markedly in recent months, the order book slowdown has been even sharper. Output has consequently grown at a faster rate than new orders in each of the past six months, which suggests that manufacturers will come under pressure to rein-in production and staffing levels in coming months unless demand revives. Not surprisingly, manufacturers’ expectations of future production have sunk to a 20-month low, underscoring the gloomier economic picture.”

              Full release here.

              China Caixin manufacturing PMI unchanged at 51.1, export situation still disappointing

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                China Caixin manufacturing PMI was unchanged at 51.1 in May, slight below expectation of 51.2, indicating modest expansion.

                Dr. Zhengsheng Zhong, Director of Macroeconomic Analysis at CEBM Group said:

                “The Caixin China General Manufacturing PMI stood at 51.1 in May, the same as the reading in April, showing that growth was sustained. The output and new order indices both rose, while the employment index dipped, indicating a stable supply and demand situation, but no signs of job creation in the sector. The index for new export orders picked up in May, but remained in contraction territory, reflecting that the export situation was still grim. The indices for output charges and input prices both rose, showing that product supply got tighter and price pressures remained high, which can help boost manufacturers’ profits. Accordingly, the future output index rose slightly. The index measuring stocks of finished goods dropped, while the stocks of purchases index was unchanged from April, suggesting that product demand has been sufficient.

                “Overall, operating conditions across the manufacturing sector remained stable. The growth in the price of industrial products has gained momentum, however, the export situation was still disappointing.”

                Full release here.

                Italy populist government formed, Conte as PM, Tria as economy minister, Savona as EU affairs minister

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                  ActionForex.com
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                  The political turmoil in Italy is now solved, at least in the near term, after a week of roller coaster ride. The anti-establishment 5-Star Movement and eurosceptic League agreed to form a political government again, averting a re-election. Law professor Giuseppe Conte remains the choice as prime minister and will sworn in on Friday. 5-Star and League leaders Luigi Di Maio and Matteo Salvini will be vice premiers.

                  Eurosceptic economist, 81-year-old Paolo Savona, who’s rejected by President Sergio Mattarella as economy minister, will take the post of EU affairs minister. On the other hand, economics professor Giovanni Tria get the job of economy minister.

                  Conte said that “we will work hard to reach the objectives included in the government contract and to improve the quality of life of all Italians.” He referred to “Contratto Per Il Governo Del Cambiamento” or “Contract for the Government of Change”.

                  The new Cabinet will face a confidence vote in both houses were the coalition have a thin majority. But the  far-right Brothers of Italy, a League ally, said it would help by abstaining in that vote.

                  Canada Trudeau announced retaliation on CAD16.6b of US imports.

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                    ActionForex.com
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                    Canadian Prime Minister Justin Trudeau criticized Trump’s steel and aluminum tariffs as “totally unacceptable” and announced retaliatory tariffs on CAD 16.6b in US imports.  A 15-day consultation period immediately began the tariffs will come into effect on July 1. There are two list of goods, one list that will be subject to a 25% tariff; a second list that will be subject to a 10% tariff. The details of the goods can be found here.

                    Trudeau emphasized that “Americans remain our partners, our allies and our friends” and “the American people are not the target” of the retaliation measures. He pledged to  continue to make arguments based on logic and common sense” and hoped that “eventually they will prevail against an administration that doesn’t always align itself around those principles.”

                    Foreign Minister Chrystia Freeland, also said that the unilateral trade restrictions by the US are “in violation of NAFTA and WTO trade rules”. And Canada will launch dispute settlement proceedings under  NAFTA Chapter 20 and WTO Dispute Settlement. Freeland also pledged to “closely collaborate with like-minded WTO members, including the European Union” to challenge the “illegal and counterproductive US measures at the WTO. Statement can be found here.

                    Economics professor Giovanni Tria might replace Paolo Savona as Italian Economy Minister

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                      It’s reported that  Italy’s anti-establishment 5-Star Movement and the far-right League party are close to finding that “point of compromise” in replacing Paolo Savona as economy minister in the government.

                      The name of economics professor Giovanni Tria flow around in the media. Meanwhile, law professor Giuseppe Conte will likely remain as prime minister. Decision could come as soon as on Friday. And if these names are accepted by President Sergio Mattarella, a snap election could be averted and a coalition government would finally be formed.

                      Mexico to hit back US on agricultural and steel products

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                        Mexican Economy Ministry said there are wide-range “equivalent” measures to counter the US steel tariffs. It’s reported that Mexico will target agricultural products that could hit Trump’s base states. And the measures will be in place until the US stops its tariffs.

                        It said in a statement that “Mexico profoundly regrets and condemns the decision by the United States to impose these tariffs on imports of steel and aluminum from Mexico.”

                        “Mexico reiterates its openness to constructive dialogue with the United States, its support for the international commerce system and its rejection of unilateral protectionist measures.”

                        The Ministry also said Mexico buys more steel and aluminum from the US than it sells. And it’s the top buying of US aluminum and second buyer of US steel.

                        Soft response from UK on US steel tariffs, deeply disappointed onlty

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                          More responses on US steel tariffs.

                          A UK government spokesman said “we are deeply disappointed that the US has decided to apply tariffs to steel and aluminium imports from the EU on national security grounds.”

                          And “the UK and other European Union countries are close allies of the U.S. and should be permanently and fully exempted from the American measures on steel and aluminium.”

                          UK’s responses are much softer than EU’s.

                          German BDA, DIHK urged joint strong EU response to counter US steel tariffs

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                            More responses on US steel tariffs.

                            German BDA employers group President Ingo Kramer said in a statement that “if the U.S. overrides international trade rules, then a strong, but above all, a joint strong EU response is required.”

                            DIHK President Eric Schweitzer said “everyone will lose out” from the U.S. decision. It was important to keep up dialogue. But he also emphasized that “if needed, countermeasures should be taken to strengthen the EU position.”

                            Germany’s steel industry association Wirtschaftsvereinigung Stahl criticized US  steel tariffs based on national security concerns is “grotesque”. And, “the U.S. measures are a protectionist intervention in international trade and run counter to the principles of the WTO”.

                            EU Juncker on US steel tariffs: It’s protectionism, pure and simple

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                              In response to US steel and aluminum tariffs, European Commission President Jean-Claude Juncker immediately condemned that as “protectionism, pure and simple”. The US actions are “unjustified” and “at odds with WTO rules”.  “So we will immediately introduce a settlement dispute with the WTO and will announce counter balancing measures in the coming hours.”

                               

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                              Also, in a press release, Juncker added that the US was “playing into the hands of those responsible for the problem”. He pledged that “we will defend the Union’s interests, in full compliance with international trade law.”

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                              Trade Commissioner Cecilia Malmstrom also said in the same statement that “the U.S. has sought to use the threat of trade restrictions as leverage to obtain concessions from the EU. This is not the way we do business, and certainly not between longstanding partners, friends and allies.”

                              She added “now that we have clarity, the EU’s response will be proportionate and in accordance with WTO rules. We will now trigger a dispute settlement case at the WTO, since these U.S. measures clearly go against agreed international rules.” And “we will also impose rebalancing measures and take any necessary steps to protect the EU market from trade diversion caused by these U.S. restrictions.”

                              EU’s statement here

                              Trump to impose steel and aluminum tariffs on Canada, Mexico and the EU, effective midnight

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                                ActionForex.com
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                                Trump administration announced to put tariffs on steel and aluminum imports from Canada, Mexico and the EU. That will come into effect as the temporary exemption expires at midnight. Tariffs on steel imports are 25% and that on aluminum is 10%.

                                Commerce Secretary Wilbur Ross criticized that NAFTA negotiations are “taking longer than we had hoped”.  While talks with EU have “made some progress”, they haven’t gone far enough to warrant more relief from tariffs.

                                Ross added that “we look forward to continued negotiations both with Canada and Mexico on the one hand, and with the European Commission on the other hand, because there are other issues that we also need to get resolved.”

                                US PCE core unchanged at 1.8% yoy, initial jobless claims at 221k

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                                  ActionForex.com
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                                  A batch of economic data coming from the US. Personal income rose 0.3% in April, matched expectation. Personal spending rose 0.6%, above expectation of 0.4%.

                                  Headline PCE deflator rose 0.2% mom, 2.0% yoy, in line with consensus.

                                  Core PCE rose 0.2% mom, 1.8% yoy in April, versus expectation of 0.1% mom, 1.8% yoy.

                                  Initial jobless claims dropped -13k to 221k in the week ended May 26 versus expectation of 230k. Four week moving average rose 2.5k to 222.25k. Continuing claims dropped -16k to 1.726m in the week ended May 19. Four week moving average of continuing claims dropped -8.5k to 1.7435m, lowest level since December 1973

                                  From Canada, GDP grew 0.3% mom in March, in line with expectation.

                                  Reactions are muted as the markets await US decisions on steel and aluminum tariff temporary exemptions.

                                  German Merkel: We’ll have smart, determined and jointly agreed response to US steel tariffs

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                                    German Chancellor Angela Merkel said today in Lisbon that European Union will give a “smart, determined and jointly agreed” response to the US is Trump decides to impose steel and aluminum tariffs on them.

                                    She noted “we don’t know the decision yet but if tariffs were to be imposed, then we have a clear stance within the European Union.” And she added “we are convinced that these tariffs are not in line with WTO rules.”

                                    The temporary exemption of US steel and aluminum tariffs will expire tomorrow. It’s widely reported that US will decide to start imposing tariffs on Mexico, Canada and the EU. And the decision would be announced today.

                                    Euro maintains gain as CPI rose to 1.9%, beat expectation

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                                      Flash Eurozone CPI accelerated to 1.9% yoy in May, up from 1.2% yoy and came in well above expectation of 1.6%. Core CPI rose to 1.1% yoy, up fro 0.7% yoy and beat expectation of 1.0% yoy. Unemployment was unchanged at 8.5% in April, above expectation of 8.4%.

                                      Reactions in the Euro is relatively muted as the higher than expected inflation was actually expected after upside surprise in both German and French CPI reading. Nonetheless, the solid rebound in inflation in Q2 should have eased much of ECB policy makers’ worries. The data add to the case for completing the asset purchase program this year. The question is whether it would end after September. President Mario Draghi could give some hints at the June 14 press conference.

                                      Overall, Euro continues to ride on easing worries over Italy political turmoil and recovers today. For now, Euro is the strongest one for today, third strongest for the week just after Canadian Dollar and New Zealand Dollar.

                                      Also released in European session, Swiss GDP rose more than expected by 0.6% qoq in Q1. Swiss retail sales dropped -2.2% yoy in April, below expectation of -1.4% yoy. UK mortgage approvals dropped to 62k in April. UK M4 money supply rose 0.2% mom in April.

                                      US Ross: If there is escalation in trade tension, it’s because EU retaliate

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                                        U.S. Commerce Secretary Wilbur Ross talked about trade war in an interview published by daily Le Figaro.

                                        He said “we don’t want a trade war”. But it’s “up to the European Union to decide if it wants to take retaliatory measures. The next question would be: how will the Trump react? You saw his reaction when China decided to retaliate.”

                                        “If there is an escalation it will be because the EU would have decided to retaliate.”

                                        Typical blame the others.

                                        Temporary exemptions to US steel tariffs to end tomorrow

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                                          The temporary exemptions from the US steel and aluminum tariffs are set to expire tomorrow. And it’s so far uncertain what will happen next. It’s widely reported Trump will start imposing the tariffs on EU. The decisions on Mexico and Canada are less certain as NAFTA negotiations continued to drag on. But there are reports that Trump will just go ahead with the tariffs too. Announcement could be made as soon as today.

                                          It’s clear that EU, Canada and Mexico are prepared for retaliation. And the US announcement today could finally, formally, starts global trade wars between US and the world. The section 232 national security probe on automobile imports is also waiting on the line. The commerce department has announced to hold two days of public hearing in July for the probe.

                                          The US Chamber of Commerce already criticized the probe and warned that tariffs “would deal a staggering blow to the very industry it purports to protect and would threaten to ignite a global trade war.”

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