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EEF Phipson slams Theresa May’s Max Fac brexit border solution as naive, unrealistic and a non-starter

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    The UK EEF manufacturers’ organization slammed Prime Minister Theresa May’s “Max Fac” proposal for UK and EU customs as “naive” and “unrealistic”. Max fac, or maximum facilitation, is a technological border solution that May push to implement by the time a planned Brexit transition period ends in December 2020.

    EEF Chief Executive Stephen Phipson said in a statement that the debate on MaxFac is “misguided”. The focus should be on whether it is good enough to “provide a frictionless border” for the “highly complex integrated supply chains with Europe. Also, focus is on whether it “can be implemented quickly enough to be ready for December 2020”. Phipson said the answer is “overwhelming no”. And, “it may have some long term benefits, but suggesting MaxFac is a solution to our immediate problems is a non-starter”.

    Full statement here

    PBoC Yi pledges gradual, steady efforts to financial sector reforms

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      China’s PBoC Governor Yi Gang said that the authority will ensure gradual, steady efforts to financial sector reforms.

      He acknowledged that “our financial sector still has a lot room to open up relative to the requirements of economic and financial development.” And, “the three reforms — opening up the financial sector to internal and external firms, exchange rate mechanism, and capital account convertibility — have to be coordinated and pushed ahead together.”

      Regarding Yuan internationalization, he said that requires “steady progress on capital account convertibility. And, “if many capital account items are restricted, then the financial sector opening is only in name instead of in reality. He added that “only when our capital account is basically convertible and that our financial sector opens up in both ways, will our currency mechanism and the entire financial sector achieve a coordinated development.”

      China said to be considering to increase US coal imports

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        Bloomberg reported, quoting unnamed source, that CHina is considering to buy more coal from the US, as part of the plan to reduce trade surplus. In particular, China could boost purchase from West Virginia.

        As in 2017, US coal just contributed a tiny portion of China’s import. 108.9m tons were from Indonesia, 79.9m ton from Australia, 34.0 tons from Monglolia. Only 3.2m tons were from the US. It’s unsure whether China has plan to cut imports from other countries.

        If they do, Trump’s American first policy could indirectly hurt its close ally in Australia. That could also drag on the transition from mining boom in latter.

        Euro recovers as Five Star leader Di Maio said never sought to leave Euro

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          Euro and Italian bonds are given a mild lift after Five Star leader Luigi Di Maio said the never sought to leave the Euro via facebook comments. He said that with the “Government of Change” they should be meeting with other EU countries to explain to the the “economic policy that has never foreseen the exit from the euro.” Meanwhile, he blamed the over 300 German Italian spread on the lack of prospects of the interim technocrat government.

          Separately, Bank of Italy Governor Ignazio Visco warned that Italy is just a few short steps away from “the very serious risk of losing the irreplaceable asset of trust”. He defended that Italy is “not constrained by the European rules but by economic logic” and there was no “shortcut” to lower the country’s debt.

          Yen extends powerful rally and German Italian yield spread hit highest since 2013

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            Yen extends its powerful rally in European session as the selloff in Italian bonds accelerate. Safe haven flow hammers German and US yields. The German-Italian spread has widened to the highest level since 2013.

            Italian 10 year government bond yield jumps to as high as 3.244 so far today, and it’s currently up 0.577. It was as low as 2.386 yesterday and hit as low as 1.715 back in April. The steep acceleration shows markets are in deep worry about the political situation in Italy.

            German 10 year bund yield, on the other hand, dropped to as low as 0.187 and is now down -0.095.

            US 10 year yield also hit as low as 2.807 and is down -0.074.

            Charts taken from MarketWatch.com

            German Merkel concerned with weakening international cooperations

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              German Chancellor Angela Merkel expressed her concerns on weakening international cooperations at a conference in Berlin yesterday.

              She said “international agreements and institutions are being weakened. This is worrying, since our multilateral global order comes from the lessons we learned from the terrible world wars of the last century.” She added that “the people who experienced World War Two, the last true global catastrophe, are dying out and are no longer there as eyewitnesses.” And, these people “learned from that terrible experience not to embed emnity but that you had to try and build friendships with each other.”

              Regarding trade with the US, She said “we are happy to negotiate, but it mustn’t be under a sword of Damocles.”

              Canada Freeland in Washington again for NAFTA talks

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                Canadian Foreign Minister Chrystia Freeland will fly to Washington on Tuesday to continue NAFTA negotiations. Her spokesman Adam Austen said she will be there on Tuesday and Wednesday. And he added that “we’ve said all along we are ready to go (to Washington) at any time.”

                A spokesman for US Trade Representative Robert Lighthizer said Freeland would meet the U.S. trade chief on Tuesday, but did not give details of the meeting.

                Mexican Economy Minister Ildefonso Guajardo said last week that there is around 40% chance of concluding NAFTA talks before Mexican presidential election on July 1. But Guajardo will not be there at the Tuesday meeting. Instead, he is in Paris for meetings of OECD and WTO.

                North Korean and US officials working on the June 12 summit

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                  North Korea and the US are starting the preparation for the June 12 summit between Kim Jong-un and Donald Trump.

                  On the North Korean side, Kim Jong-un’s “butler” Kim Chang-son, de factor chief of staff, flew to Singapore via Beijing overnight. Separately, a form spy chief Kim Yong-chol is flying to Washington.

                  On the US side, White House deputy chief of staff for operations Joe Hagin flew to Singapore from Japan with a team of other officials.

                  Separately, Trump talked with Japan prime minister Shinzo Abe on phone yesterday. And the White House said Trim and Abe “affirmed the shared imperative of achieving the complete and permanent dismantlement of North Korea’s nuclear, chemical, and biological weapons and ballistic missile programs.” And they would meet before the Kim-Trump summit.

                  St. Louis Fed Bullard urged caution on further rate hike with three reasons

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                    ActionForex.com
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                    St. Louis Fed President James Bullard urged caution on further rate hike in near term in a presentation at a seminar in Tokyo.

                    And he laid out three reasons for discussions.

                    First, market-based inflation expectations in the U.S. remain somewhat low.

                    Second, the current level of the policy rate appears to be neutral, meaning it is putting neither upward nor downward pressure on inflation.

                    Third, the U.S. nominal yield curve could invert later this year or in 2019, which would be a bearish signal for U.S. macroeconomic prospects,.

                     Here is the full presentation.

                    CADJPY shows some text book style chart analysis examples

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                      ActionForex.com
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                      Selloff in Canadian Dollar finally takes off with USD/CAD breaking 1.3 handle. The development now also makes CAD/JPY an interesting pair to study.

                      Rebound from 80.52 completed at 87.09, just ahead of 61.8% projection of 80.52 to 85.75 from 83.86 at 87.11. Together with the three wave structure, they make the move from 80.52 to 87.09 corrective. That is, the larger trend is bearish.

                      While CAD/JPY breached 86.74 but could not sustain above and reversed. 86.74 is the neck line of the double top pattern of 91.62, 91.56. This classic neck line rejection suggests that the down trend is not over.

                      There is also a potential head and shoulder pattern with ls at 88.90, 91.62 and 91.56 double top as head, and 87.09 as rs. That suggests there is more downside potential ahead.

                      For now, as the fall fro 87.09 is sort of runaway already, it’s not an ideal time to short CAD/JPY. But this pair is worth monitoring for short opportunities ahead.

                      USD/CHF could be ready to resume recent rally

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                        ActionForex.com
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                        Taking a look at the D heat map for today, we can see that Euro is trading broadly lower. A surprise is that Swiss Franc is even weaker despite risk aversion. That prompts us to have a look at USD/CHF to see if there is some underlying weakness in the Franc.

                        From USD/CHF action bias table, we can see that the pair is maintaining solid upside W action bias. D action bias stayed neutral for more than nine bars, arguing that it’s in a shallow consolidation pattern. This consistent with the “look” in D action bias chart.

                        6H action bias chart showed that there were downside attempts but failed. But there is no clear sign of rally yet. Now, with H action bias turned upside blue for in the last four bars there is “prospect” of rally resumption. USD/CHF is worth a watch now. There will be more confidence on a bullish view if 6H action bias turns upside blue too.

                        Taking a look at the regular OHLC chart, it’s early to tell if the pull back from 1.0056 has completed. But when that’s confirmed, there is potential to extend recent rise fro 0.9186 to 1.0342 key resistance. So, a way to trade this is, buy on a break of 0.9980 (slightly above 0.9977 minor resistance). Stop would be put at 0.9880, below today’s low. Target will be 1.0342. Ideally, we should see 6H action bias turns blue too on next rise.

                        Euro back under pressure as German-Italian spread widens again

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                          ActionForex.com
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                          After brief lift, EUR/USD is back under pressure and breached Friday’s low at 1.1643. The pair was initially lifted briefly by news that the antiestablishment coalition of 5-star movement and the League failed to form a government.

                          But quickly into European sessions, sentiments turned sour again as markets weigh the chance and impact of a new election that could happen as soon as in August.

                          Italian 10 year government bond yield dipped to 2.35 but is now back at 2.590, up 0.038.

                          German 10 year bund yield initially rose to 0.463 but reversed to 0368 so far, down -0.037.

                          Widening German-Italian yield spread is now pressuring Euro broadly again. Euro is trading down against all but swiss Franc and Canadian Dollar.

                          Cottarelli accepted mandate to form an interim Italian government

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                            ActionForex.com
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                            In swift arrangements, former IMF Director of the Fiscal Affairs Carlo Cottarelli accepted Italian President Sergio Mattarella’s appointment to form an interim government. That came after Giuseppe Conte abandoned the effort to form a new coalition government of the 5-Star Movement and the League, following Mattarella’s veto of eurosceptic Paolo Savona as the as economy minister.

                            The Prime Minister designate Cottarelli said that “I’ll present myself to parliament with a program which – if it wins the backing of parliament – would include the approval of the 2019 budget. Then parliament would be dissolved with elections at the beginning of 2019.”

                            Or, “in the absence of (parliament’s) confidence, the government would resign immediately and its main function would be the management of ordinary affairs until elections are held after the month of August,”

                            South Korean Moon: Meeting with Kim Jong-un was easy like a casual meeting

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                              South Korean President Moon Jae-in said in a meeting with senior secretaries that the meeting with North Korean leader Kim Jong-un on Saturday was “just like a casual meeting” and that’s “more important than anything”.

                              He added that “leaders easily got in contact, easily made an appointment and easily met to discuss urgent matters, without complicated procedures and formalities, just like a casual meeting.”

                              Moon also noted that the Saturday meeting was organized on short notice after Kim’s request. And that could be a model for further contact between the two Koreas. He noted “if we could hold working-level, back-to-back talks on both sides of Panmunjom if urgently necessary in addition to formal summits, it would expedite faster advancement of inter-Korean relations,”

                              After Moon’s effort to revive the Kim-Trump summit, US officials are now in North Korea for the details.

                              It’s reported that Sung Kim, the former US ambassador to South Korea, was leading the American delegation to meet North Korean officials. Sung Kim was hailed by a former senior South Korean official as ” capable, level-headed, cautious, and has solid grasp of the issues and knows North Koreans well.” At the same time, Sung Kim has “healthy scepticism”.

                              Abe to tell Trump Japanese carmakers made huge contributions to the US economy

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                                ActionForex.com
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                                Japan Prime Minister Shinzo Abe was asked in the parliament today about Trump intention to impose tariffs on car imports using national security as excuse. Abe said he would seek to convince Trump that Japan carmakers are important in boosting the US economy.

                                He noted that Japan automakes have “created jobs and made huge contributions to the US economy.” And he added that the number of cars Japanese automakers produce in the US is double the number it exports to the country.

                                And he emphasized that “as a country that prioritizes a rule-based, multilateral trade system, Japan believes that any steps taken on trade must be in line with World Trade Organization rules.”

                                Separately, he added that “Japan has explained to the United States its stance that TPP is the best format for both countries. We will continue to talk with the United States based on this view.”

                                Euro rebounds as formation of eurosceptic Italy government collapsed

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                                  ActionForex.com
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                                  Italy is in fresh political turmoil again as the formation of the new eurosceptic government collapsed. Nonetheless, the Euro is lifted mildly higher today as that’s seen as a positive development for the common currency.

                                  President Sergio Mattarella vetoed Paolo Savona as the as economy minister. Savona is an 81-year-old eurosceptic economist who’s a vocal critic of the common currency. Mattarella said in a televised speech that “the uncertainty over our position (on euro) has alarmed investors and savers both in Italy and abroad.” And, he emphasized that “membership of the euro is a fundamental choice. If we want to discuss it, then we should do so in a serious fashion.” Mattarella added that “I asked for that ministry an authoritative political figure from the coalition parties who was not seen as the supporter of a line that could provoke Italy’s exit from the euro.”

                                  Prime Minister-designate Giuseppe Conte promptly abandoned the effort to form a new government. Tthe far-right League and anti-establishment Five Star Movement, accused Mattarella of abusing his authority and working under the orders of European powers. Five Star leader Luigi D Maio even demanded that parliament impeach Mattarella. League chief Matteo Salvini threatened mass protests unless snap elections were called.

                                  Former IMF director of discal affairs Carlo Cottarelli was called in to head a stopgap government. But he’s unlikely to have enough supoort from the parliament. So, that’s only a short-term solution and an election is now likely to be held to solve the political crisis, possibly in September or October.

                                  South Korea Moon revived the Kim-Trump summit. He could join to make it three-way

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                                    South Korean president Moon Jae-in had a surprised meeting with North Korean leader Kim Jong-un on Saturday, regarding the summit with the US. Moon’s office said after the meeting that the leaders “exchanged views and discussed ways to implement the Panmunjom Declaration and to ensure a successful US-North Korea summit.”

                                    Moon added in a press conference that “should the North Korea-US summit succeed, I would like to see efforts to formally end the (Korean) war through a three-way summit of the South, the North and the US.” Moon also sought agreement from Kim that the summit must be held.

                                    A South Korean official said that “the discussions are just getting started, so we are still waiting to see how they come out, but depending on their outcome, the president could join President Trump and Chairman Kim in Singapore.”

                                    White House spokeswoman Sarah Sanders also said that “the White House pre-advance team for Singapore will leave as scheduled in order to prepare should the summit take place.”

                                    Also, Trump himself tweeted that the US teams is now in North Korea to discuss the meeting.

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                                    Trump in very productive talks with North Korea to reinstate the summit with Kim

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                                      After a week of exchange in words, the summit between Trump and Kim Jong Un is back on the table. Trump tweeted

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                                      Trump suddenly pulled out of the summit on Thursday, after strong words from North Korean Vice Foreign Minister Choe Son-Hui issued a strong statement criticizing US Vice President Mike Pence. Trump sent an open letter to Kim Jong Un through the White HOuse announcing the cancellation.

                                      But North Korea responded by hailing that “we have inwardly highly appreciated President Trump for having made the bold decision, which any other U.S. presidents dared not, and made efforts for such a crucial event as the summit.” Though, “His sudden and unilateral announcement to cancel the summit is something unexpected to us and we can not but feel great regret for it.”

                                      It remains to be seen whether the summit will happen on not.

                                      Euro selloff accelerates as German 10 year bund yield breaks 0.4%

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                                        Euro’s selloff accelerates further as German 10 year bund yield breaks 0.4 handle, reaching as low as 0.389 so far.

                                        Chart snapshot from MarketWatch

                                        EUR/JPY reaches as low as 127.14 and moves further away from medium term channel support. Based on current momentum, there now a realistic threat of breaking 38.2% retracement of 109.03 to 137.49 at 126.61. That would carry rather bearish medium term implication. We’ll see how it goes.

                                        Into US session: CAD the weakest on oil, EUR and GBP follow as yields dive

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                                          Entering into US session, CAD, EUR and GBP are trading as the strongest ones, while USD, AUD and JPY are the strongest. Some note that USD is the strongest one. Yes, admitted it is. But considering the USD/JPY is lacking follow through buying through 109.50, and AUD/USD is also held in tight range, it should be more about the weaknest of CAD, EUR and GBP, rather than strength of USD.

                                          CAD is clearly weighed down by falling oil price as WTI drops below 70 handle on talk that OPEC and Russia are going to raise production. USD/CAD would soon be retesting 1.2996 resstance.

                                          Meanwihle, we believe that the free falls in German and UK yields are the reasons dragging EUR and GBP down. Data from both countries together are not bad and won’t add to more dovish ECB or BoE expectation.

                                          Instead, we’ve noticed that Italian 10 year yield has another day of strong rally today to 2.481, up 0.081 at the time of writing. German 10 year bund yield is down -0.048 at 0.426. The Italy-German yield spread surpassed 200 pts level for the first time since last June. The decline in German bund yield is particularly serious if we consider that it it as high as 0.583 earlier this week. Concerns over the new Italian government is the driving force in the markets.

                                          UK 10 year gilt yields also dropped -0.50 to 1.351 so far.

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