German Merkel: You can talk better if you remain in the Iran deal

    German Chancellor Angela Merkel said in Bundestag that the Iran nuclear deal is the best way to address the concerns of Iran. She noted that “the question is whether you can talk better if you terminate an agreement or if you stay in it … we say you can talk better if you remain in it.”

    Merkel admitted that the agreement “is everything other than ideal”. But she acknowledged that “Iran is, according to all the knowledge of the international nuclear authorities, sticking to the commitments of the agreement.”

    Meanwhile, regarding the relationship with the US, Merkel said “despite all the difficulties that we have these days, the transatlantic relationship is and remains paramount.” “But these transatlantic relationships also must be able to deal with differences of opinion.”

    China’s ambassador to WTO: US requests clearly violent WTO rules

      China’s ambassador to WTO, Zhang Xiangchen said that “the US is blocking selection of new Appellate Body members, taking restrictive trade measures under Section 232 and threatening to impose tariff measures of US$50 billion of goods imports from China under Section 301 of US domestic law.” And, he warned “any one of these, if left untreated, will fatally undermine the functioning of the WTO.”

      The US was reported to have requested China to cut its trade surplus with it by USD 200b by 2020. Zhang criticized that “such practices clearly violate the non-discrimination principle of the GATT, therefore have long been abandoned” by the WTO.

      And he pointed out the contradiction in what the US is trying to do. He said “the US is blaming the Chinese Government for state intervention on the one hand, while pressing China, by way of issuing government orders, to increase imports, restrict exports, and reduce excess capacity on the other hand.” Also, “governments can make efforts to promote trade, but cannot force companies to do business by pointing gun at their heads.”

      North Korea infuriated by Bolton, threatens to cancel Trump-Kim summit

        North Korea threatened to cancel Trump-Kim summit after they’re infuriated by comments from Trump’s national security adviser John Bolton that North Korea could follow a Libyan model of nuclear disarmament. The meeting is scheduled to be on June 12.

        North Korea’s vice-foreign minister Kim Kye-gwan used strong words in a statement carried by the state news agency KCNA. He condemned that Bolton’s suggestion was “not an expression of intention to address the issue through dialogue”. And, “it is essentially a manifestation of awfully sinister move to impose on our dignified state the destiny of Libya or Iraq which had been collapsed due to yielding the whole of their countries to big powers.”

        Kim went further and warned that if the US “corners us and unilaterally demands we give up nuclear weapons we will no longer have an interest in talks and will have to reconsider whether we will accept the upcoming DPRK-US summit”. And, “if President Trump follows in the footsteps of his predecessors, he will be recorded as more tragic and unsuccessful president than his predecessors, far from his initial ambition to make unprecedented success.”

        San Francisco Fed Williams: Neutral rate to stay at 2.5% despite stronger growth

          San Francisco Fed President John Williams said that the r-star neutral rate remains at 2.5% despite strong growth. He noted that “some economists and central bankers have pointed to signs that the fortunes of r-star are set to rise.” However, he didn’t see “convincing evidence” yet.

          Fed has been describing monetary policy as “accommodative” for years. With federal funds rates just a few hikes from 2.5%, William saw the need to “revisit” the language. But “that would be a committee decision about how to best describe the committee’s view around where monetary policy is positioned and where we see it going.”

          Japan GDP ended expansion streak… temporarily

            Japan GDP contracted -0.2% qoq in Q1, worse than expectation of 0.0% qoq. On annualized basis,GDP contracted -0.6% versus expectation of -0.1%. The contraction marked the end of eight straight quarters of growth. And that was the longest streak since 1989. GDP deflator, however, rose 0.5% yoy, beating expectation of 0.3% yoy.

            But it’s generally believed that the contraction is temporary. In particular, a relatively weaker Yen at 100 against Dollar and global recovery, export led Japanese economy remains on solid footing for expansion.

            Also from Japan, industrial production was revised up to 1.4% mom in March, from first estimate of 1.2% mom.

            Swiss Franc overtaking Dollar? Gold dives through 1300

              Dollar’s rally in early US session was triggered by 10 year yields which surged to highest since 2011 at 3.068. At the time of writing, TNX remains firm at 3.059. But USD is struggling to find follow through buying. 1.1822 in EURUSD, 1.3459 in GBPUSD cannot be firmly taken out to confirm fall resumption yet. Instead, there’s some money flow into Swiss Franc.

              On the other hand, Gold’s fall has much more conviction. With 1300 handle taken out, next support could be found at medium term trend line at around 1285. This will be a key level to defend the “corrective” up trend from 1112.81. Break there will further affirm the case of trend reversal. And, rising yield, falling gold. It will be a matter of time, if not now, that Dollar buying will show more commitment.

              USD ignores retail sales, surges as 10 year yield hit highest since 2011

                US retail sales rose 0.3% mom in April, in line with expectation. Ex-auto sales rose 0.3% mom, below expectation of 0.5% mom.

                Empire state manufacturing index rose to 20.1, up from 15.8 and beat expectation of 15.0.

                Dollar pays little attention to the data release. Instead, it’s following treasury yields higher. 10 year yield reaches as high as 3.045 so far. It has now breached key resistance of 2013 high at 3.036, hitting highest since 2011.

                Into US session: Dollar back in form, yields watched

                  Dollar surges broadly as markets are entering into US session. AUD is trading as the weakest. US treasury yield will be a focus today, on whether 10 year yield could stay above 3% level and challenge 3.035 high.

                  In particular, USD/JPY breaks through 110.02 resistance to resume recent rally from March low at 104.62. More importantly, it’s holding well within near term rising channel. Next target is 61.8% retracement of 114.73 to 104.62 at 110.86.

                  On development to watch is the sharp fall in EUR/CHF. The consolidation pattern from 1.2004 is set to extend with another falling leg, likely through 1.1864. That could give EUR extra pressure against USD, JPY and GBP.

                  IMF forecasts slower Eurozone growth in 2018, 2019. Urges fiscal reforms

                    IMF forecasts Eurozone growth to slow to 2.3% this year, from 2017’s 2.4%, and drop further to 2.0% in 2019. IMF noted that “with economic prospects continuing to improve in the short term but medium-term prospects less bright, policymakers should seize the moment to rebuild room for fiscal manoeuvre and push forward with reforms to boost growth potential”

                    And it pointed out that “policymakers should strive to bring fiscal deficits within range of balance over the next few years.:” With that ” automatic stabilizers and fiscal stimulus can be deployed again, should downside risks materialize.”

                    EU Katainen to US: No concession to get permanent exemption from steel tariffs

                      European Commission Vice-President Jyrki Katainen said they’re “open for improving our trade relations” with the US. But he warned that “it’s not a concession in order to get a permanent exemption from higher steel and aluminium tariffs.”

                      Katainen emphasized that “there’s no reason for those tariffs… It wouldn’t be logical to give up under pressure that is unjustified. We don’t negotiate under any kind of threat.”

                      Iran FM Zarif had “very good and constructive” meeting with EU Mogherini

                        Iranian Foreign Minister Mohammad Javad Zarif said the meeting with European Union’s foreign policy chief, Federica Mogherini in Brussels was “very good and constructive”. Zarif also said that both sides were on the “right track” to ensure that the interests of the JCPOA’s “remaining participants, particularly Iran, will be preserved and guaranteed.” Zarif’s comments came before meeting with foreign ministers of Germany, France and the UK, on continuing the JCPOA nuclear agreement after US withdrawal.

                        Separately, IRNA news agency quoted Iranian President Hassan Rouhani asking EU to stand against the US’ “illegal and illogical” actions of pulling out from JCPOA.

                        German ZEW: US withdrawal from Iran deal, trade conflicts and oil price had negative impact on economic expectations

                          German ZEW Economic Sentiment was unchanged at -8.2 in May, in line with expectation. German Assessment of Current Situation dropped -0.5 to 87.4, above expectation of 85.2.

                          Eurozone ZEW Economic Sentiment rose 0.5 to 2.4, above expectation of 2.0. Assessment of Current Situation dropped -1.6 to 56.1.

                          Quote from the release by ZEW President Achim Wambach:

                          “The effects of relatively positive values for German exports and production in March 2018 have been overshadowed in the most recent survey by uncertainty motivated by recent political events. The US decision to back out of the nuclear treaty with Iran and fears of a further escalation of the international trade conflict with the US, as well as a further rise of crude oil prices, have had an overall negative impact on economic expectations in Germany.”

                          UK unemployment rate unchanged at 4.2%, earnings grew 2.6%

                            UK unemployment stayed unchanged at 4.2% in March, at the lowest level since 1975.

                            Average weekly earnings rose 2.9% 3moy excluding bonuses

                            Average weekly earnings rose 2.6% 3moy including bonus, met expectations.

                            Claimant count rose 31.2k in April versus expectation of 13.3k.

                            Sterling is a touch higher after the release.

                            NAFTA talks unlikely to have breakthrough before My 17

                              Canadian Prime Minister Justin Trudeau discussed with Trump on phone yesterday on brining NFATA renegotiation to a “prompt conclusion”. But US Commerce Secretary Wilbur Ross side that none of the “big hot topics” were resolved as the May 17 deadline looms. He added hose are “very complex issues”, and are still “a work in progress”.

                              It’s reported that, according to sources”, there is no plan for Mexican Economy Minister Ildefonso Guajardo or Canadian Foreign Minister Chrystia Freeland, and U.S. Trade Representative Robert Lighthizer to meet this week. It’s unlikely for any breakthrough in the negotiation.

                              Currently, Canada and Mexico have their US steel tariffs exemption extended to June 1. Ross said, “depending on where we are on NAFTA on June 1, the president will decide whether or not to extend their situation.” And “it’s unforecastable at the moment.”

                              BoJ Kuroda: “Absolutely no plan” to raise yield target

                                BoJ Governor Kuroda told the parliament today that there is “absolutely no plan” to raise the yield target under the Yield Curve Control for now, as inflation is still distant from 2%. He also explained that removing the time frame to meet the 2% inflation target is not necessarily related to the side effect of monetary policy on bank profits.

                                Regarding YCC, Kuroda said bond purchases are more sustainable under the framework, as the central bank has more flexibility. And, it’s be able to maintain long term year near 0% with smooth operations in JGB purchases.

                                German GDP growth slowed to 0.3% qoq in Q1, Swiss PPI rose to 2.7% yoy in March

                                  First batch of data in European session saw German GDP rose 0.3% qoq, 2.3% yoy in Q1, below expectation of 0.4% qoq, 2.4% yoy. That’s also notably slower than Q4’s 0.6% qoq, 2.9% yoy. But nonetheless, the figures are decent.

                                  Swiss PPI rose 0.4% mom, 2.7% yoy, in April, up from March’s -0.2% mom, 2.0% yoy.

                                  UK employment data are upcoming. In particular, unemployment rate is expected to be unchanged at 4.2% in March. Average weekly earnings are expected to grow 2.6% 3m/y.

                                  Eurozone will also release industrial production, GDP. More focus will be on German ZEW economic sentiment.

                                  RBA Debelle: 2% is the focal point for wage outcomes now

                                    RBA Deputy Governor Guy Debelle delivered a speech titled “The Outlook for the Australian Economy” at the CFO Forum in Sydney today, where he talked about wages.

                                    He noted that “the experience of other countries with labour markets closer to full capacity than Australia’s is that wages growth may remain lower than historical experience would suggest.”

                                    Currently in Australia “2% seems to have become the focal point for wage outcomes, compared with 3–4% in the past.” Even so, “”there is a risk that it may take a lower unemployment rate than we currently expect to generate a sustained move higher than the 2% focal point evident in many wage outcomes today”.

                                    RBA minutes reiterated no strong case for near term hike

                                      RBA May meeting minutes reiterated that central bank’s stance that it’s not in rush to lift interest rates.

                                      The minuted noted that “stronger growth was expected over the following couple of years, which could reduce spare capacity in the economy and lead to a further gradual decline in the unemployment rate.” But, “the increase in wages growth and inflation was expected to be gradual however because spare capacity in the economy was expected to be reduced only slowly.”

                                      And, “as progress in lowering unemployment and having inflation return to the midpoint of the target range was expected to be gradual, members also agreed that there was not a strong case for a near-term adjustment in monetary policy.”

                                      Trump’s tweet on ZTE prompted bipartisan criticism

                                        Trump’s tweet regarding helping China telecoms company ZTE prompted bipartisan criticism and concerns on his softening stance. Republican Senator Marco Rubio said he hoped “this isn’t the beginning of backing down to China.” Democrat Senator Chuck Schumer said “this leads to the greatest worry, which is that the president will back off on what China fears most – a crackdown on intellectual property theft – in exchange for buying some goods in the short run.”

                                        On the other hand, Trump defended with another tweet saying that “ZTE, the large Chinese phone company, buys a big percentage of individual parts from U.S. companies. This is also reflective of the larger trade deal we are negotiating with China and my personal relationship with President Xi”.

                                        US Ambassador to China Branstad: Trump wants a “dramatic increase” in food exports to China

                                          US Ambassador to China Terry Branstad said in Tokyo today that both countries are still “very far apart” on resolving trade frictions. Branstad, was present at the meeting between Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He in Beijing earlier this month. He noted that “there are many areas where China has promised to do but haven’t. We want to see a timetable. We want to see these things happen sooner or later.”

                                          He added that Trump would like to see a “dramatic increase” in food exports to China and “we’d like to see China being just as open as the United States.”

                                          Trade talks will resume today with Liu arrived in Washington.