Trump warned of substantially higher tariffs if no deal with China

    US President Donald Trump commented trade negotiation with China during a speech at the Economic Club of New York yesterday. He said “we’re close — a significant phase one deal could happen, could happen soon.” He added the usual rhetoric that China is “dying” for a deal.

    However, he also warned, “if we don’t make a deal, we’re going to substantially raise those tariffs. They’re going to be raised very substantially. And that’s going to be true for other countries that mistreat us too.”

    Separately, Larry Kudlow, director of the National Economic Council,said it’s “possible” that tariffs with China could be adjusted as part of the trade deal. But neither side would agree to any tariff adjustments until the deal was finalized. He added, “since there’s no formal agreement we can’t say.”

    Eurozone industrial production rises 0.8% mom in Feb, EU up 0.7% mom

      Eurozone industrial production rose 0.8% mom in February, matched expectations. Production increased by 0.5% for intermediate goods, 1.2% for capital goods, and 1.4% for durable consumer goods. On the other hand, production by -3.0% for energy, and -0.9% for non-durable consumer goods.

      EU industrial production rose 0.7% mom. The highest monthly increases were recorded in Ireland (+3.8%), Hungary (+3.5%) and Slovenia (+3.3%). The largest decreases were observed in Croatia (-4.6%), Lithuania (-3.0%) and Belgium (-2.7%).

      Full Eurozone industrial production release here.

      UK Truss determined to reach a trade deal with Canada by the end of the year

        UK Trade Minister Liz Truss told the Parliament today, “we’re determined to reach a deal with Canada before the end of the year — it will help our trade from cars to beef to fish to whiskey.” “I do hope that in the future, as Canada is a member of the Trans-Pacific Partnership which has advanced chapters in areas like data and digital, that we will be able to go much further and build a much deeper relationship with Canada,” she added. The UK Department for International Trade also said negotiations are “at an advanced stage and progressing well.”

        Last week, Canadian Prime Minister Justin Trudeau also said a trade deal could be reached by January 1. “I know that rolling over and demonstrating free trade deals is important for the U.K. government. Canada is a really easy one. We’re there for it. We’d like to do it, so I am very hopeful that it’s going to get done but that’s up to the U.K. government,” Trudeau said.

        Swiss KOF plunged to 92.9, a marked decline in growth rates in near future

          Swiss KOF Economic Barometer dropped to 92.9 in March, down from 101.8. KOF said, “the Swiss economy can be expected to see a marked decline in growth rates in the near future. This plunge of the Barometer reflects the first economic consequences of the accelerated spread of the Coronavirus.”

          The reading was “about as low as after the minimum exchange rate for the Swiss franc was abandoned in January 2015”. nevertheless, “its troughs at the time of the economic crisis in 2008/9 were still significantly lower”.

          Full release here.

          CAD/JPY ready for up trend resumption as BoC hike awaited

            BoC is widely expected to raise the Overnight Rate by another 50bps to 1.50% today. Governor Tiff Macklem had recently noted that interest rates may need to go above the neutral range, estimated to be between 2% and 3%. Thus BoC should indicate that more tightening is still on the way. But Macklem would probably wait at least until July’s monetary policy report before talking about how high rates would top.

            Some previews on BoC:

            CAD/JPY’s strong rally this week suggests that correction from 102.93 has completed at 97.78 already, after drawing support from 55 day EMA. Further rise is now expected as long as 100.64 minor support holds. Firm break of 102.93 will resume larger up trend and target 61.8% projection of 89.21 to 102.93 from 97.78 at 106.25.

            Nikkei gained 3%, broke near term structural resistance

              Nikkei staged another power full rally today after a gap up, gained 3.00% or 816.05 pts to 28040.16. Export-oriented shares led the rally, with help from recent decline in Yen change rate. Japan Prime Minister Fumio Kishida also promised to carry out solid counter-measures for rising prices of oil, raw materials and goods, to revive Japan’s economy”.

              Nikkei’s break of 27880.69 resistance argues that corrective pull back from 30795.66 might have finished at 24681.74 already. Sustained of falling channel resistance (now at 26650) will affirm this bullish case and pave the way to retest 30795.77 high.

              In the bigger picture, 38.2% retracement of 16358.19 to 30795.77 at 25280.61 is seen as being defended already, despite a brief breach earlier this month. The break above 55 week EMA is also a positive sign. Up trend from 16358.19 might be ready to resume during next quarter.

              Fed Mester: We’re going to need to do some 50 basis-point moves

                Cleveland Fed President Loretta Mester reiterated yesterday that Fed should “front-load” interest rate hikes in the first of of the year, and start quantitative tightening at the same time. “We have to recognize that inflation is very elevated. It is well above our goal. We have to do what we can with both our policy tools to get inflation under control,” she emphasized.

                “I think we’re going to need to do some 50 basis-point moves,” Mester added. “I don’t want to presuppose every meeting from here to July, but I do think we need to be more aggressive earlier rather than later.”

                Fed Evans more uneasy about not generating enough inflation in 2023 and 2024

                  In a speech, Chicago Fed President Charles Evans said, for the balance sheet, the economy as being close to meeting the “substantial further progress” standard for beginning to taper asset purchases. “If the flow of employment improvements continues, it seems likely that those conditions will be met soon and tapering can commence,” he added.

                  On inflation, Evans said, “long-run inflation expectations are still likely somewhat below target”, as ” inflation break-even rates in financial markets over the five- to ten-year horizon are still below the levels we saw in 2012 and 2013—a period when they were arguably better aligned with 2 percent PCE inflation.” And, “a ten-year nominal Treasury rate in the range we’ve seen recently simply can’t have a whole lot of expectations of long-run inflation built into it.”

                  “Taken altogether, I am more uneasy about us not generating enough inflation in 2023 and 2024 than the possibility that we will be living with too much,” he said. “My concern is that when the Covid distress ultimately recedes broadly around the world, we will not have been freed from the downward bias on inflation imparted by the ELB.”

                  Full speech here.

                  US oil inventories dropped -9.5m barrels, WTI back pressing 60

                    US commercial crude oil inventories dropped sharply by -9.5m barrels in the week ending July 5. That’s much larger decline than expectation of -1.9m barrels. At 459.0m barrels, U.S. crude oil inventories are about 4% above the five year average for this time of year.

                    WTI oil extends this week’s rebound and hits as high as 59.78 so far. It’ possibly set to retest key resistance zone of 60.03 and 61.8% retracement of 66.49 to 50.64 at 60.34. At this point, we don’t expect a firm break there yet. And consolidation pattern from 60.22 should extend with least another fall back to 56.06. In that case, downside should be contained above 54.86 support. Overall, range trading should continue.

                    US PPI up 0.6% mom, 8.6% yoy in Oct

                      US PPI for final demand rose 0.6% mom in October, above expectation of 0.5% yoy. For the 12 months period, PPI was unchanged at 8.6% yoy, slightly below expectation of 8.7% yoy.

                      PPI core came in at 0.4% mom, 6.8% yoy, versus expectation of 0.5% mom, 6.8% yoy.

                      Full release here.

                      German Gfk consumer sentiment dropped to -6.7, significantly dampened by partial lockdown

                        Germany Gfk Consumer Sentiment for December dropped to -6.7, down from -3.2, as sentiment was “significantly dampened by the partial lockdown”. November’s economic expectations dropped from 7.1 to -0.2, lowest since May. Income expectations dropped from 9.8 to 4.6. Propensity to buy also dropped from 37.0 to 30.5.

                        “Though stores will remain open, the renewed shutdown of the hotel, restaurant and events industry – as well as the already struggling tourism industry – has had a serious impact on the consumer climate,” explains Rolf Bürkl, consumer expert at GfK. “As a result, any hope we still had in early summer of a rapid recovery is now lost. Growing uncertainty has once again led to an increase in propensity to save, another factor which has contributed to the decline in the consumer climate.”

                        Full release here.

                        10-year yield broke 1.7 after hawkish Fed minutes, DOW dropped

                          US stocks tumbled overnight and treasury yields surged after surprisingly hawkish minutes of December FOMC meeting. Firstly, “participants generally noted that, given their individual outlooks for the economy, the labor market, and inflation, it may become warranted to increase the federal funds rate sooner or at a faster pace than participants had earlier anticipated.

                          More importantly, “almost all participants agreed that it would likely be appropriate to initiate balance sheet runoff at some point after the first increase in the target range for the federal funds rate”. Also, once Fed starts to shrink its balance sheet, “the appropriate pace of balance sheet runoff would likely be faster than it was during the previous normalization episode” in October 2017.

                          More on FOMC minutes:

                          DOW closed down -1.07% or -392.54 pts at 36407.11. Despite the pull back, there is no threat to the up trend yet. However, it should not noted that DOW is close to an important fibonacci level of 100% projection of 18213.65 to 29199.35 from 26143.77 at 37129.47. Rejection by this level could trigger deep medium term correction through 55 week EMA (now at 33783.13).

                          Meanwhile, 10-year yield rose strongly by 0.037 to close at 1.705, breaking 1.693 near term resistance. The development is inline with the view that consolidation from 1.765 has completed after testing 55 week EMA. Up trend from 0.398 should be ready to resume. Break of 1.765 would send TNX through 2% handle to 61.8% retracement of 3.248 to 0.398 at 2.159.

                          Eurozone industrial production rose 0.7% mom in Jan, EU up 0.3% mom

                            Eurozone industrial production rose 0.7% mom in January, above expectation of 0.5% mom. Production of intermediate goods grew by 1.5%, while production of capital goods fell by -0.2%, durable consumer goods by -0.7%, energy by -0.8% and non-durable consumer goods by -2.1%.

                            EU industrial production rose 0.3% mom. Among Member States for which data are available, the highest monthly increases were registered in Ireland (+9.3%), Sweden (+5.0%) and Romania (+2.0%). The largest decreases were observed in Denmark (-7.1%), Hungary (-5.0%) and the Netherlands (-4.3%).

                            Full release here.

                            German Gfk consumer sentiment rose to 9.7, economic expectations jumped

                              Germany Gfk Consumer Sentiment picked up again in rose 0.1 pts to 9.7 for December, matched expectations. Rolf Bürkl, consumer expert at GfK said: “The exceptionally high levels of consumer confidence among German consumers have significantly contributed to preventing a recession in Germany in the third quarter. Private consumption has thereby perfectly fulfilled its role as an important pillar of the economy. Consumers are therefore optimistic about the upcoming holiday season, one of the busiest times of year for a number of retail industries such as consumer electronics and toys. How the year as a whole will be evaluated is determined during this period. And the retail sector can certainly look forward to this period with a healthy dose of optimism.”

                              Economic Expectations also improved drastically from -13.8 to 1.7. Gfk noted: “This decline in pessimism is most likely due to the trade war between the US and China showing tentative signs of easing during recent days. In addition, it is clear that an increasing number of Germans are hopeful that after the forthcoming elections in the UK a decision on Brexit will be made.”

                              Full release here.

                              UK CPI slowed sharply to 0.4% yoy in Feb, core CPI down to 0.9% yoy

                                UK CPI slowed sharply to 0.4% yoy in February, down from 0.7% yoy, missed expectation of 0.8% yoy. Core CPI also dropped to 0.9% yoy, down from 1.4% yoy, missed expectation of 1.4% yoy. RPI was unchanged at 1.4% yoy, matched expectations.

                                PPI input came in at 0.6% mom, 2.6% yoy, versus expectation of 0.5% mom, 0.6% yoy. PPI output was at 0.6% mom, 0.9% yoy, versus expectation of 0.2% mom, -0.4% yoy. PPI core output was at 0.1% mom, 1.4% yoy, versus expectation of 0.0% mom, 1.4% yoy.

                                NAFTA renamed USMCA, formally announced

                                  Canadian Foreign Affairs Minister Chrystia Freeland published a joint statement with US Trade Representative Robert Lighthizer. On reaching a trilateral trade deal together with Mexico. The new agreement is no longer called NAFTA but the United States-Mexico-Canada Agreement (USMCA).

                                  No formal details on the agreement are released yet. But it’s reported that the deal include increased access on Canada’s dairy marke and the so called Class 7 milk system would be eliminated. The deal would encourage more auto production in the US. There is no substantial change in the chapter 19 dispute resolution mechanism. If the US impose auto tariffs, both Mexcio and Canada will be accomodated in “side letters”. But the deal doesn’t affect the current steel and alumnium tariffs imposed.

                                  Below is the full joint statement.

                                  Joint Statement from United States Trade Representative Robert Lighthizer and Canadian Foreign Affairs Minister Chrystia Freeland

                                  “Today, Canada and the United States reached an agreement, alongside Mexico, on a new, modernized trade agreement for the 21st Century: the United States-Mexico-Canada Agreement (USMCA). USMCA will give our workers, farmers, ranchers, and businesses a high-standard trade agreement that will result in freer markets, fairer trade and robust economic growth in our region. It will strengthen the middle class, and create good, well-paying jobs and new opportunities for the nearly half billion people who call North America home.

                                  “We look forward to further deepening our close economic ties when this new agreement enters into force.

                                  “We would like to thank Mexican Economy Secretary Ildefonso Guajardo for his close collaboration over the past 13 months.”

                                  China to announce retaliation measures to US at 0830GMT

                                    Upcoming at 16:30 Beijing time, 0830 GMT, China’s commerce and finance ministries will hold a press briefing regarding the US Section 301 tariffs. It believed that retaliatory measure will be announced during the briefing. China has pledged to take counter measures at the same intensity and proportionality. But no detail is leaked so far. The worst for the market is that China’s response will prompt counter retaliation by the US. That could lead to escalating tariffs that drastically reduce the trade activities between the two countries.

                                    China’s envoy to the WTO, Zhang Xiangchen criticized that the tariffs on USD 50b of China import to the US is “an intentional and gross violation of the WTO’s fundamental principles of non-discrimination and bound tariffs.” And he urged other WTO members to “join with China in firmly resisting U.S. protectionism”.

                                    Reactions to US announce of the product list of Section 301 tariffs were initially muted. Japan Nikkei has indeed closed up 0.13%. But fear in the stock markets start to build up with Hong Kong HSI suffering sharp fall in the afternoon, and is trading down -1.44%.

                                    The currency markets are rather steady though, with NZDCHF, NZDUSD topping the top movers chart with slight gains.

                                    US PPI accelerated to 2.1%, core PPI to 1.7%

                                      US PPI rose 0.5% mom, 2.1% yoy in January, well above expectation of 0.2% mom, 1.4% yoy. PPI core rose 0.5% mom, 1.7% yoy, also well above expectation of 0.2% mom, 1.2% yoy.

                                      Building permits rose 9.2% mom to 1.551m annualized rate, above expectation of 1.450m. Housing starts dropped -3.6% mom to 1.567m, above expectation of 1.390m.

                                      New Zealand employment growth exceeds expectations; unemployment rate remains low

                                        New Zealand employment data for Q1 showcased a 0.8% qoq increase, surpassing expectation of 0.4% qoq growth. Unemployment rate remained steady at 3.4%, defying expectations of rise to 3.5% and staying close to record low of 3.2% made in Q1 2022. Additionally, employment rate climbed from 69.3% to 69.5%, while labor force participation rate rose from 71.8% to 72.0%. Both employment and participation rates reached their highest levels since records began in 1986.

                                        All sector wage inflation was at 1.0%, 4.3% yoy. “Annual wage cost inflation is at its highest level since the series began in 1992, up from 4.1 percent in the year to the December 2022 quarter,” business prices manager Bryan Downes said. “This aligns with other wage measures, like the unadjusted LCI and average hourly earnings, both of which also had the largest annual increases on record.”

                                        Full New Zealand employment release here.

                                        Australia private capital expenditure dropped -2.8% in Q4

                                          Australia private capital expenditure dropped -2.8% in Q4, much worse than expectation of 0.5% increase. In seasonally adjust terms, building and structures dropped -5.9%. Mining dropped -2.7%. Equipment, plant and machinery rose 0.8% Manufacturing dropped -10.1%. Other selected industries fell -1.9%

                                          The set of data is rather disappointing as weak economic outlook appeared to have dampen investments again. Both monetary and fiscal stimulus are need for the economy. Q2 will be important for Australia as markets are expecting an RBA rate cut and increased government spending in May’s budget.