Japan said to remove South Korea from trade whitelist

    Kyodo news reported that, as trade frictions intensified, Japan is going to remove South Korea from the white list of countries that gives the latter preferential treatment in trade. The announcement could be made as soon as on August 2, and change could take effect after 21 days.

    Japan is reported to have cited “significantly undermined” trust between the two countries and “certain issues” with South Korea’s export controls and regulations. After the move, products and technology that could be diverted to military use would need to obtain approval from Ministry of Economy before exporting to South Korea.

    Asked about the plan, Chief Cabinet Secretary Yoshihide Suga told a news conference that nothing had been decided on the time frame. There are currently 27 countries on Japan’s white list including the United States, Britain, Germany, Australia, New Zealand and Argentina.

    New Zealand BusinessNZ manufacturing dropped to 50.6, soft growth and rising inflation

      New Zealand BusinessNZ Performance of Manufacturing index dropped from 54.3 to 50.6 in November. Looking at some details, production dropped from 53.2 to 52.2. Employment dropped from 51.7 to 48.2. New orders rose from 54.2 to 54.7. Finished stocks dropped from 54.6 to 48.3. Deliveries dropped from 59.9 to 42.9.

      BNZ Senior Economist, Doug Steel stated that “the PMI implications for economic (and employment) growth seem clear – soft.  But with obvious difficulties remaining on the supply side, we’d suggest that inflation is still rising.”

      Full release here.

      EU to made final decision on Brexit extension on Monday or Tuesday

        After a two-hour meeting with EU27 ambassadors in Brussels, EU chief Brexit negotiator said “no decision” was made regarding Brexit extension yet, despite the “excellent” discussion. It’s widely reported, and generally believed, that EU is in full agreement on the need for an extension. Work will continue over the weekend take make the decision by written procedure. But the duration for the extension is undecided, waiting for results on a vote on UK Prime Minister Boris Johnson’s push for Christmas election. The finally decision could be made on Monday or Tuesday.

        Chancellor Sajid Javid told BBC Radio today that “The opposition have said, week after week, that if there is a delay of three months, which is what they requested through parliament, then they will vote for a general election, so let’s see if they keep their word. And if they don’t then we will keep bringing back to parliament a motion to have an election. And we will keep doing that again and again.”

        Labour leader Jeremy Corbyn told ITV that Johnson needed to come to parliament on Monday and rule out a no-deal Brexit. He also criticized the December 12 election date as being “odd for many reasons – it’s so near Christmas, it’s after universities finish their terms”.

        Eurozone industrial productions falls -0.6% mom in May, EU down -0.8% mom

          Eurozone industrial production fell -0.6% mom in May, better than expectation of -1.0% mom. Production decreased by -1.0% for intermediate goods, 1.2% for capital goods, and 1.8% for durable consumer goods. Production increased by 0.8% for energy, and 1.6% for non-durable consumer goods.

          EU industrial production fell -0.8% mom. The largest monthly decreases were recorded in Slovenia (-7.3%), Romania (-6.2%) and Denmark (-4.9%). The highest increases were observed in Ireland (+6.7%), Luxembourg (+3.9%) and Estonia (+3.8%).

          Full Eurozone industrial production release here.

          US Mnuchin: Trump perfectly happy to move forward with tariffs on China if they don’t want a deal

            On the sidelines of the G20 finance minister meeting in Fukuoka, Japan, US Treasury Secretary Steven Mnuchin US-China trade negotiation is at a crossroad like that ahead of the December G20 meeting in Buenos Aires. He said Trump needs to “see action” to make sure Chinese President Xi is heading “in the right direction” regarding the trade deal. Mnuchin added that Trump will make a decision after the Trump-Xi meeting in Osaka on June 28-29 G20 leader summit.

            He also emphasized that “if China wants to move forward with the deal, we’re prepared to move forward on the terms we’ve done. If China doesn’t want to move forward, then President Trump is perfectly happy to move forward with tariffs to rebalance the relationship”. And, if no agreement is made “the end result will be that my expectation is that many companies will move their production out of China to other locations”.

            On Huawei’s banning, he said “what the president is saying is, if we move forward on trade, that perhaps he’ll be willing to do certain things on Huawei if he gets comfort from China on that and certain guarantees”. However, he emphasized “these are national security issues”.

            Also, Mnuchin said he “had constructive meeting with PBOC Governor Yi Gang, during which we had a candid discussion on trade issues.”

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            US CPI slowed to 8.2% yoy in Sep, but core CPI rose to 6.6% yoy

              US CPI rose 0.4% mom in September, above expectation of 0.2% mom. Core CPI (all item less food and energy) rose 0.6% mom, above expectation of 0.5% mom. Energy index dropped -2.1% mom, with gasoline down 4.9%. Food index rose 0.8% mom.

              For the 12 months ending September, CPI slowed from 8.3% yoy to 8.2% yoy, above expectation of 8.1% yoy. Core CPI, on the other hand, accelerated from 6.3% yoy to 6.6% yoy, above expectation of 6.5% yoy. Energy index slowed from 23.8% yoy to 19.8% yoy. Food index was up 11.2% yoy.

              Full release here.

              WTI oil back below 80 as Kazakhstan normalizes production

                Oil prices dip mildly in Asian session as Kazakhstan’s largest oil venture Tengizchevroil is gradually normalizing production. Some contractors had disrupted train lines in support of protests in the country last week.

                WTI crude oil hit as high as 80.63 last week but fails to sustain above 80 handle so far. Some consolidations could be seen first, but further rally is expected as long as 74.48 support holds. Rally from 62.90 should target 161.8% projection of 62.90 to 73.66 from 66.46 at 83.86, which is close to 85.92 high.

                For now, we’re not expecting a break of 85.92 yet. We’d expect at least one more down leg before the corrective pattern from there completes. Hence, we’d look for topping between 83.86/85.92.

                ECB accounts: Preference initial expressed for 50bps hike

                  ECB’s account of its June meeting revealed a wide consensus in favor of a 25 bps rate hike. Interestingly, the minutes also noted an initial preference for an even steeper hike of 50 basis points.

                  “A preference was also initially expressed for raising the key ECB interest rates by 50 basis points in view of the risk of high inflation becoming more persistent,” the minutes noted.

                  However, the adopted “data-dependent, meeting-by-meeting approach” and uncertainties in the global economic landscape resulted in the final decision for a 25bps increment.

                  Meanwhile, the account noted, “Emphasis was put on the need to be sufficiently restrictive and persistent in the monetary policy tightening.”

                  It’s crucial, as per ECB’s narrative, to convey that their monetary policy still has a long way to go to bring inflation back to the target in a timely manner.

                  The meeting minutes convey this message clearly, stating, “It was seen as essential to communicate that monetary policy had still more ground to cover to bring inflation back to target in a timely manner.”

                  Full ECB accounts here.

                  Dollar falls as core CPI slowed more than expected, ignore strong job data

                    Dollar suffers renewed sell after core consumer came in lower than expected. Headline CPI rose 0.2% mom, 2.7% yoy versus expectation of 0.1% mom, 2.7% yoy. That slowed from prior month’s 0.2% mom, 2.9% yoy. Core CPI rose 0.1% mom, 2.2%, missed expectation of 0.2% mom, 2.4% yoy. Also it missed expectation of 0.2% mom, 2.4% yoy.

                    Job data was solid though. Initial jobless claims dropped -1k to 204k in the week ended September 8. That’s the new lowest since December 6 1969. Four-week moving average of initial claims dropped -2k to 208k, lowest since December 6, 1969. Continuing claims dropped -15k to 1.696m, lowest since December 1, 1973. Four week moving average of continuing claims dropped -8.25k to 1.71125m., lowest since November 24, 1973.

                    New BoJ deputies Wakatabe and Amamiya sound cautious in inaugural press conference

                      The two new BoJ Deputy Governors spoke in the inaugural news conference today.

                      Masazumi Wakatabe said that BoJ sounded cautious as he said BoJ should avoid premature shift in monetary policy. Also, in his view, the central bank shouldn’t hesitate to ease monetary policy further if needed. Nonetheless, she acknowledged that various economic data already showed the positive impacts of current and past ultra loose policy.

                      Masayoshi Amamiya, also emphasized the importance to continue with powerful monetary easy, for achieving improvements in the output gap. He acknowledged that Japan is no longer in deflation. But BoJ hasn’t meet its 2% inflation target yet.

                      China PMI manufacturing rose to 50.1, non-manufacturing dropped to 52.3

                        China official PMI Manufacturing rose from 49.2 to 50.1 in November, above expectation of 49.6. PMI Non-Manufacturing dropped from 52.4 to 52.3, below expectation of 53.0. PMI Composite rose from 50.8 to 52.2.

                        “A series of policy measures to ensure energy supply and stabilize market prices have borne some fruits. The tight supply of electricity eased while prices of some raw materials dropped significantly in November,” said Zhao Qinghe, a senior NBS statistician.

                        Swiss KOF recovered all 2019 losses, but outlook still subdued

                          Swiss KOF Economic Barometer rose to 96.4 in December, up from 92.6, beat expectation of 94.5. The indicator has now fully recovered the decline this year, back to the closing level in 2018. Nevertheless it’s still below it’s long run average. And KOF said “the outlook for the Swiss economy at the beginning of 2020 is brightening somewhat, but remains subdued.

                          KOF added: “The distinct increase is primarily due to bundles of indicators from the manufacturing sector. Positive signals also result from indicators covering other services and foreign demand. Indicators concerning private consumption as well as hotel and catering activities show a moderate increase.”

                          Full release here.

                          EU kept 2019 growth forecasts unchanged, downgraded 2020 slightly

                            Comparing to Spring projections, European Commission kept 2019 Eurozone growth forecast unchanged at 1.2%. But for 2020, growth projection was lowered slightly from 1.5% to 1.4%. For EU28, 2019 and 2020 growth forecasts were kept unchanged at 1.4% and 1.6% respectively.

                            On prices, Eurozone 2019 inflation forecast was lowered from 1.4% to 1.3%. Similarly, 2020 inflation projection was lowered from 1.4% to 1.3% too. For EU28, 2019 and 2020 inflation forecasts were lowered to 1.5% and 1.6%, down from 1.6% and 1.7%.

                            Looking at some major countries, Germany forecast was kept unchanged at 0.5% in 2019, downgraded from 1.5% to 1.4% in 2020. France growth forecast was kept unchanged at 1.3% in 2019, downgraded from 1.5% to 1.4% in 2020. Italy growth forecasts were held unchanged at 0.1% in 2019 and 0.7% in 2020.

                            European Commission Vice President Valdis Dombrovskis said: “The resilience of our economies is being tested by persisting manufacturing weakness stemming from trade tensions and policy uncertainty. On the domestic side, a “no deal” Brexit remains a major source of risk.”

                            Commissioner Pierre Moscovici urged: “Given the numerous risks to the outlook, we must intensify efforts to further strengthen the resilience of our economies and of the euro area as a whole.”

                            Full release here.

                            ECB Lagarde: We’re moving very likely into positive at the end of Q3

                              In a Bloomberg TV interview, ECB President Christine Lagarde said, “we’re moving (deposit rate) very likely into positive territory at the end of the third quarter.”

                              “When you’re out of negative (rates) you can be at zero, you can be slightly above zero. This is something that we will determine on the basis of our projections and … forward guidance,” she explained.

                              Still, Lagarde emphasized the graduality and ECB’s policy adjustments. “I don’t think we are in a situation of surging demand at the moment,” Lagarde said. “It’s definitely an inflation that is driven by the supply side of the economy.”

                              UK GDP dropped -2.6% mom in Nov, services as main drag

                                UK GDP dropped -2.6% mom in November, better than expectation of -4.0% mom. That’s the first decline since six consecutive monthly increases. GDP was back to -8.5% below the levels seen in pre-pandemic February. Also, GDP dropped -8.9% in the 12 months to November, comparing with the annual decline of -6.8% to October.

                                Services was the main drag on growth, down -3.4% mom due to restrictions. Services was -9.9% below February’s level. Production dropped -0.1% mom, at -4.7% below February’s level. Construction rose 1.9% mom, at 0.6% above February’s level.

                                Also release, goods trade deficit widened to GBP -16.0B in November, versus expectation of GBP -11.1B.

                                Full GDP release here.

                                Into US session: Dollar strongest as recovery continues, Euro shrugs weak data

                                  Entering into US session, Dollar remains the strongest one for today as recovery continues. The second place is taken up by Euro, despite weak Sentix Investor Confidence and PPI. Canadian Dollar also remains firm as WTI crude oil edges higher to 55.85. Nevertheless, oil price is suffering some profit taking currently, which oil drags down the Loonie.

                                  Meanwhile, Australian Dollar is the weakest one for today, weighed down by poor housing data. Focus will turn to tomorrow’s RBA rate decision. No change in interest rate is expected. But RBA could give some hints on revisions on economic projections. Details will be published with the Statement on Monetary Policy on Friday. Yen is following as the second weakest, then Sterling.

                                  In European markets:

                                  • FTSE is up 0.28%.
                                  • DAX is down -0.16%.
                                  • CAC is down -0.53%.
                                  • German 10-year yield is down -0.001 at 0.166, staying far below 0.2 handle.

                                  Earlier in Asia:

                                  • Nikkei rose 0.46%.
                                  • Hong Kong HSI rose 0.21%.
                                  • China started lunar new year holiday already.
                                  • Singapore Strati Times dropped -0.13%.
                                  • Japan 10-year JGB yield rose 0.008 to -0.012, staying negative.

                                  Fed Powell: Developments point to an improved outlook for later this year

                                    In the semiannual testimony, Fed Chair Jerome Powell acknowledged that “the number of new (coronavirus) cases and hospitalizations has been falling, and ongoing vaccinations offer hope for a return to more normal conditions later this year”.

                                    The economy recovery “remains uneven and far from complete, and the path ahead is highly uncertain”. But recent “developments point to an improved outlook for later this year”.

                                    “The economy is a long way from our employment and inflation goals, and it is likely to take some time for substantial further progress to be achieved,” Powell added. “We will continue to clearly communicate our assessment of progress toward our goals well in advance of any change in the pace of purchases.”

                                    “We are committed to using our full range of tools to support the economy and to help ensure that the recovery from this difficult period will be as robust as possible.”

                                    Full opening remarks here.

                                    EU Hogan hopeful of a mini trade deal with US in coming weeks

                                      EU Trade Commissioner Phil Hogan said there were still difficult issues to overcome in trade negotiations with US. And, “there is a long list (of issues) on both sides that have been outstanding for many, many years. There is no scientific basis for any of these impediments.”

                                      He pointed out, “clearly there are regulations in respect of food safety and those issues, pathogen treatments, that we will not be in a position to change. Equally we are not asking Congress to change their regulations in some of the asks we are making of the United States.”

                                      Though, he’s still hopeful of reaching a mini trade deal with the US in the coming weeks. EU is still aiming to see industrial tariffs reduction as an outcome.

                                      Japan PMI manufacturing finalized at 50.7, but business remained optimistic

                                        Japan PMI Manufacturing was finalized at 50.7 in October, slightly down from September’s 50.8. That’s the lowest level in 21 months. S&P Global noted that inflationary pressure remained severer. Business remained optimistic with sentiment at nine-month high.

                                        Laura Denman, Economist at S&P Global Market Intelligence, said:

                                        “The latest survey data signalled that Japan’s manufacturing sector lost further momentum in October. Sluggish markets and weaker demand conditions, on both a domestic and international level, became a recurring trend throughout the report and were seemingly the driving forces behind the slower sector performance. Anecdotal evidence suggested that worsening conditions in China and South Korea were specifically detrimental to Japan’s exports this month.

                                        “Meanwhile, inflationary pressures remained severe in October. Japanese manufacturing firms increased their selling prices more aggressively, as signalled by a near-record rate of output cost inflation. Given the current conditions in some of Japan’s key export markets, and with inflationary pressures displaying limited signs of easing, demand is likely to remain subdued in the coming months.

                                        “Despite this, firms seem unfazed by the challenges that the sector is currently facing remaining optimistic towards their 12-month outlook on growth in October. In fact, the degree of confidence accelerated from September and reached a nine-month high.”

                                        Full release here.

                                        US ISM manufacturing dropped to 48.1, fourth straight month of contraction

                                          US ISM Manufacturing Index dropped to 48.1 in November, down from 48.3, missed expectation of 49.4. It’s the fourth month of sub-50 contraction reading. ISM’s Timothy R. Fiore warned “global trade remains the most significant cross-industry issue”.

                                          Looking at some details, all components stayed are in contraction except supplier deliveries. New orders dropped -1.9 to 47.2. Employment dropped -1.1 to 46.6. New export orders dropped into contraction, by -2.5 to 47.9. On the the hand, production rose 2.9 to 49.1 while prices rose 1.2 to 46.7.

                                          Full release here.