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European Update: Sterling pares gain as Brexit optimism turns into cautiousness

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    ActionForex.com
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    Sterling reversed some of this week’s gain as Brexit optimism has now turned into cautiousness. UK Prime Minister Theresa May will hold a Cabinet meeting shortly to secure support for her agreement with the EU. And she plan to issue Commons statement after that. EU’s chief negotiator Michel Barnier also plans to make a statement today on the status, and hopefully, he would declare “decisive progress” for a November EU summit. The could be some more volatility in the pound in the upcoming hours.

    For now, New Zealand Dollar remains the strongest one for today, followed by Canadian Dollar and then US Dollar. WTI crude oil dipped to as low as 54.84 but it’s now back above 56. The recovery is giving Canadian a breath but that could be temporary. Meanwhile, Swiss Franc is trading as the weakest one, followed by Australian Dollar and then Sterling.

    Economic data released today saw US CPI and core CPI stalled at 2.4% yoy and 1.9% yoy respectively. German GDP and Japan GDP contracted in Q3 and both were attributed to global trade tensions. US CPI will be the next focus.

    In European markets, major indices are trading mildly softer today. At the time of writing:

    • FTSE is down -0.02%
    • DAX is down -0.34%
    • CAC is down -0.42%
    • German 10 year yield drops -0.018 to 0.396
    • Italian 10 year yield is up 0.043 at 3.490. German-Italian spread is now at 310. That came after Italy refused to change its 2019 deficit target in the resubmitted plan to EU.

    Earlier in Asia

    • Nikkei closed up 0.16%
    • But Hong Kong HSI dropped -0.54%
    • China Shanghai SSE dropped -0.85%
    • Singapore Strait Times dropped -0.34%
    • Japan 10 year JGB yield dropped -0.0077 to 0.108. We haven’t seen it below 0.11 for a while.

    Ethereum breaches 3000, Bitcoin presses 40k

      By
      ActionForex.com
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      Ethereum extends recent down trend today and hit as low as 2927.20, just ahead of 61.8% retracement of 1715.62 to 4863.75 at 2918.20. Further decline is expected as long as 3245.45 resistance holds. Decline from 4863.75 is seen as in the same degree as the rise from 1715.62 to 4865.75. Deeper decline would be seen to or even further to 100% projection of 4863.75 to 3439.00 from 4126.20 at 2701.45, which is close to 2647.30 support, before forming a bottom.

      Similarly, Bitcoin is also extending recent fall and hit as low as 39636. Deeper fall is expected as long as 43577 resistance holds. Current fall from 68986 would target 61.8% projection of 68986 to 41908 from 52101 at 35366 before BTC/USD forms a bottom.

      Odds of July Fed rate cut jumps to 80%, Dollar index continues correction

        By
        ActionForex.com
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        Dollar turned mixed this week and extends the correction that started last Friday. In particular, USD/JPY was under heavy selloff on risk aversion and falling treasury yields overnight. 30-year yield hit record low at 1.811 before closing at 1.837, down -0.081. 10-year yield also hit 3-year low at 1.352 before closing at 1.377, down -0.094.

        Traders are quickly increasing their bets that global coronavirus outbreak would eventually force Fed to cut interest rate again this year. Fed fund futures are now pricing in more than 80% chance of a cut by July meeting. It was 50-50 chance just a month ago.

        Dollar index tumbled to as low as 99.11 on Fed cut speculations. But there is no change in the view that it’s merely in consolidation from 99.91 near term top. The index might gyrate lower for the near term. But we’d expect strong support from 38.2% retracement of 96.35 to to 99.91 at 98.55 to contain downside to bring rebound. medium term up trend is expected to resume through 99.91 at a later stage.

        IMF: BoJ’s commitment to prolonged monetary accommodation appropriate

          By
          ActionForex.com
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          IMF said in a report that BoJ’s commitment to maintaining prolonged monetary accommodation remains “appropriate”. It expects that a “prolonged period of monetary policy accommodation, flexible fiscal policy, and inclusive growth-oriented reforms will be required to durably lift inflation expectations and inflation to the target.”

          Further measures could be considered for making monetary support “more sustainable”. On option could be to “steepen the yield curve by shifting the yield target from the 10-year to a shorter maturity”. This could help “mitigate the impact of prolonged monetary accommodation on financial institutions’ profitability”. If underlying inflation momentum remains weak, “cutting the policy rate should be the first option”.

          Full report here.

          Nikkei down -900pts, but not out yet

            By
            ActionForex.com
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            The steep -909.75 pts, or -3.08% decline in Nikkei earlier today looks rather scary. Yet, overall outlook isn’t that bearish yet. The index is still holding in the triangle pattern from 30714.52 high. It’s kept inside medium term raising channel, holding well above 38.2% retracement of 22948.47 to 30714.52 at 27747.88. Hence, the long term up trend remains intact.

            At this moment, deeper pull back cannot be ruled out based on global market development. We’d believe that 27747.88 fibonacci support is the key to level to defend. Medium term outlook will stay bullish as long as it holds. But a firm break there would argue that a medium term correction is already underway.

            Euro pressured on fear of Turkish contagion

              By
              ActionForex.com
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              The free fall in Turkish Lira is seen as a factors that heavily weighing on Euro today. It’s reported that ECB officials are increasingly worried about contagion from Turkey, due to the deep tie with Eurozone financial system.

              According to Bank for International Settlements data, Spanish banks are are owed USD 83.3B by Turkish borrowers; French lenders are owed USD 38.4B; and banks in Italy are owed USD 17B. Meanwhile, the Financial Times noted that Spain’s BBVA, Italy’s UniCredit, and France’s BNP Paribas could be particularly impacted by the ongoing depreciation of the lira.

              It’s seen that a complete banking crisis in Turkey will inevitably have huge impact on Eurozone banks, and even trigger credit crunch. Though, such a worst case scenario is seen as unlikely so far.

              While the impact on Euro is significant, European stock indices are also trading broadly lower. At the time of writing, DAX is down -1.54%, CAC down -1.11%, FTSE down -0.62%. It’s not that much a disaster so far.

              Suggested reading on TRY: Erdogan is to Blame For Turkish Lira’s Free Fall

              UK retail sales dropped -0.9% mom in Aug, ex-fuel sales dropped -1.2% mom

                By
                ActionForex.com
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                UK retail sales dropped -0.9% mom in August, well below expectation of 0.5% mom rise. For the 12-month period, headline sales rose 0.0% yoy versus expectation of 2.6% yoy.

                Overall sales volume were still up 0.3% in the three months to August, compared with the previous three months. It’s also 4.6% higher than their pre-pandemic levels in February 2020.

                Ex-fuel sales dropped -1.2% mom, well below expectation of 0.7% mom rise too. For the 12-month period, ex-fuel sales dropped -0.9% yoy versus expectation of 2.5% yoy.

                Full release here.

                 

                BoE projects slower rate hike, faster growth, lower inflation

                  By
                  ActionForex.com
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                  BoE left Bank Rate unchanged at 0.75% and kept asset purchase target at GBP 435B, on unanimous vote, as widely expected. New economic projections were released with the Quarterly Inflation Report too. One important point to note is that new forecasts are based on slower projected rate path. That is, Bank Rate is projected to rise to 0.9% in 2021 Q2, down from February’s projection of 1.1%. In 2022, Q2, Bank Rate is forecast at 1.0%

                  On growth, BoE forecast annual GDP growth to be:

                  • 1.5% in 2019 (revised up from 1.2%);
                  • 1.6% in 2020 (revised up from 1.5%);
                  • 2.1% in 2011, (revised up from 1.9%);

                  On Inflation, BoE forecast CPI to be at:

                  • 1.6% in Q4 2019 (revised down from 2.0%);
                  • 2.0% in Q4 2020 (revised down from 2.1%);
                  • 2.1% in Q4 2021 (unchanged);

                  Again, BoE reiterated: “The economic outlook will continue to depend significantly on the nature and timing of EU withdrawal, in particular: the new trading arrangements between the European Union and the United Kingdom; whether the transition to them is abrupt or smooth; and how households, businesses and financial markets respond.  The appropriate path of monetary policy will depend on the balance of these effects on demand, supply and the exchange rate. The monetary policy response to Brexit, whatever form it takes, will not be automatic and could be in either direction.”

                  Full BoE May Inflation Report here.

                  NZD/USD resumes decline on RBNZ rate cut bets

                    By
                    ActionForex.com
                    -

                    New Zealand Dollar is among the weakest today, together with Australian and Canadian. Selloff in Kiwi picked up momentum last week after Q1 CPI release disappointed by slowing to 1.50%. There are increasing expectation that RBNZ could cut interest rate at the upcoming meeting on May 8.

                    In the latest weekly commentary, Westpac noted that May’s meeting is a “close call”. A cut is supported by “continued low level of inflation and softness in business sector indicators”. However, “longer-term outlook for the economy is looking less worrying than it did a few months ago, especially given the recent news that there won’t be a capital gains tax.” On the other hand, ANZ “long-end yields have pre-empted a cut” in May. But they expected “another move lower once the first cut is delivered and markets open up to the possibility of a third. ”

                    NZD/USD fall from 0.6938 resumes today by taking out 0.6666 temporary low and hits as low as 0.6659 so far. Further decline is expected as long as 0.6782 resistance holds, towards 0.6551 support. The corrective pattern from 0.6424 could have completed with three waves to 0.6938 already. Firm break of 0.6551 should add to the case of medium term down trend resumption through 0.6424 low. Nevertheless, rebound from 0.6551 will extend the corrective pattern with one more rising leg.

                    UK PMI construction dropped to 52.6, gloomy business outlook and worsening consumer demand

                      By
                      ActionForex.com
                      -

                      UK PMI Construction dropped from 56.4 to 52.6 in June, below expectation of 55.2. S&P Global noted that it’s the weakest rise in construction output since September 2021. House building declined for the first time since May 2020. Business optimism dropped for the fifth month running.

                      Tim Moore, Economics Director at S&P Global Market Intelligence, said: “The gloomy UK business outlook and worsening consumer demand due to the cost of living crisis combined to put the brakes on construction growth in June. Commercial construction saw a considerable loss of momentum as clients exercised greater caution on new spending, while long-term infrastructure projects ensured a relatively resilient trend for civil engineering activity.”

                      Full release here.

                      SECO downgrades Swiss GDP forecasts, upgrades CPI

                        By
                        ActionForex.com
                        -

                        SECO downgraded Swiss GDP growth forecasts for 2022 from 2.6% to 2.0%. For 2023, GDP growth projection was also lowered from 1.9% to 1.1%. CPI forecasts for 2022 was raised from 2.5% to 3.0%, and for 2023 up from 1.4% to 2.3%.

                        It said, “after a positive first half of the year 2022, the Swiss economy now faces a deteriorating outlook. A tense energy situation and sharp price increases are weighing on economic prospects, especially in Europe.”

                        It also warned of risks from “serious gas or electricity shortages” in Europe, and “large-scale production stoppages and a marked downturn”. Such a negative scenario would likely lead to “high domestic price pressures” and “downward trend in the economy economy. With rising interest rates, ” risks associated with the surge in global debt are intensifying.

                        Full release here.

                        RBA holds rates following sparse information since last meeting

                          By
                          ActionForex.com
                          -

                          RBA kept its cash rate target unchanged at 4.35%, aligning with market expectations. The central bank’s latest statement indicates continued openness to further rate hikes, but emphasizes that any such decision “will depend upon the data and the evolving assessment of risks.” This stance reflects a careful approach, as RBA awaits more comprehensive data, particularly the Q4 inflation figures due in January, before its next meeting in early February.

                          In its review of the “limited information” available since November meeting, RBA acknowledged that the data were “broadly in line with expectations.” The October monthly CPI update suggested continued moderation in inflation, but did not provide substantial insights into services inflation. While wage growth accelerated in Q3, it is “not expected to increase much further”. The labor market conditions are seen as “continuing to ease gradually,” though they remain tight.

                          RBA also highlighted “still significant uncertainties” regarding the economic outlook. It pointed out the potential for persistent services inflation in Australia. Domestically, the uncertainties include the lag effects of monetary policy and household consumption patterns. On a global scale, the ongoing uncertainty around Chinese economy’s trajectory and the broader implications of international conflicts were noted as significant factors influencing Australia’s economic environment.

                          Full RBA statement here.

                          Another US government shutdown unlikely even though Trump doesn’t like the deal

                            By
                            ActionForex.com
                            -

                            Trump was briefed overnight about the Congressional deal to avert another government shutdown, with only USD 1.37B for border fencing. He apparently dislike it as he told reporters “I have to study it. I’m not happy about it.” Though, he added that “I don’t think you’re going to see another shutdown.”

                            He also kept on pressing for the border wall and signaled unilateral actions. He said “The bottom is on the wall: We’re building the wall”. And, “We’re supplementing things, and moving things around, and we’re doing things that are fantastic and taking, really, from far-less-important areas.”

                            US to announce withdrawal from UN human rights council

                              By
                              ActionForex.com
                              -

                              Reuters reported the U.S. Secretary of State Mike Pompeo and U.S. Ambassador to the United Nations Nikki Haley will announce to withdraw from United Nations Human Rights Council today. That would be another isolationist move by the US in rejection of multilateral engagements.

                              The US had history of boycotting the council for three years under George W. Bush, then rejoined under Barrack Obama in 2009.

                              Haley has been calling for reform and elimination of a “chronic anti-Israel bias” but the progress is seen as dissatisfactory.

                              BoJ Kuroda: No pressing need for firms to raise wages and selling prices

                                By
                                ActionForex.com
                                -

                                BoJ Governor Haruhiko Kuroda said in a speech, Japan’s economy has “picked up”, led by exports and the manufacturing sector. “If Japan can simultaneously protect public health and improve consumption activities through the use of vaccination certificates, for example, the economic recovery trend is very likely to become more pronounced, even in the services sector, also supported by the materialization of pent-up demand,” he added.

                                On the contrasting development in CPI compared with the US, Kuroda said demand in Japan “has not recovered as rapidly as that in the U.S”. Also, “many Japanese firms have essentially maintained their labor, supply-side constraints in Japan have not been as severe as in the U.S., and there has been no pressing need for firms to raise wages and selling prices.”

                                Full speech here.

                                Australia AiG PMI rose to 56.3, very good prospects of further strength ahead

                                  By
                                  ActionForex.com
                                  -

                                  Australia AiG Performance of Manufacturing Index jumped 9.6 pts to 56.3 in October, first expansion reading since July. Strong expansionary readings were recorded in New South Wales (56.1) and South Australia (68.4). Victoria (47.3) and Queensland (47.5) stayed in contraction despite notable improvement. Looking at some more details, production rose 5.0 pts to 55.1. Employment rose 7.6 pts to 55.3. New orders rose 13.3 pts to 58.4. Exports rose 6.2 pts to 52.7. Sales rose 14.9 pts to 56.1. Average wages rose 5.0 pts to 57.3.

                                  Ai Group Chief Executive Innes Willox said: “With the quantity of fiscal support easing in October and with the tax cuts only just starting to flow through, the lift in sales and the strong growth of new orders are particularly encouraging signs of improving household and business confidence. The solid national performance was achieved despite another month of contraction in Victoria. With restrictions in Victoria being lifted there are very good prospects of further strength in the closing months of 2020”.

                                  Full release here.

                                  Eurozone CPI rose to 1.0%, core up to 1.3%

                                    By
                                    ActionForex.com
                                    -

                                    Eurozone CPI accelerated to 1.0% yoy in November, up from 0.7% yoy, beat expectation of 0.8% yoy. CPI core also accelerated to 1.3% yoy, up from 1.1% yoy, beat expectation of 1.2% yoy.

                                    Germany unemployment dropped -16k in November, versus expectation of 5k rise. Unemployment rate was unchanged at 5%, matched expectations. Retail sales, however, dropped -1.9% mom, much worse than expectation of -0.2% mom.

                                    Swiss CPI slowed to 2.2% yoy in May, slightly above expectations

                                      By
                                      ActionForex.com
                                      -

                                      Swiss CPI rose 0.3% mom in May, slightly below expectation of 0.4% mom. Core CPI (excluding fresh and seasonal products, energy and fuel) rose 0.2% mom. Domestic products prices rose 0.3% mom. Imported products prices rose 0.1% mom.

                                      Comparing with May 2022, CPI slowed from 2.6% yoy to 2.2% yoy, above expectation of 2.1% yoy. Core CPI was unchanged at 2.2% yoy. Domestic products prices slowed from 2.6% yoy to 2.4% yoy. Imported products prices fell notably from 2.4% yoy to 1.4% yoy.

                                      Full Swiss CPI release here.

                                      Unprecedented progress made on forced technology transfer as new round of US-China trade talks start

                                        By
                                        ActionForex.com
                                        -

                                        US Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin arrive in Beijing today for a new round of trade negotiations Ahead of that Reuters reported that there were unprecedented progress on a core issue in technology transfers.

                                        Citing unnamed officials, it’s said that China’s proposals went further than in the past, which created hope for an eventual trade deal. The discussions on forced technology transfer covered areas that were not touched before, in terms of both scope and specifics.

                                        Meanwhile, the texts of agreements moved forward in all areas even though they’re not where the US want to be. The areas are believed to include forced technology transfer and cyber theft, intellectual property rights, services, currency, agriculture and non-tariff barriers to trade.

                                        Another official noted that some of the tariffs imposed since last year will stay even after a deal is made. And this will be an important issue to resolve, as an important part of the final deal. But for now, there is no clear timeline for completing the deal yet. And negotiations could drag on till June.

                                        No discussions on auto restriction, agriculture, currency, monetary policy in US-Japan trade talks

                                          By
                                          ActionForex.com
                                          -

                                          Economy Minister Toshimitsu Motegi met US Trade Representative Robert Lighthizer in Washington yesterday. Jiji news agency reported that currency was not discussed during the trade meeting. Motegi also told reporters there was no demand from US regarding auto import restrictions. Additionally, two sides did not have detailed discussions over agriculture and autos.

                                          Japan Finance Minister Taro Aso met US Treasury Secretary Steven Mnuchin in Washington yesterday too. Aso said he warned Mnuchin currency and monetary policy must not be included in trade talks. Mnuchin mentioned before that he’d like to include a provision to deter currency manipulation in the trade pact with Japan. Aso said he told Mnuchin directly that “Japan cannot agree to any debate linking trade policy with monetary policy”. Also, “Japan won’t discuss exchange-rate matters in the context of trade talks.”

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