Polish Foreign Minister Jacek Czaputowicz suggested limiting the Irish backstop arrangement to five years, to help get the Brexit deal through UK parliament. However, European Commission spokesman Margaritis Schinas said that is not EU’s position.
Schinas told reports that “we have a unanimous, and I repeat unanimous, EU 27 position on the Withdrawal agreement and it’s clear that the doorstep statement you’re referring to was not part of the EU position.”
US goods and services exports fell -1.9% mom to USD 253.7B in November. Imports fell -1.9% mom to USD 316.9B. Trade deficit narrowed slightly from USD -64.5B to USD -63.2B, smaller than expectation of USD -64.8B.
Germany Ifo Business Climate rose to 92.4 in February, up from 90.3, above expectation of 90.5. Current Assessment index rose to 90.6, up from 89.2, above expectation of 88.9. Expectations index rose to 94.2, up from 91.5, above expectation of 91.9.
Looking at some details, manufacturing index rose from 9.1 to 16.1, highest since November 2018. Services rose from -4.4 to -2.2. Trade rose from -17.2 to -14.6. Construction rose from -4.9 to -3.6.
Clemens Fuest, President of the ifo Institute, said “the German economy is proving robust despite the lockdown, especially thanks to strength in industry.”
IMF said in a report that Germany’s GDP growth is expected at 1.2% in 2022 and 0.8% in 2023. Unemployment rate is estimated at 3.1% in 2022 and 3.4% in 2023. Headline inflation is projected at 7.7% in 2022 and 4.8% in 2023.
It added, “uncertainty is very high, with risks to the baseline growth forecast skewed downward and risks to the inflation forecast skewed upward.”
The greatest threat is a “persistent shutoff” of the remaining Russian gas exports to Europe, which could cause “sizable reductions in German economic activity and increases in inflation”.
“Prolonged war and resurging COVID-19 infections could also intensify supply chain disruptions. ”
“Persistently-high inflation and fears of a de-anchoring of inflation expectations can prompt major central banks to tighten policies faster than currently expected”.
Mark Sobel, a former top US Treasury Official criticized Trump’s remark regarding Chinese currency manipulation as “woefully wide of the mark”. And, Trump’s focus on bilateral balances as “silly”. And, to suspect a country of currency manipulation, there are criteria of “material ‘excessive’ current account surplus, an undervalued currency, and ample and rising reserves”.
In an article titled “Trump wide of mark on ‘manipulation‘”, Sobel point to facts that “China’s current account surplus is falling to under 1% of GDP. The renminbi, hit by capital outflows between early 2015 and the end of 2016, rose sharply against the dollar up to April 2018. The renminbi trade-weighted index rose too. Since then, the renminbi has fallen on both measures, but the depreciation reflects the dollar’s strength across the board. There is little evidence of more than scant Chinese foreign exchange market intervention.”
He noted “a currency manipulating country should have a significant current account surplus”. And, “the US Treasury in its foreign exchange reports uses a 3% of GDP threshold.” While a currency manipulating country might also have an “undervalued currency” one should “look at a country’s real effective exchange rate, not its bilateral dollar rate.” Additionally, the country may intervene heavily in the markets, “buying dollars to hold its currency down, resulting in an increase in its foreign reserve holdings.” But there might be “good reasons” to do so such as building up of reserves. There are many useful gauges of reserve adequacy to examine – reserves/GDP; reserves/short-term maturing debt; reserves/imports.
Sobel also completed that “a focus on bilateral balances is silly, even if the US Treasury is required to do so by statute and the president seems obsessed with them. Such an emphasis neglects to consider that certain countries specialize in certain goods and hold comparative advantage in such spheres.”
Mark Sobel is US Chairman of OMFIF. He is a former Deputy Assistant Secretary for International Monetary and Financial Policy at the US Treasury and until earlier this year US representative at the International Monetary Fund.
Fang Xinghai, vice chairman of the China Securities Regulatory Commission (CSRC) criticized that the Trump’s new round of tariffs on China has “poisoned” the atmosphere for negotiations. Fang also warned that “President Trump is a hard-hitting businessman, and he tries to put pressure on China so he can get concessions from our negotiations. I think that kind of tactic is not going to work with China.” Also, according to Fang, “if he puts tariffs on all Chinese exports to the United States – which he says he will – even in that scenario, the negative impact on China’s economy is about 0.7 percent.”
Separately, the South China Morning Post in Hong Kong reported, citing unnamed source, that China will not send delegation to the US for more trade talks after the new round of tariffs.
All in all, what’s next will depend on the outcome of Vice Premier Liu He’s meeting in Beijing on the issue.
China’s Caixin PMI Manufacturing index edged up from 51.7 to 51.8 in June, surpassing expectations of 51.2 and marking its highest level since May 2021. This rise keeps the index in expansionary territory for the eighth consecutive month. Notably, output price inflation reached an eight-month high, reflecting increased activity in the sector.
Wang Zhe, Senior Economist at Caixin Insight Group, noted, “Overall, the manufacturing sector kept improving in June, with supply, domestic demand, and exports continuing to grow.” He highlighted that manufacturers increased their purchases, resulting in higher inventory and price levels. Despite this positive trend, optimism among surveyed companies fell significantly, suggesting that market expectations need further strengthening.
Traders of Swiss Franc are closely monitoring Swiss CPI release today. Headline inflation is anticipated to increase from 1.4% yoy to 1.7% yoy in December. This expected rise aligns with SNB’s own conditional inflation forecast, which projects inflation to reaccelerate from 1.6% in Q4 of last year to 1.8% in Q1, peaking at 2.0% in Q2 before tapering off to 1.9% in Q4.
Regarding SNB’s monetary policy, current interest rate stands at 1.75%, which is comparatively unrestrictive. Unlike the more aggressive rate hikes implemented by counterparts like ECB and Fed, SNB’s past rate increases have had much less detrimental impact on the Swiss economy. Consequently, there is no immediate pressure for a rate cut, and it is generally anticipated that SNB will maintain current interest rate at least until Q3 of this year. Should today’s inflation reading surpass expectations, it could increase the likelihood of SNB holding interest rate unchanged for the remainder of the year.
GBP/CHF recovered after hitting 1.0634, being supported by falling channel support line. Price actions since there are corrective looking. Also, the recovery is kept below 1.0879 minor resistance. Thus, outlook is staying bearish. Break of 1.0746 minor support will bring retest of 1.0634 low first. Further break there will resume recent down trend to 100% projection of 1.1502 to 1.0779 from 1.1153 at 1.0430.
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”.
Chicago Fed President Charles Evan said that is things “weren’t improving”, the 50bps rate hike in September is a “reasonable assessment”, but 75 bps “could also be ok”. He added “I doubt that more would be called for.”
“We wanted to get to neutral expeditiously. We want to get a little restrictive expeditiously,” Evans added. “We want to see if the real side effects are going to start coming back in line … or if we have a lot more ahead of us.”
While there were rumors flying around regarding US delay of the December 15 tranche of tariffs on China, nothing has been confirmed by any named official so far. It’s reported that President Donald Trump is going to hold a high-stake meeting on Thursday with all his trade advisers to make the final decision.
Officials are seen as rather split on the issue. It’s believed that China hawks like Peter Navarro would most likely prefer to hit the button on new tariffs. On the other hand, Treasury Secretary Steven Mnuchin could prefer a hold. Trade Representative Robert Lighthizer’s position is relatively unclear.
The political implication of the situation is rather significant though. It’s rather clear now that Trump’s administration hasn’t seen enough commitments from China to justify at least a delay without debate. The ball is suddenly back on the US’s court. A tariff delay without sufficient concessions from China would in no doubt weaken Trump’s hand for the next phase of trade talks, or even the closure of phase one.
On the other hand, the impact of tariffs imposed so far could be seen by some as relatively muted, or at least not as disastrous as some claimed. Trump’s team could instead go for more tariffs while emphasizing to the public that they won’t be painful. Either way, the decision would be know rather soon.
Eurozone retail sales rose 0.2% mom in May, below expectation of 0.4% mom. Volume of retail trade increased by 1.2% for non-food products, while it decreased by -0.2% for automotive fuels and by -0.3% for food, drinks and tobacco.
EU retail sales was unchanged for the moment. Among Member States for which data are available, the highest monthly increases in the total retail trade volume were registered in Cyprus (+9.0%), Croatia (+1.7%) and Portugal (+1.5%). The largest decreases were observed in Ireland (-6.5%), Finland (-2.8%) and Austria (-2.2%).
US CPI rose 0.4% mom in February, matched expectations. CPI core (ex-food and energy) rose 0.4% mom, above expectation of 0.3% mom. Food index was unchanged whole energy index rose 2.3% mom.
Over the 12-month period, headline CPI accelerated from 3.1% yoy to 3.2% yoy, above expectation of 3.1% yoy. CPI core slowed from 3.9% yoy to 3.8% yoy, above expectation of 3.7% yoy. Energy index was down -1.9% yoy while good index was up 2.2% yoy.
US ISM Manufacturing PMI dropped from 57.1 to 55.4 in April, below expectation of 57.5. Looking at some details, new orders dropped from 53.8 to 53.5. Production dropped from 54.5 to 53.6. Employment dropped quite notably from 56.3 to 50.9. Supplier deliveries rose further from 65.4 to 67.2. Prices also dropped from 87.2 to 84.6.
ISM said: “Manufacturing performed well for the 23rd straight month, with demand registering slower month-over-month growth (likely due to extended lead times and decades-high material price increases) and consumption softening (due to labor force constraints). Overseas partners are experiencing COVID-19 impacts, creating a near-term headwind for the U.S. manufacturing community. Fifteen percent of panelists’ general comments expressed concern about their Asian partners’ ability to deliver reliably in the summer months, up from 5 percent in March.”
“The past relationship between the Manufacturing PMI® and the overall economy indicates that the Manufacturing PMI® for April (55.4 percent) corresponds to a 2.3-percent increase in real gross domestic product (GDP) on an annualized basis.”
US Agriculture Secretary Sonny Perdue admitted that farmers are “one of the casualties” of Trump’s trade war. He told CNN that American farmers “are one of the casualties here with trade disruption”. And, “we knew going in that when you flew the penalty flag on China, the retaliation, if it came, would be against the farmer.”
Perdue added “I’ve told the President — and the President understands — you can’t pay the bills with patriotism. We know that, and certainly he knows that. That’s why he’s trying to supplement the damage they’re having from trade disruptions with market facilitation.” However, he said he cannot promise any more aids for 2020.
Australia GDP grew 0.7% qoq in Q2, above expectation of 0.5% qoq. Over 2020-21, the economy grew 1.4%. Head of National Accounts at the ABS, Michael Smedes said: “Domestic demand drove growth of 0.7 per cent this quarter which saw continued growth across household spending, private investment and public sector expenditure. Lockdowns had minimal impact on domestic demand, with fewer lockdown days and the prolonged stay at home orders in NSW only commencing later in the quarter”.
Dallas Fed President Lorie Logan said it’s a “good idea to slow down” in “today’s complex economic and financial environment”.
“That’s why I supported the decision last month to reduce the pace of rate increases. And the same considerations suggest slowing the pace further at the upcoming meeting,” she added.
“A slower pace is just a way to ensure we make the best possible decisions,” she said. “We can and, if necessary, should adjust our overall policy strategy to keep financial conditions restrictive even as the pace slows.”
She added that Fed should not “lock in” on a terminal rate. “My own view is that we will likely need to continue gradually raising the fed funds rate until we see convincing evidence that inflation is on track to return to our 2 percent target in a sustainable and timely way,” she said.
“The most important risk I see is that if we tighten too little, the economy will remain overheated, and we will fail to keep inflation in check,” Logan said.
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EU Trade Commissioner for Trade Cecilia Malmström told the European Parliament’s trade committee that they are willing to scrap auto tariffs in the negotiation with the US. She noted “we said that we are ready from the EU side to go to zero tariffs on all industrial goods, of course if the U.S. does the same, so it would be on a reciprocal basis.”
And, “we are willing to bring down even our car tariffs down to zero … if the U.S. does the same,” she said, adding that “it would be good for us economically, and for them.”
But she also emphasized that it’s not about “restarting TTIP” but aiming for “a more limited trade agreement.” And more importantly, “agriculture would not be in the agreement, nor public procurement as it looks to today.”
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Australia AiG manufacturing rose to record 63.2, strength of recovery continued
Australia AiG Performance of Manufacturing Index rose to new record high at 63.2 in June, up from 61.8. That’s also the ninth consecutive month of rise. Looking at some more details, production dropped -3.8 to 60.7. Employment dropped -1.0 to 60.3. New orders jumped 5.7 to 70.6. Supplier deliveries rose 6.7 to 58.3. Exports rose 11.3 to 60.2. Input prices dropped -3.3 to 78.8. Selling prices rose 5.3 to 63.6.
Ai Group Chief Executive Innes Willox said: “The 2020-21 financial year closed on a high note for Australia’s manufacturing sector. Ai Group’s June Australian PMI pointed to record growth across the sector fueled by the fastest recorded pace of expansion in each of the food & beverages; machinery & equipment; building materials; and chemicals sectors. Production, employment, and sales exports were all higher than in May although the rate of acceleration generally eased. Exports of manufactured goods surged in June and new orders were also higher, pointing to the likelihood of further expansion in the months ahead. The strength of the recovery continued despite headwinds from COVID outbreaks and associated lockdowns and border restrictions, high freight costs and the widespread difficulties employers are experiencing in filling positions.”
Full release here.