US initial jobless claims dropped -34k to 444k in the week ending May 15, below expectation of 450k. That’s also the lowest level since March 14, 2020. Four-week moving average of initial claims dropped -30.5k to 505k, lowest since March 14, 2020.
Continuing claims rose 111k to 3751k. Four-week moving average of continuing claims rose 25k to 3681k.
UK Prime Minister Theresa May is set to meet opposition Labour leader Jeremy Corbyn later today to find the much needed common ground to get a Brexit deal through the parliament. But so far, it seems no one is optimistic about the meeting.
Ahead of that, May said there are areas she could agree on with Corbyn, including leaving EU with a deal, jobs and ending free movements. Minister for Wales and government whip Nigel Adams resigned on May’s decision and she is increasing the risk of the “calamity of a Corbyn government.” Brexit Minister Steven Barlcay said May is not handling a “blank check” to Corbyn and there is no precondition for the discussions with Labour.
Corbyn emphasized that anything agreed with May need to be put into law so that it is guaranteed for the parliament. pro-EU Labour lawmaker, Ben Bradshaw, warned that “it is clearly a trap designed to try to get May’s terrible deal through, which some people have fallen for, but Labour mustn’t.”
Scottish First Minister Nicola Sturgeon poured cold water and said the meeting would produce “an option that it won’t take too long for people to realize satisfies nobody, makes the country poorer and potentially could be unpicked by a new prime minister such as Boris Johnson.”
On the EU side, European Council President Donald Tusk said it was not certain how European leaders would view another request of delay from May. EU’s Economic Affairs and Tax Commissioner Pierre Moscovici said “If there is a no-deal scenario, new customs controls would have to be introduced… That does not mean we would systematically check every single… lorry… We would be controlling goods on the basis of risk analysis.”
Chinese Ministry of Commerce spokesperson Gao Feng said today that the “final goal” of US-China trade negotiation is to “end the trade war and cancel all additional tariffs”. He added, “this would benefit China, the U.S. and the whole world. We hope that both sides will continue to work together, advance negotiations, and reach a phased agreement as soon as possible.”
Also, Gao admitted that “Since this year, under the effect of China-US trade frictions, trade and investment between the U.S. and China have fallen”. “This fully demonstrates that trade wars have no winners”, he added.
White House top economic advisor Larry Kudlow said yesterday that communications with Beijing had “picked up a notch”. He also confirmed that Treasury Secretary Steven Mnuchin had sent an invitation letter to senior Chinese officials to restart trade talks. Also, “there’s some discussions and information that we’ve received that the top of the Chinese government wishes to pursue talks.”
Kudlow also added that “most of us think it’s better to talk than not to talk, and I think the Chinese government is willing to talk.” And, if they come to the table in a serious way to generate some positive results, yes, of course. That’s what we’ve been asking for months and months.”
But he also cautioned that “I guarantee nothing.”
Japan Q1 GDP contraction was finalized at -1.0% qoq, revised up from -1.3% qoq. Annualized rate was finalized at -3.9%. Capital expenditure shrank -1.2% qoq, revised up from -1.4% qoq. Government consumption dropped -1.1%, revised up from -1.8% qoq. Private consumption contracted -1.5% qoq, revised down from -1.4% qoq. External demand contracted -0.2% qoq. GDP deflator was finalized at -0.1%.
Economy Minister Yasutoshi Nishimura said after the release that consumption spending is expected to return ahead. “If infections subside, there’ll be pent-up demand from not having been able to go eating out or travelling,” he said.
Also released, labor cash earnings rose 1.6% yoy in April, above expectation of 0.8% yoy. Current account surplus narrowed to JPY 1.55T in April, versus expectation of JPY 1.60T. Bank lending rose 2.9% yoy in May, below expectation of 5.6% yoy.
Chinese Yuan surges today and hits the highest level against Dollar since early October. The rally was fueled by growing optimism that China is going to relax is strict zero-COVID policy, even as outbreaks worsen with highest infections in six months. At the same time, of course, decline in USD/CNH happened with global selloff in Dollar, after last week’s lower than expected CPI data solidified the case for Fed to start to slow its tightening pace in December.
Technically speaking, there is room for more pull back in USD/CNH, towards 7.000 psychological level. However, there’s an important cluster support, with 61.8% retracement of 6.7159 to 7.3475 at 6.9675 and 38.2% retracement of 6.3057 to 7.3745 at 6.9662 just nearby. Downside should be contained by this 6.9662/75 support zone to bring rebound, unless there are some fundamental changes, in China, or the US, or their diplomatic relations, or any combinations of these factors.
In the Summary of Opinions at the June 16-17 meeting, BoJ noted, “in order to achieve the price stability target, accompanied by wage increases, in a sustainable and stable manner, the Bank needs to conduct monetary easing while examining economic and financial developments, for which uncertainties have been extremely high.”
While price increases has “broadened”, “it cannot be said that the price stability target has been achieved amid a virtuous cycle.” Output gap remained “negative for more than two year”, Japan has not reached a situation to “accelerate a rise in wages”. It is “necessary” to “persistently continue with monetary easing and thereby support the economy.”
There was no discussion on tweaking the 0.25% cap on 10-year JGB yield.
San Francisco Fed President Mary Daly said that the uptick in headline and core inflation rates in January indicates that disinflation momentum is uncertain, and further policy tightening is necessary to combat high inflation.
“After months of decline, headline and core inflation both ticked up in January on a 12-month basis, and the monthly inflation rate rose at its fastest pace in seven months,” Daly said in a speech on Saturday. “This suggests that the disinflation momentum we need is far from certain.”
“It’s clear there is more work to do,” she added. “In order to put this episode of high inflation behind us, further policy tightening, maintained for a longer time, will likely be necessary.”
“Achieving our mandated goals takes time and a broader view,” she said. “As policymakers, we have to respond to an economy that is evolving in real time and prepare for what the economy will look like in the future.”
Minneapolis Fed President Neel Kashkari “how the virus progresses is really going to determine what the ultimate economic impact is”. He’s rather pessimistic, noting “it unfortunately could be devastating, like the financial crisis, or potentially even worse.”
Meanwhile, he told the Congress that “speed is of the essence here”. “Whatever Congress is going to do, the faster they can do it, and the more aggressively they can do it, the more people we can help.”
US headline durable goods orders rose 2.7% to USD 258.5B in March, much stronger than expectation of 0.7%. Ex-trans orders rose 0.4%, also better than expectation of 0.2% . Ex-defense orders rose 2.3%. Transportation equipment rose 7.0% to USD 93.8B.
AUD is not too bothered by the weaker than expected headline job data from Australia. 4.9k jobs were added in March, below expectation of 20.3k. Full time jobs dropped by 19.9k to 8.51m while part time jobs rose 24.8k to 3.9m. Total employment was at 12.484m.
Prior month’s figure was revised down from 17.5k to -6.3k. February now had the first monthly drop in employment since September 2016. The record streak of consecutive monthly job growth has shorted to 16 months.
Seasonally adjusted unemployment rate was unchanged at 5.5%, after downward revision in February’s figure from 5.6% to 5.5%. However, labor force participation rate rose to 65.7%, sitting at a record high in since the series began back in 1978.
The figures just showed that growth in the Australian labor market is slowing after a very strong period since late 2016. .
AUD quickly regained some strength after initial dip as markets realized that the data is not a disaster.
Japan PMI Manufacturing dropped to 49.5 in June, down from 49.8, and missed expectation of 50.0. Markit noted there was the fastest drop in new orders since June 2016. However, there was resilient output trend as manufacturers reduce backlogs of work to greatest extent since January 2013.
Commenting on the Japanese Manufacturing PMI survey data, Tim Moore, Associate Director at IHS Markit, which compiles the survey, said:
“June survey data reveals a further loss of momentum across the manufacturing sector, as signalled by the headline PMI dropping to a three-month low. Softer demand in both domestic and international markets contributed to the sharpest fall in total new orders for three years. A soft patch for automotive demand and subdued client confidence in the wake of US-China trade frictions were often cited by survey respondents.
“Disappointing sales volumes also led to the largest accumulation of finished goods inventories for over six-and-a-half years. At the same time, backlogs of work were depleted to the greatest extent since January 2013, which will likely act as an additional drag on production volumes in the months ahead.”
Germany PMI manufacturing dropped to 53.7 in September, down from 55.9 and missed expectation of 55.8. That’s also lowest in 25 months PMI services rose to 56.5, up from 55.0 and beat expectation of 55.1. PMI composite dropped to 55.3, down from 55.6 and hit 2-month low.
Commenting on the flash PMI data, Phil Smith, Principal Economist at IHS Markit said:
“The service sector was left to do most of the heavy lifting in September, as manufacturing put in its worst overall performance since August 2016. Service providers enjoyed the biggest boost to new business in over seven years in a further sign of strong domestic demand. Manufacturing new orders, however, were broadly flat as export sales declined for the first time in more than three years.
“Manufacturers’ confidence took a big hit in September, deteriorating to its lowest for almost four years. Goods producers foresee output barely rising over the next 12 months and have cited growing uncertainty towards the outlook.
“The September flash data meanwhile showed another solid gain in private sector employment, the one area where manufacturing and services both made strong positive contributions during the month. Falling backlogs of work in the manufacturing sector suggests that capacity may have finally caught up with demand, so there’s a good chance the pace of factory job creation will lose momentum in coming months.”
BoE Governor Andrew Bailey, in an interview, emphasized, “Two percent is our (inflation) target and we will do what it takes to get there.”
Bailey also addressed the speculation around interest rate cuts, categorically stating, “We are not in a place now where we can discuss cutting interest rates – that is not happening.”
He noted, “We need to see how the final part of the journey down to 2% inflation plays out; we have not seen enough of that journey yet to be confident.”
He acknowledged the ongoing economic challenges, including some weakening in economic activity. However, he described this observation as a “realist view” rather than an “ultra-pessimist” outlook, as some critics have suggested.
ECB Governor Council member François Villeroy de Galhau hinted that the central bank could launch fresh stimulus before IMF Managing Director Christine Lagarde takes over Mario Draghi’s job as ECB President. He noted that “If we speak about monetary policy we have several Governing Councils to come, in the next month, including with Mario Draghi. And if and when needed, there must be no doubt about our determination to act and our capacity to act.”
Villeroy said policymakers look at the market, but emphasized “we are not market dependent, we are data dependent”. And, “if we look at the economic signals there is a continuing slowdown but there also significant wage increases … significant job creation on both sides of the Atlantic. So let us wait for our next Governing Council, and there are several to come, to assess the data and then to decide.”
Meanwhile, he also pointed to trade tensions as the biggest uncertainty and threat to the global economy. However, “it’s up to political leaders to reduce these uncertainties, which are sometimes self created. We cannot compensate for trade tensions.”
Bitcoin is in another steep selloff after Tesla CEO Elon Musk implied that the company might sell its holdings. A self claimed “crypto analyst” @CryptoWhale tweeted, “Bitcoiners are going to slap themselves next quarter when they find out Tesla dumped the rest of their #Bitcoin holdings. With the amount of hate @elonmusk is getting, I wouldn’t blame him…”. Musk replied “indeed”.
Bitcoin has now taken out 47112 support to resume the correction from 64828. It’s now on track to 38.2% retracement of 4000 to 64828 at 41591, which is close to the top of prior range of 28989/41964. We’re expecting strong support from this 41591/41964 zone to contain downside and bring rebound, at least for the first attempt.
Break of 51511 resistance is needed to be the first sign that such correction from 64828 has completed. Otherwise, risk will stay on the downside in case of rebound. Firm break of 41951/41964 will set up another crash to 61.8% retracement at 27236, which is in proximity to the lower end of the above mentioned rate at 28989.
JPY trades broadly lower today as receding risk of US-China trade war lifted market sentiments. At the time of writing, Nikkei is up 0.46%, back above 23000. Hong Kong HSI is up 1.16%. NZD is the second weakest after poor retail sales data. GBP follows as the third weakest. On the other hand, USD, AUD and CAD are all firm.
CADJPY suffered steep post data selloff on Friday. But it’s now regained much ground. Technically, the pull back, while deep, was contained above 85.57 support as mentioned here. Therefore, outlook is still bullish. We’d maintain that the cross will target 61.8% projection of 80.52 to 85.75 from 83.88 at 87.11.
However, as 6H Action Bias has turned neutral for 4 bars already. It suggested that the cross is losing upside momentum. Hence, it’s time to get out of long in the next upswing, possibly a bit lower than 87.11 at 87.00.
US non-farm payroll employment grew 303k in March, well above expectation of 205k. That’s also much higher than the average monthly gains of 231k over the prior 12 months.
Unemployment rate ticked down from 3.9% to 3.8%, below expectation of 3.9%. Participation rate rose from 62.5% to 62.7%.
Average hourly earnings rose 0.3% mom, matched expectations. Over the past 12 months, average hourly earnings have increased by 4.1 yoy.
Canada GDP grew 0.3% mom in April, matched expectations. Both goods-producing (+0.9%) and services-producing (+0.1%) industries were up, as 13 of 20 industrial sectors expanded.
However, advanced information suggests that real GDP contracted -0.2% mom in May, with output down in mining, quarrying and oil and gas extraction, manufacturing and construction sectors.
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Fed Evans comfortable with inflation at 2.5% for averaging
Chicago Fed President Charles Evans said the new average inflation targeting was “consistent with the type of outcome-based forward guidance that I advocated and that the Committee used to speed the recovery after the Great Financial Crisis.”
“I expect that articulating outcome-based forward guidance for the rate path and asset purchases could be beneficial in the not-too-distant future” he added. He’d be “comfortable” with inflation going up to 2.5% “as long as we were trying to average off very low inflation rates”.
Evans also said, “even with steady progress in controlling the virus and additional fiscal support, I expect it will be some time before the economy recovers from the hit it took”. He expects the unemployment rate would still be somewhere in the range of 5% to 5.5% at the end of 2022.
Separately, Atlanta Fed President Raphael Bostic said, “as long as we see the trajectory moving in ways that suggest that we are not spiraling too far away from our target, I’m comfortable just letting the economy run and letting it play out”.