Archives of “June 2019” month

rss

South African economy suffers worst slump in a decade

  
Analysis, Economy

South Africa’s economy suffered its largest slump in a decade during the first months of the year, as severe blackouts at Eskom, the struggling state power utility, took their toll.

Output in Africa’s most industrialised nation dropped by an annualised 3.2 per cent in the first quarter, its largest quarterly fall since 2009, according to official statistics on Tuesday.

The decline contrasts with growth of 1.4 per cent during the last quarter of 2018, and was worse than the 1.4 per cent contraction that economists expected.

The rand dropped 1 per cent against the US dollar after the release.

The contraction will underline a failure by President Cyril Ramaphosa’s ruling African National Congress to fix Eskom, which imposed the country’s worst ever rolling blackouts during the first quarter.

Eskom is buckling under more than $30bn of debt, breakdown-prone power stations and rampant corruption that is a legacy of misrule under the former president Jacob Zuma.

Power-intensive industries such as manufacturing and mining recorded the biggest drops in activity in the quarter.

Mining activity fell by more than 10 per cent while manufacturing dropped 8.8 per cent.

Eskom generates nearly all of South Africa’s electricity but has failed to maintain its ageing coal plants while spending billions of dollars on faulty new stations.

Since the blackouts peaked in March, the utility has gradually recovered its ability to generate power, but its finances remain precarious. Eskom received a $5bn state bailout in February but has since needed further emergency cash to pay debts.

Mr Ramaphosa has announced a plan to break up the utility’s monopoly into smaller state-owned firms but this faces resistance from the ANC’s trade union allies.

Heads up: US Fed chair Powell due to speak later today

  
  Analysis

In case you didn’t already know that is

Powell

Powell is scheduled to make an appearance later today at 1355 GMT where he will be speaking about the Fed’s policy strategy, tools, and communication practices at an event hosted by the Chicago Fed.

With plenty of attention and market focus being turned towards the Fed rate cut debate, this could be the platform where Powell can give us a clear indication of what to expect in the coming months from the Fed.
The dollar is starting to weaken again in the past half hour following a more steady session but let’s see what Powell has to offer before running away with any conclusions. It’s been a complicated trading day so far with equities gaining some ground and Treasury yields recovering but it doesn’t have any feeling of a risk-on play here. The fact that the dollar has been bouncing back and forth isn’t helping as well.

China says it is clear that every setback in trade talks is due to US breaking consensus

  
  Analysis

Comments by China’s foreign ministry

US China
  • Says that US argument on trade white paper makes no sense
  • Urges US to read trade white paper properly
  • Says that US statement is shifting blame towards China, who is innocent
There isn’t much doubt that both sides are still very far apart from reaching any compromise and with tariffs still on the table, there is very little chance of that happening now.
It has turned into a battle of egos and both countries will surely not back down. Expect the current frosty relation to continue for many more months at the very least. This is merely just the beginning…

Nikkei 225 closes lower by 0.01% at 20,408.54

  
Analysis, Global Indices

Tokyo’s main index closes at flat levels on the day

Nikkei 04-06

Sentiment remains cautious for the most part but Japanese stocks settled near unchanged levels after weighing between softer risk sentiment overnight along with more decent tones in trading today. US equity futures are up by around 0.1% while Treasury yields are also higher as we begin the session.

That said, it hasn’t translated into much meaningful movement in currencies as the search for direction continues amid the flurry of volatility. Although bond yields are faring better today, I can’t help get the sense that it could all be wiped out in a blink of an eye.

Economic data coming up in the European session

  
  Analysis

Preliminary Eurozone CPI data for May in focus today

Comic 04-06
Good day, everyone! Hope you’re all doing well as we look to get things going in the session ahead soon enough. Markets are mostly steady to begin the day as the focus now turns to the RBA June monetary policy decision, where the central bank is expected to cut its cash rate by 25 bps from 1.50% to 1.25%.
There isn’t much on the economic calendar in terms of releases today but of note we have more inflation data from the euro area along with RBA governor, Philip Lowe, who will be speaking at 0930 GMT at the central bank’s board dinner (questions from the audience are expected). Eamonn gave a heads up on that earlier here.

0830 GMT – UK May construction PMI
Prior release can be found here. Construction activity in the UK remains rather subdued in light of Brexit uncertainty and the print here should just reaffirm that notion. In any case, it shouldn’t be a relevant factor for the pound in trading today; barring any major surprises.
0900 GMT – Eurozone April unemployment rate
Prior release can be found here. Labour market conditions are still expected to hold tight so there won’t be much to gather from the release here.
0900 GMT – Eurozone May preliminary CPI figures
Prior report can be found here. Following the Easter bump in April, inflationary pressures are expected to tone down in May and the readings here should very well reflect that sentiment. It’ll be hard to really zoom into anything as the drop is more related to the fading of Easter seasonality, so we’ll have to wait on June readings to really get a grip on the region’s inflation outlook/trend in the coming months.
That’s all for the session ahead. I wish you all the best of days to come and good luck with your trading!

The ECB meet on Thursday June 6 – preview

  
  Analysis

UBS have changed their European Central Bank forecast and new expect a rate hike  in September ….. 2020!

  • UBS had been projecting the first ECB hike in March 2020.
Anyway, for this week. This is very brief. The main points:
  • New macro forecasts
  • TLTRO-III details
  • potential change in the ECB’s interest rate forward guidance
New staff macroeconomic projections:
    leave its 2019 GDP growth forecast unchanged at 1.1%
  • cut 2020 by a marginal 0.1pp to 1.5%
  • and keep 2021 at 1.5%
    inflation ..  ECB will lift its 2019 forecast by 0.1pp to 1.3%
  • leave 2020/2021 unchanged at 1.5%/1.6%
  •  core inflation forecasts unchanged at 1.2%/1.4%/1.6% for 2019-21.
Details on TLTRO-III
  • Based on what we already know, TLTRO-III does not look that attractive for banks, but we would not rule out that possibility that the ECB might try to sweeten the offer
Will the ECB change its forward guidance or wait until September/December? 
  • The worrying fall in market-based inflation expectations and an attempt to tie the hands of a new hawkish ECB President could potentially be reasons for the Governing Council to change the interest rate forward guidance this week – for example, by guiding that rates will stay on hold at least until mid-2020. This is not our base-case scenario, but if you wonder how the ECB might surprise us, this is something to consider. 

Euro stretches to three-week high as talk of US rate cut expands

  
Analysis, Forex

The US dollar has more to lose in a slowing global economy

The bottom line is that eurozone interest rates are virtually zeroed out while US rates are at 2.25%-2.50%.
That leaves the Fed with much more room to lower rates. The US is never going to get 10-year rates to -0.2% like they are in Germany but a fall to 1% could easily boost the euro back to 1.35 — baring a recession in the eurozone.
It’s also important to note that USD longs are a very crowded position and a rush to the exits could make for a bunch more candles like today’s.
The US dollar has more to lose in a slowing global economy
Go to top