Archives of “October 2019” month

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China Returns, ECB Record, Fed Minutes and the Week Ahead

  
  Analysis
Many high-income countries experienced little growth but strong price pressures in the 1970s.   Since the mainstream economics said the two were mutually exclusive, a new term had to be created, hence stagflation.  Fast forward almost half a century later, and mainstream economists are still having a problem deciphering the linkages between prices and economic activity, such as inflation and employment. Theory needs to accommodate the new facts.
Theory is being challenged in another profound way now.  Germany, the world’s fourth-largest economy appears to be contracting and experiencing disinflation pressures despite its entire yield curve being below zero.  Negative rates have not spurred inflation.  It has not bolstered investment.  The lower price of money (interest rates) has not spurred demand for it.  This is true throughout Europe.  Negative rates do not preclude recessions.  Nor are they necessarily inflationary as theory might suggest.   US and UK inflation is running higher than in the eurozone and Japan, even though the latter have negative interest rates.
Germany, unlike Japan, abhors debt and has, until recently, not been keen to jettison the “black zero” of austerity.  Given the debt servicing costs,  many officials still seem to think that they can have their cake and eat it too. Spending can be boosted, and taxes cut without taking on greater debt costs.  For its part, Japan, which barely grows in the best of times and barely managed to get core CPI (excludes fresh food) to 1% in recent years to say nothing of the 2% target, just raised the tax on consumption.
At last month’s initial tranche of targeted long-term refinancing operations, the ECB practically could not give money away.  There may have been some technical considerations deterring interest, and stronger demand is expected at the next tranche in December. Still, the point remains unmarred that the experiment with negative nominal rates has not generated the kind of economic outcomes that were expected.

(more…)

Apple increases production of iPhone 11: sources

  
  Analysis
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Apple has told suppliers to increase their production of its latest iPhone 11 range by up to 10%, or 8 million units, the Nikkei Asian Review has learned, following better-than-expected demand worldwide for its new cut-price handset.

The increase in orders appears to validate Apple CEO Tim Cook’s new strategy of enticing budget-conscious consumers with cheaper models amid the weakening world economy. The order boost of between 7 million and 8 million units is equivalent to total annual phone shipments this year by Google, a rising iPhone rival in Apple’s home U.S. market.

“This autumn is so far much busier than we expected,” one source with direct knowledge of the situation said. “Previously, Apple was quite conservative about placing orders,” which were less than for last year’s new iPhone. “After the increase, prepared production volume for the iPhone 11 series will be higher compared to last year,” the source said.

Shares of Apple component manufacturers rose in Japan after publication of the Nikkei report, outperforming the broader market. Japan’s Minebea Mitsumi closed up 3%, troubled iPhone screen maker Japan Display rose by almost 2%, while Murata Manufacturing and Alps Alpine also gained.

Apple launched its three new iPhone models — the iPhone 11, 11 Pro, and 11 Pro Max — in early September, and for the first time in its history reduced the starting price of the model upgrade, despite better cameras, to $699, compared to $749 for last year’s iPhone XR. (more…)

US-North Korea nuclear talks break down: Pyongyang envoy

  
Analysis, Politics
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Nuclear talks between North Korea and the U.S. in Stockholm have ended less than 24 hours after they began, Pyongyang’s lead negotiator said Saturday, a claim that was quickly disputed by Washington.

The working-level negotiations “have not fulfilled our expectation and finally broke off,” said Kim Myong Gil as reported by Reuters.

“The U.S. raised expectations by offering suggestions like a flexible approach,” Kim said. “But they have disappointed us greatly and dampened our enthusiasm for negotiation by bringing nothing to the negotiating table.”

The U.S. struck a more positive note, with the State Department saying the North Korean delegation’s comments “do not reflect the content or the spirit of today’s 8 1/2 hour discussion.”

“The U.S. brought creative ideas and had good discussions” with its North Korean counterparts, the state department said in a statement after Kim spoke. The U.S. delegation accepted an invitation by Sweden “to return to Stockholm to meet again in two weeks.”

Delegations from the two countries had convened on the outskirts of the Swedish capital to address North Korea’s denuclearization. The U.S. negotiating team is led by Stephen Biegun, special representative for North Korea. This marked the first direct talks since U.S. President Donald Trump and North Korean leader Kim Jong Un met at the Demilitarized Zone between North and South Korea in late June. (more…)

Second Trump whistleblower weighing whether to step forward

  
  Analysis

Official has more-direct knowledge of Trump’s Ukraine dealings

Official has more-direct knowledge of Trump's Ukraine dealings
A second official with more-direct knowledge of Trump’s Ukraine dealings is weighing whether to blow the whistle on the President, according to the New York Times.
The second official is among those interviewed by the intelligence community inspector general to corroborate the allegations of the original whistle-blower, one of the people said.
Here is the rest of the weekend Trump/impeachment news:
  • Mike Pompeo failed to meet Friday’s sobpoena deadline to produce Ukraine-related documents, however they are hopeful the documents will come soon.
  • Fox News’ Tucker Carlson criticized the President for asking another country to investigate Joe Biden. “Some Republicans are trying, but there’s no way to spin this as a good idea,” he said.
  • Trump ordered cut to national security staff after whistle blower – Bloomberg
  • The Independent reports vague accusations that foreign countries had booked large blocks of room at Trump hotels and never used them
  • Republican Senator Ron Johnson said a diplomat told him Trump was withholding Ukraine aid to ensure investigations
I don’t know where the tipping point is that makes this spills into markets once again but we can’t be too far away.

What’s on the US economic calendar in the week ahead

  
  Analysis

Economic data to watch out for

Economic data was the driver of financial markets this week as the ISM manufacturing and non-manufacturing surveys made huge waves.
The week ahead doesn’t have as much top-tier data but sensitivity will remain high to any big misses.
Monday is light:
  • Consumer credit
  • Monthly budget statement
Tuesday:
  • PPI
Wednesday:
  • JOLTS
  • Wholesale sales
  • FOMC minutes
Thursday:
  • CPI
  • Weekly jobless claims
  • US-China trade talks begin
Friday:
  • U Mich prelim sentiment
The ones to watch will be the FOMC Minutes, CPI (including earnings), and the U Mich survey. The US-China talks are undoubtedly the most-important data overall.

CFTC commitments of traders: The largest position remains GBP shorts

  
Analysis, Forex
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Forex futures positioning data for the week ending September 24, 2019 from the CFTC  should

  • EUR short 66K vs 61K short last week. Shorts increased by 5K
  • GBP short 77K vs 81K short last week. Shorts trimmed by 4K
  • JPY long 14K vs 13K long last week. Longs trimmed by 1kK
  • CHF short 12k vs 11k short last week. Shorts increased by 1K
  • AUD short 52k vs 47k short last week. Shorts increased by 5K
  • NZD short 42K vs 45K short last week. Shorts trimmed by 3K
  • CAD long 6K vs 5K long last week.  Longs increased by 1K
  • prior week

Modest changes in the major currencies for the current week. Although speculators trimmed short positions in the pound, it remains the largest specular position. The EUR shorts increased by 5K. It is the 2nd largest short position.

The specular position in the JPY remains on the long side. The CAD is also a long position for traders.
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