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Japan Core Machine Orders Sink 6.6% In July





Core machine orders in Japan were down a seasonally adjusted 6.6 percent on month in July, the Cabinet Office said on Thursday - coming in at 896.9 billion yen.


That beat expectations for a fall of 8.1 percent following the 13.9 percent surge in June.


On a yearly basis, core machine orders rose 0.3 percent - again exceeding expectations for a fall of 4.3 percent following the 12.5 percent gain in the previous month.


The total value of machinery orders received by 280 manufacturers operating in Japan increased by 0.1 percent in July.


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EUR/GBP returns to growth, pound lacks good news





A Scottish court ruled that the suspension of Parliament was unlawful and the uncertainty exacerbated the GBP. The EUR/GBP pair returns to the level of 0.8940 after three consecutive sessions of decline. Returning to the political situation in the UK, one should take into account the forecasts, which set out several worst-case scenarios in the event of the hard version of Brexit at the end of October. Analysts emphasize the high likelihood of riots, rising food prices and shortages of medical supplies. On the other hand, the euro also cannot find support. The German Consumer Price Growth Index is likely to fall by 0.2 percent in August compared with July and grow by 1.4 percent year on year. Additional data indicate a decrease in industrial production in the eurozone in July by 0.4 percent compared with the previous month and by two percent year on year, which is below market expectations.


The sale of the British pound also caused a slight downward correction after recent positive results. Sterling will remain under scrutiny, as political pressure has not subsided, and the issue with Brexit has not been resolved. Now everyone is looking at the events taking place in the political arena of Great Britain during the period of "inaction" of the Parliament, which will begin its work in mid-October, it is expected that the queen will personally deliver a speech. At the same time, we remember that the Bank of England recently ruled out "negative interest rates" and expressed its opinion about the "likelihood of a recession in the country."




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Australia House Prices Sink 0.7% In Q2





House prices in Australia were down 0.7 percent on quarter in the second quarter of 2019, the Australian Bureau of Statistics said on Tuesday.


That exceeded expectations for a decline of 1.1 percent following the 3.0 percent drop in the three months prior.


On a yearly basis, house prices fell 7.4 percent - unchanged from Q1 but again beating forecasts for a fall of 7.7 percent.


The total value of residential dwellings in Australia fell A$17,611.6m to A$6,610,590.1m this quarter. The mean price of residential dwellings fell A$4,400 to A$638,900. The number of residential dwellings rose by 43,100 to 10,347,200.


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Japan Has Y136.3 Billion Deficit In August





Japan posted a merchandise trade deficit of 136.329 billion yen in August, the Ministry of Finance said on Wednesday.


That beat forecasts for a shortfall of 365.4 billion yen following the 250.7 billion yen deficit in July.


Exports were down 8.2 percent on year to 6.140 trillion yen, also topping expectations for a decline of 10.9 percent following the 1.5 percent annual drop in the previous month.


Imports sank an annual 12.0 percent versus forecasts for a decline of 11.0 percent after easing 1.2 percent a month earlier.


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Bank Of Japan Keeps Policy Unchanged





The Bank of Japan kept its monetary policy unchanged as widely expected on Thursday, after the U.S. Federal Reserve resorted to further easing.


The Policy Board of the BoJ voted 7-2 to maintain interest rate at -0.1 percent on current accounts that financial institutions maintain at the bank.


The bank said it will purchase government bonds so that the yield of 10-year JGBs will remain at around zero percent.


Further, the bank will purchase JGBs in a flexible manner so that their outstanding amount will increase at an annual pace of about JPY 80 trillion.


The bank said it will reexamine economic and price developments at the next monetary policy meeting in October, when it updates the outlook for economic activity and prices. The bank repeated that it will not hesitate to take additional easing measures if needed.


It is worth recalling that the Bank made similar pledges in 2016 amid concerns over China's economy, but never followed through on them, Marcel Thieliant, an economist at Capital Economics, said.


Since then, concerns over the impact of looser policy on the health of banks have intensified. As such, the BoJ will keep its interest rate targets unchanged over the coming year, the economist noted.


Regarding economic outlook, the BoJ said Japan's economy is likely to continue on a moderate expanding trend, despite being affected by the slowdown in overseas economies for the time being.


Further, the bank said it is necessary to pay closer attention to the possibility of losing momentum towards achieving the price stability target.


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The dollar is trying to unravel the Fed's plans





The central event of this week - the next meeting of the Federal Reserve - did not bring clarity. Analysts continue to wonder what to expect from the regulator in the future.


However, unlike US President Donald Trump, who called Fed Chairman Jerome Powell "a terrible communicator," financial markets seem to have clearly understood the hints of the latter. The Federal Reserve chief's statement that the central bank is ready to aggressively reduce the interest rate in the event of a deterioration in the well-being of the US economy, caused the S&P 500 to grow most rapidly over the past six weeks. Prior to that, the index dipped under the influence of the regulator's rate forecasts: 7 out of 17 FOMC members believe that it should be reduced by 25 basis points by the end of the year, 5 believe that it will remain unchanged, and 5 would like to see not one, but two acts of monetary expansion. Apparently, investors were frightened not by the easing of the Fed's monetary policy (of which I have been certain for a long time already), but by the fact that the rate on federal funds is likely to remain at 1.75% until the end of next year.


Of course, you can talk for a long time about what affected the split in the ranks of the FOMC (3 out of 10 Committee members voted against lowering the interest rate from 2.25% to 2%), but when so much uncertainty is observed on the market, pluralism of opinions is inevitable. Experts call the current situation as "Powell's puzzle": the Fed is forced to balance between strong macro statistics in the United States, which allowed it to increase the country's GDP for the current year from 2.1% to 2.2%, and international threats, including trade conflicts and Brexit.


The mixed reaction of the markets and the lack of a clear signal from the Fed about the weakening of monetary policy in 2019 caused another bout of anger from the head of the White House, Donald Trump.


"Jay Powell and the Federal Reserve Fail Again. No "guts", no sense, no vision! A terrible communicator!", D. Trump wrote on Twitter.


Although the Fed chairman prefers to ignore such attacks against him, this time he commented on the idea of negative interest rates called for by the US president. According to J. Powell, if the situation begins to deteriorate, then the central bank will revive QE rather than lower the federal funds rate below zero.


The day before, the greenback slightly strengthened across the entire spectrum following the results of the September FOMC meeting, but today it is gradually losing ground, since the Fed still does not have a consensus on further actions to adjust the monetary rate.


The market is not completely sure how the US central bank will behave. Most analysts expect the regulator to further trim the rate on federal funds this year, but only one reduction is laid.


Probably, investors will wait for some new signals. In recent days, the trade war between the US and China has left the information field. If another escalation of the conflict occurs, the market may perceive this as a signal for more active easing of the monetary policy of the Federal Reserve.


"It is obvious that the Fed does not have a consensus on what to do next: on the one hand, D. Trump presses, blaming the central bank leadership for incompetence and demanding an urgent interest rate cut to zero or lower, on the other, there are no formal reasons for this," he said ING chief economist James Niley.


Valentin Marinov, Head of Currency Research at Credit Agricole, calls the FOMC decision to trim rates as "hawkish" cuts, believing that such a move is positive for the greenback.


"I believe that currencies that are more closely correlated with investor sentiment regarding risky assets will be more vulnerable to the dollar than the euro, yen and gold," he said.


"I think the Fed will succeed if it can slightly weaken the dollar's position, and make the curve of its fall rate a little steeper. Markets have already shown the expectation of another cut in the base interest rate in December, "said Jim Caron of Morgan Stanley.


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European Economics Preview: Eurozone Flash PMI Data Due





Flash Purchasing Managers' survey data from euro area is due on Monday, headlining a light day for the European economic news.


At 3.15 am ET, IHS Markit is slated to issue France flash PMI data for September. The composite output index is forecast to drop to 52.5 from 52.9 in August.


At 3.30 am ET, Germany's flash PMI data is due. Economists forecast the composite PMI to rise to 52.0 in September from 51.7 in August.


At 4.00 am ET, IHS Markit is scheduled to publish euro area final PMI results. The composite PMI is seen at 52.0 in September versus 51.9 in August. At 4.30 am ET, UK household finance data is due from IHS Markit.


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Pound at a loss, but does not lose optimism





Hopes of the British pound to rise gradually fade, but the probability of growth still remains, analysts say. The currency of the United Kingdom slightly grew on the positive news last week, but this effect was short-lived.


Recall, last Friday, analysts marked a rally of the pound, which has risen in price on the wave of new optimism regarding a possible deal on Brexit. This rise was triggered by the comments of Jean-Claude Juncker, President of the European Commission, who stated the likelihood of Britain leaving the EU with an agreement. However, the official did not disclose the details of this decision, in connection with which experts considered the position of the pound to be rather unstable.


The experts were right in many respects: on Monday, September 23, the British currency tried to break through strong option levels on the news about alternative solutions to the problem of the Irish border, proposed by the government of Boris Johnson. Some of them even won the approval of Brexit's main opponents without a deal, the Northern Ireland Democratic Union Party (DUP). Many representatives of the EU leadership, including Juncker, softened the general rhetoric, but the signal that the EU was ready to amend the agreement and approve the deal turned out to be false. As a result, the last chance to retain Britain as part of the EU was lost.


The unstable political situation shook the British currency. It still clings to its former optimism, but it is fading before our eyes. At the same time, the GBP/USD currency pair is traded in the structure of the first impulse of decline. The goal is the level of 1.2444, and then a correction to 1.2515 is expected. In the future, analysts do not rule out a fall to the level of 1.2444 and lower, to 1.2360.


On Friday, it became clear that no real breakthrough regarding Brexit is expected. Boris Johnson is quite happy with the country's exit from the EU without a deal, and an attempt to organize new negotiations is unlikely to drastically change the current state of affairs.


In this situation, not only the pound and the entire British economy will suffer, but also the eurozone economy, analysts at the Organization for Economic Cooperation and Development (OECD) are certain. They confirmed the negative scenario in the event of a "hard" Brexit, which would hit the eurozone GDP, reducing it by 0.5 percentage points (pp), while UK GDP would fall by 2 pp.


Currently, the GBP/USD pair is trying to "hold face" and not slide to the lows, however, analysts are at a loss to answer how long the pound will last. Like a true English gentleman, it seeks to remain steadfast and a good face in any game.


In the short term, the British currency can test the range of 1.2700-1.2720, analysts said. However, the market still hopes for growth, although the priority in terms of volume remains with deferred sales. Moreover, even a slight negative signal against the GBP/USD pair will throw it into a strong resistance zone to the level of 1.2250, analysts said.


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BoJ's Masai Says Ready To Ease Policy Further If Required





The Bank of Japan is ready to take additional easing measures if the momentum towards achieving the inflation target is lost, Board Member Takako Masai said Wednesday.


The bank will thoroughly examine risks to overseas economies and carefully assess how those risks affect Japan's economic activity and prices, Masai told business leaders in Mie.


The banker expressed concerns about developments in overseas economies namely, fast approaching Brexit deadline and trade issues between the United States and China.


Masai said she intends to continue to conduct monetary policy appropriately toward achieving the price stability target while considering all conceivable adverse effects and positive effects from every angle.

UK Car Production Rises For First Time In 15 Months





UK car production increased for the first time in 15 months in August, data released by the Society of Motor Manufacturers and Traders showed on Thursday.


Car production grew 3.3 percent on a yearly basis in August as factories kept production lines rolling throughout the month after they brought forward planned summer shutdowns to April in preparation for the original Brexit deadline.


The increase in August couldn't offset the substantial losses posted in April. Only 2,903 more cars were produced in August 2019 than in the same month last year, the agency noted.


Mike Hawes, SMMT chief executive, said, "While growth is always welcome, today's figures mask the underlying downward trend and strengthening global headwinds facing the sector, including international trade tensions, massive technological upheaval and, in the UK, political and economic uncertainty."


Production for the domestic market advanced 15.2 percent in August. Meanwhile, output for exports grew marginally by 0.6 percent.


This disguised ongoing weakness in major global markets with production for China down 43.8 percent, exports to the US falling 9.1 percent and those to the EU dropped 13.7 percent in the first eight months.


The year-to-date production plunged 17 percent. Output failed to reach one million units by August for the first time in five years, the lobby noted.


The SMMT repeatedly called for Brexit deal to maintain competitiveness and safeguard jobs.


SMMT Chief Executive Hawes said the mere threat of no deal has undermined investment and the potential imposition of tariffs, border delays and additional administrative burdens would damage competitiveness.


"We now need parliament and government to redouble efforts to get a deal that maintains free and frictionless trade," said Hawes.


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