August 20, 2019
United States (US): White House Spokesman: No Payroll Tax Cut Considered; Yield Curve: Invert, Steepen, Repeat
The Trump administration is not considering a temporary payroll tax cut at this time, White House spokesman Hogan Gidley said. “It’s not being considered at this time but he’s looking at all options out there to try and give people back so much of the hard earned money they’ve made,” Gidley said, pushing back against a Washington Post report that the idea was being considered to boost the US economy.
A swift steepening of the US 2-year/10-year yield curve after it inverted last week may have given investors hope that the US can escape recession. History indicates that the reprieve may be brief, before a more sustained, severe flip occurs. A catalyst for another inversion might happen later this week if the Fed's minutes on its July 30-31 meeting on Wednesday or Fed Chairman Powell's speech on Friday were to suggest U.S. policy-makers are not fully on board for an all-out rate-cutting mode, which could drive short-term rates higher and flatten the curve. Here is an explainer on the yield curve.
Australia: RBA To Consider Further Monetary Policy Easing If Needed
Australian dollar traded at 67.78 U.S. cents at 9:00 am PST
The RBA would consider further monetary easing if needed to underpin sustainable growth and inflation and reviewed various unconventional policy loosening measures, according to the minutes of the meeting held in August. Policymakers assessed it appropriate to view the developments in both global and domestic economies before cutting rates further, the minutes said. The bank retained its cash rate at 1.00% in August. Earlier, the RBA had reduced the interest rate by 25 basis points in June and July. The back-to-back rate cut was the first since mid-2012. "Members judged it reasonable to expect that an extended period of low interest rates would be required in Australia to make sustained progress towards full employment and achieve more assured progress towards the inflation target," the minutes said. The board discussed the unconventional monetary policy measures, such as very low and negative interest rates, explicit forward guidance and lowering longer-term risk-free rates by purchasing government securities. Other measures are providing longer-term funding to banks to support credit creation; purchasing private sector assets; and foreign exchange intervention.
European Union (EU): Eurozone Construction Output Remains Flat in June
Euro traded at 1.1090 against USD at 9:00 am PST.
Eurozone construction output remained unchanged in June after easing for three straight months. Production was flat after decreasing 0.5% in May and 1.5% in April. On a yearly basis, construction output growth eased to 1% in June from 1.7% in May. This was the weakest expansion in five months.
Germany: PPI Eases in July; Employment Increases in Q2
PPI eased for the third straight month in July. Producer prices increased 1.1% YoY in July, slower than the 1.2% expansion in June. This was the third consecutive slowdown and the lowest rate since late 2016. Electricity prices contributed the most to annual growth. Electricity prices surged 8.4%. Excluding energy, producer prices gained only 0.7% from the same period last year. On a monthly basis, producer prices gained 0.1% in contrast to a 0.4% decrease in June. This was the first increase in three months.
Employment increased in Q2 largely due to the growth in outdoor work in spring. Employment increased by 50,000 or 0.1% sequentially in Q2. Employment rose 324,000 but the spring upturn of 2019 was lower than the relevant average of the past five years. From last year, employment grew 1.2%. The annual increase in employment was mainly due to strong growth in the service sector. Meanwhile, employment decreased in the agriculture sector.
United Kingdom (UK): Manufacturing Orders Drop at Slower Pace
British Pound traded at 1.2150 against USD at 9:00 am PST.
Manufacturing orders decreased at a slower pace in August. The order book balance rose to -13% in August from -34% in July. Likewise, the export order book balance improved to -15% from -32%. Manufacturers expect to keep output prices in the next three months broadly unchanged - the lowest balance since February 2016. "Despite signs of stabilization in the data this month, UK manufactures remain on the receiving end of a double whammy: the slowdown in the global economy and Brexit uncertainty." "Trade tensions between nations such as China and the US only exacerbate the demand uncertainty facing UK manufacturers," CBI deputy chief economist Anna Leach said.
China: Huawei Founder Details 'Battle Mode' Reform Plan to Beat US Crisis
Onshore Chinese Yuan traded at 7.0597 per USD and offshore Chinese Yuan traded at 7.0714 per USD at 9:00 am PST.
Huawei will spend more on production equipment this year to ensure supply continuity, cut redundant roles and demote inefficient managers as its grapples with a “live-or-die moment” in the wake of US export curbs, founder Ren Zhengfei said. His remarks come as the US said this week it will extend a reprieve by 90 days that permits Huawei Technologies to buy components from US companies to supply existing customers, but it also moved to add more than 40 of Huawei’s units to its economic blacklist. In a memo sent to employees loaded with military metaphors, 74-year-old Ren asked staff to work aggressively towards sales targets as the firm goes into “battle mode” to survive the crisis. Huawei is a key theme in a broader, year-long US-China trade war, with Washington slapping it with the trade ban in May citing national security risks. Huawei, however, posted a 23% revenue jump in the first half, helped by strong smartphone sales in its home market.
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