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TALKING POINTS: JAPAN TAX DELAY, UK INFLATION, RBA MINUTES

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Investment Bank Research
  • Japan, lower JPY appetite remains limited before tax hike delay announcement
  • USDJPY may strengthen to 107,05
  • AUDUSD sentiment remains positive, next resistance at 0,8870
  • China, trend and momentum indicators remain marginally bullish, sustained by Hong-Kong monetary authority
  • UK, should inflation be below 1%, BoE doves will be revitalized
  • GBPUSD may extend weakness towards 1,55
  • EURUSD could lose bullish temporary momentum on the wake of Draghi’s reiteration that ECB is unanimously ready to take additional steps

In Japan, USD/JPY and JPY crosses are better bid as discussions on sales tax hike delay occupy the headlines. The PM Advisor Hamada says it would be natural to delay the hike by some year and a half, the BoJ doesn’t need to proceed with additional stimulus. Meanwhile, the Finance Minister Aso highlights that raising taxes will be unavoidable at some point to finance country’s deficit. Lower JPY appetite remains limited before official announcement. Nikkei stocks recover 2.18%, Topix re-tests 1,400. USD/JPY sees resistance pre-107.05 (fresh 7 year high hit yesterday before GDP release).  Stops are eyed above. On the downside, bids should come into play at 115.00/115.56 (optionality / post-GDP reaction low). EUR/JPY and AUD/JPY consolidate gains at 145.15/58 and 101.473/810 respectively.

Overseas, the RBA minutes showed the preference for stable rates continues. The BoJ stimulus and the GPIF shift to foreign, risk assets have been the new talking points that could keep AUD bid. AUD/USD sentiment remains positive. Offers are seen pre-0.88, more resistance is eyed at 0.8870/0.8911 area (Fib 38.2% on Sep-Nov sell-off / Oct 29th high).

In China, the foreign direct investments expanded 1.3% on year to October (vs. 1.1% exp. & 1.9% last). USD/CNY legged down to 6.1185. Trend and momentum indicators remain marginally bullish, sustained by Hong Kong Monetary Authority providing 10 billion yuan liquidity via intraday repo facilities since last week to manage the liquidity risk related to the stock market connection. The key support zone stands at 6.1015/83 (Aug-Nov downtrend channel base / Oct 31st low).

GBP/USD consolidates last week’s post-QIR weakness. The October inflation figures are due today, the CPI y/y is expected to remain stable at 1.2%. Any negative surprise will increase the probabilities for an inflation below 1.0% in line with BoE anticipations and revive BoE-doves. Trend and momentum indicators favor the extension of weakness toward 1.55. Decent option barriers at 1.5740/1.5800 should keep the downside pressures tight. EUR/GBP tests 0.80 offers, if cleared will place 200-dma (currently at 0.80572) at target. Strong resistance is seen at this level as it has been more than a year the EUR/GBP has not traded above its 200-dma.

ECB President Draghi reiterated that the Bank stands “unanimously” ready to take additional unconventional steps to EU officials in Brussels yesterday. Despite the formation of short-term bullish technicals, EUR/USD has hard time moving higher certainly due to solid top selling interest. Strong resistance is seen at 1.2577/78 (Nov 4th & 17th highs). More resistance is placed at 1.2744/96 (Fib 23.6% on May—Nov sell-off / daily Ichimoku cloud base).

Today’s economic calendar: UK October CPI, PPI and RPI m/m & y/y, ZEW Survey for German Current Situation and Expectations in  November, ZEW Survey for Euro-zone Expectations in November, Italian September Current Account Balance, US October PPI m/m & y/y, US November NAHB Housing Market Index, US September Net Long-term TIC Flows and Total Net TIC Flows.

Quotes:

Ipek Ozkardeskaya – Market Analyst:

“The UK October inflation figures are due today, the CPI y/y is expected to remain stable at 1.2%. Any negative surprise will increase the probabilities for an inflation below 1.0% in line with BoE anticipations and revive BoE-doves. Trend and momentum indicators favor the extension of weakness toward 1.55. “

EUR/USD has hard time moving higher certainly due to solid top selling interest, at the current environment where the ECB officials keep QE alternative well alive every time they have the occasion to do so. Strong resistance is seen at 1.2577/78 (Nov 4th & 17th highs). More resistance is placed at 1.2744/96 (Fib 23.6% on May—Nov sell-off / daily Ichimoku cloud base).”

“EURCHF trades in very tight ranges, as the credibility of the SNB itself keeps the levels above the critical 1.20 floor. If the SNB is to intervene, it is certainly not to prepare a base for the Swiss Gold Referendum, but to cool-off the speculative, leveraged bets which, in our view, has gone far beyond the reason.”

 Luc Luyet, CIIA – Senior Market Analyst:

“The preliminary estimate of the Japanese third quarter growth has been so bad (-1.6% compared to a 2.2% consensus) that it could diminish disappointments from the Bank of Japan and the Ministry of Finance, which were both strongly in favour of the sales tax hike, should PM Abe decide to delay it. However, postponing the VAT hike means less fiscal headwinds for now, but increases the likelihood to see a combined fiscal tightening stemming from the BoJ’s exit strategy and the VAT hike later. Without proper structural pro-growth reforms from Mr Abe, it is unlikely that Japan could withstand such fiscal headwinds.”

For the full Daily Snapshot report, please visit:  http://en.swissquote.com/fx/news-and-live-signals/daily-forex-analysis/2014/11/18

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OPEC+ to weigh modest oil output boost at meeting – sources

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OPEC+ to weigh modest oil output boost at meeting - sources 1

By Ahmad Ghaddar, Alex Lawler and Olesya Astakhova

LONDON/MOSCOW (Reuters) – OPEC+ oil producers will discuss a modest easing of oil supply curbs from April given a recovery in prices, OPEC+ sources said, although some suggest holding steady for now given the risk of new setbacks in the battle against the pandemic.

The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, cut output by a record 9.7 million bpd last year as demand collapsed due to the pandemic. As of February, it is still withholding 7.125 million bpd, about 7% of world demand.

In January OPEC+ slowed the pace of a planned output increase to match weaker-than-expected demand due to continued coronavirus lockdowns. Saudi Arabia made extra voluntary cuts for February and March.

Three OPEC+ sources said an output increase of 500,000 barrels per day from April looked possible without building up inventories, although updated supply and demand balances that ministers will consider at their March 4 meeting will determine their decision.

“The oil price is definitely high and the market needs more oil to cool the prices down,” one of the OPEC+ sources said. “A 500,000 bpd increase from April is an option – looks like a good one.”

A rally in prices towards $67 a barrel, the highest since January 2020, the rollout of vaccines and economic recovery hopes have boosted confidence the market could take more oil. India, the world’s third biggest oil importer, has urged OPEC+ to ease production cuts.

Saudi Arabia’s voluntary cut of 1 million barrels per day (bpd) ends next month. While Riyadh hasn’t shared its plans beyond March, expectations in the group are growing that Saudi Arabia will bring back the supply from April, perhaps gradually.

Some OPEC+ members also anticipate that the Saudis will be willing to ease cuts further, but it was not clear if they had had direct communication with Riyadh.

Saudi Arabia has warned producers to be “extremely cautious” and some OPEC members are wary of renewed demand setbacks. One OPEC country source said a full return of the Saudi barrels in April would mean the rest of OPEC+ should not pump more yet.

“The Saudi voluntary cut will be back to the market,” the source said. “I’m personally with no more relaxation, not until June.”

Russia, one of the OPEC+ countries which was allowed to boost output in February, is keen to raise supply and a source last week said Moscow would propose adding more oil if nothing changed before the March 4 virtual meeting.

(Additional reporting by Rania El Gamal and Nidhi Verma; Editing by Elaine Hardcastle)

 

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UK’s Sunak to build bridge to recovery with more spending

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UK's Sunak to build bridge to recovery with more spending 2

By William Schomberg

LONDON (Reuters) – British finance minister Rishi Sunak will next week promise yet more spending to prop up the economy during what he hopes will be the last phase of lockdown, but he will also probably signal tax rises ahead to plug the huge hole in the public finances.

Sunak, who is due to announce a new budget plan on March 3, has already racked up more than 280 billion pounds ($397 billion) in coronavirus spending and tax cuts, pushing Britain’s borrowing to a peacetime record.

Prime Minister Boris Johnson plans to lift England’s current lockdown entirely only in late June so Sunak is expected to rely heavily on the debt markets again.

His job retention scheme, paying 80% of employees’ wages, will probably be extended beyond a scheduled April 30 expiry date, further inflating its estimated cost of 70 billion pounds. Support for the self-employed looks set to stay too.

Businesses are demanding Sunak keep other lifelines, such as exempting the firms hardest hit by the lockdown from property taxes and giving them a value-added tax cut.

And calls are growing for an extension of a 20 pounds-a-week emergency welfare increase due to expire in April.

The Times newspaper said Sunak would prolong his stamp duty property tax break for three months until the end of June.

Sunak hopes that by then Britain will be emerging from its deep freeze thanks to Europe’s fastest vaccination programme.

Bank of England Chief Economist Andy Haldane likens the economy to a “coiled spring” primed with the savings that households have built up after being stuck at home.

A strong recovery would mean a jump in tax revenues, doing some of the Treasury’s job of fixing the public finances.

Rupert Harrison, an aide to former finance minister George Osborne, said Sunak should not try to slash Britain’s 2.1 trillion-pound debt mountain, equivalent to 98% of GDP – a ratio unthinkable for decades.

Instead he should write new budget rules tied to the cost of debt servicing, which is close to record lows.

“We can safely carry higher levels of debt than before,” Harrison told a webinar organised by Onward, a think-tank.

But the scale of Britain’s borrowing is raising questions about how long Sunak and Johnson can stick to their promises not to raise key taxes, made to voters before the 2019 election.

BROKEN PROMISES?

The huge costs of tackling the worst of the coronavirus pandemic are likely to ease in the months ahead, meaning this year’s 400 billion pound budget deficit should narrow.

But Britain is probably on course to be stuck with a gap of 60 billion pounds between revenues and day-to-day spending by the mid-2020s, the Institute for Fiscal Studies think-tank says.

In a nod to that, Sunak is expected to start raising Britain’s low corporation tax rate.

The Sunday Times said the rate would rise steadily to bring in an extra 12 billion pounds a year by the time of the next election, due in 2024.

Other options include ending a freeze on fuel duty increases which has been in place since 2012 and looks at odds with Britain’s plans to be carbon net zero by 2050.

But higher fuel prices now would hurt the haulage industry, already struggling with Brexit-related disruption, and could alienate working-class voters who backed Johnson in 2019.

Higher capital gains tax or lower pension incentives would anger lawmakers in Johnson’s Conservative Party.

David Gauke, a former deputy finance minister, said the only big revenue-raising options were the ones that Johnson has promised not to touch – income tax, VAT and national insurance contributions.

“In the end, they are going to have to say, sorry we just can’t responsibly maintain that manifesto commitment,” Gauke told the Onward webinar.

($1 = 0.7046 pounds)

(Writing by William Schomberg; Editing by Catherine Evans)

 

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Women inch towards equal legal rights despite COVID-19 risks, World Bank says

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Women inch towards equal legal rights despite COVID-19 risks, World Bank says 3

By Sonia Elks

(Thomson Reuters Foundation) – Women gained legal rights in nearly 30 countries last year despite disruption due to COVID-19, but governments must do more to ease the disproportionate burden shouldered by women during the pandemic, the World Bank said on Tuesday.

Nations should prioritise gender equality in economic recovery efforts, the bank said, warning that progress on equal rights was threatened by heavier job losses in female-dominated sectors, increased childcare and a surge in domestic violence.

“This pandemic has exacerbated existing inequalities that disadvantage girls and women,” David Malpass, World Bank Group president, said in a statement accompanying the annual “Women, Business and the Law” report.

“Women should have the same access to finance and the same rights to inheritance as men and must be at the centre of our efforts toward an inclusive and resilient recovery from the COVID-19 pandemic.”

A total of 27 countries reformed laws or regulations to give women more economic equality with men in 2019-20, said the report, which grades 190 nations on laws and regulations that affect women’s economic opportunities.

While countries in all of the world’s regions made improvements in the new index – with most reforms addressing pay and parenthood, women on average still have only about three quarters of the rights granted to men, the report found.

Notably, nearly 40 countries brought in extra benefit or leave policies to help employees balance their jobs with the extra childcare needs created by coronavirus restrictions.

But such measures were “few and far between” worldwide and will probably not go far enough to tackle the “motherhood penalty” many women face in the workplace, it said.

The report also noted separate data from a United Nations tool tracking gender-sensitive pandemic responses which found 70% of such measures addressed violence, with just 10% targeting women’s economic security.

The pandemic could result in “a backslide on various hard-won advances in women’s rights achieved in recent years”, said Antonia Kirkland, the global lead on legal equality at women’s rights organisation Equality Now.

“This disruption is a unique opportunity for countries to rebuild more resilient, inclusive and prosperous economies,” she told the Thomson Reuters Foundation by email.

“But this can only be achieved alongside the removal of sex discriminatory laws that prevent women from participating fully and equally in economic, social and family life.”

(Reporting by Sonia Elks @soniaelks; Editing by Helen Popper. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers the lives of people around the world who struggle to live freely or fairly. Visit http://news.trust.org)

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